The Company’s wholly-owned subsidiary, Desper Products, Inc. (“DPI” or “Desper Products”), had been in the business of developing proprietary advanced audio signal processing technologies and products for consumer electronics, entertainment, and multimedia computing. All Company revenues were generated from this subsidiary. Desper Products was the owner of all technology which was acquired by DTS, Inc. on July 2, 2007. Desper Products wasis a California corporation incorporated in June 1986 and dissolved on December 5, 2008.1986.

Spatializer had been under acute market pressure since 2002. In 2002, a personal computer account began migrating to a totally new operating system, which did not include any audio enhancements. The migration was completed in 2003 and the former licensee chose not to include any audio software enhancements, including those from Spatializer. This account had accounted for approximately 40% of Spatializer’s annual revenues.

In 2003, Spatializer experienced declining revenue from its’ three major customers, primarily from the curtailment or cessation of use of its products by these customers. Two of these cases were in the DVD player market, where Spatializer historically had been strong. During 2003, the DVD player market became largely commoditized, resulting in intense pricing pressure and a steep decline in price and margins. Manufacturers were forced to strip out features, such as those offered by Spatializer, in order to compete. One of Spatializer’s accounts switched to outside sourcing and Spatializer was able to expand its relationship with their supplier to recapture most of that revenue. However, a major new design win Spatializer was projecting for the DVD market was cancelled due to these cost constraints.

In 2004, the revenue mix by licensee platform was significantly different compared to the prior year. The decrease in revenue on the DVD and personal computer accounts previously discussed generated approximately 56% of total fiscal 2003 revenue, which was lost in 2004. These losses were partially offset by three new revenue sources in cellular phones, mobile audio semiconductors and personal computers and the expansion of an existing license relating to recordable DVD. Cellular phone, mobile audio and the personal computer markets had been targeted by Spatializer for replacing the losses in the DVD player category. Nevertheless, market pressures mounted and Spatializer was forced to substantially reduce overhead in order to remain liquid.

As previously reported, on September 18, 2006, the Company and DPI entered into an Asset Purchase Agreement with DTS, Inc. and a wholly-ownedwholly owned subsidiary thereof pursuant to which the Company and DPI agreed to sell substantially all of their intellectual property assets. A special stockholders meeting was called for January 24, 2007 to approve sale of assets and to authorize the dissolution of the Company. Proxies were mailed on or about December 1, 2006. The Boardmeeting was adjourned the meeting without a final vote in for reasons it believed to be inthe Board’s view of the best interest of the stockholders. The meeting was reconvened on February 21, 2007. The vote required to approve the asset sale and dissolution was a majority of the shares outstanding on the record date. The dissolution proposal was contingent upon approval of the asset sale. A total of 1,533,45215,334,520 shares voted on the asset sale proposal, of which 1,440,70814,407,084 shares were voted in favor, 82,318823,182 shares voted against and 10,424104,284 votes abstained. Although the votes cast on the proposal to sell the assets was overwhelmingly in favor thereof, the requisite vote was not obtained. As a result, the proposal regarding dissolution was not presented to a vote of stockholders.

On April 25, 2007, pursuant to a Common Stock Purchase Agreement dated April 25, 2007, the Company sold to a group of investors, in a private transaction, an aggregate of 1,623,66116,236,615 shares for an aggregate purchase price of $422,152, of which $259,786 was placed into escrow and was released ten days after the closing of the sale of assets to DTS.

The Company re-solicited a vote on the sale of assets to DTS in the second quarter of 2007. The Asset Purchase Agreement and the transactions contemplated therein were approved by the stockholders of the Company at a special meeting on June 15, 2007. The Asset Purchase Agreement was consummated with DTS on July 2, 2007. Upon the conclusion of a nine month indemnification period, the Company distributed $0.21/share,plans to distribute substantially all of its remaining cash assets to its stockholders, after satisfying its liabilities and leaving an approximatea $100,000 cash residual. There is no assurance that there will be any funds available for distribution to stockholders. The Company has no plans to dissolve.

We ceased all licensing activities in 2007 and all material license agreements were sold to DTS, Inc. on July 2, 2007.

As of July 2, 2007, the date of the asset sale, our technology had been incorporated in products offered by more than 105 separate OEM Licensees and customers on various economic and business terms. Some of these OEM Licenses required a license issuance fee and/or a separate per unit royalty, while others were licensed under the Logo Usage Agreement (“LUA”) or were authorized customers under bundled royalty licenses.licenses with the IC foundries.

In 2007 two major customers, Sharp and Samsung, not presented in no particular order of importance, each accounted for 10% or more of our total royalty revenues. One OEM accounted for 83% and one accounted for 12% of our royalty revenues during 2007. All other OEMsOEM’s accounted for less than 5% of royalty revenues individually.individually..

We generated revenues in our audio business from royalties pursuant to our Foundry, OEM, and other licenses, and from non-recurring engineering fees to port our technologies to specific licensees’ applications. Our royalty revenues, which totaled $750,000 in 2007, were derived entirely from Foundry and OEM license fees and royalties.

Historically, we sought to maximize return on our intellectual property base by concentrating our efforts in higher margin licensing and software products and eliminating our hardware product operations. Licensing operations have been managed internally by our personnel and through use of an international sales representative force.

In 2007, revenues increased as compared with the prior year due to a one time extension of an existing license agreement in which the initial authorized usage had been exhausted and replenishment was necessary.   With the sale of assets described above, revenues declined to $0.

Our principal competitors in the field of virtual audio were SRS Labs, Inc. and Dolby Laboratories, Inc. In addition, some DSP foundries and OEMs have proprietary virtual audio technologies that they regularly offer to OEMs at no cost. These companies had substantially greater resources than us to devote to further technologies and new product developments.

We were unable to compete in this market, even though we offered a single source, complete suite of patented and proprietary 3D Stereo, interactive positional, virtual surround sound, headphone and speaker virtualization technologies. We lacked sufficient financial resources to compete, our customers were too strong, we were closely dependent on third party licensee marketing plans which generally presented a longer or uncertain revenue stream than our cash resources could support and found the market less receptive to our value proposition than we had expected. This resulted in an inhospitable market for our products and we could not compete.

Our research and development expenditures in 2008, 2007, 2006 and 20062005 were approximately 0%, 0%23% and 23%30% of total operating expenses, respectively. These expenses consisted of salaries and related costs of employees and consultants engaged in ongoing research, design and development activities and costs for engineering materials and supplies.

From May 2006 onward, we had no employees in our R&D group, based on our board of directors’ decision to offer our assets for sale. We discontinued our technology development in December 2005 and support efforts in May 2006 when the sole engineer resigned. As a result, there were no such expenditures in 2007 or 2008.2007.

We relied on a variety of intellectual property protections for our products and services, including patent, copyright, trademark and trade secret laws, and contractual obligations. All of our intellectual property was sold to DTS, Inc. on July 2, 2007.

We began 2008and ended 2007 with no full time employees and one part time employee and ended 2008 with no full timeemployee. None of our employees and three part time employees.are represented by a labor union or are subject to a collective bargaining agreement.

This Annual Report on Form 10-K10-K/A contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, reflecting management’s current expectations. Examples of such forward-looking statements include our expectations with respect to our strategy. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurances that our financial goals or any transactions described herein will be realized. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of our company. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words, “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption “Factors That May Affect Future Results” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, herein, among others, would cause actual results to differ materially from those indicated by forward-looking statements made herein and represent management’s current expectations and are inherently uncertain. Investors are warned that actual results may differ from management’s expectations. We assume no obligation to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information.

Our business environment was very competitive, which impacted us in various ways, namely to cease operations and sell the assets of the Company and those of Desper Products, Inc. As a result of the consummation of that asset sale, the following risk factors became more relevant:

We have no source of revenue. AfterAccordingly, we intend to marshal our assets and satisfy liabilities and, after the contractual nine month indemnification period relating to the sale of assets on July 2, 2007, we distributedintend to distribute the remaining cash assets of the company, other than an approximatea $100,000 cash residual,residual. While we expect there will be a distribution to stockholders, there is no assurance of the amount thereof or that there will be any remaining cash for distribution.

Even if we are diligent in April 2008.marshalling our assets, the amount of the ultimate cash distribution, if any, is undeterminable. Unforeseen legal fees, creditors and other unasserted claims and or the cost of contacting stockholders and physically distributing the cash may be greater than anticipated. This would reduce or eliminate cash balance has been further diminished during the remainder of 2008 by general and administrative expenses.available for distribution.

Upon distribution of the cash assets, it is anticipated that each of Messrs. Mandell and Civelli resignedwill resign from the Board of Directors and the new investor group involved in the April 25, 2007 stock offering tookwill take management control of the management of the Company. Although there is no assurance thereof, the new investors in the Company may bring forth their own plan in the future regarding the direction of the Company. Should the new management believe it is in the Company’s and stockholders’ best interests to raise additional financing to pursue new business opportunities, such new financing is likely to dilute existing stockholders. Stockholders at the special meeting held on June 15, 2007 approved amending the Company’s charter and gave the Board of Directors authority to affect a substantial reverse stock split at the time of its choosing and to increase the number of authorized common and preferred shares. While a new financing and new business model, if effected, could be successful, there is no assurance this will occur or, if it occurs, that it would be successful.

Our stock is quoted on the OTC Bulletin Board, where low trading volume and high volatility is often experienced. While a few firms make a market in our stock, the historically low trading volume and relatively few market makers of our stock makes it more likely that a severe fluctuation in volume, either up or down, will significantly impact the stock price. There can be no assurance that these market makers will continue to quote our stock and a reduction in such market makers would negatively impact trading liquidity. Further, with our constrained resources and increased cost and time associated with implementation of Sarbanes-Oxley, it may not be possible for us to remain listed on the OTC Bulletin Board in the future as a fully reporting company. Lastly, the uncertainty of the future of the Company may limit the liquidity of our stock. This and the existing limited market and volume in the trading of our stock, may result in our stockholders having difficulty selling our common stock. The trading price of our Common Stock has been, and will likely continue to be, subject to wide fluctuations in response to possible claims arising from our asset sale, the uncertainty of the future of the Company, general market fluctuations and other events and factors, some of which may be beyond our control.

Our corporate office and research center in San Jose, California, was the primary location for our audio technology division, Desper Products, Inc. We occupied approximately 1,300 square feet with an annual rent on a full service basis of approximately $26,275 in calendar 2006. The lease expired on December 31, 2006 and, based upon the decision to try to sell the Company’s assets, was not renewed. We leased our space at rental rates and on terms which management believed were consistent with those available for similar space in the applicable local area. Such property was well maintained and adequate to support our requirements. We have no leased facilities as of December 31, 2008.2007.

From time to time we weremay be involved in various disputes and litigation matters arising in the normal course of business. As of the date of this Form 10-K Annual Report on Form 10-K/A, we are not involved in any legal proceedings that are expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our results of operations of the period in which the ruling occurs. Our estimate of the potential impact on our financial position or overall results of operations for the above legal proceedings could change in the future. At present, there are no active legal proceedings.

Not applicable.

Our Common Stock was listed and commenced trading on the NASDAQ SmallCap market on August 21, 1995 under the symbol “SPAZ”. In January 1999, the Common Stock was delisted by the NASDAQ SmallCap Market due to our inability to maintain listing requirements. Our Common Stock immediately commenced trading on the OTC Bulletin Board under the same symbol. The following table sets forth the high and low bid price of our Common Stock as reported on the OTC Bulletin Board for fiscal years 20072005 and 2008.2006. The quotations listed below reflect interim dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions Since November 21, 2008 the new stock symbol is SPZR.transactions.