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<SEC-DOCUMENT>0000950148-04-000796.txt : 20040427
<SEC-HEADER>0000950148-04-000796.hdr.sgml : 20040427
<ACCEPTANCE-DATETIME>20040426212319
ACCESSION NUMBER:		0000950148-04-000796
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20040611
FILED AS OF DATE:		20040427
EFFECTIVENESS DATE:		20040427

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SPATIALIZER AUDIO LABORATORIES INC
		CENTRAL INDEX KEY:			0000890821
		STANDARD INDUSTRIAL CLASSIFICATION:	SEMICONDUCTORS & RELATED DEVICES [3674]
		IRS NUMBER:				954484725
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-26460
		FILM NUMBER:		04755476

	BUSINESS ADDRESS:	
		STREET 1:		20700 VENTURA BOULEVARD SUITE 140
		CITY:			WOODLAND HILLS
		STATE:			CA
		ZIP:			91364
		BUSINESS PHONE:		3102273370

	MAIL ADDRESS:	
		STREET 1:		20700 VENTURA BLVD SUITE 140
		CITY:			WOODLAND HILLS
		STATE:			CA
		ZIP:			91364
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>v98246def14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>
<HTML>
<HEAD>
<TITLE>Spatializer Audio Laboratories, Inc.</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<CENTER>
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%">
<TR valign="bottom">
        <TD width="70%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="13%">&nbsp;</TD>
        <TD width="1%">&nbsp;</TD>
        <TD width="15%">&nbsp;</TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3" nowrap align="center"><FONT size="2">OMB APPROVAL</FONT></TD>
</TR>
<TR valign="bottom">
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD><FONT size="1">&nbsp;</FONT></TD>
        <TD colspan="3" nowrap align="center"><HR size="1" noshade></TD>
</TR>
<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
OMB Number:
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="right" valign="top"><FONT size="2">3235-0059</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD align="left" valign="top"><FONT size="2">
Expires:
</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>

<TD nowrap align="right" valign="top"><FONT size="2">February&nbsp;28, 2006</FONT></TD>
</TR>

<TR valign="bottom">
        <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD colspan="2" nowrap align="left" valign="top"><FONT size="2">Estimated average burden<br>hours per

response</FONT></TD>

        <TD align="right" valign="bottom"><FONT size="2">12.75</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><font size="2"><B>UNITED STATES<BR>SECURITIES AND EXCHANGE COMMISSION<BR>
Washington, D.C. 20549</B>
</font>

<P align="center"><FONT size="2"><B>SCHEDULE 14A</B>
</FONT>


<P align="center"><FONT size="2">Proxy Statement Pursuant to Section 14(a) of the Securities<BR>
Exchange Act of 1934 (Amendment No.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;)
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Filed by the Registrant &nbsp;&nbsp;<FONT face="wingdings">&#120;</FONT></FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Filed by a Party other than the Registrant &nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT></FONT></TD>
</TR>
<TR><TD>&nbsp;</TD></TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">Check the appropriate box:</FONT></TD>
</TR>
</TABLE>
<p>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Preliminary Proxy Statement</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
<B>Confidential, for Use of the Commission Only (as permitted by
Rule&nbsp;14a-6(e)(2))</B></FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#120;</FONT>&nbsp;&nbsp; Definitive Proxy Statement</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Definitive Additional Materials</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
Soliciting Material Pursuant to &#167;240.14a-12</FONT></TD>
</TR>
</TABLE>


<P align="center"><FONT size="2"></FONT>
<center>
<P align="center"><FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.<HR size="1" noshade>
(Name of Registrant as Specified In Its Charter)
</FONT>
</center>
<p>
<center>
<P align="center"><FONT size="2"><HR size="1" noshade>(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
</FONT>
</center>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of Filing Fee (Check the appropriate box):
</FONT>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#120;</FONT>&nbsp;&nbsp; No fee required.</FONT></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>

<TD><FONT size="2"><FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp;
Fee computed on table below per Exchange Act Rules&nbsp;14a-6(i)(4) and
0-11.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Title of each class of securities to which transaction applies:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Aggregate number of securities to which transaction applies:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule&nbsp;0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Proposed maximum aggregate value of transaction:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5)&nbsp;Total fee paid:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Fee paid previously with preliminary materials.</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;</FONT>&nbsp;&nbsp; Check box if any part of the fee is offset as provided by Exchange Act
Rule&nbsp;0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.</FONT></TD>
</TR>
</TABLE>
<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)&nbsp;Amount Previously Paid:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)&nbsp;Form, Schedule or Registration Statement No.:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)&nbsp;Filing Party:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="3%"></TD>
        <TD width="97%"></TD>
</TR>
<TR valign="top">
        <TD>&nbsp;</TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4)&nbsp;Date Filed:</FONT></TD>
</TR>
</TABLE>
<HR size="1" noshade>

<p>
<center>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">
<TR>
        <TD width="20%"></TD>
        <TD width="80%"></TD>
</TR>
<TR valign="top">
        <TD valign="bottom"><font size="2">SEC 1913 (02-02)</font></TD>
        <TD><font size="2"><b>Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number.</b></font></TD>
</TR>
</TABLE>
</center>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
<IMG src="v98246v98246l1.gif" alt="(SPATIALIZER AUDIO LABORATORIES, INC. LOGO)">
</DIV>

<P align="right">
<FONT size="2">April&nbsp;23, 2004
</FONT>

<P align="left">
<FONT size="2">Dear Stockholder:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">On behalf of the Board of Directors (the
&#147;Board&#148;), I cordially invite you to the annual meeting
of the stockholders (the &#147;Annual Meeting&#148;) of
Spatializer Audio Laboratories, Inc. (the &#147;Company&#148;)
which will be held on Friday, June&nbsp;11, 2004 at
1:30&nbsp;p.m. at the Company&#146;s Executive Office, located
at the J.D. Power Building, 2625 Hampshire Road, Suite&nbsp;330
in Westlake Village, California 91361. I hope that you will be
able to attend in person. Following the formal business of the
Annual Meeting, management will be available to respond to your
questions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the Annual Meeting, stockholders will be asked
to consider and vote upon the following matters:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(1)&nbsp;The nomination and election of Gilbert
    N. Segel to serve as a Director of the Company until the Annual
    Meeting of Stockholders to be held in 2006;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">The nomination and election of James G. Pace to
    serve as a Director of the Company until the Annual Meeting of
    Stockholders to be held in 2007;&nbsp;and
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(2)&nbsp;To ratify the selection of
    Farber&nbsp;&#38; Hass LLP as independent auditors of the
    Company for its fiscal year ending December&nbsp;31,
    2004;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">(3)&nbsp;Such other matters as properly be
    presented at the Annual Meeting or any adjournment or
    postponement thereof.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board has approved and recommends that the
stockholders vote&nbsp;FOR the Directors nominated by the Board.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the Annual Meeting, each holder of record of
shares of common stock, par value $0.01&nbsp;per share
(&#147;Common Stock&#148;) as of April&nbsp;23, 2004, the record
date (the &#147;Record Date&#148;) will be entitled to one
(1)&nbsp;vote on each matter properly brought before the Annual
Meeting. In accordance with Article&nbsp;II, Section&nbsp;3 of
the Bylaws of the Company, the Directors being elected will need
to receive a majority of the votes cast.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The qualifications of the nominees for Director
of the Company, independent auditors and other important
information are set forth in the accompanying Proxy Statement
and should be considered carefully by stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">I hope that you will attend the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, and
regardless of the number of shares of stock you own, please
complete, date and sign the enclosed proxy card and return it
promptly in the accompanying envelope. You may, of course,
attend the Annual Meeting and vote in person, even if you have
previously returned your proxy card.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Sincerely,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">HENRY R. MANDELL
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chairman of the Board and</FONT></I></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chief Executive Officer</FONT></I></TD>
</TR>

</TABLE>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<!-- TOC -->
<A name="toc"><DIV align="CENTER" style="page-break-before:always"><U><B>TABLE OF CONTENTS</B></U></DIV></A>

<P><CENTER>
<TABLE border="0" width="90%" cellpadding="0" cellspacing="0">
<TR>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="3%"></TD>
	<TD width="76%"></TD>
</TR>
<TR><TD colspan="9"><A HREF="#000"><FONT size="2">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#001"><FONT size="2">PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS June 11, 2004</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#002"><FONT size="2">REPORT OF THE AUDIT COMMITTEE</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#003"><FONT size="2">PROPOSAL 2</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#004"><FONT size="2">Summary Compensation Table</FONT></A></TD></TR>
<TR><TD colspan="9"><A HREF="#005"><FONT size="2">TEN-YEAR OPTION/SAR REPRICINGS</FONT></A></TD></TR>
</TABLE>
</CENTER>
<!-- /TOC -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<!-- link1 "<FONT size="2">NOTICE OF ANNUAL MEETING OF STOCKHOLDERS</FONT>" -->
<DIV align="left"><A NAME="000"></A></DIV>

<P align="center">
<B><FONT size="2">NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Notice is hereby given that Spatializer Audio
Laboratories, Inc. (the &#147;Company&#148;) will hold its
Annual Meeting of Stockholders on Friday, June&nbsp;11, 2004 at
1:30&nbsp;p.m., at the Company&#146;s Executive Office, located
at the J.D. Power Building, 2625 Hampshire Road, Suite&nbsp;330
in Westlake Village, California 91361, for the following
purposes:
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To elect one (1)&nbsp;Director of the Company to
serve until the Annual Meeting of Stockholders to be held in
2006 and one (1)&nbsp;Director to serve until the Annual Meeting
of Stockholders to be held in 2007;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To ratify the selection of Farber&nbsp;&#38; Hass
LLP as independent auditors of the Company for its fiscal year
ending December&nbsp;31, 2004;&nbsp;and
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To act upon other matters that may properly come
before the Annual Meeting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors has fixed April&nbsp;23,
2004 as the Record Date for the determination of the
stockholders entitled to notice of, and to vote at, the Annual
Meeting or any adjournment or postponement of the Annual Meeting.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At the Annual Meeting, each share of Common Stock
represented will be entitled to one (1)&nbsp;vote on each matter
properly brought before the Annual Meeting. The election of the
Directors require that each nominee receive a majority of the
votes cast.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Your attention is directed to the accompanying
Proxy Statement. Stockholders who do not expect to attend the
Annual Meeting in person are requested to date, sign and mail
the enclosed proxy as promptly as possible in the enclosed
envelope.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">By Order of the Board of Directors
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">HENRY R. MANDELL
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chairman of the Board and</FONT></I></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chief Executive Officer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">DATED: April&nbsp;23, 2004
</FONT>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<P align="left">
<B><FONT size="2">The Board has approved and recommends that the
stockholders vote for the Directors nominated by the
Board.</FONT></B>

<P align="left">
<B><FONT size="2">The Board has approved and recommends that the
stockholders vote for the ratification of Farber&nbsp;&#38; Hass
LLP to serve as independent auditors.</FONT></B>

<P align="left">
<B><FONT size="2">It is important that all stockholders vote. We
urge you to sign and return the enclosed proxy whether or not
you plan to attend the Annual Meeting. The proxy may be revoked
at any time prior to its exercise. In order to facilitate the
providing of adequate accommodations, please indicate on the
proxy whether you plan to attend the Annual Meeting.</FONT></B>
</DIV>
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<!-- link1 "<FONT size="2">PROXY STATEMENT ANNUAL MEETING OF STOCKHOLDERS June 11, 2004</FONT>" -->
<DIV align="left"><A NAME="001"></A></DIV>

<P align="center">
<B>PROXY STATEMENT</B>

<P align="center">
<HR size="1" width="18%" align="center" noshade>

<P align="center">
<B>ANNUAL MEETING OF STOCKHOLDERS</B>

<DIV align="center">
<B>June&nbsp;11, 2004</B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The accompanying proxy is solicited by the Board
of Directors of Spatializer Audio Laboratories, Inc. (the
&#147;Company&#148;) for use at the Annual Meeting of
Stockholders of the Company to be held on Friday, June&nbsp;11,
2004 at 1:30&nbsp;p.m., at the Company&#146;s Executive Office,
located at the J.D. Power Building, 2625 Hampshire Road,
Suite&nbsp;330 in Westlake Village, California 91361, and at any
adjournments or postponements of the Annual Meeting. This proxy
statement and accompanying proxy will be mailed beginning on or
about April&nbsp;23, 2004, to give holders of record of the
Company&#146;s Common Stock on April&nbsp;23, 2004, the Record
Date, an opportunity to vote at the Annual Meeting on the
following matters:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">The nomination and election of Gilbert N. Segel
    to serve as a Director of the Company until the Annual Meeting
    of Stockholders to be held in 2006;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">The nomination and election of James G. Pace to
    serve as a Director of the Company until the Annual Meeting of
    Stockholders to be held in 2007;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">To ratify the selection of Farber&nbsp;&#38; Hass
    LLP as independent auditors of the Company for its fiscal year
    ending December&nbsp;31, 2004;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">To act upon other matters that may properly come
    before the meeting.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Voting</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In voting, please specify your choices by marking
the appropriate spaces on the enclosed proxy, signing and dating
the proxy and returning it in the accompanying envelope. If no
directions are given and the signed proxy is returned, the proxy
holders will vote the shares in favor of the nominees for
Director and ratification of the auditors at their discretion on
any other matters that may properly come before the Annual
Meeting. In situations where brokers are prohibited from
exercising discretionary authority for beneficial owners who
have not returned proxies to the brokers (so-called &#147;broker
non-votes&#148;), the affected shares will be counted for
purposes of determining the presence or absence of a quorum for
the transaction of business but will not be included in the vote
totals. Therefore, a failure by a stockholder to return a proxy
and indicate their vote concerning the Directors nominated and
auditors will, in effect, be treated as a non-vote, since shares
cannot be counted as a &#147;FOR&#148; vote if a proxy is not
returned.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The Board of Directors recommends voting
&#147;FOR&#148; the election of the persons nominated as
directors of the company.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The Board of Directors recommends voting
&#147;FOR&#148; the ratification of Farber&nbsp;&#38; Hass LLP
to serve as independent auditors.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">A stockholder has the right to appoint a
person (who need not be a stockholder) to attend and act on his
behalf at the meeting. Such person need not be designated in the
accompanying form of proxy. To exercise this right, the
stockholder may insert the name of the desired person in the
blank space provided in the proxy and strike out the other name
or may submit another proxy.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The shares represented by proxies in favor of
management will be voted on any ballot (subject to any
restrictions they may contain) in favor of the matters described
in the proxy.</FONT></B>

<P align="left">
<B><FONT size="2">Revocability of Proxies</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any stockholder giving a proxy has the power to
revoke it at any time before the proxy is voted. In addition to
revocation in any other manner permitted by law, a proxy may be
revoked by instrument in writing executed by the stockholder or
by his attorney authorized in writing, or, if the stockholder is
a corporation, under its corporate seal or by an officer or
attorney thereof duly authorized, and deposited at the corporate
</FONT>

<P align="center">

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<DIV align="left">
<FONT size="2">offices of the Company located at
1754&nbsp;Technology Drive, Suite&nbsp;125, San&nbsp;Jose,
California 95110 or at Computershare Investor Services,
2&nbsp;North LaSalle Street, Chicago, IL 60690-1689 (the
&#147;Transfer Agent&#148;) at any time and up to and including
the last business day preceding the day of the meeting, or any
adjournment thereof, or with the chairman of the meeting on the
day of the meeting. Attendance at the Annual Meeting will not in
and of itself constitute revocation of a proxy.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Outstanding Stock</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Holders of record of Common Stock at the close of
business on April&nbsp;23, 2004, the Record Date, will be
entitled to receive notice of and vote at the meeting.
Currently, the Company is authorized to issue
65,000,000&nbsp;shares of Common Stock and 1,000,000&nbsp;shares
of Preferred Stock, par value of $.01&nbsp;US per share
(&#147;Preferred Stock&#148;). On the Record Date, there were
47,015,865&nbsp;shares of Common Stock and 102,772&nbsp;shares
of Preferred Stock issued and outstanding. The holders of Common
Stock are entitled to one (1)&nbsp;vote for each share held. The
holders of Preferred Stock are not entitled to vote on any
matters.
</FONT>

<P align="left">
<B><FONT size="2">Security Ownership of Certain Beneficial
Owners and Management</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth information
(except as otherwise indicated by footnote) as to shares of
Common Stock owned as of April&nbsp;12, 2004 or which can be
acquired in sixty (60)&nbsp;days, by (i)&nbsp;each person known
by management to beneficially own more than five percent (5%) of
the Company&#146;s outstanding Common Stock, (ii)&nbsp;each of
the Company&#146;s Directors, and officers, (iii)&nbsp;all
executive officers and Directors as a group. On April&nbsp;23,
2004 there were 47,015,865&nbsp;shares of Common Stock
outstanding.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="62%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Amount and Nature of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Percent of</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Address of Beneficial Owner</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Beneficial Ownership</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Class</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors and Officers(1)</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Carlo Civelli(2)(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,970,958</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">8.5</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry Mandell(3)(4)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2,151,571</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4.6</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James D. Pace(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">448,898</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gilbert N. Segel(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">438,100</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">*</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All directors and executive officers as a group
    (4&nbsp;persons)(3)(5)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">7,009,527</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14.9</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">*</FONT></TD>
    <TD align="left">
    <FONT size="2">Indicates that the percentage of shares
    beneficially owned does not exceed one percent (1%) of the class.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Each of the Directors and officers named can be
    reached at the Company&#146;s corporate offices located at
    1754&nbsp;Technology Drive, Suite&nbsp;125, San&nbsp;Jose,
    California 95110, except for Carlo Civelli, whose address is
    Gerberstrasse&nbsp;5, 8023&nbsp;Zurich, Switzerland. The persons
    named in the table have sole voting and investment power with
    respect to all shares shown to be beneficially owned by them,
    subject to community property laws, where applicable, and the
    information contained in the footnotes to this table.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Carlo Civelli controls Clarion Finanz AG, a
    non-reporting investment company. Holdings of Mr.&nbsp;Civelli
    and Clarion Finanz AG are combined, and include all shares of
    the Company held of record or beneficially by them, and all
    additional shares over which he either currently exercises full
    or partial control, without duplication through attribution.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 50,000&nbsp;vested options granted to
    each Director on June&nbsp;14, 2003, and exercisable at
    $0.07&nbsp;per share and 100,000&nbsp;vested options on
    November&nbsp;12, 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 1,500,000&nbsp;options held by
    Mr.&nbsp;Mandell, all of which are vested and are exercisable at
    various prices from $0.05 to $0.55. This includes vested options
    granted on November&nbsp;12, 2003, and exercisable at
    $0.05&nbsp;per share, relating to the extension of
    Mr.&nbsp;Mandell&#146;s employment agreement. The options have
    varying expiration dates of which the final such expiration date
    is November&nbsp;12, 2008.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">
<B><FONT size="2">Solicitation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company will bear the entire cost of the
solicitation of proxies, including preparation, assembly and
mailing of this proxy statement, the proxy and any additional
material furnished to stockholders. Proxies may
</FONT>

<P align="center"><FONT size="2">2
</FONT>

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<DIV align="left">
<FONT size="2">be solicited by Directors, officers and a small
number of regular employees of the Company personally or by
mail, telephone or telegraph, but such persons will not be
specially compensated for such services. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries and
custodians which hold shares of Common Stock of record for
beneficial owners for forwarding to such beneficial owners. The
Company may reimburse persons representing beneficial owners for
their costs of forwarding the solicitation material to such
owners.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Your vote is important. Please return your
marked proxy promptly so your shares can be represented, even if
you plan to attend the annual meeting in person.</FONT></B>

<P align="center">
<B><FONT size="2">PROPOSAL&nbsp;1</FONT></B>

<P align="left">
<B><FONT size="2">Nomination and Election of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has a classified Board of Directors
currently fixed at five (5)&nbsp;members. Our Board of Directors
is currently divided into three (3) classes of Directors, with
two (2)&nbsp;Directors in one class (&#147;Class&nbsp;I&#148;),
two (2)&nbsp;Directors in a separate class
(&#147;Class&nbsp;II&#148;) and one (1)&nbsp;Director in a third
separate class (&#147;Class&nbsp;III&#148;), with one
(1)&nbsp;class elected each year at our Annual Meeting for a
three (3)&nbsp;year term.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">At this Annual Meeting, the Board intends to
nominate Mr.&nbsp;Segel as a Class&nbsp;I Director to fill a
prior vacancy for a remaining two (2)&nbsp;year term expiring in
2006. Prior to the Annual Meeting, Mr.&nbsp;Segel will tender
his resignation as a Class&nbsp;II Director. Further, the Board
intends to nominate Mr.&nbsp;Pace for a three (3)&nbsp;year term
expiring in 2007. The Company currently has four (4) Directors,
with the terms of James G. Pace and Gilbert N. Segel expiring in
2004. Assuming Mr.&nbsp;Pace and Mr.&nbsp;Segel are re-elected,
the Board will consist of four (4)&nbsp;directors with the terms
of two (2)&nbsp;directors expiring in 2006 and the term of one
(1)&nbsp;director expiring in each of 2005 and 2007.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The elected Directors will continue in office
until their successor is elected and has been qualified, or
until their earlier death, resignation or removal. The Bylaws
state that in any election of more than one Director, the
persons receiving a plurality of the votes cast, up to the
number of Directors to be elected in such election, shall be
deemed to be elected. Shares represented by proxies marked
&#147;withhold authority&#148; for the nominee will be counted
as a negative vote.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">The Board of Directors recommends a vote
&#147;FOR&#148; Mr.&nbsp;Segel and a vote &#147;FOR&#148;
Mr.&nbsp;Pace.</FONT></B>

<P align="center"><FONT size="2">3
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth certain
information with respect to the Directors and executive officers
of the Company as of April&nbsp;23, 2004. As described above,
Gilbert Segel, whose term ends in 2004, is to be considered for
election to the Board of Directors as a Class&nbsp;I Director,
with a term expiring in 2006. Mr.&nbsp;Pace, whose term ends in
2004, is to be considered for election to the Board of Directors
as a Class&nbsp;II Director, with a term expiring in 2007.
</FONT>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="42%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="41%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Age</FONT></B></TD>
    <TD></TD>
    <TD align="center" nowrap><B><FONT size="1">Position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors with Terms Ending 2004:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">James D. Pace (nominee for re-election)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">48</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 2/95 to date. Member of
    Compensation Committee&nbsp;&#151; 2/95 to date.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Gilbert N. Segel (nominee for re- election)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">71</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 5/95 to date. Member of
    Audit and Compensation Committee&nbsp;&#151; 5/95 to date.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Directors with Terms Ending in 2005:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Carlo Civelli
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">55</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Director&nbsp;&#151; 3/93 to date.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <B><FONT size="2">Director with Term Ending in 2006:</FONT></B></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry R. Mandell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">47</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <FONT size="2">Chairman of the Board and Chief Executive
    Officer&nbsp;&#151; 2/00 to date. Secretary&nbsp;&#151; 9/98 to
    date. Chief Financial Officer&nbsp;&#151; 3/98 to date.
    </FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Henry R. Mandell.</FONT></I><FONT size="2">
Chairman and Chief Executive Officer since February 2000.
Interim Chief Executive Office from September 1998 to February
2000. Secretary since September 1998; Chief Financial Officer
since March 1998; Senior Vice President, Finance from March 1998
until September 1998. Executive Vice President and Chief
Financial Officer of The Sirena Apparel Group, Inc. from
November 1990 to January, 1998 (The Sirena Apparel Group filed
for protection under Chapter&nbsp;11 of the Bankruptcy Code in
June of 1999). Senior Vice President of Finance and
Administration for Media Home Entertainment, Inc. from April
1985 to November 1990. Director of Finance and Accounting for
Oak Media Corporation from June 1982 to April 1985. Senior
Corporate Auditor for Twentieth Century Fox Film Corporation
from June 1981 to June 1982. Mr.&nbsp;Mandell was a Senior
Auditor for Arthur Young and Company from August 1978 to June
1981, where he qualified as a Certified Public Accountant.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">James D. Pace.</FONT></I><FONT size="2">
Director since February 1995. Director of Desper Products, Inc.,
our wholly owned subsidiary (&#147;DPI&#148;) since July 1992.
For more than the last eighteen years, Mr.&nbsp;Pace has
specialized in the introduction and distribution of new
technologies into the professional recording and film
industries. He has broad experience in various audio industries,
including audio for DVD.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Gilbert N. Segel.</FONT></I><FONT size="2">
Director since May 1995. Mr.&nbsp;Segel has spent more than
thirty years as an independent business manager representing
musical artists, film actors and entertainment industry
entrepreneurs. Since 1985, he has concentrated on his personal
investments and serves as a director of various private business
and charitable enterprises.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">Carlo Civelli.</FONT></I><FONT size="2">
Director since March 1993. Previously, Mr.&nbsp;Civelli was our
VP Finance&nbsp;&#151; Europe from August 1991 to March 1995.
Has extensive experience in financing emerging public companies
and has been instrumental in funding approximately 50 new
ventures of the past 20&nbsp;years which include Breakwater
Resources, Callinan Mines, Granges Exploration, Namibian
Minerals, Napier International Tech, Norst Interactive, DRC
Resources, DMX Digital Music. Managing Director of Clarion
Finanz AG, Zurich, Switzerland, for more than the last ten
years. Director and Financial Consultant to Clarion Finanz AG.
</FONT>

<P align="left">
<B><FONT size="2">Compensation of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">None of the Company&#146;s Directors received any
cash compensation or other arrangements for services provided in
their capacity as Directors. However, the Company has granted
stock options to Directors in that capacity. Under the 1995
Stock Option Plan, each Director, who is not an employee of the
Company, is
</FONT>

<P align="center"><FONT size="2">4
</FONT>

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<DIV align="left">
<FONT size="2">entitled to an automatic annual grant of an
option to purchase 50,000&nbsp;shares of Common Stock which are
granted as options and are available for grant under the 1995
Stock Option Plan (&#147;Plan&#148;). Employee Directors may
receive such a grant at the discretion of the Board of
Directors. In accordance with the Plan, the Company issued such
options to its employee and non-employee directors on
June&nbsp;14, 2003 at an exercise price of $0.07. In November
2003, each director who had achieved five (5)&nbsp;years of
service on the Board of Directors, which included all directors,
were each issued an additional 100,000 vested options
exercisable at $0.05. All options granted in 2003 were at the
closing share price on the date of grant.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Activities of the Board of Directors and Its
Committees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Members of the Board of Directors are elected by
the holders of the Common Stock of the Company and represent the
interests of all stockholders. The Board of Directors meets
periodically to review significant developments affecting the
Company and to act on matters requiring Board approval. Although
the Board of Directors delegates many matters to others, it
reserves certain powers and functions to itself.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During 2003, the Board of Directors of the
Company, which consisted of four (4)&nbsp;members, had one
formal meeting and took various actions by written consent.
Except for Carlo Civelli (who missed the meetings because of
time and travel conflicts but was advised and consented
telephonically to the actions and discussions at each meeting),
all incumbent Directors of the Company were present, in person
or by teleconference at, or participated in taking actions for,
one hundred percent (100%) of the meetings of the Board of
Directors of the Company and the Committees on which he served.
</FONT>

<P align="left">
<B><FONT size="2">Committees of the Board of Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of April&nbsp;23, 2004, standing committees of
the Board of Directors of the Company included a Special
Committee, an Audit Committee and a Compensation and Stock
Option Committee.
</FONT>

<P align="left">
<B><FONT size="2">Special Committee</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November of 2002, the Board of Directors
created a Special Committee to review certain strategic
opportunities as they arise and to obtain additional information
regarding such opportunities for consideration and evaluation by
the Board of Directors. The Special Committee consisted of
Messrs.&nbsp;Mandell, Pace and Segel. The Special Committee had
four (4)&nbsp;quarterly meetings, either telephonic meetings or
discussions in connection with strategic business matters in
2003.
</FONT>

<P align="left">
<B><FONT size="2">Audit Committee</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In 2003, the Audit Committee of the
Company&#146;s Board of Directors consisted of Mr.&nbsp;Segel
who is a non-employee Director. Mr.&nbsp;Mandell also
participates as an ex-officio member. Mr.&nbsp;Segel is
considered independent, as defined in the NASD listing
standards, and meets the criteria for independence set forth in
the rules promulgated under the Securities Exchange Act of 1934,
as amended. This committee is directed to review the scope, cost
and results of the independent audit of the Company&#146;s books
and records, the results of the annual audit and quarterly
reviews of the Company&#146;s financial statements with
management and the internal auditors and the adequacy of the
Company&#146;s accounting, financial, and operating controls; to
recommend annually to the Board of Directors the selection of
the independent auditors; to consider proposals made by the
Company&#146;s independent auditors for consulting work; and to
report to the Board of Directors, when so requested, on any
accounting or financial matters. The Audit Committee of the
Board of Directors held two formal meetings during fiscal 2003
and had either telephonic meetings or discussions in connection
with each of the quarterly interim filings.
</FONT>

<P align="left">
<B><FONT size="2">Nominating Committee</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors does not maintain a
Nominating Committee, due to the small size of the Board and the
resultant committee demands placed on individual directors. In
most cases, directors already serve on multiple committees.
Thus, the Board of Directors as a whole is responsible for,
among other things, identifying, reviewing and evaluating
candidates to serve as directors of the Company, reviewing,
evaluating
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<DIV align="left">
<FONT size="2">and considering incumbent directors, recommending
candidates for election to the board of directors, making
recommendations regarding the membership of the committees of
the Board of Directors and assessing the performance of
individual members of the Board of Directors. This evaluation
may also be performed in conjunction with outside counsel. Three
(3)&nbsp;of the four (4)&nbsp;directors are considered
independent.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors has not established any
specific minimum qualifications that must be met for
recommendation for a position on the Board of Directors.
Instead, in considering candidates for director, the Board of
Directors will generally consider all relevant factors,
including among others the candidate&#146;s applicable expertise
and demonstrated excellence in his or her field, the usefulness
of such expertise to the Company, the availability of the
candidate to devote sufficient time and attention to the affairs
of the Company, the candidate&#146;s reputation for personal
integrity and ethics and the candidate&#146;s ability to
exercise sound business judgment. Other relevant factors,
including diversity, age and skills, will also be considered.
Candidates for director are reviewed in the context of the
existing membership of the Board of Directors (including the
qualities and skills of the existing directors), the operating
requirements of the Company and the long-term interests of its
stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors uses its network of
contacts when compiling a list of potential director candidates
and may also engage outside consultants (such as professional
search firms). In addition, the Board of Directors also
considers potential director candidates recommended by
stockholders or major customers. All potential director
candidates are evaluated based on the factors set forth above,
and to date the Board of Directors has established no special
procedure for the consideration of director candidates
recommended by stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Stockholders who wish to recommend individuals
for consideration by the Board of Directors to become nominees
for election to the Board of Directors may do so by delivering a
written recommendation to the Chairman of the Board at the
following address: 1754 Technology Drive, Suite&nbsp;125,
San&nbsp;Jose, California 95110 at least one hundred twenty
(120)&nbsp;days prior to the anniversary date of the mailing of
the Company&#146;s proxy statement for the last Annual Meeting
of Stockholders. The deadline for nominating a director for the
2005 Annual Meeting of Stockholders is February&nbsp;12, 2005.
Submissions must include the full name of the proposed nominee,
a description of the proposed nominee&#146;s business experience
for at least the previous five years, complete biographical
information, a description of the proposed nominee&#146;s
qualifications as a director and a representation that the
nominating stockholder is a beneficial or record owner of the
Company&#146;s Common Stock. Any such submission must be
accompanied by the written consent of the proposed nominee to be
named as a nominee and to serve as a director if elected.
</FONT>

<P align="left">
<B><FONT size="2">Compensation and Stock Committee</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Compensation and Stock Option Committee of
the Company (the &#147;Compensation Committee&#148;) currently
consists of Messrs.&nbsp;Pace and Segel, each of whom is a
non-employee Director of the Company and a &#147;disinterested
person&#148; with respect to the plans administered by such
committee, as such term is defined in Rule&nbsp;16b-3 adopted
under the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (collectively, the
&#147;Exchange Act&#148;). The Compensation Committee reviews
and approves annual salaries, bonuses and other forms and items
of compensation for senior officers and employees of the
Company. Except for plans that are, in accordance with their
terms or as required by law, administered by the Board of
Directors or another particularly designated group, the
Compensation Committee also administers and implements all of
the Company&#146;s stock option and other stock-based and
equity-based benefit plans (including performance-based plans),
recommends changes or additions to those plans, and reports to
the Board of Directors on compensation matters. The Compensation
Committee held two meetings in 2003. To the extent required by
law, a separate committee of disinterested parties administers
the 1996 Incentive Plan. No Compensation Committee interlock
relationships existed in 2003.
</FONT>

<P align="left">
<B><FONT size="2">Code of Ethics</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has adopted a Code of Ethics that
applies to all of our directors, officers and employees,
including our Chief Executive Officer, our Chief Financial
Officer and other senior financial officers. Our
</FONT>

<P align="center"><FONT size="2">6
</FONT>

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<DIV align="left">
<FONT size="2">Code of Ethics will be posted on our website,
<I>www.spatializer.com,</I> under the heading &#147;Code of
Ethics&#148;. We intend to disclose on our website any amendment
to, or waiver of, a provision of the Code of Ethics that applies
to our Chief Executive Officer, our Chief Financial Officer or
any other senior financial officers. A copy of our Code of
Ethics may be obtained free of charge upon written request of
our Corporate Office at 1754 Technology Drive, Suite&nbsp;125,
San&nbsp;Jose, California 95110, or by email to
<I>investor@spatializer.com</I>.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Stockholder Communications with the Board of
Directors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors will consider
recommendations for Board nominees and proposals submitted by
the Company&#146;s stockholders. Historically, the Company has
not adopted a formal process for stockholder communications with
the Board of Directors. Nevertheless, every effort has been made
to ensure that the views of stockholders are heard by the Board
of Directors or individual directors, as applicable, and that
appropriate responses are provided to stockholders in a timely
manner. Stockholders may address any concerns they have to the
Board by writing the Company&#146;s Chairman of the Board at the
Corporate Office at 1754 Technology Drive, Suite&nbsp;125,
San&nbsp;Jose, California 95110, or by email to
<I>investor@spatializer.com.</I> The Company believes its
responsiveness to stockholder communications to the Board of
Directors has been excellent. However, the Board of Directors
will consider, from time to time, whether adoption of a formal
process for stockholder communications with the Board has become
necessary or appropriate.
</FONT>

<!-- link1 "<FONT size="2">REPORT OF THE AUDIT COMMITTEE</FONT>" -->
<DIV align="left"><A NAME="002"></A></DIV>

<P align="center">
<B><FONT size="2">REPORT OF THE AUDIT COMMITTEE</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Neither the following report of the Audit
Committee nor any other information included in this proxy
statement pursuant to Item&nbsp;7(d)(3) of Schedule&nbsp;14A
promulgated under the Securities Exchange Act of 1934 or
pursuant to Rule&nbsp;306 of Regulation&nbsp;S-K constitutes
&#147;soliciting material&#148; and none of such information
should be deemed to be &#147;filed&#148; with the Securities and
Exchange Commission or incorporated by reference into any other
filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates such information by reference
in any of those filings.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has a written charter, a copy
of which is reproduced as Appendix&nbsp;A to this proxy
statement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has reviewed and discussed
with the Company&#146;s management the audited financial
statements of the Company for the fiscal year ended
December&nbsp;31, 2003 and the quarterly financial statements of
the Company (which were subject to review in accordance with the
rules promulgated under the Securities Exchange Act of 1934).
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has discussed with
Farber&nbsp;&#38; Hass LLP (&#147;F&#38;H&#148;) the matters
required to be discussed pursuant to Statement on Auditing
Standards No.&nbsp;61 (Codification of Statements on Auditing
Standards, AU sec. 380). Additionally, the Audit Committee has
received from F&#38;H the written disclosures and the letter
required by Independence Standards Board Standard No.&nbsp;1
(Independence Standards Board Standard No.&nbsp;1, Independence
Discussions with Audit Committees). The Audit Committee also has
discussed with F&#38;H matters relating to their independence.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Based on the review and discussions described
above, the Audit Committee recommended to the Board of Directors
of the Company that the audited financial statements of the
Company be included in its Annual Report on Form&nbsp;10-K for
the fiscal year ended December&nbsp;31, 2003.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Submitted by the Audit Committee of the
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Company&#146;s Board of Directors,
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">Gilbert N. Segel
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">7
</FONT>

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<!-- link1 "<FONT size="2">PROPOSAL 2</FONT>" -->
<DIV align="left"><A NAME="003"></A></DIV>

<P align="center">
<B><FONT size="2">PROPOSAL&nbsp;2</FONT></B>

<P align="left">
<B><FONT size="2">Ratification of Selection of Independent
Auditors</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors has selected
Farber&nbsp;&#38; Hass LLP as the Company&#146;s independent
auditors for the fiscal year ending December&nbsp;31, 2004, and
has further directed that management submit the selection of
independent auditors for ratification by the stockholders at the
Annual Meeting. Farber&nbsp;&#38; Hass LLP has audited the
Company&#146;s financial statements since 1999. Representatives
of Farber&nbsp;&#38; Hass LLP are expected to be present at the
Annual Meeting, will have an opportunity to make a statement if
they so desire and will be available to respond to appropriate
questions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Stockholder ratification of the selection of
Farber&nbsp;&#38; Hass LLP as the Company&#146;s independent
auditors is not required by the Company&#146;s Amended and
Restated Bylaws or otherwise. However, the Board of Directors is
submitting the selection of Farber&nbsp;&#38; Hass LLP to the
stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the
Audit Committee and the Board of Directors will reconsider
whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board of Directors in
their discretion may direct the appointment of different
independent auditors at any time during the year if they
determine that such a change would be in the best interests of
the Company and its stockholders.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The affirmative vote of the holders of a majority
of the shares present in person or represented by proxy and
entitled to vote at the Annual Meeting will be required to
ratify the selection of Farber&nbsp;&#38; Hass LLP. Abstentions
will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as
negative votes. Shares represented by executed proxies will be
voted, if no abstention or vote against is marked, for the
ratification of Farber&nbsp;&#38; Hass LLP as the Company&#146;s
independent auditors.
</FONT>

<P align="left">
<B><FONT size="2">Independent Auditor Fee Information</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following summarizes the fees paid to
Farber&nbsp;&#38; Hass LLP for the years ended December&nbsp;31,
2003 and 2002:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="74%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">December&nbsp;31,</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">2002</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Audit Fees(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">27,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,600</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Tax Fees(2)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">6,250</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All Other Fees(3)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">19,812</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total Fees
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">33,750</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,662</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Audit Fees were for services associated with the
    annual audit, the reviews of the Company&#146;s annual report on
    Form&nbsp;10-K and quarterly reports on Form&nbsp;10-Q.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Tax Fees are for services in connection with tax
    compliance, tax planning and tax advice.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Other Fees relates to review and assistance of
    the Company&#146;s S-1 Registration Statement filed in the year
    December&nbsp;31, 2002.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee has not adopted policies and
procedures for the pre-approval of audit and non-audit services
rendered by the Company&#146;s independent auditor,
Farber&nbsp;&#38; Hass LLP, however, the charter of the Audit
Committee requires that the Audit Committee pre-approve the
engagement of the auditor to perform all proposed audit, review
and attest services, as well as engagements to perform any
proposed permissible non-audit services. The pre-approval of
services has been delegated to the Company&#146;s Chief
Financial Officer, but the decision must be reported to the
Audit Committee and ratified at its next scheduled meeting. One
hundred percent of the auditors&#146; fees were pre-approved by
the Audit Committee during the last fiscal year.
</FONT>

<P align="center"><FONT size="2">8
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">Financial Information Systems Design and
Implementation Fees</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company was not billed any fees for
professional services described in Paragraph&nbsp;(c)(4)(ii) of
Rule&nbsp;2-01 of Regulation&nbsp;S-X rendered by
Farber&nbsp;&#38; Hass LLP for the fiscal year ended
December&nbsp;31, 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN
FAVOR OF PROPOSAL&nbsp;2.</FONT></B>

<P align="left">
<B><FONT size="2">Indemnification of Directors and Executive
Officers</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company&#146;s Certificate of Incorporation,
as amended, and its Amended and Restated Bylaws provide that the
Company will indemnify any officer or Director of the Company
who is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, against expenses
(including, but not limited to, attorneys&#146; fees) judgments,
fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or
proceeding to the fullest extent and in the manner set forth in
and permitted by Delaware law and any other applicable law as
from time to time in effect.
</FONT>

<P align="left">
<B><FONT size="2">Executive Compensation</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table sets forth separately, for
the last three complete fiscal years, each component of
compensation paid or awarded to, or earned by, the Chief
Executive Officer of the Company. There were no other executive
officers who were serving as executive officers at
December&nbsp;31, 2003 who had annual income of at least
$100,000 in 2003.
</FONT>

<!-- link1 "<FONT size="2">Summary Compensation Table</FONT>" -->
<DIV align="left"><A NAME="004"></A></DIV>

<P align="center">
<B><FONT size="2">Summary Compensation Table</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Long Term Compensation</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Awards(8)(9)(10)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Under</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payouts</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Restricted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="1">Annual Compensation</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted(#)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Stock</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(Declined)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Awards</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">LTIP</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name and Principal Position</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Salary</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Bonus</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Other</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(#)(5)(7)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Payouts</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry R. Mandell(1)
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">214,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">400,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(11)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Chief Executive Officer
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/02</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">214,200</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">43,189</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(2)(8)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">550,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">(9)(10)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(250,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)(3)(4)(6)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/01</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">210,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">300,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">(500,000</FONT></TD>
    <TD align="left" valign="top" nowrap><FONT size="2">)(3)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">12/00</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">200,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">20,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">9,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">&#151;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Mr.&nbsp;Mandell became an employee of the
    Company in March 1998. He became Interim Chief Executive Officer
    of the Company on September&nbsp;25, 1998, concurrent with the
    effective date of Mr.&nbsp;Gershick&#146;s resignation as
    President and Chief Executive Officer. He became Chairman and
    Chief Executive Officer in February 2000, with his current base
    salary in 2004 set at $214,200 and an entitlement to a bonus, as
    granted by the Compensation Committee equal to five percent (5%)
    of the Company&#146;s income after taxes (not to exceed
    $100,000). Mr.&nbsp;Mandell does not receive any other cash
    compensation but did receive reimbursement for expenses and
    benefits on the same terms as other employees.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects annual base salary and option and equity
    transactions to date. Reflects a $20,000 bonus granted and
    accrued on December&nbsp;29, 2002 to Mr.&nbsp;Mandell, but paid
    in 2003 in recognition of his contributions in 2002.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Amounts in parenthesis reflect options that were
    declined in the specified year.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Excludes options to acquire 500,000&nbsp;shares
    of Common Stock of the Company granted prior to 1999 of which
    150,000 options are exercisable at $0.5000&nbsp;per share,
    100,000 options were exercisable at $0.125&nbsp;per share and
    expired in March 2003 without exercise and 250,000 options were
    exercisable at $1.00&nbsp;per share but were declined in 2001.
    See Note&nbsp;7.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">9
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="1%"></TD>
    <TD width="4%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(5)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Of the options shown: 50,000&nbsp;were granted in
    2002 and 50,000 were granted in 2001 to Mr.&nbsp;Mandell in his
    capacity as a Director; 500,000&nbsp;granted prior to the date
    of his employment contract were treated as having been fully
    vested at November&nbsp;12, 1999 and at that time he was granted
    options to acquire 750,000&nbsp;additional shares
    (250,000&nbsp;shares exercisable at $0.50 and immediately
    vested; 250,000&nbsp;shares exercisable at $0.55 to vest on
    November&nbsp;12, 2000; and 250,000&nbsp;shares exercisable at
    $0.75 to vest on November&nbsp;12, 2001). See Note&nbsp;7.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(6)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In January 2001, Mr.&nbsp;Mandell was granted
    vested options to acquire 250,000&nbsp;shares at an exercise
    price of $0.22&nbsp;per share (the &#147;January 2001
    Options&#148;). In January 2002, he declined these options in
    connection with the one (1)&nbsp;year extension of his
    employment agreement to November 2002. See Note&nbsp;7.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(7)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In connection with the negotiation of the one
    (1)&nbsp;year extension to his employment agreement to November
    2002, Mr.&nbsp;Mandell declined the January 2001 Options as well
    as 500,000 options (250,000 options exercisable at $0.75 a share
    and 250,000 exercisable at $1.00, both effective as of
    November&nbsp;12, 2001). He also was entitled to a grant of
    500,000 options at the June 2002 Annual Meeting if he was still
    employed. Those options were granted on June&nbsp;14, 2002
    exercisable at $0.12. Options to acquire 100,000&nbsp;shares
    expired in March 2003 and, as a result, as of the date hereof,
    Mr.&nbsp;Mandell holds options to acquire 1,250,000&nbsp;shares.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(8)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">For 1999 and 2002, the Summary Compensation Table
    reflects the value of compensation in connection with certain
    restricted shares of Common Stock held in escrow to be released
    over time, assuming continued service with the Company
    (&#147;Performance Shares&#148;) as &#147;Other&#148;
    compensation valued in 1999 on the date of the delivery of the
    shares released from escrow to Mr.&nbsp;Mandell. It does not
    reflect compensation in connection with Performance Shares in
    2000 and 2001 because the Performance Shares were declined.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">(9)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Mr.&nbsp;Mandell was allocated 843,144
    Performance Shares in 1999 (including 168,628 Performance Shares
    transferred from Steven Gershick, the former Chief Executive
    Officer of the Company, to Mr.&nbsp;Mandell), and $34,000
    compensation was recorded in 1999 for the 168,628 Performance
    Shares transferred to him in that year. During 2000 and 2001,
    168,628 and 252,944 Performance Shares, respectively, were
    released from escrow and he declined ownership in these shares.
    </FONT></TD>
</TR>

</TABLE>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(10)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">In connection with the extension of the
    employment agreement described in Note&nbsp;7 above,
    Mr.&nbsp;Mandell declined 252,944 Performance Shares released
    from escrow in 2001 (but transfer to treasury has not been
    completed). He was subsequently allocated 425,000 Performance
    Shares and the 252,944 Performance Shares eligible for release
    from escrow on June&nbsp;22, 2002. As a result, as of the date
    hereof, Mr.&nbsp;Mandell holds 846,572 Performance Shares
    consisting of 168,628 Performance Shares transferred directly
    from Mr.&nbsp;Gershick; 425,000 Performance Shares allocated on
    January&nbsp;2, 2002 and 252,944 Performance Shares released
    from escrow in June 2002. He is not entitled to either the
    reissuance of the 2001 Performance Shares, or any other
    Performance Shares which remain unallocated. The Board of
    Directors, in its sole discretion, could elect to grant
    additional Performance Shares to him, but has not presently
    indicated any intention to do so. Mr.&nbsp;Mandell holds an
    additional 10,000&nbsp;shares of Common Stock purchased in the
    open market.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(11)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects 50,000&nbsp;Directors option granted
    annually at the Annual Meeting of Stockholders to each Director,
    exercisable at $0.07, an additional 100,000 options granted for
    five (5)&nbsp;year Board service, exercisable at $0.05, and
    250,000 options at $0.05 granted in conjunction with the
    extension of Mr.&nbsp;Mandell&#146;s employment contract.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">10
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="center">
<B><FONT size="2">Option/ Stock Appreciation Right
(&#147;SAR&#148;) Grants During the</FONT></B>

<DIV align="center">
<B><FONT size="2">Most Recently Completed Fiscal Year</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table presented in accordance with
the Securities Exchange Act of 1934, as amended (the
&#147;Exchange Act&#148;) and the Regulations thereunder sets
forth stock options granted under the Company&#146;s Stock
Option Plan (&#147;the Stock Option Plan&#148;) during the most
recently completed financial year to each of the Named Executive
Officers:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="23%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Potential Realizable</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><B><FONT size="1">Individual Grants</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Value at Assumed</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="15" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Annual Rates of</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">% of Total</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Stock Price</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="7"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Appreciation for</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Under</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise or</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="1">Option Term</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Employees in</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Base Price</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Granted</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">($/Security)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Expiration Date</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">5%</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">10%</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry R. Mandell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">400,000(1)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53.0</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.053</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(2)(3)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">November 2008</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">35,156</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49,862</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">All Other Directors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">450,000(1)(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.057</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(4)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">November 2008</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,500</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">54,220</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">All options will be exercisable by June and
    November 2008.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Market Price on the date of the Annual Meeting of
    Stockholders, the date of grant.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Market Price on date of the Amendment to
    Mr.&nbsp;Mandell&#146;s employment agreement which was entered
    on November&nbsp;12, 2003.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(4)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects 50,000&nbsp;Directors option granted
    annually at the Annual Meeting of Stockholders to each director
    exercisable at $0.07 and an additional 100,000 options for five
    (5)&nbsp;year Board service, exercisable $0.05.
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Aggregated Options/ SAR Exercises in Last
Financial Year</FONT></B>

<DIV align="center">
<B><FONT size="2">and Fiscal Year-End Option/ SAR
Values</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The following table (presented in accordance with
the Exchange Act and the Regulations) sets forth details of all
exercises of stock options/ SARs granted during the year ended
December&nbsp;31, 2003 by each of the Named Executive Officers
and the fiscal year-end value of unexercised options/ SARs on an
aggregated basis:
</FONT>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="27%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="14%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value of Unexercised</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Securities</FONT></B></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Unexercised</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">In-the-Money Options/SARs</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Acquired on</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Aggregate</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Options/SARs at</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">at Fiscal Year-End($)</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><B><FONT size="1">Name</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Value Realized</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Fiscal Year-End</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Exercisable/Unexercisable</FONT></B></TD>
</TR>

<TR>
    <TD align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Henry R. Mandell
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">N/A</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,500,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)(2)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">23,000(3)/$23,000</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Includes 250,000 options which expired in March
    2003 without exercise.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(2)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Reflects 550,000 options granted at a
    weighted-average exercise price of $0.053
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(3)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Calculated at a weighted-average exercise price
    of $0.053
    </FONT></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="2">Equity Compensation Plan Information</FONT></B>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="31%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="7%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="10%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of securities</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">remaining available for</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Number of securities to</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Weighted-average</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">future issuance under</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">be issued upon exercise</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">exercise price of</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">equity compensation plans</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">of outstanding options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">outstanding options,</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(excluding securities</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><B><FONT size="1">Plan Category</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">warrants and rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">warrants and rights</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">reflected in column (a))</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(a)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(b)</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">(c)</FONT></B></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity compensation plans approved by security
    holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">3,035,000</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.18</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">(1)</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1,666,587</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Equity compensation plans not approved by
    security holders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left:10px; text-indent:-10px">
    <FONT size="2">Total
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center"><FONT size="2">11
</FONT>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<HR size="1" width="18%" align="left" noshade>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD><FONT size="2">(1)&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">Represents options to acquire the Company&#146;s
    Common Stock under the Company&#146;s 1995 Stock Option Plan and
    1996 Incentive Plan approved by the Company&#146;s stockholders
    in 1995 and 1996, respectively. The 1995 Plan authorizes grants
    of options to purchase authorized but unissued Common Stock in
    an amount of up to ten percent (10%) of total common shares
    outstanding at each calendar quarter or, 4,701,587 as of
    December&nbsp;31, 2003. Stock options are granted with an
    exercise price equal to the stock&#146;s fair market value at
    the date of grant. Stock options have five-year terms and vest
    and become fully exercisable as determined by the Compensation
    Committee on date of grant. The 1996 Plan supplements the 1995
    Plan by allowing for stock appreciation, incentive shares and
    similar accruals aggregating not more than the equivalent of
    500,000&nbsp;shares and the regrant of any Performance Shares
    that become available for regrant.
    </FONT></TD>
</TR>

</TABLE>

<!-- link1 "<FONT size="2">TEN-YEAR OPTION/SAR REPRICINGS</FONT>" -->
<DIV align="left"><A NAME="005"></A></DIV>

<P align="center">
<B><FONT size="2">TEN-YEAR OPTION/ SAR REPRICINGS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">During the year ended December&nbsp;31, 2003
there were no repricings of stock options/ SARs held by the only
Named Executive Officer.
</FONT>

<P align="left">
<B><FONT size="2">Employment Agreements</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Effective November&nbsp;12, 2003, the Company and
Mr.&nbsp;Mandell agreed to a one (1)&nbsp;year extension of his
three (3)&nbsp;year employment agreement originally entered into
in November 1999. In accordance with the termination and renewal
provisions of his employment agreement, unless sooner
terminated, the term now extends to November 2005. In 2001,
Mr.&nbsp;Mandell&#146;s salary was set at $210,000 and he
declined any bonus. Under his employment agreement,
Mr.&nbsp;Mandell is entitled to an annual bonus, as set by the
Compensation Committee, equal to five percent (5%) of the
Company&#146;s income after taxes. He is also entitled to
reimbursement for reasonable travel and housing expenses while
away from the Westlake Village, CA executive offices on Company
business and is entitled to one year severance in the event of a
change of control transaction, or six (6) months for any other
reason.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the 1999 employment agreement,
500,000 options previously granted to Mr.&nbsp;Mandell were
treated as having been fully vested at November&nbsp;12, 1999
and at that time he was granted options to acquire 750,000
additional shares (250,000&nbsp;shares exercisable at $0.50 and
immediately vested; 250,000&nbsp;shares exercisable at $0.55
which vested on November&nbsp;12, 2000; and 250,000&nbsp;shares
exercisable at $0.75 which vested on November&nbsp;12, 2001). In
addition, 168,628 Performance Shares held by Mr.&nbsp;Gershick,
the former Chairman directly and the 674,516 Performance Shares,
then in escrow, were reallocated to Mr.&nbsp;Mandell. During
2000, Mr.&nbsp;Mandell declined ownership in the 168,628
Performance Shares released in 2000.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the negotiation of the first
extension to his employment agreement, Mr.&nbsp;Mandell declined
the January 2001 Options as well as the 252,944 Performance
Shares eligible for release from escrow in 2001, the 250,000
options exercisable at $0.75 a share and the 250,000 options
exercisable at $1.00 (granted prior to the date on which he
became CEO). He was allocated 425,000 Performance Shares, which
were placed in escrow and eligible for release effective
June&nbsp;22, 2002 and was entitled to a grant of 500,000
options if he was still employed at the date of the 2002 Annual
Meeting. The options were granted on June&nbsp;14, 2002, the
date of the Annual Meeting and exercisable at $0.12, the market
price on that date. In addition to the allocation of options and
Performance Shares, his severance payments in the event of a
change of control transaction, were extended from six
(6)&nbsp;months to one (1)&nbsp;year, which in 2003, would be
$214,200 plus any bonus granted to him and a continuation of
employee benefits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with the second extension of his
employment agreement dated November&nbsp;12, 2003,
Mr.&nbsp;Mandell was granted options to purchase&nbsp;250,000
common shares at the then market price of $0.05, with full
vesting. These options replaced a like quantity of options that
expired without exercise in March and November 2003.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2002, Mr.&nbsp;Mandell was granted a
bonus of $20,000 on account of his contribution in 2002. The
bonus was paid in 2003. No bonus was granted in 2003.
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<P align="left">
<B><FONT size="2">Certain Relationship and Related
Transactions</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Except as described in &#147;Employment
Agreements&#148; above, during 2003, the Company was not a party
to any transaction in which the amount involved exceeded $60,000
and in which any Director, executive officer, nominee for
Director, security holder of more than five percent (5%) of the
Company&#146;s voting securities, or any member of the immediate
family of any of the foregoing persons had or will have a direct
or indirect material interest.
</FONT>

<P align="left">
<B><FONT size="2">Compliance with Section&nbsp;16(a) of the
Exchange Act</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Under the Exchange Act, the Company&#146;s
Directors, certain executive and other officers, and any person
holding more than ten percent (10%) of the Company&#146;s Common
Stock are required to report their ownership and any changes in
that ownership to the Securities and Exchange Commission (the
&#147;Commission&#148;) and any exchange or quotation system on
which the Common Stock is listed or quoted. Copies of these
reports must also be furnished to us. Based solely on a review
of the copies of reports furnished to the Company as filed with
the Commission, the Company is informed that Mr.&nbsp;Stephen
Desper, a Director of the Company until June 2003, was late in
reporting transactions which occurred in February and March of
2002 and, to the Company&#146;s knowledge, has not filed a
Form&nbsp;4 in connection with his resignation as a Director of
the Company. The Company believes that its remaining executive
officers and directors have complied with the filing
requirements applicable to them for the year ended
December&nbsp;31, 2003.
</FONT>

<P align="left">
<B><FONT size="2">Annual Report</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Company has previously forwarded to each
stockholder who so requested in writing a copy of the
Company&#146;s Annual Report on Form&nbsp;10-K for the fiscal
year ended December&nbsp;31, 2003 as filed with the Securities
and Exchange Commission and the quarterly reports for the
interim periods in 2003. Requests for additional copies of these
reports should be sent to the Company at 1754&nbsp;Technology
Drive, Suite&nbsp;125, San&nbsp;Jose, California 95110;
Attention: Investor Relations.
</FONT>

<P align="left">
<B><FONT size="2">Stockholder Proposals</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the event that a stockholder wishes to submit
a proposal for consideration of the Company at the 2005 Annual
Meeting of Stockholders in conformity with current Securities
and Exchange Commission proxy regulations, any such proposal
must be received by the Secretary of the Company no later than
February&nbsp;12, 2005 in order for it to be included in the
proxy statement for such Annual Meeting. If a stockholder
intends to present a proposal at the 2005 Annual Meeting, but
does not seek inclusion of that proposal in the proxy statement
for that meeting, the holders of proxies for that meeting will
be entitled to exercise their discretionary authority on that
proposal if the Company does not have notice of the proposal at
or by April&nbsp;12, 2005.
</FONT>

<P align="left">
<B><FONT size="2">Other Business</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Farber&nbsp;&#38; Hass LLP was selected as the
Company&#146;s independent accountants for the fiscal year ended
December&nbsp;31, 2003 and has been selected as the
Company&#146;s auditors for the current fiscal year.
Representatives of Farber&nbsp;&#38; Hass LLP are expected to be
present at the Annual Meeting with the opportunity to make a
statement, if they desire to do so, and are expected to be
available to respond to the appropriate questions from
shareholders.
</FONT>

<P align="center"><FONT size="2">13
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors does not know of any
business to be presented at the Annual Meeting other than the
matters set forth above, but if other matters came before the
Annual Meeting, it is the intention of the proxies to vote in
accordance with their best judgment on such matters.
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">By Order of the Board
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <FONT size="2">HENRY R. MANDELL
    </FONT></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <I><FONT size="2">Chairman and Chief Executive Officer</FONT></I></TD>
</TR>

</TABLE>

<P align="left">
<FONT size="2">DATED: April&nbsp;23, 2004
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<P align="right">
<B><FONT size="2">APPENDIX&nbsp;A</FONT></B>

<P align="center">
<B><FONT size="2">SPATIALIZER AUDIO LABORATORIES, INC.</FONT></B>

<P align="center">
<B><FONT size="2">CHARTER OF THE AUDIT COMMITTEE</FONT></B>

<DIV align="center">
<B><FONT size="2">OF THE BOARD OF DIRECTORS</FONT></B>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Board of Directors (the &#147;Board&#148;) of
Spatializer Audio Laboratories, Inc. (the &#147;Company&#148;)
has oversight responsibilities to, among other things, promote
an environment in which the Company maintains adequate systems
of internal control, presents reliable financial information and
complies with applicable laws, regulations and Company policies.
To assist the Board in fulfilling certain of those oversight
responsibilities, the Board has established an Audit Committee.
The following sets forth certain guidelines and requirements
with respect to the Audit Committee and its responsibilities.
</FONT>

<P align="center">
<FONT size="2">I.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;AUTHORITY OF THE
AUDIT COMMITTEE
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee shall have the authority to
retain special legal, accounting or other consultants to advise
the Committee. The Audit Committee may request any officer or
employee of the Company or the Company&#146;s outside counsel or
independent accountants to attend meetings of the Audit
Committee or to meet with any members of, or consultants to, the
Audit Committee. The Audit Committee shall be given unrestricted
access to Company personnel and documents and to the
Company&#146;s independent accountants.
</FONT>

<P align="center">
<FONT size="2">II.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;MEMBERSHIP
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee shall consist of at least two
Directors or such additional number as the Board or the Audit
Committee may determine. The Audit Committee shall not have less
than two directors without prior approval of the Board. In the
event that the Audit Committee has less than two Directors
thereon due to the resignation, death or removal of a Director
or other similar event, the Board shall appoint promptly another
member thereto.
</FONT>

<P align="center">
<FONT size="2">III.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;GENERAL
RESPONSIBILITIES
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Matters
relating to Annual Audit and Quarterly Financial Reports.</I>
The Audit Committee shall recommend to the Board the appointment
of the independent accountants, which firm shall be accountable
to the Audit Committee and the Board, and the fees to be paid to
the accountants. The Audit Committee shall meet with the
Company&#146;s independent accountants prior to the audit to
review the planning and staffing of the audit. In connection
with the audit, the Audit Committee will review with management
and the independent accountants any material financial reporting
issues and judgments made in connection with the preparation of
the Company&#146;s financial statements. Following the
completion of the audit, the Audit Committee shall meet with the
independent accountants to review with the independent
accountants any problems or difficulties the accountants may
have encountered in connection with the audit, the adequacy of
the internal accounting controls, the financial and accounting
personnel and any management letter provided by the independent
accountants and the Company&#146;s response to that letter. The
Audit Committee shall discuss with the independent accountants
any matters that are required to be discussed under applicable
rules, including without limitation those matters required to be
discussed by Statement on Auditing Standards No.&nbsp;61
relating to the conduct of the audit.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee shall also provide to the
Company&#146;s independent accountants copies of the quarterly
financial statements for review in accordance with the rules of
the Securities and Exchange Commission.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Matters
Relating to Internal Controls.</I> The Audit Committee shall
review with management the adequacy of internal controls that
could materially affect the Company&#146;s financial statements.
Additionally,
</FONT>

<P align="center"><FONT size="2">A-1
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">the Audit Committee shall inquire of management
and the independent accountants about material financial risk
exposures and review the steps management has taken to monitor
and control such exposures.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Matters
relating to Auditor Independence.</I> The Audit Committee shall
review periodic written reports from the independent accountants
regarding the independent accountants&#146; independence,
discuss such reports with the independent accountants, and, if
so determined by the Audit Committee, recommend that the Board
take appropriate action to satisfy itself as to the independence
of the independent accountants.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Miscellaneous
Matters.</I> The Audit Committee shall review major changes to
the Company&#146;s auditing and accounting principles and
practices as suggested by the independent accountants or
management and evaluate together with the Board the performance
of the independent accountants. If so determined by the Audit
Committee, it shall recommend that the Board replace the
independent accountants. The Audit Committee shall prepare such
reports as may be required by the rules of the Securities and
Exchange Commission to be included in the Company&#146;s Annual
Proxy Statement.
</FONT>

<P align="center">
<FONT size="2">IV. MEETINGS OF THE AUDIT COMMITTEE
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Audit Committee shall meet such number of
times in each fiscal year of the Company as the Audit Committee
believes are reasonable or necessary. The Audit Committee shall
maintain minutes or other records of those meetings and its
activities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This Charter is intended to be flexible so that
the Audit Committee is able to meet changing conditions. The
Audit Committee is authorized to take such further actions as
are consistent with the above-described responsibilities and to
perform such other actions as applicable law, the Company&#146;s
charter documents and/or the Board may require. To that end, the
Audit Committee shall review and reassess the adequacy of this
Charter annually. Any proposed changes shall be put before the
Board for its approval.
</FONT>

<P align="center"><FONT size="2">A-2
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%"></TD>
    <TD width="5%"></TD>
    <TD width="47%"></TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="left" valign="top">PROXY
</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">PROXY</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">SPATIALIZER AUDIO LABORATORIES, INC.



<P align="center" style="font-size: 10pt">ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 25, 2004<BR>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The undersigned hereby appoints Henry R. Mandell as proxy and
attorney-in-fact of the undersigned, with full power of substitution, to
represent and vote, as designated below, all shares of Common Stock of
Spatializer Audio Laboratories, Inc. (the &#147;Company&#148;) which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held on Friday, June&nbsp;25, 2004 at 1:30 p.m. at the Company&#146;s Executive Office,
located at the J.D. Power Building, 2625 Hampshire Road, Suite&nbsp;330 in Westlake
Village, California 91361, and at any adjournments or postponements thereof.


<P align="center" style="font-size: 10pt">(Continued on reverse side)


&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<HR size="1" noshade width="100%" align="center">

<DIV align="center" style="font-size: 10pt">FOLD AND DETACH HERE</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#toc">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>For planning purposes, please indicate if<br>
you plan to attend the Annual Meeting:</B>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" nowrap><br><B>YES</B> <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><br><B>NO</B> <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">SPATIALIZER AUDIO LABORATORIES, INC.<BR>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.


<P align="left" style="font-size: 10pt">The Board of Directors recommends a vote FOR the nominee listed in Proposal 1.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PROPOSAL 1:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WITHHOLD</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To elect Gilbert N. Segel as a Director of the Company
to serve until the Annual Meeting of Stockholders to be
held in 2006.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT size="4"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT size="4"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WITHHOLD</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To elect James D. Pace as a Director of the Company to
serve until the Annual Meeting of Stockholders to be
held in 2007.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT size="4"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT size="4"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">PROPOSAL 2:
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">FOR
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">WITHHOLD</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">To ratify the selection of Farber &#038; Hass LLP as
independent auditors of the Company for its fiscal year
ending December&nbsp;31, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT size="4"><FONT face="Wingdings">&#111;</FONT></FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><FONT size="4"><FONT face="Wingdings">&#111;</FONT></FONT></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<HR size="1" noshade width="100%" align="center">

<P align="left" style="font-size: 10pt">THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED &#147;FOR&#148; THE NOMINEES LISTED IN PROPOSAL 1, &#147;FOR&#148; PROPOSAL 2, AND IN THE
DISCRETION OF THE PROXY HOLDER WITH RESPECT TO ANY OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING.


<P align="left" style="font-size: 10pt">NOTE: Please sign exactly as your name appears herein. Joint owners should each
sign personally. A corporation should sign full corporate name by duly
authorized officers and affix corporate seal. When signing as attorney,
executor, administrator, trustee or guardian, give full title as such.



<P align="center" style="font-size: 10pt"><HR size="1" noshade width="100%" align="center">


<DIV align="center" style="font-size: 10pt">Signature</DIV>



<P align="center" style="font-size: 10pt"><HR size="1" noshade width="100%" align="center">


<DIV align="center" style="font-size: 10pt">(Stockholder(s) sign above)</DIV>



<P align="left" style="font-size: 10pt">Dated:<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2004



<P align="center" style="font-size: 10pt">PLEASE RETURN PROMPTLY IN ENCLOSED ENVELOPE WHICH<BR>
REQUIRES NO POSTAGE IF MAILED IN THE U.S.

<P align="center">&nbsp;

<P align="left" style="font-size: 10pt"><HR size="1" noshade width="100%" align="center">


<DIV align="center" style="font-size: 10pt">X FOLD AND DETACH HERE X</DIV>




<P align="center" style="font-size: 10pt">&nbsp;
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`
end

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
