Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

| **x**                                                                                                                               | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                          |
| **For the  quarterly period ended June 30, 2009**                                                                              |
| ** **                                                                                                                          |
| **OR**                                                                                                                              |
| ** **                                                                                                                          |
| **o**                                                                                                                               | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                          |
| **For the  transition period          to         ** |

 

# **Commission File Number 0-21123**

 

**SRS LABS, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                     | ** ** | **33-0714264**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**2909Daimler Street, Santa Ana, California 92705**

(Address of principal executive offices) (ZipCode)

 

**(949) 442-1070**

(Registrant’s telephone number, includingarea code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate website, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer o                 |   | Accelerated filer x         |
|------------------------------------------------|--------|----------------------------------|
|                                           |   |                             |
| Non-accelerated filer o                   |   | Smaller reporting company o |
| (Do not check if a smaller  reporting company) |   |                             |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o   No x

 

As of July 30, 2009, 14,458,990 of the issuer’scommon stock, par value $.001 per share, were outstanding.

 

 

 

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**SRS LABS, INC.**

 

**QuarterlyReport on Form 10-Q**

**For theThree and Six Months Ended June 30, 2009**

**Index**

 
| **PART I-FINANCIAL  INFORMATION** |                                                                                                                         |
|----------------------------------------|------------------------------------------------------------------------------------------------------------------------------|
| Item 1.                                | Financial Statements                                                                                                         | 4 |
|                                   | Condensed  Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and  December 31, 2008                      | 4 |
|                                   | Condensed  Consolidated Statements of Operations for the three and six months ended  June 30, 2009 and 2008 (Unaudited) | 5 |
|                                   | Condensed  Consolidated Statement of Stockholders’ Equity for the six months ended  June 30, 2009 (Unaudited)      | 6 |
|                                   | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30,  2009 and 2008 (Unaudited)           | 7 |
|                                   | Notes to the Condensed Consolidated Financial  Statements (Unaudited)                                                        | 8 |
| Item 2.                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                  | 12 |
| Item 3.                                | Quantitative  and Qualitative Disclosures About Market Risk                                                                  | 15 |
| Item 4.                                | Controls and  Procedures                                                                                                     | 16 |
| **PART II-OTHER  INFORMATION**    |                                                                                                                         |
| Item 1.                                | Legal Proceedings                                                                                                            | 16 |
| Item 1A.                               | Risk Factors                                                                                                                 | 16 |
| Item 4.                                | Submission of  Matters to a Vote of Security Holders                                                                         | 21 |
| Item 5.                                | Other Information                                                                                                            | 21 |
| Item 6.                                | Exhibits                                                                                                                     | 22 |
| SIGNATURES                             | 23                                                                                                                           |

 

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**FORWARD-LOOKINGINFORMATION**

 

Asused herein, the “Company,” “SRS Labs,” “SRS,” “we,” “us,” or “our” means SRSLabs, Inc., its wholly-owned Delaware subsidiary, SRSWOWcast.com, Inc.and its wholly-owned Chinese subsidiary, Shenzhen Representative Office of SRSLabs, Inc.

 

This Quarterly Report on Form 10-Q containsforward-looking statements regarding our assumptions, projections,expectations, targets, intentions or beliefs about future events. Allstatements other than statements of historical facts included in this QuarterlyReport relating to our future operating results, profitability, growth andcapital requirements, our investment and expansion plans, changes in ourcompetitive position, the outcome of certain disputes, changes in economicconditions or capital markets and changes in customer usage patterns and preferences,are forward-looking statements. In some cases, you can identify forward-lookingstatements by terms such as may, will, should, could, expect, plan, intend,forecast, anticipate, believe, estimate, predict, potential, likely or similarexpressions or variations of these terms. The forward-looking statementscontained in this Quarterly Report involve known and unknown risks,uncertainties and situations that may cause our or our industry’s actualresults, level of activity, performance or achievements to be materiallydifferent from any future results, levels of activity, performance orachievements expressed or implied by these statements. Factors that might causeactual events or results to differ materially from those indicated by theseforward-looking statements may include the matters listed in Item 1A RiskFactors of this Form 10-Q, including, but not limited to, the loss of anysignificant customer; the acceptance of new SRS Labs products and technologies;our ability to increase our brand awareness and enter into new or expandedlicense arrangements; the impact of competitive products and pricing; generaleconomic and business conditions that may adversely impact sales of consumerproducts incorporating our technologies or that otherwise may impact ouroperating results and future performance; the timely development and release oftechnologies by the Company; and other factors identified from time to time inour filings with the Securities and Exchange Commission (“SEC”).

 

Any forward-looking statement speaks only as of thedate on which such statement is made, and, except as required by law, weundertake no obligation to update any forward-looking statement to reflectevents or circumstances after the date on which such statement is made or to reflectthe occurrence of unanticipated events. New factors emerge from time to time,and it is not possible for management to predict all such factors.

 

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**PART I — FINANCIAL INFORMATION**

 

**Item 1. Financial Statements**

 

**SRSLABS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                 | ** ** | **June 30, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                 | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
| **ASSETS**                                                                                                                                                                                 |       |                        |       |                            |       |
| **Current Assets**                                                                                                                                                                         |       |                        |       |                            |       |
| Cash  and cash equivalents                                                                                                                                                                 |       | $                           | 26,847,944 |                            | $          | 31,599,087 |   |
| Accounts  receivable, net                                                                                                                                                                  |       | 382,950                     |       | 332,711                         |       |
| Prepaid  expenses and other current assets                                                                                                                                                 |       | 933,718                     |       | 864,095                         |       |
| Short-term  investments                                                                                                                                                                    |       | 12,505,000                  |       | 7,836,000                       |       |
| **Total Current Assets**                                                                                                                                                                   |       | 40,669,612                  |       | 40,631,893                      |       |
|                                                                                                                                                                                       |       |                        |       |                            |       |
| Property  and equipment, net                                                                                                                                                               |       | 424,513                     |       | 423,921                         |       |
| Intangible  assets, net                                                                                                                                                                    |       | 2,443,711                   |       | 2,354,725                       |       |
| Deferred  income taxes, net                                                                                                                                                                |       | 4,489,752                   |       | 3,471,421                       |       |
| **Total Assets**                                                                                                                                                                           |       | $                           | 48,027,588 |                            | $          | 46,881,960 |   |
|                                                                                                                                                                                       |       |                        |       |                            |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                              |       |                        |       |                            |       |
| **Current Liabilities**                                                                                                                                                                    |       |                        |       |                            |       |
| Accounts  payable                                                                                                                                                                          |       | $                           | 500,874    |                            | $          | 314,382 |   |
| Accrued  liabilities                                                                                                                                                                       |       | 998,345                     |       | 996,268                         |       |
| Deferred  revenue                                                                                                                                                                          |       | 1,484,031                   |       | 1,802,024                       |       |
| **Total Current Liabilities**                                                                                                                                                              |       | 2,983,250                   |       | 3,112,674                       |       |
|                                                                                                                                                                                       |       |                        |       |                            |       |
| **Commitments and Contingencies (Note 4)**                                                                                                                                                 |       |                        |       |                            |       |
|                                                                                                                                                                                       |       |                        |       |                            |       |
| **Stockholders’ Equity**                                                                                                                                                              |       |                        |       |                            |       |
| Preferred  stock—$.001 par value; 2,000,000 shares authorized; no shares issued or  outstanding                                                                                       |       | —                      |       | —                          |       |
| Common  stock—$.001 par value; 56,000,000 shares authorized; 14,458,990 and  14,419,418 shares issued and outstanding at June 30, 2009 and  December 31, 2008, respectively |       | 14,460                      |       | 14,420                          |       |
| Additional  paid-in capital                                                                                                                                                                |       | 63,726,537                  |       | 62,639,075                      |       |
| Accumulated  deficit                                                                                                                                                                       |       | (18,696,659                 | )          | (18,884,209                     | )          |
| **Total Stockholders’ Equity**                                                                                                                                                        |       | 45,044,338                  |       | 43,769,286                      |       |
| **Total Liabilities and Stockholders’ Equity**                                                                                                                                        |       | $                           | 48,027,588 |                            | $          | 46,881,960 |   |

 

See accompanying notes to the condensedconsolidated financial statements

 

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**SRS LABS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

 
| ** **                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                   | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                   | ** ** | **2009**                         | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                   | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                     |       | $                                | 5,055,528  |                           | $          | 4,178,144 |   | $ | 10,759,538 |   | $ | 9,119,132 |   |
| Cost of sales                                                |       | 62,201                           |       | 40,370                         |       | 134,173 |   | 66,319 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Gross profit                                                 |       | 4,993,327                        |       | 4,137,774                      |       | 10,625,365 |   | 9,052,813 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Operating expenses:                                          |       |                             |       |                           |       |   |   |   |   |
| Sales and marketing                                          |       | 2,711,351                        |       | 2,483,915                      |       | 5,450,491 |   | 4,627,537 |   |
| Research and development                                     |       | 1,189,517                        |       | 852,771                        |       | 2,364,183 |   | 1,779,533 |   |
| General and administrative                                   |       | 1,373,757                        |       | 1,527,597                      |       | 2,805,884 |   | 2,965,955 |   |
| Total operating expenses                                     |       | 5,274,625                        |       | 4,864,283                      |       | 10,620,558 |   | 9,373,025 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Operating (loss) income                                      |       | (281,298                         | )          | (726,509                       | )          | 4,807 |   | (320,212 | ) |
| Other income, net                                            |       | 92,185                           |       | 333,363                        |       | 196,818 |   | 783,324 |   |
| (Loss) income before income taxes                            |       | (189,113                         | )          | (393,146                       | )          | 201,625 |   | 463,112 |   |
| Income taxes                                                 |       | 9,139                            |       | 15,326                         |       | 14,075 |   | 13,232 |   |
| Net (loss) income                                            |       | $                                | (198,252   | )                              | $          | (408,472 | ) | $ | 187,550 |   | $ | 449,880 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Net (loss) income per common share:                          |       |                             |       |                           |       |   |   |   |   |
| Basic                                                        |       | $                                | (0.01      | )                              | $          | (0.03 | ) | $ | 0.01 |   | $ | 0.03 |   |
| Diluted                                                      |       | $                                | (0.01      | )                              | $          | (0.03 | ) | $ | 0.01 |   | $ | 0.03 |   |
|                                                         |       |                             |       |                           |       |   |   |   |   |
| Weighted average shares used in the per share  calculations: |       |                             |       |                           |       |   |   |   |   |
| Basic                                                        |       | 14,429,972                       |       | 15,777,795                     |       | 14,424,724 |   | 15,777,991 |   |
| Diluted                                                      |       | 14,429,972                       |       | 15,777,795                     |       | 14,685,986 |   | 16,280,923 |   |

 

See accompanying notes to the condensedconsolidated financial statements

 

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**SRS LABS, INC. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’EQUITY**

**(Unaudited)**

** **
| ** **                               | ** ** | **Common Stock** | ** ** | **Additional  Paid-In** | ** ** | **Accumulated** | ** ** | ** **  | ** ** |
|------------------------------------------|------------|-----------------------|------------|-------------------------|------------|-----------------|------------|-------------|------------|
| ** **                               | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**     | ** ** | **Deficit** | ** ** | **Total** | ** ** |
| BALANCE,  December 31, 2008         |       | 14,419,418            |       | $                       | 14,420     |            | $          | 62,639,075  |       | $ | (18,884,209 | ) | $ | 43,769,286 |   |
| Proceeds  from exercise of stock options |       | 39,572                |       | 40                      |       | 140,099         |       | —      |       | 140,139 |   |
| Share-based  compensation                |       | —                |       | —                  |       | 947,363         |       | —      |       | 947,363 |   |
| Net  income                              |       | —                |       | —                  |       | —          |       | 187,550     |       | 187,550 |   |
|                                     |       |                  |       |                    |       |            |       |        |       |   |   |
| BALANCE,  June 30, 2009             |       | 14,458,990            |       | $                       | 14,460     |            | $          | 63,726,537  |       | $ | (18,696,659 | ) | $ | 45,044,338 |   |

 

See accompanying notes to the condensed consolidated financialstatements

 

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**SRS LABS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2009**                                      | ** ** | **2008** | ** ** |
| **Cash Flows from Operating Activities:**                                          |       |                                          |       |   |   |
| Net income                                                                         |       | $                                             | 187,550    |   | $ | 449,880 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                          |       |   |   |
| Depreciation and amortization                                                      |       | 338,726                                       |       | 347,947 |   |
| Provision for doubtful accounts                                                    |       | 25,527                                        |       | 7,470 |   |
| Deferred taxes                                                                     |       | (1,018,331                                    | )          | (824,929 | ) |
| Share-based compensation                                                           |       | 947,363                                       |       | 917,242 |   |
| Loss on disposition of property and equipment                                      |       | 3,361                                         |       | — |   |
| Write-off of intangible assets                                                     |       | 3,750                                         |       | — |   |
| Changes in operating assets and liabilities:                                       |       |                                          |       |   |   |
| Accounts receivable                                                                |       | (75,766                                       | )          | 711,147 |   |
| Prepaid expenses and other current assets                                          |       | (69,623                                       | )          | 102,995 |   |
| Accounts payable                                                                   |       | 186,492                                       |       | 62,763 |   |
| Accrued liabilities                                                                |       | 2,077                                         |       | 105,471 |   |
| Deferred revenue                                                                   |       | (317,993                                      | )          | 855,640 |   |
| Net cash provided by operating activities                                          |       | 213,133                                       |       | 2,735,626 |   |
|                                                                               |       |                                          |       |   |   |
| **Cash Flows from Investing Activities:**                                          |       |                                          |       |   |   |
| Purchase of investments                                                            |       | (4,669,000                                    | )          | (4,984,000 | ) |
| Proceeds from sale of investments                                                  |       | —                                        |       | 5,500,000 |   |
| Proceeds from sale of property and equipment                                       |       | 17,600                                        |       | — |   |
| Purchase of property and equipment                                                 |       | (121,102                                      | )          | (128,180 | ) |
| Expenditures related to intangible assets                                          |       | (331,913                                      | )          | (326,683 | ) |
| Net cash (used in) provided by investing activities                                |       | (5,104,415                                    | )          | 61,137 |   |
|                                                                               |       |                                          |       |   |   |
| **Cash Flows from Financing Activities:**                                          |       |                                          |       |   |   |
| Proceeds from exercise of stock options                                            |       | 140,139                                       |       | 42,789 |   |
| Purchase of treasury stock                                                         |       | —                                        |       | (122,053 | ) |
| Net cash provided by (used in) financing activities                                |       | 140,139                                       |       | (79,264 | ) |
|                                                                               |       |                                          |       |   |   |
| **Net (Decrease) Increase in Cash and Cash  Equivalents**                          |       | (4,751,143                                    | )          | 2,717,499 |   |
| **Cash and Cash Equivalents, Beginning of Period**                                 |       | 31,599,087                                    |       | 39,615,291 |   |
| **Cash and Cash Equivalents, End of Period**                                       |       | $                                             | 26,847,944 |   | $ | 42,332,790 |   |
|                                                                               |       |                                          |       |   |   |
| **Supplemental Disclosure of Cash Flow  Information:**                             |       |                                          |       |   |   |
| Cash paid during the period for:                                                   |       |                                          |       |   |   |
| Income taxes                                                                       |       | $                                             | 1,049,182  |   | $ | 783,846 |   |
| **Supplemental Disclosure of Non-Cash Investing  Activities:**                     |       |                                          |       |   |   |
| Unrealized gain on investments                                                     |       | $                                             | —     |   | $ | 48,125 |   |

 

See accompanying notes to the condensedconsolidated financial statements

 

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**SRS LABS, INC. AND SUBSIDIARIES**

**NOTES TO THE CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

 

**1.             Basis of Presentation and Summaryof Significant Accounting Policies and Estimates**

 

Asused herein, the “Company,” “SRS Labs,” “SRS,” “we,” “us,” or “our” means SRSLabs, Inc., its wholly-owned Delaware subsidiary, SRSWOWcast.com, Inc.,and its wholly-owned Chinese subsidiary, Shenzhen Representative Office of SRSLabs, Inc.  The accompanyingunaudited condensed consolidated financial statements have been prepared by theCompany in conformity with accounting principles generally accepted in theUnited States of America (“GAAP”) for interim financial information and the rules andregulations of the SEC for interim reporting. In the opinion of management, alladjustments (which include normal recurring adjustments) considered necessaryfor a fair presentation of our financial position and results of operationshave been included.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with GAAP have been condensed or omitted pursuant to SECrules and regulations for presentation of interim financial information. Therefore,the condensed interim consolidated financial statements should be read inconjunction with the Company’s Annual Report on Form 10-K for the yearended December 31, 2008. Current and future financial statements may notbe directly comparable to the Company’s historical financial statements. Theresults of operations for the interim period are not necessarily indicative ofthe results to be expected for any other interim period or for the fullyear.  Amounts related to disclosure of December 31,2008 balances within these condensed consolidated financial statements werederived from the audited consolidated financial statements for the year ended December 31,2008.

 

**Estimates**

 

Thepreparation of financial statements in accordance with GAAP requires managementto make use of certain estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reported periods. We base our estimates onhistorical experience and on various other assumptions that we believe arereasonable under the circumstances, the results of which form the basis formaking judgments about carrying values of assets and liabilities that are notreadily apparent from other sources.  Bytheir nature, estimates are subject to an inherent degree of uncertainty.  Actual results could differ materially fromthose estimates. See the audited consolidated financial statements and notesthereto included in our Annual Report on Form 10-K for the year ended December 31,2008 for an additional discussion of the significant accounting policies andestimates used in the preparation of our financial statements.

 

**Cash and Cash Equivalents**

 

Cashand cash equivalents include short-term, highly liquid investments that arereadily convertible to known amounts of cash and are so near maturity that theypresent insignificant risk of changes in value because of interest rates. Cashand cash equivalents generally consist of cash, money market funds andinstruments with original maturities of three months or less.  The Company places its cash in banks and itscash and cash equivalents in money market funds at certain financialinstitutions in excess of amounts insured by federal agencies.  The Company does not believe that it issubject to any unusual financial risk beyond the normal risk associated withcommercial banking relationships.  TheCompany performs periodic evaluations of the relative credit standing of thesefinancial institutions.  For the threeand six months ended June 30, 2009, the Company did not experience anylosses on its cash equivalents.

 

**Short-term Investments**

 

Short-terminvestments consist of certificates of deposit with original maturities rangingfrom six to twelve months.  The Companyhas not experienced any losses on its short-term investments.

 

**CustomerConcentrations**

 

For the three monthsended June 30, 2009 and 2008, one customer, Samsung, accounted forapproximately 44% and 38%, respectively, of our revenue.  For the six months ended June 30, 2009and 2008, one customer, Samsung, accounted for approximately 42% and 40%,respectively, of our revenue.  In June2009, the Company amended its agreement with Samsung TV effective January 1,2010.  The Company has modified itspricing schedule in exchange for a commitment for Samsung TV to deploy theCompany’s technologies on its televisions in 2010.

 

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**IncomeTaxes**

 

The Company currently hasnet operating loss carryforwards to offset income taxes. Consequently, nosignificant provision is reflected in the accompanying interim consolidatedfinancial statements.  Refer to ourAnnual Report on Form 10-K for the year ended December 31, 2008 foradditional disclosure in this regard.

 

**2.             Intangible Assets**

 

Intangibleassets consist of the following:

 
| ** **                                                  | ** ** | **June 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| Patents                                                     |       | $                       | 3,857,880  |                        | $          | 3,618,338 |   |
| Accumulated  amortization                                   |       | (1,922,834              | )          | (1,785,531                  | )          |
| Patents,  net                                               |       | 1,935,046               |       | 1,832,807                   |       |
| Other  intangibles:                                         |       |                    |       |                        |       |
| License  agreements acquired in purchase of SRSWOWcast      |       | 640,071                 |       | 640,071                     |       |
| Capitalized  software and hardware for several technologies |       | 622,072                 |       | 582,800                     |       |
| Total  of other intangibles                                 |       | 1,262,143               |       | 1,222,871                   |       |
| Accumulated  amortization, other intangibles                |       | (753,478                | )          | (700,953                    | )          |
| Other  intangibles, net                                     |       | 508,665                 |       | 521,918                     |       |
| Intangible  assets, net                                     |       | $                       | 2,443,711  |                        | $          | 2,354,725 |   |

 

Amortizationexpense associated with our intangibles was $123,219 and $121,407 in the threemonths ended June 30, 2009 and 2008, respectively, and $239,177 and$247,573 in the six months ended June 30, 2009 and 2008,respectively.  Amortization expense isincluded in general and administrative expenses in the accompanying condensedconsolidated statements of operations.

 

**3.**             **NetIncome Per Common Share**

 

Basic net income or loss per common share iscomputed by dividing net income or loss available to common stockholders by theweighted average number of common shares outstanding during each year. Dilutednet income or loss per common share reflects the maximum dilution, based on theaverage price of the Company’s common stock during each period, and is computedsimilar to basic income or loss per share except that the denominator isincreased to include the number of additional shares that would have beenoutstanding if potentially dilutive stock options and warrants had beenexercised.

 

Basic and diluted net income per share are asfollows:

 
| ** **                                               | ** ** | **For the Three Months** | ** ** | **For the Six Months** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------|------------|---------------------------------------|------------|
| ** **                                               | ** ** | **Ended June 30,**            | ** ** | **Ended June 30,**          | ** ** |
| ** **                                               | ** ** | **2009**                                | ** ** | **2008**                              | ** ** | **2009** | ** ** | **2008** | ** ** |
| BASIC EPS                                                |       |                                    |       |                                  |       |   |   |   |   |
| Net (loss) income                                        |       | $                                       | (198,252   | )                                     | $          | (408,472 | ) | $ | 187,550 |   | $ | 449,880 |   |
| Denominator: weighted average common shares  outstanding |       | 14,429,972                              |       | 15,777,795                            |       | 14,424,724 |   | 15,777,791 |   |
| Net (loss) income per share                              |       | $                                       | (0.01      | )                                     | $          | (0.03 | ) | $ | 0.01 |   | $ | 0.03 |   |
|                                                     |       |                                    |       |                                  |       |   |   |   |   |
| DILUTED EPS                                              |       |                                    |       |                                  |       |   |   |   |   |
| Net (loss) income                                        |       | $                                       | (198,252   | )                                     | $          | (408,472 | ) | $ | 187,550 |   | $ | 449,880 |   |
| Denominator: weighted average common shares  outstanding |       | 14,429,972                              |       | 15,777,795                            |       | 14,424,724 |   | 15,777,991 |   |
| Common equivalent shares outstanding:                    |       |                                    |       |                                  |       |   |   |   |   |
| Options                                                  |       | —                                  |       | —                                |       | 261,262 |   | 502,932 |   |
| Total diluted shares                                     |       | 14,429,972                              |       | 15,777,795                            |       | 14,685,986 |   | 16,280,923 |   |
| Net (loss) income per share diluted                      |       | $                                       | (0.01      | )                                     | $          | (0.03 | ) | $ | 0.01 |   | $ | 0.03 |   |

 

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Therewere outstanding options to purchase an aggregate of 3,459,086 and 3,069,248shares of the Company’s common stock for the three months ended June 30,2009 and 2008, respectively, that were not included in the table above becausethey would be anti-dilutive.  There wereoutstanding options to purchase an aggregate of 2,705,647 and 1,937,419 sharesof the Company’s common stock for the six months ended June 30, 2009 and2008, respectively, that were not included in the table above because theywould be anti-dilutive.

 

**4.**             **Commitmentsand Contingencies**

 

On June 8,2007, the Company sent a letter to Sony Corporation (“Sony”) relating to thepossible infringement of several SRS patents by Sony’s S-Force technology. Sonyresponded to the letter by filing a Complaint for Declaratory Relief in the U.S.District Court in the Southern District of New York on July 6, 2007. In November 2007,Sony and SRS entered into a standstill agreement for the purpose of conductingdiscussions towards an amicable resolution of the dispute, and the Complaintfor Declaratory Relief was dismissed.  While the standstill agreementhas expired, the parties continue to negotiate regarding this matter.  In October 2008,an independent third party hired to evaluate the Sony S-Force technologyinformed SRS that they had completed their evaluation based on the informationprovided by Sony.  Based on their study, they confirmed SRS’ positionthat the S-Force technology infringes our patents.  The basis forthis infringement position has been provided to Sony for theirreview.  Sony has not agreed with the position of the independentthird party.  SRS continues to evaluateits alternatives in this matter and cannot assure that it will prevail in thisdispute.  SRS is unable to determine atthis time the impact that this matter may have, if any, on the Company’sconsolidated financial position, results of operations or cash flows.

 

Fromtime to time, we may be involved in other litigation matters and disputesarising in the normal course of business. Any such matters and disputes couldbe costly and time consuming, subject us to damages or equitable remedies, anddivert our management and key personnel from our business operations.

 

**5.             SegmentInformation**

 

The Company operates inone reportable segment as disclosed in our Annual Report on Form 10-K forthe year ended December 31, 2008. The following schedule presents the Company’s revenue by geographicarea.  Licensing-related revenue issummarized based on the location of the licensee’s corporate headquarters.  For product and online sales, revenue isallocated to the Americas.  The Americasregion includes North, Central and South America.  Starting in 2008, the Greater China regionwas broken down into the China and Asia Pacific region.  The China region includes all licensees withtheir corporate headquarters located in mainland China.  The Asia Pacific region includes alllicensees with their corporate headquarters located in Taiwan and Hong Kong.

 
| ** **                   | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                   | ** ** | **2009**                                        | ** ** | **%**                                         | ** ** | **2008** | ** ** | **%** | ** ** | **2009** | ** ** | **%** | ** ** | **2008** | ** ** | **%** | ** ** |
| **Geographic Area Revenue:** |       |                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Korea                        |       | $                                               | 2,794,662  |                                          | 55         | % | $ | 2,136,306 |   | 51 | % | $ | 5,554,680 |   | 52 | % | $ | 4,659,761 |   | 51 | % |
| Americas                     |       | 1,105,622                                       |       | 22                                            |       | 438,847 |   | 11 |   | 2,014,106 |   | 18 |   | 797,129 |   | 8 |   |
| Japan                        |       | 673,046                                         |       | 14                                            |       | 1,323,778 |   | 32 |   | 1,918,207 |   | 18 |   | 3,019,432 |   | 33 |   |
| China                        |       | 345,683                                         |       | 7                                             |       | 132,072 |   | 3 |   | 877,091 |   | 8 |   | 334,182 |   | 4 |   |
| Asia Pacific                 |       | 68,325                                          |       | 1                                             |       | 90,030 |   | 2 |   | 213,766 |   | 2 |   | 164,231 |   | 2 |   |
| Europe                       |       | 68,190                                          |       | 1                                             |       | 57,111 |   | 1 |   | 181,688 |   | 2 |   | 144,397 |   | 2 |   |
| Total                        |       | $                                               | 5,055,528  |                                          | 100        | % | $ | 4,178,144 |   | 100 | % | $ | 10,759,538 |   | 100 | % | $ | 9,119,132 |   | 100 | % |

 

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**6.**             **RecentAccounting Pronouncements**

 

In April 2009, the Financial Accounting StandardsBoard (“FASB”) issued Staff Position (“FSP”) 107-1 and Accounting PrinciplesBoard (“APB”) Opinion No. 28-1, “*Interim Disclosures aboutFair Value of Financial Instruments*” (“FSP 107-1 and APB 28-1”). FSP107-1 and APB 28-1 amend FASB Statement No. 107, “*Disclosures aboutFair Values of Financial Instruments*,” to require disclosures aboutthe fair value of financial instruments in interim financial statements as wellas in annual financial statements. It also amends APB Opinion No. 28, “InterimFinancial Reporting,” to require those disclosures in all interim financialstatements. We adopted FSP 107-1 and APB 28-1 on April 1, 2009 and it didnot affect our consolidated financial position, results of operations, or cashflows.

 

In May 2009, the FASB issued Statement No. 165,“*Subsequent Events”* (“FAS 165”).FAS 165 establishes general standards of accounting for and disclosures ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. It requires the disclosure ofthe date through which an entity has evaluated subsequent events and the basisfor that date. FAS 165 was effective for interim or annual financial periodsending after June 15, 2009. The adoption of FAS 165 did not affect ourconsolidated financial position, results of operations, or cash flows.

 

In June 2009, the FASB  issued   Statement No. 168,     “*The    FASB     Accounting     StandardsCodification and the Hierarchy of Generally Accepted Accounting Principles—areplacement of FASB Statement No. 162”*(“FAS 168”). TheCodification will become the source of authoritative GAAP recognized by theFASB to be applied by nongovernmental entities. Rules and interpretivereleases of the SEC under authority of federal securities laws are also sourcesof authoritative GAAP for SEC registrants. On the effective date of FAS 168,the Codification will supersede all then-existing non-SEC accounting andreporting standards. All other nongrandfathered non-SEC accounting literaturenot included in the Codification will become nonauthoritative. FAS 168 iseffective for financial statements issued for interim and annual periods endingafter September 15, 2009. FAS 168 is not expected to have a materialimpact on our consolidated financial position, results of operations, or cashflows.

 

**7.**             **FairValue Measurements**

 

EffectiveJanuary 1, 2008, we adopted SFAS No. 157, *Fair Value Measurements* (“SFAS 157”). The purpose of SFAS157 is to define fair value, establish a framework for measuring fair value andenhance disclosures about fair value measurements.  The standard describes three levels of inputsthat may be used to measure fair value:

 

·                  *Level 1 inputs:* Level 1 inputs are quoted market pricesin active markets for identical assets or liabilities that are accessible atthe measurement date.

 

·                  *Level 2 inputs:* Level 2 inputs are from other thanquoted market prices included in Level 1 that are observable for the asset orliability, either directly or indirectly.

 

·                  *Level 3 inputs:* Level 3 inputs are unobservable and shouldbe used to measure fair value to the extent that observable inputs are notavailable.

 

The hierarchy noted above requires us to minimizethe use of unobservable inputs and to use observable market data, if available,when determining fair value.

 

Financial assets carried atfair value as of June 30, 2009 are classified below:

 
| ** **              | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total**  | ** ** |
|-------------------------|------------|-------------|------------|-------------|------------|-------------|------------|------------|------------|
| Money market funds      |       | $           | 26,662,015 |        | $          | —      |       | $          | —     |   | $ | 26,662,015 |   |
| Certificates of deposit |       | —      |       | 12,505,000  |       | —      |       | 12,505,000 |       |
| Total                   |       | $           | 26,662,015 |        | $          | 12,505,000  |       | $          | —     |   | $ | 39,167,015 |   |

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

This information should be read in conjunction withthe audited consolidated financial statements and notes thereto and Management’sDiscussion and Analysis of Financial Condition and Results of Operationscontained in our Annual Report on Form 10-K for the year ended December 31,2008, and the unaudited condensed interim consolidated financial statements andnotes thereto included in this Quarterly Report.

 

**Overview**

 

We are the recognizedglobal leader in the practical application of psychoacoustics*,* the science behind how the human earoperates, and in the post processing segment of the market for audiodelivery.  Our award-winning audio enhancement technologies and solutionsdramatically restore audio and voice to its natural state, the way it wasoriginally recorded, in both dimension and clarity, thus providing a superiorconsumer experience for a wide variety of consumer electronic devices such astelevisions, personal computers and mobile phones.

 

Our business is focusedon developing and licensing audio, voice and surround sound technologysolutions to many of the world’s leading original equipment manufacturers (“OEMs”),software providers and semiconductor companies, and limited sales and marketingof stand alone software and hardware products through the Internet.

 

#### **Critical Accounting Policies**

####  

Our discussion and analysis of our results ofoperations and liquidity and capital resources are based on our unauditedconsolidated financial statements for the three and six months ended June 30,2009 and 2008, which have been prepared in accordance with GAAP.

 

Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities, revenues andexpenses, and disclosure of contingent assets and liabilities. We base ourestimates on historical and anticipated results and trends and on various otherassumptions that we believe are reasonable under the circumstances, includingassumptions as to future events. These estimates form the basis for makingjudgments about the carrying value of assets and liabilities that are notreadily apparent from other sources. By their nature, estimates are subject toan inherent degree of uncertainty. Actual results may materially differ fromour estimates.

 

**Results of Operations**

 

***Three Months Ended June 30, 2009Compared to Three Months Ended June 30, 2008***

 

*Revenues*

 

Our revenues consist primarily of royaltiesgenerated from the license of SRS Labs’ audio and voice technologies.  Our license agreements typically havemulti-year or automatic renewal terms, and either require: (a) per-unitroyalty payments for all products implementing our technologies and/orsolutions; (b) fixed annual or quarterly royalty payments; or (c) aminimum fixed annual or quarterly royalty payment, which allow the licensee toship up to a pre-determined number of units during the specified time period,with additional per-unit royalty payments thereafter.  The majority of our license agreements areper-unit royalty arrangements, which are generally reported by the licensee inthe quarter following shipment of the consumer electronics device and aretherefore are typically recognized by us following shipment by the OEM.  Revenues associated with fixed royaltypayments are recognized ratably over the term of the license agreement.  We also sell some of our products andsolutions via the Internet.  Revenuesassociated with those sales are recognized upon shipment and were not materialin the three and six months ended June 30, 2009 or 2008.  The Company may experience fluctuations inrevenue associated with the seasonal nature of the consumer electronicsindustry.

 

Our revenues were $5,055,528 for the three months ended June 30,2009, compared to $4,178,144 for the three months ended June 30, 2008, anincrease of $877,384.  In our homeentertainment market, our total revenues increased by $745,942 in the currentquarter as compared to the prior year period. Within this market, flat panelrevenue increased by $800,842 mainly due to increased revenue from Samsung TVand new licensees such as Vizio and other China based TV OEMs.  In June 2009, the Company amended itsagreement with Samsung TV effective January 1, 2010.  The Company has modified its pricing schedulein exchange for a commitment for Samsung TV to deploy the Company’stechnologies on its televisions in 2010. Our revenues in the personal telecommunications market increased by$309,575 in the current quarter as compared to the prior year period primarilydue to increased revenues from 

 

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SamsungMobile.  Our revenues from the personalcomputer market increased by $263,013, primarily due to revenue generated fromseveral new licensees, including Dell and Hewlett Packard. In the automotivemarket, revenues decreased by $194,496 primarily due to decreased revenues fromour Japanese customers in this market who provide line install, dealer optionand after market automotive audio systems to many of the significant Japaneseautomotive manufactures.  Revenues in theportable media devices market decreased by $211,651 primarily due to decreasedrevenues from MP3 players, cameras and docking stations.

 

The following table presents our licensing revenuesmix by market:

 
| ** **                                                | ** ** | **Three Months Ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                            | ** ** | **2008** | ** ** |
| Home  entertainment (TV, set top box)                     |       | 69                                                  | %          | 65 | % |
| Personal telecommunications (mobile phone, PDA)           |       | 13                                                  |       | 9 |   |
| PC  (software, hardware)                                  |       | 10                                                  |       | 6 |   |
| Portable media devices (digital media player,  headphone) |       | 5                                                   |       | 11 |   |
| Automotive                                                |       | 3                                                   |       | 9 |   |

 

*Sales andMarketing*

 

Salesand marketing expenses consist primarily of employee salaries, salesconsultants’ fees and related expenses, sales commissions and costs associatedwith branding activities. Sales and marketing expenses were $2,711,351 for thethree months ended June 30, 2009, compared to $2,483,915 for the sameprior year period, an increase of $227,436 or 9%.  This increase was primarily attributable toan increase in payroll and related costs associated with the addition of 12sales and marketing personnel since June 30, 2008, offset by an pproximate$200 thousand decrease in costs associated with the timing of the Company’sannual world wide sales meeting.  TheCompany’s world wide sales meeting was held in the second quarter in the prioryear and will be held in the third quarter in the current year.   The current year expected cost of thismeeting is expected to be approximately $90,000 and will be expensed fully inthe third quarter of  2009.  Included in sales and marketing expenses isshare-based compensation expense of $131,101 and $127,962 for the three monthsended June 30, 2009 and 2008, respectively.  We expect that sales and marketing expenseswill continue to increase as we plan to hire additional sales personnel topenetrate target markets and key regions. As a percentage of total revenues, sales and marketing expensesdecreased from 59% for thequarter ended June 30, 2008 to 54%for the same period this year.

 

*Researchand Development*

 

Research anddevelopment expenses consist of salaries and related costs of employees engagedin ongoing research, design and development activities and costs forengineering materials and supplies. Research and development expenses were$1,189,517 for the three months ended June 30, 2009, compared to $852,771for the same prior year period, an increase of $336,746 or 39%.  This increase was primarily attributable toan increase in payroll and related costs associated with hiring an additionaleight engineers and an increase in share-based compensation.  Included in research and development expensesis share-based compensation expense of $111,096 and $85,324 for the threemonths ended June 30, 2009 and 2008, respectively.  We expect that research and developmentexpenses will continue to increase in 2009 as we continue add to our researchand development team in order to support our global licensees and to acceleratethe implementation of our technology with a greater number of customers anddevices. As a percentage of total revenues, research and development expensesincreased from 20% for the quarter ended June 30, 2008 to 24% for the sameperiod this year.

 

*Generaland Administrative*

 

Generaland administrative (“G&A”) expenses consist primarily of employee-relatedexpenses, attorneys’ fees, accounting fees and other professional fees. G&Aexpenses were $1,373,757 for the three months ended June 30, 2009,compared to $1,527,597 for the same prior year period, a decrease of $153,840or 10%. The decrease wasprimarily due to reduced accounting, legal and other professional fees offsetby increased share-based compensation. Included in G&A expenses is share-based compensation expense of$238,766 and $200,812 for the three months ended June 30, 2009 and 2008,respectively.  As a percentage of totalrevenues, G&A expenses decreased from 37% for the quarter ended June 30, 2008 to 27% for the same period this year.

 

*OtherIncome, Net*

 

Otherincome, net consists of interest income. Other income, net was $92,185 for thethree months ended June 30, 2009, compared to $333,363 for the same prioryear period, a decrease of $241,178 or 72%. This decrease was primarilyattributable to lower interest rates.

 

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*IncomeTaxes*

 

Income tax expense for the three months ended June 30, 2009 was $9,139, compared to $15,326 in the same prior yearperiod.  The income tax provisionconsisted primarily of taxes paid on licensing revenues in the current quarterthat were sourced from countries requiring foreign tax withholdings,principally Korea.  We reduced our taxprovision and our valuation allowance on our deferred tax assets by $501,513and $361,855 for the three months ended June 30, 2009 and 2008,respectively, based on our assessment of the future estimated realization ofsuch assets.

 

***Six Months Ended June 30, 2009 Comparedto Six Months Ended June 30, 2008***

 

*Revenues*

 

Our revenues were $10,759,538 for the six months ended June 30,2009, compared to $9,119,132 for the six months ended June 30, 2008, anincrease of $1,640,406 or 18%.  In ourhome entertainment market, our total revenues increased by $837,503 in the sixmonths ended June 30, 2009.  Withinthis market, flat panel revenue increased by $815,232 mainly due to increasedrevenue from Samsung and new licensees such as Vizio, offset by decreasedrevenues from certain Japanese TV OEMs, such as Toshiba and Panasonic.  Our revenues in the personaltelecommunications market increased by $802,788 in the current quarterprimarily due to increased revenues from Samsung Mobile and NEC.  Our revenues from the personal computermarket increased by $487,909, primarily due to revenue generated from severalnew licensees, including Dell, and Hewlett Packard.  In the automotive market, revenues decreasedby $140,047 due to decreased automotive sales world wide. Revenues in theportable media devices decreased by $312,748 primarily due to decreasedrevenues from MP3 players, digital cameras, and docking stations.

 

The following table presents our licensing revenuesmix by market:

 
| ** **                                                | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                          | ** ** | **2008** | ** ** |
| Home  entertainment (TV, set top box)                     |       | 68                                                | %          | 71 | % |
| Personal telecommunications (mobile phone, PDA)           |       | 13                                                |       | 7 |   |
| PC  (software, hardware)                                  |       | 9                                                 |       | 5 |   |
| Automotive                                                |       | 5                                                 |       | 8 |   |
| Portable media devices (digital media player,  headphone) |       | 5                                                 |       | 9 |   |

 

*Sales andMarketing*

 

Salesand marketing expenses were $5,450,491 for the six months ended June 30,2009, compared to $4,627,537 in the same prior year period, an increase of$822,954 or 18%.  This increase wasprimarily attributable to an increase in payroll and commissions and relatedcosts, such as payroll taxes, benefits, recruitment, associated with theaddition of 14 sales and marketing personnel. The global sales team’s travel expenses have increased approximately$210,000 since the prior year due to both the increase in sales represtantivesand the increase in sales opportunities. In addition, we also increased our advertising and branding efforts,which resulted in an increase in expense of approximately $145,000 in the sixmonths ended June 30, 2009. Offsetting these increases, was a decrease in sales expense ofapproximately $200,000 in the current quarter, which was due to moving the dateof the Company’s annual world wide sales meeting from the second to the thirdfiscal quarter.  Included in sales andmarketing expenses is share-based compensation expense of $246,917 and $269,856for the six months ended June 30, 2009 and 2008, respectively.  As a percentage of total revenues, sales andmarketing expenses were 51% forthe six months ended June 30, 2008 and 2009.

 

*Researchand Development*

 

Research and developmentexpenses were $2,364,183 for the six months ended June 30, 2009, comparedto $1,779,533 for the same prior year period, an increase of $584,650 or33%.  This increase was primarilyattributable to an increase in payroll and related costs associated with hiringan additional eight engineers.  Includedin research and development expenses is share-based compensation expense of$218,819 and $208,950 for the six months ended June 30, 2009 and 2008,respectively.  As a percentage of totalrevenues, research and development expenses increased from 20% for the sixmonths ended June 30, 2008 to 22% for the same period this year.

 

*Generaland Administrative*

 

G&Aexpenses were $2,805,884 for the six months ended June 30, 2009, comparedto $2,965,955 for the same prior year period, a decrease of $160,071 or 5%. The decrease was primarilyattributable to a decrease in accounting, legal and other professional fees.Included in G&A expenses is share-based compensation expense of $481,627and $438,436 for the six months ended June 30, 2009 and 2008,respectively.  As a percentage of totalrevenues, G&A expenses decreased from 33% for the six months ended June 30, 2008 to 26% for the same period this year.

 

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*OtherIncome, Net*

 

Otherincome, net was $196,818 for the six months ended June 30, 2009, comparedto $783,324 for the same prior year period, a decrease of $586,506 or 75%. Thisdecrease was primarily attributable to lower interest rates.

 

*IncomeTaxes*

 

Income tax expense was $14,075 and $13,232 for the six months ended June 30, 2009and 2008, respectively. Theincome tax provision consisted primarily of taxes paid on licensing revenues inthe current quarter that were sourced from countries requiring foreign taxwithholdings, principally Korea.  Wereduced our tax provision and our valuation allowance on our deferred taxassets by $1,018,331 and $824,929 for the six months ended June 30, 2009and 2008, respectively, based on our assessment of the future estimatedrealization of such assets.

 

**Liquidity and Capital Resources**

 

Our principal source of liquidity to fund ongoingoperations at June 30, 2009 consisted of cash, cash equivalents andshort-term investments of $39,352,944. At June 30, 2009, we had cash and cash equivalents of $26,847,944and short-term investments of $12,505,000. Cash and cash equivalents generally consist of cash, money market fundsand other money market instruments with original maturities of three months orless. The money market funds are primarily invested in US governmentobligations.  The cash and certificatesof deposit are FDIC insured.  Short-terminvestments consist of certificates of deposit with original maturities rangingfrom 6 to 12 months.

 

Net cash provided by operating activities was$213,133 and $2,735,626 during the six months ended June 30, 2009 and2008, respectively.  The decrease in ourcash flows from operating activities was primarily the result of changes in ouroperating assets and liabilities specifically, a decrease in our deferredrevenue of $317,993 during the six months ended June 30, 2009 compared toan increase of $855,640 during the six months ended June 30, 2008.  The decrease in deferred revenue during thesix months ended June 30, 2009 was due to the Company recognizing revenuefrom customers who prepaid us royalties. During the six months ended June 30, 2008, the Company received thefinal lump sum payment under the multi-year license agreement with LGElectronics, which caused deferred revenue to increase.  Additionally, accounts receivable increased$75,766 during the six months ended June 30, 2009 as compared todecreasing $711,147 during the six months ended June 30, 2008.  The increase in accounts receivable as of June 30,2009 was primarily due to increased revenues recorded in the currentquarter.  Furthermore, cash flow fromoperating activities decreased primarily due to a decrease in our net income of$262,330 from $449,880 during the six months ended June 30, 2008 to$187,550 during the six months ended June 30, 2009.

 

Net cash used in investing activities was $5,104,415 during the six months ended June 30, 2009 and net cash provided by investing activities was $61,137 during the same period in the prior year.  Net cash used by investing activities during the six months ended June 30, 2009 was attributable primarily to the purchase of short-term investments.

 

We believe our existing cash, cash equivalents andshort-term investment balances together with cash generated from operatingactivities, will be sufficient to meet our anticipated cash needs for at leastthe next twelve months.  Our futurecapital requirements will depend on many factors, including our level ofrevenues, the timing and extent of spending to support product developmentefforts, the impact of existing adverse economic conditions, the expansion ofsales and marketing activities, the timing of introductions of new products andthe continuing market acceptance of our products.

 

Ouroperations and financial results are subject to various risks and uncertaintiesthat could adversely affect our business, financial condition, results ofoperations and trading price of our common stock. Please refer to Item 1A, “RiskFactors” herein for information concerning these and other uncertainties thatcould negatively impact us.

 

**Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk**

 

Therehave been no material changes to the information called for by this Item 3 fromthe disclosures set forth in Part II, Item 7A in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2008.

 

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**Item 4.  Controls and Procedures**

 

*Evaluation of Disclosure Controls and Procedures.***Our Chief Executive Officer and Presidentand our Chief Financial Officer have evaluated the effectiveness of ourdisclosure controls and procedures (as defined in Rules 13a-15 (e) and15d-15 (e) under the Securities Exchange Act of 1934, as amended) as ofthe end of the period covered by this Quarterly Report on Form 10-Q and,based on this evaluation, have concluded that our disclosure controls andprocedures are effective.

 

*Changes in Internal Controls.***There have been no changes in ourinternal controls over financial reporting that occurred during our secondquarter ended June 30, 2009 that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

**PART II:OTHER INFORMATION**

 

**Item 1.  LegalProceedings**

 

The information set forthunder Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements,included in Part I, Item 1 of this Report, is incorporated herein byreference.  For an additional discussionof certain risks associated with legal proceedings, see Item 1A “Risk Factors.”

 

**Item 1A. Risk Factors**

 

***You should carefully consider the risk factors describedbelow, as well as the other information included in this Quarterly Report on Form 10-Qand in other filings with the SEC, prior to making a decision to invest in oursecurities. The risks and uncertainties described below are not the only onesfacing our company. Additional risks and uncertainties not presently known orthat we currently believe to be less significant may also adversely affect us.***

 

***We are exposed torisks in our licensing business related to product and customer concentration.***

 

Currently, we generate a majority of our revenue inthe home entertainment market, principally through the inclusion of SRStechnology inside flat panel LCD and plasma televisions. We expect that theconsumer home entertainment market will continue to account for a significantportion of our licensing revenues for the foreseeable future. In addition tosignificant fluctuations in consumer spending on consumer electronic products,retail prices for certain consumer electronics products that include our audiotechnology have decreased significantly. We expect that this trend willcontinue for the foreseeable future. In addition, from time to time, certain ofour OEM and semiconductor manufacturer customers may account for a significantportion of our revenues. For example, for the year ended December 31,2008, Samsung accounted for approximately 42% of our consolidated revenues.These manufacturers could develop their own technologies or decide to excludeour technologies from their products altogether in an effort to reducecost.  For example, during 2007, we were informed by Sony that they wereno longer using our technology in the majority of their televisions.  Theloss of any key customer could have a material adverse affect on our financialcondition and results of operations.

 

***General economicconditions may reduce our revenues and harm our business.***

 

Our business is exposed to adverse changes in generaleconomic conditions, because products that incorporate our technologies areentertainment-oriented and generally discretionary goods. The current slowdownor decline in U.S. and foreign economic growth has adversely affected consumerconfidence, disposable income and spending. As a result, sales by our licenseesof consumer electronics and other products incorporating our technologies maynot grow as rapidly as in prior periods or may even decrease, which couldadversely affect our licensing revenue. Furthermore, deteriorating economic conditions and other factors mayresult in increased under-reporting or non-reporting of royalty bearingrevenues by our licensees as well as increased unauthorized use of ourtechnologies, which could adversely affect our revenues.

 

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***Our business ishighly dependent on the consumer electronics market, which is characterized byshort product life cycles, rapid technological changes, fluctuations in demandand seasonality, and is subject to risks related to product transitions andsupply of other components.***

 

The consumer electronicsmarket is characterized by intense competition, rapidly evolving technology,and ever-changing consumer preferences. These factors result in the frequentintroduction of new products, short product life cycles and significant pricecompetition. As a result, we may need to develop new products or technologiesor modify our existing technologies to integrate with the new products andtechnologies developed by our customers. We anticipate that we will continue toexpend considerable resources on research and development in the future inorder to continue to modify our existing technologies and introduce new productsand technologies.  If we are unable todevelop or modify the necessary technologies to meet the changing needs of ourcustomers on a timely basis, or at all, or if we are unable to provide suchtechnologies at competitive prices, our customers may reduce their use of ourtechnologies and our revenues may decline. In addition, the dynamic nature ofthis market limits our ability and the ability of our customers to accuratelyforecast quarterly and annual sales. If we, or our customers, are unable toadequately manage product transitions, our business and results of operationscould be negatively affected.

 

***We depend on thesale by our licensees of products that incorporate our technologies, and areduction in those sales would adversely affect our licensing revenue.***

 

We derive most of our revenue from the licensing ofour technologies to consumer electronics product manufacturers. We do notmanufacture consumer electronics products ourselves and our licensing revenueis dependent on sales by our licensees of products that incorporate ourtechnologies. We cannot control these manufacturers’ product development orcommercialization efforts or predict their success. In addition, our licenseagreements, which typically require manufacturers of consumer electronics productsand media software vendors to pay us a specified royalty for every electronicsproduct shipped that incorporates our technologies, do not require thesemanufacturers to include our technologies in any specific number or percentageof units, and only a few of these agreements guarantee us a minimum aggregatelicensing fee. Accordingly, if our licensees sell fewer products incorporatingour technologies, decline to actively market products incorporating ourtechnologies or otherwise face significant economic difficulties, our revenuewill decline. Changes in consumer tastes or trends, changes in industrystandards or adverse changes in business and economic conditions may alsoadversely affect our licensing revenue.

 

***Pricing pressureson the consumer electronics product manufacturers, who incorporate ourtechnologies into their products, could limit the licensing fees we charge forour technologies, which could reduce our revenues.***

 

The markets for the consumer electronics products inwhich our technologies are incorporated are intensely competitive and pricesensitive. Retail prices for consumer electronics products that include ourtechnologies have decreased significantly, and we expect prices to continue todecrease for the foreseeable future. In response, manufacturers have sought toreduce their product costs, which can result in downward pressure on thelicensing fees we charge our customers who incorporate our technologies intotheir products. Alternatively, our customers may seek to eliminate ourtechnologies in their products in favor of internally developed technologies. Adecline in the licensing fees we charge could materially and adversely affectour operating results.

 

***We face intensecompetition from companies with greater brand recognition and resources.***

 

The digital audio, consumer electronics andentertainment markets are intensely competitive, subject to rapid change, andsignificantly affected by new product introductions and other market activitiesof industry participants.

 

Some of our current and potential competitors enjoynotable competitive advantages, including:

 

·                  Greater name recognition;

 

·      Largerdistribution channels and long standing relationships with consumer electronicsproducts designers and manufacturers;

 

·                  A more extensive customer base;

 

·                  Broader product and service offerings;

 

·      Greaterresources for competitive activities, such as research and development,strategic acquisitions, alliances, joint ventures, sales and marketing, andlobbying industry and government standards; and

 

·                  More technicians and engineers.

 

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·      Decodingand encoding technology offerings of our competitors have become standards incertain consumer electronic products that may offer them a perceived advantagein licensing competitive products.

 

As a result, these current and potential competitorsmay be able to respond more quickly and effectively than we can to new orchanging opportunities, technologies, standards, or customer requirements.

 

We may also experience competition from certain of ourcustomers who decide to develop their own sound technologies instead oflicensing such technologies.  Anyincreased competition may adversely impact our revenues, margins and earnings.

 

***Inaccurate licenseeroyalty reporting and unauthorized use of our intellectual property couldmaterially adversely affect our operating results.***

 

Our licensing revenue is generated primarily fromconsumer electronics product manufacturers who license our technologies andincorporate them in their products. Under a significant percentage of ourexisting arrangements, these licensees typically pay us a specified royalty forevery product they ship that incorporates our technologies. We rely on ourlicensees to accurately report the number of units shipped that incorporate ourtechnologies. We calculate our license fees, prepare our financial reports,projections and budgets, and direct our sales and product development effortsbased on these reports we receive from our licensees. However, it can bedifficult for us to independently determine whether or not our licensees arereporting shipments accurately. This is especially true with respect tosoftware incorporating our technologies because software can be copied relativelyeasily and we often do not have easy ways to determine how many copies havebeen made. Most of our license agreements permit us to audit our licensees’records, but audits are generally expensive and time consuming and initiatingaudits could harm our customer relationships. We expect that we will continueto be subject to understatement and non-reporting of royalty bearing revenuesby licensees, which could adversely affect our operating results. Conversely,to the extent that our licensees overstate the number of products incorporatingour technologies, negative corrections could result in reductions of royaltyrevenue in subsequent periods. Some of our licensees may begin to more closelyscrutinize their past licensing statements, which may result in an increasedreceipt of negative corrective statements

 

We also may experience problems with non-licenseeconsumer electronics product manufacturers and media software vendors,particularly in emerging economies, incorporating our technologies or incorporatingour technologies and trademarks into their products without our authorizationand without paying us any licensing fees. This unauthorized use of ourintellectual property could adversely affect our operating results.

 

***Our business andfuture prospects depend upon the strength of our brand. Awareness of our branddepends to a significant extent upon decisions by our customers to display ourtrademarks on their products, and if our customers do not display ourtrademarks on their products, our ability to increase our brand awareness maybe harmed.***

 

Because we engage in relatively little direct brandadvertising, the promotion of our brand depends upon consumer electronicsindustry participants displaying our trademarks on their products thatincorporate our technologies.  Although we do generally require ourcustomers to place our brand on their products, some are not required to do so.Maintaining the SRS brand and our position as an industry standard is criticalto maintaining and expanding our licensing revenues and entering into new orbroadening existing licensing relationships.  If our customers choose forany reason not to display our trademarks on their products, our ability tomaintain or increase our brand awareness may be harmed, which would have anadverse effect on our business and prospects. In addition, if we fail tomaintain high quality standards for our products, or the products thatincorporate our technologies through the quality control evaluation processthat we require of our licensees, the strength of our brand could be adverselyaffected.

 

***Licensee productsthat incorporate our technologies, from time to time, experience qualityproblems that could damage our brand, decrease revenues and increase operatingexpenses.***

 

Licensee products that incorporate our technologiesoften are complex and sometimes contain undetected software or hardware errors,particularly when first introduced or when new versions are released. Inaddition, those products are often combined with, or incorporated into,products from other companies, sometimes making it difficult to identify thesource of a problem. Any negative publicity or negative impact relating tothese product problems (even if unrelated to our technologies) could adverselyaffect the perception of our brand. In addition, these errors could result inloss of, or delay in, market acceptance of those products or our technologies,or cause delays in delivering them and meeting customer demands, any of whichcould reduce our revenue and raise significant customer relations issues.Although we generally attempt to contractually limit our liability for ourlicensees’ defective products, we may elect to help reengineer those products,which could increase our expenses and adversely affect our operating results.

 

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***We may engage inacquisition activities, which could require significant capital infusions andmay result in operating challenges, dilution to our stockholders and otheradverse consequences.***

 

We may in the future acquire, or consider theacquisition of, complementary businesses, products and/or technologies.Acquisitions may require significant capital infusions and, in general, involvea number of special risks, including, but not limited to, the following:

 

·                  Potential disruption of our ongoing business and thediversion of our resources and management’s attention to acquisition activitiesand integration challenges;

 

·                  The failure to retain or integrate key acquiredpersonnel;

 

·                  The challenge of assimilating diverse businesscultures, and the difficulties in integrating the operations, technologies andinformation systems of the acquired companies;

 

·                  Increased costs to integrate and improve managerial,operational, financial and other administrative systems and to eliminateduplicative services;

 

·                  The need to implement or improve internal controls,procedures and policies appropriate for a public company at businesses thatprior to the acquisition were privately-held or otherwise lacked such adequatecontrols, procedures or policies;

 

·                  Unanticipated or unknown obligations or liabilitiesrelating to an acquisition;

 

·                  Possible write-offs, impairment charges, compensationcharges or other adverse tax or accounting consequences related to anacquisition; and

 

·                  Integration challenges across diverse geographies,cultures, economies or regulatory environments.

 

Our competitors are also soliciting potentialacquisition candidates, which could both increase the price of any acquisitiontargets and decrease the number of attractive available acquisitions.  We cannot assure you that we will pursue anacquisition or be able to identify or consummate any acquisition, successfullyintegrate any acquisition or realize the benefits anticipated from anyacquisition.  Future acquisitions mayalso require us to obtain additional equity or debt financing, which may not beavailable on favorable terms, on a timely basis or at all.

 

***We are subject torisks associated with substantial international operations.***

 

We conduct sales and customer support operations in anumber of countries throughout the world that require refinement to adapt tothe changing market conditions on a regional basis. In addition, many of oursignificant customers are headquartered in the Asia Pacific region,particularly Korea and Japan. Approximately 88%, 90% and 91% of our revenueswere derived from customers with headquarters located in the Asia Pacificmarkets during the years ended December 31, 2008, 2007 and 2006,respectively. We expect to continue to derive a significant portion of ourrevenues from sales to customers in these markets for the foreseeable future.Also, a substantial number of products incorporating our technologies aremanufactured, assembled and tested by third parties in Asia. As a result, weare subject to a number of risks of conducting business outside of the UnitedStates, any of which could have a material adverse impact on our business andresults of operations, including:

 

·                  global economic downturn;

 

·      political,social and economic instability, and the risk of war, terrorist activities orother international incidents in Asia and elsewhere abroad;

 

·                  currency fluctuations;

 

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·                  difficulties and costs of staffing and managing foreign operations;

 

·                  unexpected changes in, or impositions of, government requirements;

 

·                  adverse changes in tariffs and other protectionist laws and businesspractices that favor local competitors;

 

·                  potentially longer payment cycles and greater difficulty in collectingreceivables from foreign entities;

 

·      theburdens of complying with a variety of non-U.S. laws and reduced protection ofour intellectual property in some countries;

 

·                  potentially adverse tax consequences and the complexities of foreignvalue added tax systems; and

 

·                  Other factors beyond our control, including natural disasters and majorhealth concerns.

 

***We have a long andunpredictable sales cycle, which can result in uncertainty and delays ingenerating additional revenues.***

 

Historically, because of the complexity of ourtechnologies, it can take a significant amount of time and effort to explainthe benefits of our technologies to potential new customers and to negotiate asale. For example, it typically takes six to nine months after our firstcontact with a prospective customer before we start licensing our technology tothat customer and another six to nine months to begin generating revenues. Inaddition, purchases of our products are usually made in connection with newdesign starts by our customers, the timing of which is outside of our control.Accordingly, we may be unable to predict accurately the timing of anysignificant future sales of our products. We may also spend substantial timeand management attention on potential license agreements that are notconsummated, or in which the consumer electronic product ultimately does not sellin large quantities, thereby foregoing other higher revenue opportunities.

 

***If our patents andother intellectual property rights do not adequately protect our products, wemay lose market share to our competitors and be unable to operate our businessprofitably.***

 

Our ability to compete may be affected by our abilityto protect our proprietary information. We have filed numerous U.S. and foreignpatent applications and to date have a number of issued U.S. and foreignpatents covering various aspects of our technologies. We cannot guarantee thatthe steps taken by us to protect our intellectual property will be adequate toprevent misappropriation of our technology or that our competitors will notindependently develop technologies that are substantially equivalent orsuperior to our technology. In addition, the laws of certain foreign countriesmay not protect our intellectual property rights to the same extent as do thelaws of the U.S. It is possible that third parties may assert claims orinitiate litigation against us or our customers with respect to existing orfuture products. In addition, we may initiate claims or litigation againstthird parties for infringement of our proprietary rights or to determine thescope and validity of our proprietary rights. Litigation in the technologyindustry is common.  We are currentlyengaged in a dispute with Sony concerning the possible infringement of severalSRS patents by Sony’s S-Force technology, but cannot assure you that we will besuccessful in such dispute and such litigation may adversely effect our abilityto license other technologies to Sony. Claims and litigation brought against usor initiated by us could be costly and time consuming and could divert ourmanagement from our business. The outcome of any litigation is uncertain andcould require us to pay significant damages or could prevent us from licensingsome or all of our technologies, which could significantly harm our businessand results of operations.

 

***If we lose theservices of our key personnel, or if we are unable to attract and retain otherkey personnel, we may not be able to manage our operations or meet our growthobjectives.***

 

Our future success depends to a large extent upon thecontinued service of key personnel, including engineering, sales andadministrative staff. We anticipate that any future growth will require us torecruit and hire a number of new personnel in engineering, operations, finance,sales and marketing. Competition for such personnel can be intense, and it ispossible that we may not be able to recruit and retain necessary personnel tooperate our business and support future growth.

 

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***The market priceof our common stock is volatile and your investment in our common stock couldsuffer a decline in value.***

 

The trading price of our common stock has been, andwill likely continue to be, subject to wide fluctuations in response to quarterlyvariations in our operating results, announcements of new products ortechnological innovations by us or our competitors, strategic alliances betweenus and third parties, general market fluctuations and other events and factors.Changes in earnings estimates made by brokerage firms and industry analystsrelating to the markets in which we do business, or relating to usspecifically, have in the past resulted in, and could in the future result in,an immediate and adverse effect on the market price of the common stock. Eventhough our stock is quoted on the NASDAQ Global Market, our stock has had andmay continue to have low trading volume and high volatility. The historicallylow trading volume of our stock makes it more likely that a severe fluctuationin volume, either up or down, will significantly impact the stock price.Because of the relatively low trading volume of our stock, our stockholders mayhave difficulty selling our common stock. In addition, the stock market ingeneral, and the NASDAQ Global Market and the market for technology and smallmarket cap companies in particular, has experienced extreme price and volumefluctuations that have often been unrelated or disproportionate to theoperating performance of those companies. Further, the market prices ofsecurities of technology companies have been particularly volatile. These broadmarket and industry factors may materially harm the market price of our commonstock, regardless of our operating performance.

 

***Our certificate ofincorporation and bylaws as well as Delaware law contain provisions that coulddiscourage transactions resulting in a change in control, which may negativelyaffect the market price of our common stock.***

 

Our certificate of incorporation, our bylaws andDelaware law contain provisions that might enable our management to discourage,delay or prevent a change in control. In addition, these provisions could limitthe price that investors would be willing to pay in the future for shares ofour common stock.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

TheAnnual Meeting of Stockholders of SRS Labs, Inc. was held on June 17,2009 for the purpose of (a) electing two Class I directors to theBoard of Directors and (b) voting on a proposal to ratify the appointmentof Squar, Milner, Peterson, Miranda & Williamson, LLP as independentauditors for the fiscal year ending December 31, 2009.

 

WinstonE. Hickman and Carol L. Miltner were elected to serve as Class I directorsof the Company for a three-year term expiring at the 2012 Annual Meeting ofStockholders.  David Dukes continued as aClass II Director.  Sam Yau andThomas C. K. Yuen continued as Class III Directors. The tabulation of thevotes cast for the election of Winston E. Hickman and Carol L. Miltner were asfollows:

 
| **Nominee**        | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|--------------------|------------|--------------------|------------|-------------------------|------------|
| Winston E. Hickman |       | 11,685,615         |       | 1,560,580               |       |
| Carol L. Miltner   |       | 11,687,202         |       | 1,558,993               |       |

 

Theproposal to ratify the appointment of Squar, Milner, Peterson, Miranda &Williamson, LLP as independent auditors for the fiscal year ending December 31,2009 was approved.  The tabulation ofvotes was as follows:

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Abstentions** | ** ** | **Broker Non-Votes** | ** ** |
|--------------------|------------|------------------------|------------|-----------------|------------|---------------------------|------------|
| 12,034,273         |       | 1,201,704              |       | 10,218          |       | 0                         |       |

 

**Item 5.  Other Information**

 

On August 3,2009, the Company adopted the Amended and Restated Change in Control ProtectionPlan (the “CIC Plan”), which amended and restated the original plan that waspreviously adopted in 2005.  The CIC Plangenerally provides that if a participant’s employment is terminated without “cause”or if the participant resigns for “good reason” (both as defined in the CICPlan) during a two-year period following a change in control (as defined in theCIC Plan), the participant will be entitled to receive a severancepayment.  Under the CIC Plan and itspredecessor plan, the size of severance payment that would be due to aparticipant upon the occurrence of a covered termination ranges from one to twotimes the participant’s “base amount” depending on the participant’s positionwith the Company. Under the CIC Plan, the “base amount” includes theparticipant’s base salary in effect immediately preceding the change in controlplus the participant’s 

 

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cash bonus and cashcommissions paid by the Company during the last completed calendar yearimmediately preceding the year in which a change of control occurs.  The CIC Plan modified the definition of “baseamount” because it previously included all of the participant’s annual W-2taxable income paid on average over the five years prior to the change incontrol, which overstated the intended benefits under the CIC Plan.  The CIC Plan also provides that the Companywill pay a participant’s COBRA premiums for a period of up to 18 monthsfollowing a covered termination.

 

Theexisting participants under the CIC Plan have entered into amendedparticipation agreements substantially in the same form as their existing agreementssubject to the modifications discussed above. Under the CIC Plan, Thomas C.K. Yuen, the Company’s Chairman of theBoard, Chief Executive Officer and President, would be entitled to two timeshis base amount, upon the occurrence of a covered termination within a two yearperiod following a change in control. Ulrich Gottschling, the Company’s ChiefFinancial Officer, Treasurer and Secretary, and Alan D. Kraemer, the Company’sExecutive Vice President and Chief Technology Officer, would each be entitledto one and one-half times their base amount upon the occurrence of a coveredtermination within a two year period following a change in control; Jeff Klaas,the Company’s Vice President, Global Sales, and Sarah Yang, the Company’s VicePresident, Software Engineering, would each be entitled to one times his or herbase amount upon the occurrence of a covered termination within a two-yearperiod following a change in control. Any participant, like Mr. Yuen, thathas an employment agreement or severance agreement with the Company thatprovides for severance-related benefits will not be entitled to receive anybenefits under the CIC Plan unless the participant waives any and all severancebenefits under the employment or severance agreement within five business daysafter a covered termination.  Thisdescription is qualified in its entirety by the CIC Plan and the forms ofparticipation agreement, copies of which are attached as Exhibits to thisreport.

 

**Item6.  Exhibits**

 

The exhibits listed below are hereby filed with theSEC as part of this Report.

 
| **Exhibit  Number** | ** ** | **Description** |
|---------------------|------------|-----------------|
| 3.1                 |       |            | Certificate of  Incorporation of the Company, previously filed with the SEC as  Exhibit 3.1 to the Company’s Registration Statement on Form SB-2,  specifically included in Amendment No. 1 to such Registration Statement  filed with the SEC on July 3, 1996 (File No. 333-4974-LA), which is  incorporated herein by reference. |
| 3.2                 |       |            | Bylaws of the Company,  previously filed with the SEC as Exhibit 3.1 to the Company’s Quarterly  Report on Form 10-Q for the period ended September 30, 1999, filed  with the SEC on November 12, 1999, which is incorporated herein by reference. |
| 10.1                | †     |            | Amended and Restated  Change In Control Protection Plan, adopted August 3, 2009, together with  the forms of Participation Agreements and the Grantor Trust Agreement. |
| 31.1                |       |            | Certification of Chief  Executive Officer of SRS Labs, Inc., pursuant to Rule 13a-14 of the  Securities Exchange Act. |
| 31.2                |       |            | Certification of Chief  Financial Officer of SRS Labs, Inc., pursuant to Rule 13a-14 of the  Securities Exchange Act. |
| 32.1                |       |            | Certification of Chief  Executive Officer of SRS Labs, Inc., pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
| 32.2                |       |            | Certification of Chief  Financial Officer of SRS Labs, Inc., pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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|   |   | † A contract,  compensatory plan or arrangement in which executive officers are eligible to  participate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|                                  | SRS LABS, INC., a  Delaware corporation       |
|---------------------------------------|----------------------------------------------------|
|                                  |                                               |
| Date:  August 6,  2009 | By:                                                | /S/  THOMAS C.K. YUEN |
|                                  | Thomas C.K. Yuen                                   |
|                                  | Chairman of the Board  and Chief Executive Officer |
|                                  | (Principal Executive  Officer)                     |
| ** **                            | ** **                                         |
| ** **                            | ** **                                         |
| Date:  August 6,  2009 | By:                                                | /S/  ULRICH GOTTSCHLING |
|                                  | Ulrich Gottschling                                 |
|                                  | Chief Financial Officer                            |
|                                  | (Principal Financial  and Accounting Officer)      |

 

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**EXHIBIT INDEX**

 

Theexhibits listed below are hereby filed with the SEC as part of this Report.

 
| **Exhibit  Number** | ** ** | **Description** |
|---------------------|------------|-----------------|
| 3.1                 |       |            | Certificate of  Incorporation of the Company, previously filed with the SEC as  Exhibit 3.1 to the Company’s Registration Statement on Form SB-2,  specifically included in Amendment No. 1 to such Registration Statement  filed with the SEC on July 3, 1996 (File No. 333-4974-LA), which is  incorporated herein by reference. |
| 3.2                 |       |            | Bylaws of the Company,  previously filed with the SEC as Exhibit 3.1 to the Company’s Quarterly  Report on Form 10-Q for the period ended September 30, 1999, filed  with the SEC on November 12, 1999, which is incorporated herein by reference. |
| 10.1                | †     |            | Amended and Restated  Change In Control Protection Plan, adopted August 3, 2009, together with  the form of Participation Agreement for Officers and the Grantor Trust  Agreement. |
| 31.1                |       |            | Certification of Chief  Executive Officer of SRS Labs, Inc., pursuant to Rule 13a-14 of the  Securities Exchange Act. |
| 31.2                |       |            | Certification of Chief  Financial Officer of SRS Labs, Inc., pursuant to Rule 13a-14 of the  Securities Exchange Act. |
| 32.1                |       |            | Certification of Chief  Executive Officer of SRS Labs, Inc., pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
| 32.2                |       |            | Certification of Chief  Financial Officer of SRS Labs, Inc., pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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|   |   | † A contract,  compensatory plan or arrangement in which executive officers are eligible to  participate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

 

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