SRSL Srs Labs, Inc. (MM)

SRS Labs, Inc. (NASDAQ:SRSL), a leading supplier of surround sound, audio, and voice technologies, announced today that for the third quarter ended September 30, 2006, licensing revenue from continuing operations, increased by 34.9 percent to $4.9 million from $3.6 million for the same period in fiscal 2005, and net income from continuing operations increased to $1.3 million, or $.08 per diluted share, compared to $707 thousand, or $.05 per diluted share, for the same period in the prior year.�Included in operating expenses from continuing operations for the three month period ended September 30, 2006 is $383 thousand related to stock based compensation expensing. The Company also reported consolidated net income for the third quarter ended September 30, 2006 of $2.4 million or $.15 per diluted share, compared to $704 thousand or $.05 per diluted share for the same period in the prior year. For the nine months ended September 30, 2006, licensing revenue from continuing operations increased by 29.3 percent to $13.5 million from $10.4 million for the same period in fiscal 2005 and net income from continuing operations increased to $1.8 million, or $.11 per diluted share from $1.3 million, or $.09 per diluted share for the same period in fiscal 2005. Consolidated net income for the nine months ended September 30, 2006 increased to $3.5 million or $.21 per diluted share compared to $1.4 million or $.10 per diluted share for the same period in the prior year. Included in operating expenses from continuing operations for the nine month period ended September 30, 2006 is $1.2 million related to stock based compensation expensing. Thomas C.K. Yuen, Chairman and CEO of SRS Labs, Inc., commenting on the quarter, �We are very pleased with the results of this current quarter in many different ways. From a revenue perspective, we made strong gains with unit volumes in flat panel TVs, car audio, and in the digital audio accessory market. From a net income perspective, due to our highly 'leverage-able' business model, one in which increases in top line production, generally, does not require proportionate increases in costs nor operating expenses, we were able to realize greater improvement in net income. We believe that we are positioned to continue to drive revenue growth while keeping increases in operating expenses low. From a marketing and branding perspective, we are seeing more products appearing on retail shelves and in advertisements by major consumer brands featuring our logo world wide, especially in the highly visible large flat panel TV market. This quarter, we were very pleased to announce our new relationship with Sharper Image. Beginning this holiday season, a variety of consumer products prominently featuring our technologies and logo will appear in Sharper Image stores nationwide, as well as in their widely distributed catalogs. We appreciate this unique opportunity to enhance our visibility and collaborating with a highly regarded partner. Additionally, we launched two online downloadable audio enhancement software products, the iWOW for Apple based products and the SRS Audio Sandbox 'SAS' for Microsoft Windows based products. Through these offerings, which are available at http://www.srs-store.com/store-plugins/mall/sas-plugin.aspt, we hope to build more direct consumer awareness as well as exploring other revenue opportunities based on our technology and similar business models. Lastly, we are also pleased to have completed the sale of Valence Technology Limited to allow us to focus all of our attention on the audio technology licensing portion of our business.� In February 2006, SRS announced its intention to sell its Hong Kong-based semiconductor business, Valence Technology Limited. On July�14, 2006, the Company entered into a definitive Sale and Purchase Agreement (�Purchase Agreement�) and on September 29, 2006, the Company completed the transaction, which resulted in a gain on sale of $261 thousand. For the period July 1, 2006 through the date of sale, Valence Technology Limited reported net income from operations of $857 thousand. Both the gain on sale and the results from operations are included in discontinued operations. Conference Call SRS will host a conference call and webcast at 2 p.m. Pacific time today (5 p.m. Eastern Time) to review its fiscal 2006 third quarter results. The dial-in number for the call is (866) 814-8483, ask for �SRS Labs Q3 Results Conference Call� or provide conference call ID 982704. An audio replay of the conference call will be available until November 14 at 6:00pm Pacific time via telephone. The audio replay dial-in number is (866) 837-8032 and enter conference ID 982704. The call will also be webcast live over the Internet. Simply log-on to http://phx.corporate-ir.net/playerlink.zhtml?c=97327&s=wm&e=1401222. The webcast will be archived on the company�s website for 60 days following the call. About SRS Labs, Inc. SRS Labs is a recognized leader in the advancement of audio and voice technology. The company works with the world�s top manufacturers to provide a richer entertainment experience through patented sound techniques. SRS Labs� technologies can be heard through products ranging from televisions, LCD and plasma monitors, cell phones, MP3 players, car audio systems, and notebook and desktop computers. The company also offers hardware and software tools to professionals and consumers for the creation, production and broadcast of content featuring SRS Labs� technologies. Based in Santa Ana, Calif., the company also has licensing representation in Hong Kong, Taiwan, Japan, China, Europe, and Korea. For more information about SRS Labs, Inc. please visit www.srslabs.com. The information on the aforementioned website is not incorporated by reference into this press release. Except for historical information contained in this release, statements in this release, including those of Mr. Yuen are forward-looking statements and projections (which include statements concerning plans and objectives of management for future operations) that are based on management�s belief, as well as assumptions made by, and information currently available to management. While the company believes that its expectations are based upon reasonable assumptions, there can be no assurances that the company�s goals and strategy will be realized. Numerous factors, including risks and uncertainties, may affect the company�s actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of the company. Some of these factors include, the acceptance of new SRS Labs� products and technologies, the impact of competitive products and pricing, the timely development and release of technologies by the company, general business and economic conditions, especially in Asia, and other factors detailed in the company�s Form 10-K and other periodic reports filed with the SEC. SRS Labs specifically disclaims any obligation to update or revise any forward-looking statement whether as a result of new information, future developments or otherwise. SRS LABS,�INC. CONDENSED CONSOLIDATED BALANCE SHEETS � September 30,2006 December 31,2005 (unaudited) ASSETS Current Assets Cash and cash equivalents $26,126,915� $8,752,339� Accounts receivable, net 2,289,830� 1,886,780� Inventories, net 158,253� 80,421� Prepaid expenses and other current assets 910,902� 522,426� Investments available for sale 1,993,279� �� Assets held for sale �� 1,859,127� � Total Current Assets 31,479,179� 13,101,093� � Investments available for sale 5,211,295� 17,077,170� Furniture, fixtures and equipment, net 441,453� 425,288� Intangible assets, net 2,096,507� 2,015,605� Deferred income taxes 386,412� 380,386� Long term assets held for sale �� 2,065,123� � Total Assets $39,614,846� $35,064,665� � LIABILITIES AND STOCKHOLDERS� EQUITY Current Liabilities Accounts payable $898,289� $741,811� Accrued liabilities 1,113,929� 801,898� Deferred revenue 440,861� 537,636� Liabilities related to assets held for sale �� 2,170,701� � Total Current Liabilities 2,453,079� 4,252,046� � Commitments and contingencies � Stockholders� Equity Preferred stock�$.001 par value; 2,000,000 shares authorized; no shares issued or outstanding �� �� Common stock�$.001 par value; 56,000,000 shares authorized; 15,657,751 and 14,953,690 shares issued; and 14,983,653 and 14,279,592 shares outstanding at September 30, 2006 and December 31, 2005, respectively 15,659� 14,955� Additional paid-in capital 66,239,460� 63,574,518� Accumulated other comprehensive loss (295,131) (496,021) Accumulated deficit (25,794,776) (29,277,388) Treasury stock at cost, 674,098 shares at September 30, 2006 and December 31, 2005 (3,003,445) (3,003,445) � Total Stockholders� Equity 37,161,767� 30,812,619� � Total Liabilities and Stockholders� Equity $39,614,846� $35,064,665� SRS LABS,�INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) � Three Months Ended Nine Months Ended September 30, September 30, 2006� 2005� 2006� 2005� � Revenues $4,910,203� $3,640,134� $13,505,710� $10,444,206� Cost of sales 43,998� 39,804� 127,103� 190,987� � Gross margin 4,866,205� 3,600,330� 13,378,607� 10,253,219� � Operating expenses: Sales and marketing 1,743,660� 1,087,025� 5,494,445� 3,295,949� Research and development 628,227� 584,008� 1,914,255� 1,708,000� General and administrative 1,277,601� 1,198,433� 4,272,598� 3,898,785� � Total operating expenses 3,649,488� 2,869,466� 11,681,298� 8,902,734� � Income from continuing operations 1,216,717� 730,864� 1,697,309� 1,350,485� Other income, net 291,236� 176,707� 694,954� 486,318� Income from continuing operations before income tax expense 1,507,953� 907,571� 2,392,263� 1,836,803� Income tax expense 231,620� 200,420� 558,788� 487,950� Income from continuing operations 1,276,333� 707,151� 1,833,475� 1,348,853� � Discontinued operations: Income (loss) from discontinued operations before income tax expense (benefit) 859,843� (123,490) 1,054,095� (24,257) Gain on disposal 260,763� �� 632,058� �� Income tax expense (benefit) 6,320� (120,533) 37,016� (114,792) Income (loss) from discontinued operations 1,114,286� (2,957) 1,649,137� 90,535� � Net income $2,390,619� $704,194� $3,482,612� $1,439,388� � Income from continuing operations per common share: Basic $0.09� $0.05� $0.13� $0.10� Diluted $0.08� $0.05� $0.11� $0.09� � Income from discontinued operations per common share: Basic $0.07� $0.00� $0.11� $0.01� Diluted $0.07� $0.00� $0.10� $0.01� � Net income per common share: Basic $0.16� $0.05� $0.24� $0.10� Diluted $0.15� $0.05� $0.21� $0.10� � Weighted average shares used in the calculation of net income per common share: Basic 14,939,806� 14,094,690� 14,663,767� 14,076,833� Diluted 16,479,112� 15,300,803� 16,428,894� 15,070,362� SRS Labs, Inc. (NASDAQ:SRSL), a leading supplier of surround sound, audio, and voice technologies, announced today that for the third quarter ended September 30, 2006, licensing revenue from continuing operations, increased by 34.9 percent to $4.9 million from $3.6 million for the same period in fiscal 2005, and net income from continuing operations increased to $1.3 million, or $.08 per diluted share, compared to $707 thousand, or $.05 per diluted share, for the same period in the prior year. Included in operating expenses from continuing operations for the three month period ended September 30, 2006 is $383 thousand related to stock based compensation expensing. The Company also reported consolidated net income for the third quarter ended September 30, 2006 of $2.4 million or $.15 per diluted share, compared to $704 thousand or $.05 per diluted share for the same period in the prior year. For the nine months ended September 30, 2006, licensing revenue from continuing operations increased by 29.3 percent to $13.5 million from $10.4 million for the same period in fiscal 2005 and net income from continuing operations increased to $1.8 million, or $.11 per diluted share from $1.3 million, or $.09 per diluted share for the same period in fiscal 2005. Consolidated net income for the nine months ended September 30, 2006 increased to $3.5 million or $.21 per diluted share compared to $1.4 million or $.10 per diluted share for the same period in the prior year. Included in operating expenses from continuing operations for the nine month period ended September 30, 2006 is $1.2 million related to stock based compensation expensing. Thomas C.K. Yuen, Chairman and CEO of SRS Labs, Inc., commenting on the quarter, "We are very pleased with the results of this current quarter in many different ways. -- From a revenue perspective, we made strong gains with unit volumes in flat panel TVs, car audio, and in the digital audio accessory market. -- From a net income perspective, due to our highly 'leverage-able' business model, one in which increases in top line production, generally, does not require proportionate increases in costs nor operating expenses, we were able to realize greater improvement in net income. We believe that we are positioned to continue to drive revenue growth while keeping increases in operating expenses low. -- From a marketing and branding perspective, we are seeing more products appearing on retail shelves and in advertisements by major consumer brands featuring our logo world wide, especially in the highly visible large flat panel TV market. This quarter, we were very pleased to announce our new relationship with Sharper Image. Beginning this holiday season, a variety of consumer products prominently featuring our technologies and logo will appear in Sharper Image stores nationwide, as well as in their widely distributed catalogs. We appreciate this unique opportunity to enhance our visibility and collaborating with a highly regarded partner. Additionally, we launched two online downloadable audio enhancement software products, the iWOW for Apple based products and the SRS Audio Sandbox 'SAS' for Microsoft Windows based products. Through these offerings, which are available at http://www.srs-store.com/store-plugins/mall/sas-plugin.aspt, we hope to build more direct consumer awareness as well as exploring other revenue opportunities based on our technology and similar business models. -- Lastly, we are also pleased to have completed the sale of Valence Technology Limited to allow us to focus all of our attention on the audio technology licensing portion of our business." In February 2006, SRS announced its intention to sell its Hong Kong-based semiconductor business, Valence Technology Limited. On July 14, 2006, the Company entered into a definitive Sale and Purchase Agreement ("Purchase Agreement") and on September 29, 2006, the Company completed the transaction, which resulted in a gain on sale of $261 thousand. For the period July 1, 2006 through the date of sale, Valence Technology Limited reported net income from operations of $857 thousand. Both the gain on sale and the results from operations are included in discontinued operations. Conference Call SRS will host a conference call and webcast at 2 p.m. Pacific time today (5 p.m. Eastern Time) to review its fiscal 2006 third quarter results. The dial-in number for the call is (866) 814-8483, ask for "SRS Labs Q3 Results Conference Call" or provide conference call ID 982704. An audio replay of the conference call will be available until November 14 at 6:00pm Pacific time via telephone. The audio replay dial-in number is (866) 837-8032 and enter conference ID 982704. The call will also be webcast live over the Internet. Simply log-on to http://phx.corporate-ir.net/playerlink.zhtml?c=97327&s=wm&e=1401222. The webcast will be archived on the company's website for 60 days following the call. About SRS Labs, Inc. SRS Labs is a recognized leader in the advancement of audio and voice technology. The company works with the world's top manufacturers to provide a richer entertainment experience through patented sound techniques. SRS Labs' technologies can be heard through products ranging from televisions, LCD and plasma monitors, cell phones, MP3 players, car audio systems, and notebook and desktop computers. The company also offers hardware and software tools to professionals and consumers for the creation, production and broadcast of content featuring SRS Labs' technologies. Based in Santa Ana, Calif., the company also has licensing representation in Hong Kong, Taiwan, Japan, China, Europe, and Korea. For more information about SRS Labs, Inc. please visit www.srslabs.com. The information on the aforementioned website is not incorporated by reference into this press release. Except for historical information contained in this release, statements in this release, including those of Mr. Yuen are forward-looking statements and projections (which include statements concerning plans and objectives of management for future operations) that are based on management's belief, as well as assumptions made by, and information currently available to management. While the company believes that its expectations are based upon reasonable assumptions, there can be no assurances that the company's goals and strategy will be realized. Numerous factors, including risks and uncertainties, may affect the company's actual results and may cause results to differ materially from those expressed in forward-looking statements made by or on behalf of the company. Some of these factors include, the acceptance of new SRS Labs' products and technologies, the impact of competitive products and pricing, the timely development and release of technologies by the company, general business and economic conditions, especially in Asia, and other factors detailed in the company's Form 10-K and other periodic reports filed with the SEC. SRS Labs specifically disclaims any obligation to update or revise any forward-looking statement whether as a result of new information, future developments or otherwise. -0- *T SRS LABS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 2006 2005 ------------- ------------ (unaudited) ASSETS Current Assets Cash and cash equivalents $26,126,915 $8,752,339 Accounts receivable, net 2,289,830 1,886,780 Inventories, net 158,253 80,421 Prepaid expenses and other current assets 910,902 522,426 Investments available for sale 1,993,279 -- Assets held for sale -- 1,859,127 ------------- ------------ Total Current Assets 31,479,179 13,101,093 Investments available for sale 5,211,295 17,077,170 Furniture, fixtures and equipment, net 441,453 425,288 Intangible assets, net 2,096,507 2,015,605 Deferred income taxes 386,412 380,386 Long term assets held for sale -- 2,065,123 ------------- ------------ Total Assets $39,614,846 $35,064,665 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $898,289 $741,811 Accrued liabilities 1,113,929 801,898 Deferred revenue 440,861 537,636 Liabilities related to assets held for sale -- 2,170,701 ------------- ------------ Total Current Liabilities 2,453,079 4,252,046 Commitments and contingencies Stockholders' Equity Preferred stock--$.001 par value; 2,000,000 shares authorized; no shares issued or outstanding -- -- Common stock--$.001 par value; 56,000,000 shares authorized; 15,657,751 and 14,953,690 shares issued; and 14,983,653 and 14,279,592 shares outstanding at September 30, 2006 and December 31, 2005, respectively 15,659 14,955 Additional paid-in capital 66,239,460 63,574,518 Accumulated other comprehensive loss (295,131) (496,021) Accumulated deficit (25,794,776) (29,277,388) Treasury stock at cost, 674,098 shares at September 30, 2006 and December 31, 2005 (3,003,445) (3,003,445) ------------- ------------ Total Stockholders' Equity 37,161,767 30,812,619 ------------- ------------ Total Liabilities and Stockholders' Equity $39,614,846 $35,064,665 ============= ============ *T -0- *T SRS LABS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------- 2006 2005 2006 2005 ----------- ----------- ------------ ------------ Revenues $4,910,203 $3,640,134 $13,505,710 $10,444,206 Cost of sales 43,998 39,804 127,103 190,987 ----------- ----------- ------------ ------------ Gross margin 4,866,205 3,600,330 13,378,607 10,253,219 Operating expenses: Sales and marketing 1,743,660 1,087,025 5,494,445 3,295,949 Research and development 628,227 584,008 1,914,255 1,708,000 General and administrative 1,277,601 1,198,433 4,272,598 3,898,785 ----------- ----------- ------------ ------------ Total operating expenses 3,649,488 2,869,466 11,681,298 8,902,734 ----------- ----------- ------------ ------------ Income from continuing operations 1,216,717 730,864 1,697,309 1,350,485 Other income, net 291,236 176,707 694,954 486,318 ----------- ----------- ------------ ------------ Income from continuing operations before income tax expense 1,507,953 907,571 2,392,263 1,836,803 Income tax expense 231,620 200,420 558,788 487,950 ----------- ----------- ------------ ------------ Income from continuing operations 1,276,333 707,151 1,833,475 1,348,853 Discontinued operations: Income (loss) from discontinued operations before income tax expense (benefit) 859,843 (123,490) 1,054,095 (24,257) Gain on disposal 260,763 -- 632,058 -- Income tax expense (benefit) 6,320 (120,533) 37,016 (114,792) ----------- ----------- ------------ ------------ Income (loss) from discontinued operations 1,114,286 (2,957) 1,649,137 90,535 ----------- ----------- ------------ ------------ Net income $2,390,619 $704,194 $3,482,612 $1,439,388 =========== =========== ============ ============ Income from continuing operations per common share: Basic $0.09 $0.05 $0.13 $0.10 Diluted $0.08 $0.05 $0.11 $0.09 Income from discontinued operations per common share: Basic $0.07 $0.00 $0.11 $0.01 Diluted $0.07 $0.00 $0.10 $0.01 Net income per common share: Basic $0.16 $0.05 $0.24 $0.10 Diluted $0.15 $0.05 $0.21 $0.10 Weighted average shares used in the calculation of net income per common share: Basic 14,939,806 14,094,690 14,663,767 14,076,833 Diluted 16,479,112 15,300,803 16,428,894 15,070,362 *T