SRS Labs, Inc. Sells Its Interest in Valence Technology Limited.

SANTA ANA, Calif. -- On July 14, 2006, SRS Labs, Inc. ("SRS") (NASDAQ:SRSL) entered into a definitive Sale and Purchase Agreement ("Purchase Agreement") to sell its semiconductor business, Valence Technology Limited ("Valence") to Noblehigh Enterprises Inc. ("Noblehigh"). Noblehigh is owned by Willas Array Electronics (Holding) Limited ("Willas-Array") as well as certain members of management of Valence, including Lionel Cheng, President of Valence, Hong Wa Poon, Sze Chuen Pele Lai, Kim Chiu Chang, Kwok Kwan Tong and Kai Ming Wong (collectively such individuals are referred to herein as the "Management Buyers").

The sale to Noblehigh will be affected through two simultaneous transactions: (1) the repurchase by Valence of approximately 74% of the outstanding shares of Valence from SRS and (2) the purchase by Noblehigh of the remaining outstanding shares of Valence from SRS for $4.3 million. Valence will repurchase shares from SRS using its existing cash, cash equivalents and other current assets, all of which are already reflected on SRS's balance sheet. The purchase price is subject to adjustment dependent upon Valence's net current assets as of June 30, 2006 as determined by the parties' auditors.

In connection with the sale of Valence to Noblehigh, management personnel of Valence (other than Reivlin Cham) will execute Waiver of Change of Control agreements to confirm that they are not entitled to any payments or other benefits as a result of the sale of Valence. As a result of the sale of Valence, Reivlin Cham, Vice President Finance of Valence, will be entitled to receive approximately $156,000 as a result of a Change of Control Agreement. The change of control payment to Mr. Cham will be payable by SRS. Also, subject to the sale of Valence, SRS will repurchase from Management Buyers up to 550,000 shares of SRS common stock, which such individuals may obtain through the exercise of vested employee stock options. The repurchase price payable for such shares shall be equal the average closing price of SRS common stock for the 10 trading days prior to the closing date of the sale of Valence. The repurchase of any shares from the Management Buyers will occur concurrently with the closing of the sale of Valence.

The Purchase Agreement contains customary representations, covenants, warranties, indemnification and termination provisions. The closing of the sale of Valence is subject to a number of conditions, including the approval of the transaction by the shareholders of Willas-Array.

"The sale of ownership interest in Valence and our previously announced sale of the CHS/SRS LLC joint venture will allow SRS to focus increased management attention and financial resources on its core licensing business, which we believe presents more significant marketing and sales opportunity," said Thomas C.K. Yuen, chairman and chief executive officer of SRS Labs, Inc. "By focusing our attention on these key areas, we expect to capture the most growth potential. These moves also position us to aggressively expand our market presence with our software partners and with the Original Equipment Manufacturing customers across our core market segments."

About SRS Labs, Inc.

SRS Labs develops advanced audio, voice and surround sound technology solutions that optimize and improve the listening experience through techniques based on the latest research into the human auditory system. With over 600 million products shipped worldwide, SRS Labs is a leader in audio. Incorporated in products ranging from HDTVs and mobile phones to PCs and automotive entertainment, SRS Labs audio and speech signal processing provides the best possible sound on every form factor and in every environment. SRS Labs surround sound solutions enable the professional broadcast and recording industries with high-performance production, back-haul, storage, and transmission capability. SRS Labs supports manufacturers worldwide with offices in the US, China, Japan, Taiwan, Europe and Korea.

Except for historical information contained in this release, statements in this release, including those by Mr. Yuen may constitute forward-looking statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events 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.