QSound Labs, Inc.

QSound Labs, Inc.

March 01, 2005 16:10 ET

QSound Labs Reports Fourth Quarter and Year End Results for 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: QSOUND LABS, INC.

NASDAQ SYMBOL: QSND

MARCH 1, 2005 - 16:10 ET

QSound Labs Reports Fourth Quarter and Year End
Results for 2004

CALGARY, ALBERTA--(CCNMatthews - March 1, 2005) - QSound Labs, Inc.
(NASDAQ:QSND), a leading developer of audio and voice software
solutions, today reported financial results for its fourth quarter and
year ended December 31, 2004. For the three months ended December 31,
2004, the consolidated revenues were $494,000 as compared to $363,000
for the same quarter in FY2003. The net loss for the fourth quarter was
$(448,000) or $(0.05) per share as compared to $(3,003,000) or $(0.41)
per share for the same period in FY2003.

Consolidated revenues for the year ended December 31, 2004 were
$2,213,000 compared to $2,043,000 in FY2003. Net loss for this year was
$(1,926,000) or $(0.25) per share as compared to $(3,706,000) or $(0.52)
per share in FY2003.

The Company reported a working capital surplus of approximately $3.5
million at December 31, 2004 of which cash comprised $3,328,000. This
increase from the third quarter was as a direct result of a $2 million
private placement concluded with a single investor in December.

Fiscal 2004 Review

"In FY2004, the Company completed 16 OEM and semiconductor license
agreements and 3 partner agreements for its audio software solutions,"
stated David Gallagher, President and CEO of QSound Labs. "This is
noteworthy in that it is a significant increase in activity when
compared to recent years. The majority of these contracts are for the
Company's microQ™ solution for the mobile device marketplace and are
comprised of royalty revenues plus an upfront fee to recover initial
engineering costs. Revenues in FY2004 do not reflect the long term
benefits of these royalty streams but do include most of the engineering
fees. To date, 7 of these design wins have been announced, including
Qualcomm, Broadcom, VIA and Sony VAIO as well as the partnerships with
Vodafone and Samsung. The remainder will be announced when the relevant
products are ready for market introduction."

"With respect to the PC market, the Company has successfully refocused
its efforts and, as a result, signed new license agreements with VIA
Technologies, Ego Systems and Sony VAIO."

"Although our VoIP product sales were flat we remain optimistic that new
products, currently under development, will bring growth to this
business unit in the later half of 2005."

Outlook

"Consumer product introduction by our licensees can take as long as 18
months from license completion and the Company can only control its
portion of the deliverables. Consequently, it is difficult to predict
when the full financial benefits of these concluded agreements will
occur. It is clear that the expectation of significant increases in the
Company's recurring revenue base is later in FY 2005 than management had
previously anticipated."

"Expenses are easier to predict. In FY 2005 expenses will be similar to
what they were in FY 2004 except for the estimated increase in adopting
corporate governance provisions as prescribed by Sarbanes-Oxley. This
could represent an increase in administrative expenses of $150,000."

"In FY 2003 the Company adopted the policy of expensing employee and
director stock options. In FY 2004 this totaled $320,000 and is mostly
included in administrative expenses. It is difficult to predict this
amount for FY 2005 but management expects this amount to be smaller,
thus potentially offsetting the increase in corporate governance costs."

"For FY 2005, the Company intends to continue pursing the microQ
opportunities that are clearly available in the growing mobile and
handheld market and build upon the momentum from contracts negotiated in
2004. These opportunities together with the introduction of new QTelNet
products and the continued policy of cost containment will be the basis
for future growth."

This release contains forward-looking statements within the meaning of
the Private Securities Litigation Act of 1995 concerning, among other
things, expectation in 2005 of revenues from existing audio design wins,
new microQ licenses and sales of new VoIP products, and little or no
increase in expenses. Investors are cautioned that such forward-looking
statements involve risk and uncertainties, which could cause actual
results, performance or achievements of QSound, or industry results to
differ materially from those reflected in the forward-looking
statements. Such risks and uncertainties include, but are not limited
to, risks associated with loss of relationships with companies that do
business with QSound, successful product development, introduction and
acceptance, QSound's ability to carry out its business strategy and
marketing plans, dependence on intellectual property, rapid
technological change, competition, general economic and business
conditions, continued growth of multimedia usage in the mobile devices
market and other risks detailed from time to time in QSound's periodic
reports filed with the Securities and Exchange Commission.
Forward-looking statements are based on the current expectations,
projections and opinions of QSound's management, and QSound undertakes
no obligation to publicly release the results of any revisions to such
forward-looking statements which may be made, for example to reflect
events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.



QSound Labs, Inc.
Consolidated Balance Sheets
As at December 30, 2004 and December 31, 2003
(Expressed in United States dollars, prepared using US GAAP)

December 31, December 31,
2004 2003

ASSETS
Current assets:
Cash and cash equivalents $ 3,327,543 $ 2,061,093
Accounts receivable 210,967 221,194
Inventory 162,568 107,377
Deposits and prepaid expenses 61,438 82,921
---------------------------------------------------------------------
3,762,516 2,472,585


Capital assets 1,302,598 1,114,992
Intangible assets 162,720 189,002
---------------------------------------------------------------------

$ 5,227,834 $ 3,776,579
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities $ 245,664 $ 233,198
Deferred revenue 59,745 96,547
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305,409 329,745
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---------------------------------------------------------------------

Shareholders' equity:
Share capital (8,404,085 common shares) 45,994,584 44,003,303
Warrants 1,502,331 217,450
Contributed surplus 1,329,136 1,203,761
Deficit (43,903,626) (41,977,680)
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4,922,425 3,446,834
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$ 5,227,834 $ 3,776,579
---------------------------------------------------------------------
---------------------------------------------------------------------


QSound Labs, Inc.
Consolidated Statements of Operations and Deficit
For the periods ended December 31, 2004 and 2003
(Expressed in United States dollars, prepared using US GAAP)

For three For three For the For the
months ended months ended year ended year ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(unaudited) (unaudited)
REVENUE
Royalties and
license fees $ 184,509 $ 88,109 $ 1,162,303 $ 779,396
Product sales 309,706 275,154 1,050,875 1,263,692
---------------------------------------------------------------------
494,215 363,263 2,213,178 2,043,088
Cost of
product sales 38,613 136,075 419,290 419,837
---------------------------------------------------------------------
455,602 227,188 1,793,888 1,623,251
EXPENSES:
Marketing 268,806 435,094 1,251,695 1,301,890
Operations 68,966 52,637 240,691 174,558
Product
engineering 263,542 235,630 962,340 834,333
Administration 173,404 169,488 800,611 578,805
Foreign
exchange loss 38,936 85 41,955 4,958
Depreciation and
amortization 146,487 71,089 457,572 308,717
Impairment
of assets - 108,154 - 108,154
Impairment of
goodwill - 2,184,589 - 2,184,589
---------------------------------------------------------------------
960,141 3,256,766 3,754,864 5,496,004

---------------------------------------------------------------------
OPERATING
(LOSS) PROFIT (504,539) (3,029,578) (1,960,976) (3,872,753)

OTHER ITEMS
Interest and
other income 71,659 7,011 78,727 41,164
Gain (loss) on
sale of capital
assets (2,380) 3,933 (15,616) 2,204
Other (12,747) 15,561 (28,081) 123,754
---------------------------------------------------------------------
56,532 26,505 35,030 167,122

---------------------------------------------------------------------
NET (LOSS)
INCOME FOR
PERIOD (448,007) (3,003,073) (1,925,946) (3,705,631)
DEFICIT
BEGINNING
OF PERIOD (43,455,619) (38,974,607) (41,977,680) (38,272,049)
---------------------------------------------------------------------
DEFICIT END
OF PERIOD $(43,903,626) $(41,977,680) $(43,903,626) $(41,977,680)
---------------------------------------------------------------------
---------------------------------------------------------------------

INCOME PER
COMMON SHARE $ (0.05) $ (0.41) $ (0.25) $ (0.52)
---------------------------------------------------------------------
---------------------------------------------------------------------


QSound Labs, Inc.
Consolidated Statements of Cash Flows
For the periods ended December 31, 2004 and 2003
(Expressed in United States dollars, prepared using US GAAP)

For three For three For the For the
months ended months ended year ended year ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
(unaudited) (unaudited) (unaudited) (unaudited)

Cash provided
by (used in)

OPERATIONS
(Loss) Income
for the period $ (448,007) $(3,003,073) $(1,925,946) $ (3,705,631)
Items not
requiring
(providing)
cash:
Depreciation
and
amortization 146,487 71,089 457,572 308,717
Impairment
of assets - 108,154 - 108,154
Impairment
of goodwill - 2,184,589 - 2,184,589
Compensation
cost of
options issued 58,199 84,575 320,432 90,439
Loss (gain) on
sale of capital
assets 2,380 (3,933) 15,616 (2,204)
Changes in
working capital
balances 134,059 181,707 (47,817) 576,243
---------------------------------------------------------------------
(106,882) (376,892) (1,180,143) (439,693)

FINANCING
Issuance of
common shares,
net 1,097,882 11,298 2,120,657 22,940
Issuance of
warrants 904,019 - 904,019 -
---------------------------------------------------------------------
2,001,901 11,298 3,024,676 22,940

INVESTMENTS
Purchase of
capital assets (67,688) (46,807) (536,480) (98,026)
Purchase of
intangible
assets (6,772) (15,215) (46,033) (51,394)
Proceeds from
sale of capital
assets 4,238 260 4,430 6,061
---------------------------------------------------------------------
(70,222) (61,762) (578,083) (143,359)

---------------------------------------------------------------------
Increase
(decrease)
in cash 1,824,797 (427,356) 1,266,450 (560,112)
Cash and cash
equivalents
beginning of
period 1,502,746 2,488,449 2,061,093 2,621,205
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash and cash
equivalents
end of period $ 3,327,543 $ 2,061,093 $ 3,327,543 $ 2,061,093
---------------------------------------------------------------------
---------------------------------------------------------------------

Notes:

1. Certain comparative information has been reclassified to conform
with the current year's presentation.
2. This release reflects prospective adoption SFAS No. 123,
"Accounting for Stock-Based Compensation" as of January 1, 2003


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