QSound Labs, Inc.
NASDAQ : QSND

QSound Labs, Inc.

August 02, 2005 16:00 ET

QSound Labs Reports Second Quarter Results for 2005

CALGARY, ALBERTA--(CCNMatthews - Aug. 2, 2005) - QSound Labs, Inc. (NASDAQ:QSND), a leading developer of audio and voice software solutions, today reported financial results for the second quarter of FY2005. For the three months ended June 30, 2005, the consolidated revenues were $401,000 as compared to $608,000 for the same quarter in FY2004. The net loss for the second quarter was $(481,000) or $(0.06) per share as compared to $(499,000) or $(0.07) per share for the same period in FY2004.

Consolidated revenues for the six months ended June 30, 2005 were $878,000 compared to $1,119,000 for the same period in FY2004. Net loss for the six month period was $(856,000) or $(0.10) per share as compared to $(1,141,000) or $(0.16) per share in FY2004.

The Company reported a working capital surplus of approximately $2.7 million at June 30, 2005 of which cash comprised $2,104,000.

"The financial results for the second quarter were as expected," stated David Gallagher, President and CEO of QSound Labs. "As outlined earlier this year at the Shareholders' Meeting and reported with our first quarter report, revenues do not yet reflect the majority of the business development activities of the past two years. The majority of these efforts have been for the Company's microQ™ solution for the mobile device marketplace. To date, the solution has shipped in several Smartphone products including, ZTE, MITAC & BenQ. These design wins have been important in establishing credibility for audio software solutions in the mobile market. Additionally, the solution has been adopted by several semiconductor companies, including ATI, Broadcom & Qualcomm, and as previously reported, management expects recurring revenue to be generated from these sources by the end of FY2005."

"During the quarter, the Company's technology began shipping in PC products from Sony Vaio and DVD products from Thomson/RCA."

"Updating our previous VoIP business unit reports, management is still optimistic that new VoIP products, currently under development, will increase revenues for this business unit in the later half of 2005."

"Expenses are being contained as predicted at FY2004. The postponement of Sarbanes-Oxley for FY2005 for small businesses will defer some of the expected expenditures mentioned in our previous financial report."

"The outlook as presented at the Shareholders' Meeting has not changed in the past three months. Specifically, the Company intends to continue pursuing the microQ opportunities that are clearly available in the growing mobile and handheld market and build upon the momentum from existing contracts. 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 and new microQ design wins and 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 June 30, 2005 and December 31, 2004
(Expressed in United States dollars under United States GAAP)

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June 30, 2005 December 31, 2004
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(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 2,103,829 $ 3,327,543
Accounts receivable 675,453 210,967
Inventory 109,641 162,568
Deposits and prepaid expenses 124,502 61,438
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3,013,425 3,762,516

Capital assets 1,257,809 1,302,598
Other intangible assets 155,390 162,720

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$ 4,426,624 $ 5,227,834
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 218,485 $ 245,664
Deferred revenue 48,136 59,745
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266,621 305,409

Shareholders' equity
Share capital 46,049,503 45,994,584
Warrants 1,502,331 1,502,331
Contributed surplus 1,368,102 1,329,136
Deficit (44,759,933) (43,903,626)
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4,160,003 4,922,425

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$ 4,426,624 $ 5,227,834
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QSound Labs, Inc.
Consolidated Statements of Operations and Deficit
For the periods ended June 30, 2005 and 2004
(Expressed in United States dollars under United States GAAP)

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For the For the For the For the
three three six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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(unaudited) (unaudited) (unaudited) (unaudited)
REVENUE
Royalties
and license
fees $ 253,856 $ 388,554 $ 591,504 $ 594,021
Product
sales 147,188 219,884 286,284 524,665
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401,044 608,438 877,788 1,118,686
Cost of
product
sales 20,884 148,694 67,690 287,357
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380,160 459,744 810,098 831,329
EXPENSES
Marketing 267,325 367,132 498,299 717,608
Operations 54,416 70,005 97,646 141,541
Product
engineering 257,349 246,070 484,374 470,587
Administration 194,101 173,425 386,702 428,892
Foreign
exchange
loss (gain) (4,540) (238) (2,569) (88)
Depreciation
and
amortization 104,529 102,023 206,213 209,652
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873,180 958,417 1,670,665 1,968,192
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Operating loss (493,020) (498,673) (860,567) (1,136,863)

OTHER ITEMS
Interest and
other income 17,566 3,086 29,019 4,225
Other (5,706) (2,920) (24,759) (8,447)
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11,860 166 4,260 (4,222)
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Net loss for
period (481,160) (498,507) (856,307) (1,141,085)

Deficit,
beginning of
period (44,278,773) (42,620,258) (43,903,626) (41,977,680)
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Deficit, end
of period $(44,759,933) $(43,118,765) $(44,759,933) $(43,118,765)
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Loss per
common share $ (0.06) $ (0.07) $ (0.10) $ (0.16)
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QSound Labs, Inc.
Consolidated Statements of Operations and Deficit
For the periods ended June 30, 2005 and 2004
(Expressed in United States dollars under United States GAAP)

---------------------------------------------------------------------
For the For the For the For the
three three six six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided
by (used in)

OPERATIONS
Loss for the
period $ (481,160) $ (498,507) $ (856,307) $ (1,141,085)
Items not
requiring
cash:
Depreciation
and
amortization 104,529 102,023 206,213 209,652
Compensation
cost of
options
issued 47,691 109,696 69,728 218,003
Changes in
working
capital
balances (278,400) (34,647) (528,303) (298,008)
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(607,340) (321,435) (1,108,669) (1,011,438)

FINANCING
Issuance of
common
shares, net 21,190 919,606 39,049 954,676
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21,190 919,606 39,049 954,676

INVESTMENTS
Purchase of
capital
assets (49,587) (198,205) (132,241) (241,088)
Purchase of
intangible
assets (6,963) (5,020) (21,853) (9,664)
Proceeds from
sale of
capital
assets - 52 - 52
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(56,550) (203,173) (154,094) (250,700)

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Decrease in cash
and cash
equivalents (642,700) 394,998 (1,223,714) (307,462)
Cash and cash
equivalents,
beginning of
period 2,746,529 1,358,633 3,327,543 2,061,093

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Cash and cash
equivalents,
end of
period $ 2,103,829 $ 1,753,631 $ 2,103,829 $ 1,753,631
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