QSound Labs, Inc.
NASDAQ : QSND

QSound Labs, Inc.

August 09, 2007 16:00 ET

QSound Labs Reports Second Quarter Results for 2007

CALGARY, ALBERTA--(Marketwire - Aug. 9, 2007) - QSound Labs, Inc. (NASDAQ:QSND), a leading developer of audio and voice software solutions, today reported financial results for the second quarter of FY2007. For the three months ended June 30, 2007, the consolidated revenues were $796,000 as compared to $430,000 for the same quarter in FY2006. The net loss for the second quarter was $(142,000) or $(0.02) per share as compared to $(481,000) or $(0.05) per share in FY2006.

Consolidated revenues for the six months ended June 30, 2007 were $1,402,000 compared to $1,104,000 for the same period in FY2006. Net loss for the six month period was $(523,000) or $(0.06) per share as compared to $(660,000) or $(0.07) per share in FY2006.

The Company reported a working capital surplus of $2,281,000 as at June 30, 2007 of which cash comprised $1,833,000.

"Recurring revenues continued to increase during the second quarter," stated David Gallagher, President and CEO of QSound Labs. "This has occurred as a result of the continued market penetration of the Company's microQ audio engine into the mobile device market. Royalty and recurring license fee revenue for the three months ended June 30, 2007 increased 335% to $696,659 from $160,274 for the three months ended June 30, 2006. For the six months ended June 30, 2007 and 2006, royalty and recurring license fee revenue was $1,021,268 and $307,422, respectively, an increase of 232%. The main drivers for these increases in 2007 have been the increasing level of royalty based product launches by microQ licensees as well as the Company's securing of annual license fees with certain strategic partners. QSound expects royalty revenue growth to continue quarter over quarter, however, due to revenue recognition criteria there will be quarterly fluctuations in the level of recurring license fees but anticipated growth on an annual basis."

"Currently, microQ is shipping in LG, Panasonic, UTStarcom, MITAC, Samsung & BenQ mobile devices. In the second half of the year, the Company expects more devices to ship from BenQ, MITAC, LG, Pantech and HiSilicon (a subsidiary of Huawei). Management continues to pursue other opportunities based on the strategic relationships established with ARM and SUN and would expect these efforts to result in revenues for the Company in FY2008."

"The Company continues to also market its technology to the home entertainment and bluetooth audio markets. Like the mobile device market, the Company is aligning itself with as many significant platform providers as it can, for these markets. To date, the Company has successfully ported its technologies to CSR, STMicro and Texas Instruments' platforms and is currently actively marketing these solutions, primarily to Asian OEMs and ODMs."

About QSound Labs, Inc.

Since its inception in 1988, QSound Labs, Inc. has established itself as one of the world's leading audio technology companies. The company has developed proprietary audio solutions that include virtual surround sound, positional audio and stereo enhancement for the mobile devices, consumer electronics, PC/multimedia, and Internet markets. QSound Labs' cutting-edge audio technologies create rich 3D audio environments allowing consumers to enjoy stereo surround sound from two, four and up to 7.1 speaker systems. The company's customer and partner roster includes ARM, BenQ, Broadcom, MITAC, Panasonic, Qualcomm, Sony Vaio and Toshiba among others. To hear 3D audio demos and learn more about QSound, visit our web site at http://www.qsound.com .

This release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 concerning, among other things, expectation in the second half of 2007 of increased shipments of microQ enabled mobile devices and in 2008 of increased revenues resulting from existing strategic relationships. 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 distribution of QSound-enabled products by licensees, continued growth of demand for QSound's technologies in the mobile devices market, QSound's ability to carry out its product development, business strategy and marketing plans, dependence on intellectual property, rapid technological change, competition, general economic and business conditions, 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.



Consolidated
Balance Sheets
As at June 30, 2007 and December 31, 2006 (unaudited)
(Expressed in United States dollars under United States GAAP)

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June 30, 2007 December 31, 2006
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ASSETS
Current assets
Cash and cash equivalents $ 1,832,503 $ 2,316,476
Accounts receivable (net) 713,247 316,298
Note receivable - 6,000
Inventory 18,619 19,422
Deposits and prepaid expenses 110,440 60,933
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2,674,809 2,719,129

Note receivable 26,692 55,325
Property and equipment 306,222 348,280
Deferred development costs 224,031 253,147
Intangible assets 81,511 98,351
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$ 3,313,265 $ 3,474,232
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities $ 240,866 $ 268,439
Deferred revenue 152,528 45,572
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393,394 314,011

Convertible notes 101,470 84,949

Shareholders' equity
Share capital 47,550,891 47,411,000
Warrants 1,027,114 1,027,114
Contributed surplus 2,980,498 2,854,038
Deficit (48,740,102) (48,216,880)
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2,818,401 3,075,272

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$ 3,313,265 $ 3,474,232
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Consolidated
Statements of Operations, Comprehensive Loss and Deficit
(unaudited)
(Expressed in United States dollars under United States GAAP)

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Three months ended Six months ended
June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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REVENUE
Royalties,
licenses and
engineering
fees $ 736,659 $ 364,054 $ 1,272,868 $ 956,771
Product sales 59,371 66,114 129,522 147,167
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796,030 430,168 1,402,390 1,103,938
Cost of product
sales 29,455 (3,251) 56,170 4,823
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766,575 433,419 1,346,220 1,099,115

EXPENSES:
Marketing 335,071 295,145 733,828 496,710
Operations 33,679 33,933 66,905 69,810
Product
engineering 167,411 213,882 347,999 429,514
Administration 301,560 262,551 582,265 485,521
Foreign
exchange loss (630) 220 191 8,907
Amortization 50,759 98,634 100,516 261,922
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887,850 904,365 1,831,704 1,752,384

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Loss before
other items (121,275) (470,946) (485,484) (653,269)

OTHER ITEMS:
Interest income 20,556 24,614 43,644 32,276
Interest on
convertible
notes (20,569) (19,322) (40,911) (19,747)
Accretion
expense (8,306) (4,093) (16,521) (4,342)
Gain on sale of
capital assets 586 - 586 -
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(7,733) 1,199 (13,202) 8,187
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Loss before
taxes (129,008) (469,747) (498,686) (645,082)
Foreign
withholding tax (13,269) (10,779) (24,536) (15,114)
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Net loss and
comprehensive
loss for the
period (142,277) (480,526) (523,222) (660,196)

Deficit,
beginning of
period (48,597,825) (46,714,875) (48,216,880) (46,535,205)
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Deficit, end of
period $ (48,740,102) $ (47,195,401) $ (48,740,102) $ (47,195,401)
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Loss per common
share (basic
and diluted) $ (0.02) $ (0.05) $ (0.06) $ (0.07)
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Consolidated
Statements of Cash Flows
(unaudited)
(Expressed in United States dollars under United States GAAP)

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Three months ended Six months ended
June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006
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Cash provided by
(used in):

OPERATIONS
Loss for the
period $ (142,277) $ (480,526) $ (523,222) $ (660,196)

Items not
requiring
(providing)
cash:
Amortization 50,759 98,634 100,516 261,922
Stock based
compensation 68,287 157,655 169,496 229,636
Accretion
expense 8,306 4,093 16,521 4,342
Gain on sale
of capital
assets (586) - (586) -
Other (349) (1,381) (1,367) (2,959)
Changes in
non-cash
working
capital
balances 5,156 377,392 (366,270) (276,240)
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(10,704) 155,867 (604,912) (443,495)

FINANCING
Issuance of
common shares
(net) 24,555 91,548 96,855 737,963
Proceeds on
issuance of
convertible - - - 1,000,000
notes
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24,555 91,548 96,855 1,737,963

INVESTMENTS
Note receivable - 26,442 36,000 26,442
Purchase of
property and
equipment (2,837) (14,589) (9,367) (24,011)
Deferred
development
costs - (16,420) - (39,500)
Purchase of
intangible
assets (3,135) (2,381) (3,135) (16,006)
Proceeds on
sale of
capital assets 586 - 586 -
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(5,386) (6,948) 24,084 (53,075)
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(Decrease)
increase in
cash and cash
equivalents 8,465 240,467 (483,973) 1,241,393
Cash and cash
equivalents,
beginning of
period 1,824,038 2,223,655 2,316,476 1,222,729
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Cash and cash
equivalents,
end of period 1,832,503 2,464,122 1,832,503 2,464,122
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