QSound Labs, Inc.
NASDAQ : QSND

QSound Labs, Inc.

November 03, 2005 16:05 ET

QSound Labs Reports Third Quarter Results for 2005

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) - QSound Labs, Inc. (NASDAQ:QSND), a leading developer of audio and voice software solutions, today reported financial results for the third quarter of FY2005. For the three months ended September 30, 2005, the consolidated revenues were $262,000 as compared to $600,000 for the same quarter in FY2004. The net loss for the third quarter was $(1,144,000) or $(0.14) per share as compared to $(337,000) or $(0.04) per share for the same period in FY2004. The loss for this quarter includes one-time charges of $548,000, so adjusting for this reduces the current quarter loss to $(596,000) or $(0.07) per share. This charge was incurred as a result of an asset write-down related to our VoIP business and severance costs for employees laid off during the quarter.

Consolidated revenues for the nine months ended September 30, 2005 were $1,140,000 compared to $1,719,000 for the same period in FY2004. Net loss for the nine month period was $(2,000,235) or $(0.24) per share as compared to $(1,478,000) or $(0.20) per share in FY2004. After adjustment for the one-time charges incurred in this quarter, the net loss for the nine months is $(1,452,000) or $(0.17) per share.

The Company reported a working capital surplus of approximately $1.9 million at September 30, 2005 of which cash comprised $1,657,000.

"In the past three years, the Company has focused primarily on the mobile device market and as a result "non-mobile" revenue in 2005 has declined 58% when compared to 2004. Revenue from the mobile device market has not grown fast enough to replenish this loss, hence the overall decline in revenues in 2005. For the year, 44% of our audio business segment revenues have resulted from licensees in the mobile device market. The majority of this revenue, 91%, has been in the form of one-off engineering fees and upfront license payments," stated David Gallagher, President and CEO of QSound Labs. "Recurring royalty revenue to date from mobile device licensees has been minimal and has been derived entirely from Smartphone design wins. Moving forward, through our semiconductor licensees, we expect to expand into higher volume feature and value phone segments and accordingly see growth in this recurring revenue base. In September, UTStarcom became our first licensee to begin shipping in the higher volume segment with the announcement of the UT107."

"The second area of investment for the Company has been the development of new solutions for the VoIP market. The first of these, a software solution targeted at entertainment devices, is now available and management expects to see revenues within the next few months. A second hardware project has been terminated and this resulted in the write-down incurred during this quarter."

"Management continues to monitor and enforce its cost containment program and during the quarter reduced staffing levels, thus resulting in a one-off charge to the income statement."

"The current strategy of entrenching the microQ technology in the growing mobile device market requires patience as the market evolves for software solutions but does provide, management believes, a significant opportunity in the near future for increased shareholder value."

This release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 concerning, among other things, expectation of growth in recurring revenues from existing and new microQ design wins and of revenues within the next few months from new VoIP products. 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 the mobile device 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.



Consolidated
Balance sheets
As at September 30, 2005 and December 31, 2004
(Expressed in United States dollars under United States GAAP)
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September 30, December 31,
2005 2004
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(unaudited)

ASSETS
Current assets
Cash and cash equivalents $ 1,657,236 $ 3,327,543
Accounts receivable 444,009 210,967
Inventory 59,499 162,568
Deposits and prepaid expenses 82,500 61,438
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2,243,244 3,762,516

Capital assets 949,403 1,302,598
Other intangible assets 157,753 162,720
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$ 3,350,400 $ 5,227,834
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 278,921 $ 245,664
Deferred revenue 54,190 59,745
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333,111 305,409

Shareholders' equity
Share capital (8,487,985 common shares) 46,061,436 45,994,584
Warrants 1,502,331 1,502,331
Contributed surplus 1,432,633 1,329,136
Deficit (45,979,111) (43,903,626)
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3,017,289 4,922,425

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$ 3,350,400 $ 5,227,834
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Consolidated
Statements of Operations and Deficit
For the periods ended September 30, 2005 and 2004
(Expressed in United States dollars under United States GAAP)
---------------------------------------------------------------------
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

REVENUE
Royalties
and license
fees $ 167,087 $ 383,773 $ 758,591 $ 977,794
Product
sales 95,350 216,504 381,634 741,169
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262,437 600,277 1,140,225 1,718,963
Cost of product
sales 14,605 93,320 82,295 380,677
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247,832 506,957 1,057,930 1,338,286
EXPENSES
Marketing 256,592 245,400 754,891 982,889
Operations 53,305 50,065 150,951 171,725
Product
engineering 226,433 228,211 710,807 698,798
Administration 230,812 198,315 617,514 627,207
Foreign
exchange loss
(gain) 5,902 3,107 3,333 3,019
Depreciation
and
amortization 71,080 101,433 277,293 311,085
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844,124 826,531 2,514,789 2,794,723
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Operating loss (596,292) (319,574) (1,456,859) (1,456,437)

OTHER ITEMS
Interest and
other income 11,939 2,843 40,958 7,068
Loss on sale
of capital
assets - (13,236) - (13,236)
Other (634,825) (6,887) (659,584) (15,334)
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(622,886) (17,280) (618,626) (21,502)
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Net loss for
period (1,219,178) (336,854) (2,075,485) (1,477,939)
Deficit,
beginning of
period (44,557,875) (42,916,707) (43,701,568) (41,775,622)
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Deficit,
end of
period $(45,777,053) $(43,253,561) $(45,777,053) $(43,253,561)
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Loss per
common
share $ (0.14) $ (0.04) $ (0.25) $ (0.20)
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Consolidated
Statements of Cash Flows
For the periods ended September 30, 2005 and 2004
(Expressed in United States dollars under United States GAAP)
---------------------------------------------------------------------
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
---------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided
by (used in)
OPERATIONS
Loss for the
period $(1,219,178) $ (336,854) $(2,075,485) $(1,477,939)
Items not
requiring
cash:
Depreciation
and
amortization 71,080 101,433 277,293 311,085
Compensation
cost of
options
issued 28,086 44,230 97,814 262,233
Loss on sale
of capital
assets - 13,236 - 13,236
Impairment
of assets 556,332 - 556,332 -
Changes in
working
capital
balances 122,567 116,132 (405,736) (181,876)
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(441,113) (61,823) (1,549,782) (1,073,261)
FINANCING
Issuance of
common
shares, net 14,664 68,099 53,713 1,022,775
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14,664 68,099 53,713 1,022,775
INVESTMENTS
Purchase of
capital
assets (3,191) (227,704) (135,432) (468,792)
Purchase of
intangible
assets (16,953) (29,597) (38,806) (39,261)
Proceeds from
sale of
capital
assets - 140 - 192
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(20,144) (257,161) (174,238) (507,861)

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Decrease in cash
and cash
equivalents (446,593) (250,885) (1,670,307) (558,347)
Cash and cash
equivalents,
beginning
of period 2,103,829 1,753,631 3,327,543 2,061,093

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Cash and cash
equivalents,
end of
period $ 1,657,236 $ 1,502,746 $ 1,657,236 $ 1,502,746
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