QSound Labs Reports Second Quarter Results for 2008: Financial News

QSound Labs Reports Second Quarter Results for 2008
Wednesday August 13, 2008 4:00 pm ET

CALGARY, ALBERTA--(MARKET WIRE)--Aug 13, 2008 -- QSound Labs, Inc. (QSND - News), a leading developer of audio and voice software products, today reported its second quarter financial results for 2008. Revenues for the three months ended June 30, 2008 were $608,000 as compared to $737,000 for the same period in FY2007. The net loss for the quarter, computed in accordance with US generally accepted accounting principles, was $(292,000) or $(0.03) per share as compared to a net loss of $(142,000) or $(0.02) per share for the same period in FY2007.

Consolidated revenues for the six months ended June 30, 2008 were $980,000 compared to $1,273,000 for the same period in FY2007. Net loss for the six months was $(864,000) or $(0.09) per share as compared to $(523,000) or $(0.06) per share in FY2007.

Subsequent to the quarter-end, the Company closed a private placement for $1,925,000, of which $1,750,000 had been received before the quarter-end and is included in cash and cash equivalents at June 30, 2008.

The Company used some of these funds to reach an agreement with MachineWorks Northwest, a premier developer of mobile platform games, to acquire its acclaimed Ripp3D graphics engine for $3.1 million. The engine currently earns the majority of its royalty revenues from the mobile game, Guitar Hero Mobile which is available on the Verizon network. Later this year, it will be used on several new titles under development for the iPhone platform. As part of this agreement, QSound also has acquired an option to purchase the MachineWorks Northwest mobile gaming business, exercisable until January 31, 2009.

In April, the Company submitted a plan to The Nasdaq Stock Market outlining how it intends to specifically achieve and sustain compliance with the Nasdaq Capital Market listing requirements following receipt of a Nasdaq Staff deficiency letter, as previously reported. With the transactions as noted above, the Company now believes it has regained compliance for continued listing on the Nasdaq Capital Market. The Nasdaq Hearings Panel will review the recent transactions entered into by the Company and will make a determination regarding continued listing. The Panel has sole discretion in this matter and there can be no guarantee that the Company will succeed in its application for continued listing.

The Company reported a working capital surplus of $2,634,000 as at June 30, 2008 of which cash comprised $2,023,000.

"The Company continues to focus on the mobile device market," stated David Gallagher, President and CEO of QSound Labs. "Our recent license agreement with Modiotek for mQFX represents the next stage in establishing microQ as the audio engine of choice for mobile devices. Mobile phone manufacturers are now requiring music enhancement features on more of their product lines which has increased the opportunities for mQFX. This should complement our existing revenue stream which to date, has been derived primarily from the mQSynth component of microQ. The partnerships announced earlier in the year with Symbian and CSR will complement the mQFX marketing activities."

"The window of opportunity for the third component of microQ, mQ3D, our 3D audio engine for gaming, is beginning to open. The recent launch of the App Store by Apple in conjunction with the iPhone/iPod Touch has provided evidence to the industry that mobile gaming is now a business. This coupled with the Company's plans to showcase mQ3D with its newly acquired 3D graphics engine, Ripp3D, on upcoming titles for the iPhone, should set the standard for 3D gaming on mobile devices," added Gallagher.

About microQ

microQ is a compact, modular and highly efficient software digital audio engine enabling polyphonic ringtones (mQSynth), 3D game sound (mQ3D Positional) and enhanced music playback with multiple effects (mQFX) for mobile devices. This world-leading mobile audio technology represents the culmination of over 20 years of PC host and DSP audio software development by QSound Labs, Inc.

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 numerous innovative, proprietary audio solutions based on extensive research into human auditory perception. These technologies include virtual surround sound, 3D positional audio, stereo enhancement and MIDI Synthesis for the mobile devices, consumer electronics, PC/multimedia, and Internet markets. QSound Labs' cutting-edge audio technologies create rich, immersive 3D audio environments allowing consumers to enjoy stereo surround sound from headphones or from two, four and up to 7.1 speaker systems. The Company's customer and partner roster includes Aricent, ARM, Broadcom, CSR, LG, MiTAC, Panasonic, Pantech, Qualcomm, Samsung, Sony Vaio, STMicroelectronics, Telechips and Toshiba among others. QSound Labs supports its semiconductor, software and OEM partners globally with offices in Canada, China, Japan, Korea and USA. To hear 3D audio demos and learn more about QSound, visit our web site at www.qsound.com.

This release contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 concerning, among other things, use of Ripp3D on mobile games including titles for the iPhone platform, increased use of mQFX and mQ3D in mobile devices resulting in increased revenue streams, plans for use of mQ3D in iPhone games, and expected achievement of compliance for continued listing on the Nasdaq Capital Market. 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 continued and new revenues from use of Ripp3D in mobile game titles, acceptance of mQFX and mQ3D by major mobile device platform manufacturers, achievement of plans to use mQ3D on iPhone games, ability to sustain Nasdaq listing requirements, successful distribution of QSound-enabled products by licensees, loss of relationships with companies that do business with QSound, 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.

 

Consolidated
Balance Sheets
As at June 30, 2008 and December 31, 2007
 (unaudited)
(Expressed in United States dollars under United States GAAP)

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                                                     June 30,   December 31,
                                                        2008           2007
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ASSETS
Current assets
 Cash and cash equivalents                   $     2,022,744  $   1,232,255
 Accounts receivable (net)                           794,066        506,648
 Note receivable                                      25,037         27,400
 Inventory                                             5,131         12,217
 Deposits and prepaid expenses                       183,544        188,568
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                                                   3,030,522      1,967,088

Property and equipment                               233,489        258,414
Deferred development costs                           165,799        194,915
Intangible assets                                     61,539         70,260
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                                             $     3,491,349  $   2,490,677
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
 Accounts payable and accrued liabilities    $       253,728  $     262,718
 Deferred revenue                                    142,780         22,820
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                                                     396,508        285,538

Liability for pension benefit                          4,119          5,079
Convertible notes                                    156,358        118,220

Shareholders' equity
 Share capital                                    47,689,769     47,675,739
 Subscription receipts                             1,750,000              -
 Warrants                                          1,027,114      1,027,114
 Contributed surplus                               2,922,374      2,959,339
 Deficit                                         (50,343,527)   (49,479,722)
 Accumulated other comprehensive loss               (111,366)      (100,630)
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                                                   2,934,364      2,081,840

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                                             $     3,491,349  $   2,490,677
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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,      June 30,      June 30,      June 30,
                             2008          2007          2008          2007
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REVENUE
 Royalties,
  licenses and
  engineering fees     $  608,466    $  736,659    $  979,544    $1,272,868
 Product sales             53,377        59,371       105,707       129,522
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                          661,843       796,030     1,085,251     1,402,390
 Cost of product
  sales                    17,340        29,455        34,365        56,170
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                          644,503       766,575     1,050,886     1,346,220

EXPENSES:
 Marketing                221,895       335,071       509,931       733,828
 Operations                69,677        33,679       134,785        66,905
 Product
  engineering             259,185       167,411       496,443       347,999
 Administration           307,720       301,560       616,123       582,265
 Foreign exchange
  loss                       (654)         (630)        1,292           191
 Amortization              42,228        50,759        83,787       100,516
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                          900,051       887,850     1,842,361     1,831,704
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Loss before
 other items             (255,548)     (121,275)     (791,475)     (485,484)

OTHER ITEMS:
 Interest income            3,506        20,556        10,462        43,644
 Interest on
  convertible notes       (13,004)      (20,569)      (31,079)      (40,911)
 Accretion expense        (19,068)       (8,306)      (38,137)      (16,521)
 Gain on sale of
  capital assets                -           586             -           586
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                          (28,566)       (7,733)      (58,754)      (13,202)
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Loss before taxes        (284,114)     (129,008)     (850,229)     (498,686)
Foreign withholding tax    (7,587)      (13,269)      (13,576)      (24,536)
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Net loss and
 comprehensive loss
 for the period          (291,701)     (142,277)     (863,805)     (523,222)

Deficit, beginning
 of period            (50,051,826)  (48,597,825)  (49,479,722)  (48,216,880)
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Deficit, end of
 period              $(50,343,527) $(48,740,102) $(50,343,527) $(48,740,102)
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Loss per common
share (basic and
 diluted)            $      (0.03) $      (0.02) $      (0.09) $      (0.06)
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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,      June 30,      June 30,      June 30,
                             2008          2007          2008          2007
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Cash provided by
 (used in):

OPERATIONS
 Loss for the period   $ (291,701) $   (142,277) $   (863,805) $   (523,222)

 Items not
  requiring
  (providing) cash:
  Amortization             42,228        50,759        83,787       100,516
  Stock based
   compensation           (49,947)       68,287       (22,935)      169,496
  Accretion expense        19,068         8,306        38,137        16,521
  Employee future
   benefits                 5,833             -       (11,695)            -
  Gain on sale of
   capital assets               -          (586)            -          (586)
  Other                      (290)         (349)         (637)       (1,367)
 Changes in non-cash
  working capital
  balances               (392,894)        5,156      (164,338)     (366,270)
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                         (667,703)      (10,704)     (941,486)     (604,912)

FINANCING
 Issuance of
  common shares (net)           -        24,555             -        96,855
 Subscription receipts  1,750,000             -     1,750,000             -
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                        1,750,000        24,555     1,750,000        96,855
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INVESTMENTS
 Note receivable                -             -         3,000        36,000
 Purchase of
  property and
  equipment                (5,044)       (2,837)      (13,829)       (9,367)
 Purchase of
  intangible assets        (3,248)       (3,135)       (7,196)       (3,135)
 Proceeds on sale
  of capital assets             -           586             -           586
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                           (8,292)       (5,386)      (18,025)       24,084
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(Decrease)
 increase in cash
 and cash equivalents   1,074,005         8,465       790,489      (483,973)

Cash and cash
 equivalents,
 beginning of period      948,739     1,824,038     1,232,255     2,316,476
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Cash and cash
 equivalents, end
 of period              2,022,744     1,832,503     2,022,744     1,832,503
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