Press Release
QSound Labs Reports Fourth Quarter
and Year End Results for 2006
Calgary, Alberta – March 8, 2007 -- QSound Labs, Inc. (NASDAQ: QSND), a leading developer of audio and voice software solutions, today reported financial results for the fourth quarter of FY2006. For the three months ended December 31, 2006, the consolidated revenues were $543,000 as compared to $403,000 for the same quarter in FY2005. The net loss for the fourth quarter, computed in accordance with US generally accepted accounting principles (“GAAP”) was $(499,000) or $(0.05) per share as compared to $(556,000) or $(0.06) per share for the same period in FY2005.
Consolidated revenues for the year ended December 31, 2006 were $1,989,000 compared to $1,543,000 for the same period in FY2005. GAAP net loss for the year was $(1,682,000) or $(0.18) per share as compared to $(2,632,000) or $(0.31) per share in FY2005. Included in operating expenses for the year ended December 31, 2006 is $461,000 (2005 - $652,000) of non cash items, namely stock based compensation, impairment charges and debt discount accretion expenses, none of which management believes relate to continuing operations.
As the Company continued in 2006 to make progress in marketing its microQ technology to the mobile device market, revenues increased thus narrowing the loss for 2006 to $1.7 million compared to $2.6 million in 2005. Licensing revenues increased by 60% ($636,000) in 2006, due primarily to new license agreements for microQ. Product sales, primarily iQfx downloads from the RealNetworks web site, declined by 39% ($190,000). Moving to a more royalty and license fee derived revenue stream has resulted in an increase in gross margin from 81% in 2004 to 88% in 2005 and 98% in 2006.
Working capital at December 31, 2006 increased to $2.3 million from $1.5 at December 31, 2005. This was due to an increase in cash resulting from the Convertible Note financing and the exercise of warrants by a strategic partner during 2006.
2007 OUTLOOK:
“The fourth quarter of 2006 produced tangible evidence of the progress that the Company has made in penetrating the mobile device market,” stated David Gallagher, President and CEO of QSound Labs. "Highlights include:
- Completion of the first phase of the ARM partnership, wherein the engineering teams of both companies co-operated to produce optimized libraries of the microQ product suite. The marketing for this new product line will commence in the first quarter of 2007.
- First shipments of high volume feature phones by a QSound platform licensee occurred at the end of 2006 with the introduction by LG Mobile of the Infineon based EDGE mobile phones. Currently, seven models have been released with the expectation of more to come in 2007.
- UTStarcom has now shipped 5 PHS mobile phone models into the China market using microQ technology.
- Panasonic shipped the 705P with SoftBank in Japan and has plans to release the 706P in the first quarter of 2007.
- The increased participation with Partner programs with companies such as Marvell, Access and Trolltech will heighten the awareness of the microQ technology and build on the current market momentum.
- New platforms, now available, from HiSilicon and Broadcom, represent further opportunity for handset design wins in 2007.
- Qualcomm continues to offer QSound technology for its advanced multimedia platforms.
- The partnership announcement with ST Micro creates a springboard for increased license activity in the consumer electronic market in 2007, in particular digital TV.
- Prima TV has announced that their 1080p LCD TV models shipped in 2007 will incorporate our QSurround HD technology.
For 2007, our goal continues to be the marketing of microQ to mobile device platform providers and to build upon our new relationships within the consumer electronics market.”
This release contains forward-looking statements concerning, among other things, expectation in 2007 of increased shipments of mobile devices using microQ, increased license activity in the consumer electronics market, and start of marketing of ARM optimized microQ libraries. 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 as partners and licensees, successful distribution of QSound-enabled products by licensees, 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.
Consolidated
Balance sheets
December 31, 2006 and 2005
(Expressed in United States dollars under United States GAAP)
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2006 2005
(unaudited)
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ASSETS
Current assets
Cash and cash equivalents $ 2,316,476 $ 1,222,729
Accounts receivable (net)
and accrued revenue 316,298 401,524
Note receivable 6,000 82,648
Inventory 19,422 40,438
Deposits and prepaid expenses 60,933 76,146
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2,719,129 1,823,485
Note receivable 55,325 -
Property and equipment 348,280 670,635
Deferred development costs 253,147 271,879
Intangible assets 98,351 155,445
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$ 3,474,232 $ 2,921,444
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 268,439 $ 285,786
Deferred revenue 45,572 45,011
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314,011 330,797 Convertible note 84,949 - 398,960 330,797
Shareholders' equity
Share capital 47,411,000 46,181,113
Warrants 1,027,114 903,738
Contributed surplus 2,854,038 2,041,001
Deficit (48,216,880) (46,535,205)
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3,075,272 2,590,647
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$ 3,474,232 $ 2,921,444
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Consolidated
Statements of Operations and Deficit
For the periods ended December 31, 2006 and 2005
(Expressed in United States dollars under United States GAAP)
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For the three For the three For the year
months ended months ended ended For the year
December 31, December 31, December 31, ended
2006 2005 2006 December 31,
(unaudited) (unaudited) (unaudited) 2005
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REVENUE
Royalties,
license and
engineering
fees $ 473,591 $ 297,918 $ 1,692,669 $ 1,056,509
Product sales 69,814 105,097 296,361 486,731
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543,405 403,015 1,989,030 1,543,240
Cost of
product
sales 27,200 97,486 40,088 179,781
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516,205 305,529 1,948,942 1,363,459
EXPENSES
Marketing 385,994 208,364 1,157,573 999,875
Operations 31,149 64,168 136,386 216,409
Product
engineering 190,080 318,644 819,277 1,032,921
Administration 252,237 265,208 971,571 882,722
Foreign
exchange
loss (gain) 25,348 (501) 25,912 2,832
Amortization 74,833 83,605 311,201 360,898
Impairment of
property and
equipment 41,952 (46,594) 167,809 89,754
Impairment of
intangible
assets - (18,821) - 428,453
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1,001,593 874,073 3,589,729 4,013,864
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Loss before
other items (485,388) (568,544) (1,640,787) (2,650,405)
OTHER ITEMS
Interest
income 29,688 15,742 85,686 56,700
Interest on
convertible
debt (20,795) - (61,336) -
Accretion
expenses (4,205) - (12,752) -
Other - 1,319 (1,637) (163)
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4,688 17,061 9,961 56,537
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Loss before
taxes (480,700) (551,483) (1,630,826) (2,593,868)
Foreign
withholding
tax (18,418) (4,611) (50,849) (37,711)
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Net loss for
the period (499,118) (556,094) (1,681,675) (2,593,868)
Deficit,
beginning of
period (47,717,762) (45,979,111) (46,535,205) (43,903,626)
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Deficit,
end of
period $ (48,216,880) $ (46,535,205)$ (48,216,880)$ (46,535,205)
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Loss per
common
share
(basic and
dilutive) $ (0.05) $ (0.06)$ (0.18)$ (0.31)
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Consolidated
Statements of Cash Flows
For the years ended December 31, 2006 and 2005
(Expressed in United States dollars under United States GAAP)
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For the three For the three For the year
months ended months ended ended For the year
December 31, December 31, December 31, ended
2006 2005 2006 December 31,
(unaudited) (unaudited) (unaudited) 2005
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Cash provided
by (used in):
OPERATIONS
Loss for
the period $ (499,118) $ (556,094) $ (1,681,675) $ (2,631,579)
Items not
requiring
cash:
Amortization 74,833 83,605 311,201 360,898
Stock based
compensation 64,476 36,979 380,614 134,793
Impairment
of property
and equipment 41,952 (19,304) 167,809 89,754
Impairment of
intangible
assets - (18,821) - 428,453
Accretion
expense 4,205 - 12,752 -
Other 22,766 - (4,022) -
Changes in
non-cash
working
capital
balances 240,379 347,989 104,669 (57,747)
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(50,507) (125,646) (708,652) (1,675,428)
FINANCING
Issuance of
common
shares, net 76,101 111,295 857,883 165,008
Proceeds from
convertible
debt - - 1,000,000 -
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76,101 111,295 1,857,883 165,008
INVESTMENTS
Note
receivable - (82,648) 26,442 (82,648)
Purchase of
property and
equipment (16,346) (53,457) (42,426) (188,890)
Deferred
development
costs - (271,879) (39,500) (271,879)
Purchase of
intangible
assets (554) (12,172) - (50,977)
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(16,900) (420,156) (55,484) (594,394)
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Increase
(decrease) in
cash and
cash
equivalents 8,694 (434,507) 1,093,747 (2,104,814)
Cash and cash
equivalents,
beginning of
period 2,307,782 1,657,236 1,222,729 3,327,543
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Cash and cash
equivalents,
end of
period $ 2,316,476 $ 1,222,729 $ 2,316,476 $ 1,222,729
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Notice to Reader:
When comparing the twelve months ended December 31, 2006 figures to those reported for the nine months ended September 30, 2006 plus the three months to December 31, 2006 a difference will be noted. This is due to a change in the accounting of non cash items, notably accounting for the convertible loan note. A reanalysis under SFAS 133, EITF 00-19 and 98-5 established that rather than classification as a liability, it should be shown within equity, and as such the fair values on initial recognition have been restated resulting in changes to accretion of debt discount, change in fair value of convertible debt conversion feature and the excess fair value of convertible debt at the transaction date.