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| CALGARY, Alberta--(BUSINESS
WIRE)--Feb. 21, 2002--QSound Labs, Inc. (NASDAQ:QSND) a leading developer of audio,
e-commerce and multimedia software products, reported revenues for the three months ended
December 31, 2001 of $597,000 as compared to $1,233,000 for the same period in FY2000. The
operating loss for the quarter was $(164,000) or $(0.02) per share as compared to a profit
of $180,000 or $0.02 per share for the same period last year. Including non-cash items
such as depreciation and amortization of goodwill, the net loss for the period was
$(298,000) or $(0.04) per share as compared to $(5,523,000) or $(0.75) per share for the
same period in FY2000. Revenues for the year ended December 31, 2001 were $3,026,000 compared to $4,469,000 for the same period in 2000. The operating profit for the year was $37,000 or $0.00 per share as compared to $112,000 or $0.01 for FY2000. Net loss for the year was $(733,000) or $(0.10) per share in 2001 and $(7,807,000) or $(1.06) per share in 2000. The Company reported a working capital surplus of $2.3 million and continues to generate positive cash flow from operations. During the year, the Company generated $789,000 of cash flow from operations as opposed to utilizing $483,000 of cash in FY2000 operations. The Company retired all of its debt during the year, repurchased 241,615 of its common stock and cancelled 56,250 common shares previously held in escrow. During the quarter, the Company netted additional funds of $219,000 from the sale of investments and expended $189,000 on the acquisition of technology for use in both the audio and e-commerce business units. ``Revenue from our audio licensing business unit was down 19% for the year reflecting the economic problems besetting our customers,'' stated David Gallagher, President and CEO of QSound Labs. ``We were able to mitigate the effect of this downturn through an effective cost control program, which resulted in a reduction of 30% year over year in total expenditures. Since the beginning of FY2002 we have seen the introduction of several QSound-enhanced products from our audio business partners and expect this trend to continue. Despite the challenges encountered in FY2001, the Company has continued to broaden its technology portfolio thereby positioning itself to introduce several new products in the first half of FY2002.'' ``In FY 2002 our e-commerce business unit plans to build on the formula established last year, namely, the continuing growth in recurring revenue and the consolidation of operations in Calgary thereby taking advantage of the inherent cost advantage of a weaker Canadian dollar.'' This release contains forward-looking statements within the meaning
of the Private Securities Litigation Act of 1995 concerning, among other things, continued
positive cash flow, growth in recurring e-commerce revenue, and product development and
introduction. Investors are cautioned that such forward-looking statements involve risk
and uncertainties, which could cause actual results, performance or achievements of the
Company, 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 product development, introduction and acceptance, loss of
relationships with companies that do business with the Company, dependence on the
performance of current and future third party licensees, the Company's ability to carry
out its business strategy and marketing plans, including availability of sufficient
resources to do so timely and cost effectively, dependence on intellectual property, rapid
technological change, competition, general economic and business conditions, continued
growth of the Internet and other risks detailed from time to time in the Company's
periodic reports filed with the Securities and Exchange Commission. Forward-looking
statements are based on the current expectations, projections and opinions of the
Company's management, and the Company 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 December 31, 2001 and 2000
(Expressed in United States dollars, prepared using US GAAP)
December December
31, 2001 31, 2000
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,047,892 $ 2,264,639
Accounts receivable 439,245 1,166,941
Inventory 28,587 48,431
Deposits and prepaid expenses 85,365 108,752
------------------------------
2,601,089 3,588,763
Investments - 42,557
Capital assets 932,776 1,071,618
Intangible assets 2,432,142 2,873,946
------------------------------
$ 5,966,007 $ 7,576,884
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabiltiies:
Accounts payable and accrued
Liabilities $ 304,726 $ 352,865
Consideration payable on
acquisition - 550,000
Deferred Revenue 8,282 9,253
------------------------------
313,008 912,118
------------------------------
Shareholders' equity:
Share capital (7,085,574
common shares) 43,939,684 45,479,152
Contributed Surplus 1,114,316 5,648
Deficit (39,401,001) (38,668,091)
Accumulated other comprehensive
income (151,943)
------------------------------
5,652,999 6,664,766
------------------------------
$ 5,966,007 $ 7,576,884
------------------------------
QSound Labs, Inc.
Consolidated Statements of Operations and Deficit
For the Periods Ended December 31, 2001 and 2000
(Expressed in United States dollars, prepared using US GAAP)
For three For three For the For the
months ended months ended year ended year ended
December December December December
31, 2001 31, 2000 31, 2001 31, 2000
(unaudited) (unaudited) (unaudited)
REVENUE
Royalties, license
fees and product
sales $ 596,814 $ 1,233,374 $ 3,025,994 $ 4,469,002
Cost of product
sales 47,355 59,395 91,438 208,298
---------------------------------------------------
549,459 1,173,979 2,934,556 4,260,704
---------------------------------------------------
EXPENSES:
Marketing 254,222 317,545 1,074,139 1,360,698
Operations 40,459 150,000 275,077 375,000
Product engineering 267,636 305,457 951,017 1,610,436
Administration 151,062 220,771 597,685 802,582
---------------------------------------------------
713,379 993,773 2,897,918 4,148,716
---------------------------------------------------
Operating profit
(loss) (163,920) 180,206 36,638 111,988
Other items
Depreciation and
amortization (155,148) (1,125,146) (831,193) (2,535,856)
Gain (loss) on
sale of capital
assets (23) (34,889) 6,492 (34,634)
Gain on sale of
investments 24,327 - 24,327 -
Write-down of
investments (8,300) (1,216,526) (8,300) (1,515,568)
Impairment of
assets - (3,317,048) - (3,762,702)
Other 4,624 (9,470) 39,126 (70,260)
---------------------------------------------------
Net income (loss)
for the period (298,440) (5,522,873) (732,910) (7,807,032)
Deficit beginning
of period (39,102,561) (33,145,218) (38,668,091) (30,861,059)
---------------------------------------------------
Deficit end of
period $(39,401,001)$(38,668,091)$(39,401,001)$(38,668,091)
---------------------------------------------------
Income (loss) per
common share $ (0.04)$ (0.75)$ (0.10)$ (1.06)
---------------------------------------------------
QSound Labs, Inc.
Consolidated Statements of Cash Flows
For the Periods Ended December 31, 2001 and 2000
(Expressed in United States dollars, prepared using US GAAP)
For three For three For the For the
months ended months ended year ended year ended
December December December December
31, 2001 31, 2000 31, 2001 31, 2000
(unaudited) (unaudited) (unaudited)
Cash provided by (used in)
OPERATIONS
Income (loss) for
the period $ (298,440)$ (5,522,873)$ (732,910)$ (7,807,032)
Items not requiring
(providing) cash:
Depreciation and
amortization 155,148 1,125,146 831,193 2,535,856
Gain on sale of
capital assets 6,538 34,889 (6,492) 34,634
Gain on sale of
investments (24,327) (24,327)
Impairment of
assets - 3,317,048 - 3,762,702
Write-down of
investments 8,300 1,216,526 8,300 1,515,568
Changes in working
capital balances 534,187 (200,810) 713,517 (524,678)
---------------------------------------------------
381,406 (30,074) 789,281 (482,950)
---------------------------------------------------
FINANCING
Issuance of common
shares, net - - - 2,757,233
Repurchase of
common shares,
net (80,306) - (430,800) (152,989)
Repayment
of debt - (250,000) (550,000) (750,000)
---------------------------------------------------
(80,306) (250,000) (980,800) 1,854,244
---------------------------------------------------
INVESTMENTS
Investments, net - 23,638 - 23,638
Purchase of
capital assets (154,909) (29,530) (216,291) (529,863)
Purchase of
intangible assets (34,418) - (34,418) (130,168)
Proceeds from sale
of capital assets 139 5,120 6,654 5,375
Proceeds from sale
of investments 218,827 - 218,827 -
---------------------------------------------------
29,639 (772) (25,228) (631,018)
---------------------------------------------------
Increase (decrease)
in cash 330,739 (280,846) (216,747) 740,276
Cash and cash
equivalents
beginning
of period 1,723,668 2,545,485 2,264,639 1,524,363
---------------------------------------------------
Cash and cash
equivalents
end of
period $ 2,054,407 $ 2,264,639 $ 2,047,892 $ 2,264,639
---------------------------------------------------
Contact: QSound Labs, Inc.
Paula Murray, 954/796-8798
paula.murray@qsound.com
www.qsound.com
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