Parametric Sound Corporation — Form 10-Q Summary
Entity note: The supplied filing is for Parametric Sound Corporation, not Turtle Beach Corp. It covers the fiscal quarter ended December 31, 2012 (fiscal Q1 2013), compared with the three months ended December 31, 2011. The financial statements are unaudited.
Business context and reporting period
Parametric Sound develops directional-audio technology under its HyperSound platform and sells HSS-3000 systems, primarily for digital signage and related uses. It was also pursuing new commercial and consumer applications and technology licensing. The company reported one operating segment.
Key financial metrics
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Revenue | $108,674 | $64,781 |
| Gross profit / margin | $54,618 / 50% | $39,865 / 61% |
| Operating expenses | $1,308,450 | $569,664 |
| Operating loss | $1,253,832 | $529,799 |
| Net loss | $1,252,120 | $531,017 |
| Net loss per share, basic and diluted | $0.20 | $0.14 |
| Cash used in operations | $856,136 | $304,960 |
| Capital expenditures and patent costs | $22,821 | $6,196 |
At December 31, 2012, cash and cash equivalents were $4.65 million, working capital was approximately $4.8 million, total assets were $6.59 million, and stockholders’ equity was $6.26 million. Current liabilities were $337,829; the filing reports no borrowings. Cash declined $877,083 during the quarter to $4.65 million. The accumulated deficit was $7.88 million.
Material changes versus the prior comparable period
- Revenue increased 68%, but remained small; the company reported no significant backlog and no licensing revenue to date.
- Gross margin declined to 50% from 61%. Management said both periods benefited from use of inventory parts previously reserved for obsolescence.
- Operating expenses rose 130%, including higher selling, general and administrative costs and research and development spending. The company expanded staffing from five to fourteen employees and increased consultant use.
- Net loss increased to $1.25 million from $531,017. Share-based compensation was $253,663, versus $196,302.
- Operating cash use increased to $856,136 from $304,960, while cash on hand remained $4.65 million at quarter-end.
Outlook, risks, and unusual items
- Management expected increased product sales during the remainder of fiscal 2013 and anticipated possible licensing or co-development arrangements, but could not predict sales levels or the timing of licensing revenue. It cautioned that losses are expected until revenue and margins can cover operating costs.
- Management believed cash reserves would fund operations for at least the next twelve months, while warning that further debt or equity financing might be needed over the next few years if the business does not achieve profitable operations and positive cash flow.
- Key risks include limited product revenue and uncertain market acceptance, early-stage licensing efforts, rapid technology change and competition, reliance on a sole supplier for HSS film, and the possibility of needing additional financing. Two customers represented 50% and 15% of quarterly revenue; one customer represented approximately 99% of receivables.
- Approximately $4.4 million of cash deposits exceeded FDIC insurance limits. Facility lease obligations were disclosed, and equipment acquired under a capital lease carried payments of $3,574 per month for 48 months beginning February 2013.
- Management reported effective disclosure controls at December 31, 2012 and no material change in internal control over financial reporting. No legal proceedings were reported, and the filing stated there were no material changes to the risk factors in the prior Form 10-K.
Important facts for investors to verify
- Confirm the filing entity: the supplied 10-Q is Parametric Sound Corporation, despite the request identifying Turtle Beach Corp.
- Track whether product sales grow and licensing or co-development arrangements begin generating revenue; the filing reports no licensing revenue and no significant backlog.
- Assess cash burn against management’s twelve-month liquidity estimate and the potential need for future financing.
- Monitor gross margins, customer concentration, sole-source supplier exposure, and the impact of continued operating-cost growth.
- Review the prior Form 10-K’s risk factors and the terms and obligations associated with leases and other commitments.