Parametric Sound Corporation — Q2 FY2013 Form 10-Q
Period: Three and six months ended March 31, 2013; fiscal year ends September 30. The filing is for Parametric Sound Corporation, not Turtle Beach Corp, as identified in the request metadata.
Business context and financial performance
The company develops and sells HyperSound directional-audio products and is pursuing commercial and consumer markets through product sales and technology licensing. It reported one operating segment. All amounts below are in U.S. dollars.
| Metric | Three months ended Mar. 31, 2013 | Three months ended Mar. 31, 2012 | Six months ended Mar. 31, 2013 | Six months ended Mar. 31, 2012 |
|---|---|---|---|---|
| Revenue | $155,384 | $59,694 | $264,058 | $124,475 |
| Gross profit (margin) | $76,161 (49%) | $32,543 (55%) | $130,779 (50%) | $72,408 (58%) |
| Operating expenses | $2,031,766 | $993,142 | $3,340,216 | $1,562,806 |
| Net loss | $(1,955,535) | $(961,297) | $(3,207,655) | $(1,492,314) |
| Basic and diluted loss per share | $(0.30) | $(0.22) | $(0.50) | $(0.36) |
| Operating cash used | — | — | $(2,007,917) | $(800,848) |
At March 31, 2013, cash and cash equivalents were $3.82 million, working capital was approximately $4.0 million, total assets were $6.11 million, and total liabilities were $582,412. Liabilities included $150,192 of capital lease obligations, current and long-term; the filing reports no other borrowing. Cash declined $1.70 million from September 30, 2012. The company also received $438,750 from warrant exercises after quarter-end.
Changes versus prior year and notable items
- Revenue increased 160% for the quarter and 112% for the six-month period, reflecting new customers and higher shipments to existing customers. Firm-order backlog was $30,145 at March 31.
- Losses widened as operating expenses grew faster than revenue. Six-month selling, general and administrative expense rose to $2.36 million from $1.06 million; research and development expense rose to $980,000 from $498,000.
- Six-month share-based compensation was $1.04 million, versus $560,000 a year earlier, and was a substantial non-cash expense. Management expected significant further expense from existing and potential option grants.
- Gross margin fell year over year. Margins in both years benefited from use of inventory parts previously reserved as obsolete or excess; management cautioned that historical margins are not a reliable guide to future margins.
- Investing cash outflow was $127,242, including $97,550 of patent costs. Financing cash inflow was $430,399, mainly warrant and option exercises; the prior-year period included net proceeds from a public offering.
Outlook, risks, and contingencies
Management expected increased product sales during the balance of fiscal 2013 and anticipated possible licensing or co-development arrangements, but could not predict sales levels or timing of licensing revenue. Licensing had generated no revenue to date. The company projected existing cash would fund operations for at least 12 months and said it believed liquidity was sufficient for the next year; it also warned that further financing could be needed if product and licensing growth did not produce profitable operations and positive cash flow.
- Recurring losses and negative operating cash flow; products had not yet generated significant revenue.
- A single supplier provides film used in HSS products, creating supply-continuity risk.
- Customer concentration: two customers represented 48% and 21% of six-month revenue; they also represented 62% and 38% of receivables at quarter-end.
- Cash deposits exceeded FDIC insurance limits by approximately $3.6 million.
- In April 2013, the company granted its wholly owned HyperSound Health subsidiary an exclusive worldwide license in defined medical-device and personal-amplification fields. Royalty terms include minimum-payment provisions; this is a related-party arrangement and had no reported revenue in the period.
- Facility leases, an equipment capital lease, and an executive employment agreement are disclosed commitments. The filing reported no legal proceedings and no material changes to previously disclosed annual-report risk factors.
Important facts for investors to verify
- Confirm the issuer: this source is Parametric Sound Corporation, despite the Turtle Beach Corp request metadata.
- Track cash burn, warrant proceeds, and whether management’s stated 12-month liquidity expectation remains adequate.
- Assess whether revenue growth and the modest order backlog can scale enough to cover expanding operating costs.
- Monitor licensing and HyperSound Health commercialization, including the related-party license’s royalty and minimum-payment terms.
- Evaluate gross-margin sustainability given the benefit from previously reserved inventory and limited manufacturing and warranty history.
- Review supplier concentration, customer concentration, and the substantial share-based compensation burden and dilution potential.