MOSAID Technologies Inc.
TSX : MSD

MOSAID Technologies Inc.

March 03, 2010 16:00 ET

MOSAID Reports Results for Third Quarter Fiscal 2010 and Dividend

Quarterly dividend of $0.25 per share payable on April 19, 2010

OTTAWA, ONTARIO--(Marketwire - March 3, 2010) -

Editors note: A link to a video is provided for this press release. Please go to: http://investorchannel.mosaid.com

MOSAID Technologies Incorporated (TSX:MSD) today announced financial results for the third quarter of fiscal 2010, ended January 31, 2010.

  • Q3 revenues of $17.7 million exceeded guidance. Revenues in Q3 fiscal 2009 were $18.1 million

  • Q3 pro forma net income of $7.3 million exceeded guidance and was up 36% from $5.3 million in Q3 fiscal 2009. Q3 pro forma earnings per share (EPS) of $0.70 per diluted share were up 32% from $0.53 in Q3 fiscal 2009

  • Q3 GAAP net income was $2.2 million or $0.21 per diluted share, compared with $2.3 million or $0.23 per diluted share in Q3 fiscal 2009

"This has been an outstanding period for the Company both operationally and financially," said John Lindgren, President and CEO, MOSAID. "The landmark semiconductor licensing deal we announced in January with Samsung helps secure our current revenue stream for many years, significantly strengthens our patent portfolio, and offers new R&D opportunities. Also, the wireless patent license agreements we signed recently with Samsung and Sony demonstrates our continued success in licensing MOSAID's wireless patents into multiple markets – mobile handsets, notebook computers, wireless infrastructure and now, gaming consoles."

"The financial impact of meeting these key operational targets has been positive and significant," said Lindgren. "Concurrent with the Samsung semiconductor deal, MOSAID raised guidance for annual revenues and pro forma net income. Subsequent to quarter end, we announced a bought deal financing, with gross proceeds of $31.1 million to be used primarily for strategic patent acquisitions that will assist in driving future growth."

MOSAID had cash and marketable securities of $70.2 million at the end of the third quarter of fiscal 2010, compared to $55.2 million at the end of the second quarter of fiscal 2010. In Q3 fiscal 2010, MOSAID returned $2.6 million to shareholders in quarterly dividend payments.

On March 3, 2010, MOSAID declared a quarterly dividend of $0.25 per share. The dividend, which is an eligible dividend, is payable on April 19, 2010 to shareholders of record as of April 7, 2010.

A reconciliation of pro forma net income to Canadian generally accepted accounting principles (GAAP) net income is included in the pro forma financial statements accompanying this press release.

Third Quarter Operational Highlights

Semiconductor patent licensing: MOSAID announced a comprehensive arrangement with Samsung Electronics Co. Ltd., comprised of a patent license agreement, a patent purchase agreement, and a Memorandum of Understanding (MOU). Under the terms of the semiconductor patent license agreement, Samsung has licensed MOSAID memory and microcomponent patents, and will make a series of fixed payments to MOSAID. Under the patent purchase agreement, MOSAID has purchased from Samsung a significant number of semiconductor patents, and will make a series of fixed payments to Samsung in 2014. Under the MOU, Samsung and MOSAID will explore the potential joint development of a new high-performance NAND Flash device incorporating MOSAID's HLNAND™ memory technology.

Wireless patent licensing: MOSAID signed three wireless patent license agreements during the third quarter. MOSAID signed a fixed-payment term license agreement with Samsung Electronics Co., Ltd., covering products sold globally by Samsung, including Wi-Fi enabled mobile handsets, notebook computers, and system-level communications products. MOSAID also entered into a fixed-payment term license with Sony Corporation, covering all Sony Wi-Fi enabled products. In addition, MOSAID signed a five-year, royalty bearing wireless patent license agreement with an unnamed, U.S.-based telecommunications equipment provider. With these three deals, MOSAID has now signed 13 wireless patent license agreements.

Equity offering: Subsequent to quarter end, on February 23, 2010, MOSAID announced the completion of a previously announced bought deal financing, which resulted in the sale of 1,437,500 common shares, for gross proceeds to the Company of $31,211,875. Proceeds of the offering will be used to fund patent acquisitions and for general corporate purposes.

Patent portfolio development: MOSAID had1,915 patents and applications at the end of the Q3 fiscal 2010, up 37% from 1,397 patents and applications one year ago. Subsequent to quarter end, MOSAID purchased a portfolio of Power Control and Memory Management patents from Allied Security Trust of New Jersey. The portfolio consists of five U.S. patents and foreign counterparts. MOSAID received full title to the portfolio for an undisclosed non- material amount, paid immediately. Licensing revenues are not subject to revenue sharing arrangements with the seller. The primary licensing markets for the patents, which teach fundamental concepts in Power Control and Memory Management, are microprocessors, Graphic Processing Units (GPUs) and Digital Signal Processors (DSPs).

Q4 and Fiscal 2010 Guidance

Management offers the following guidance for the fourth quarter and full year fiscal 2010:

  • Q4 revenues of $17.5 million to $18.5 million

  • Q4 pro forma net income of $5.7 million to $6.5 million, or $0.49 to $0.56 per diluted share, based on 11.7 million diluted shares

  • Fiscal 2010 revenues in the range of $68.0 million to $70.0 million

  • Fiscal 2010 pro forma net income of $27.5 million to $28.5 million, or $2.55 to $2.64 per diluted share, based on 10.8 million diluted shares

MOSAID's revenues result primarily from intellectual property agreements, which by their nature may actually close on dates other than those projected. MOSAID's priority and focus is on obtaining the best terms possible under its agreements, rather than on the particular timing of agreement closure. MOSAID's revenues depend upon, among other items, the continued ability of its licensees to pay amounts as they become due. The Company takes steps, including monitoring the creditworthiness of its licensees, in order to manage this risk.

Conference Call and Webcast

Management will hold a conference call and webcast on Wednesday, March 3, 2010 at 5:00 p.m. ET. The webcast will be live at www.mosaid.com and may also be accessed by dialing 1-800-954- 0627. The webcast will be available on mosaid.com for 90 days following the event.

About MOSAID

MOSAID Technologies Inc. is one of the world's leading intellectual property companies. MOSAID develops semiconductor memory technology and licenses patented intellectual property in the areas of semiconductors and telecommunications systems. MOSAID counts many of the world's largest semiconductor companies among its licensees. Founded in 1975, MOSAID is based in Ottawa, Ontario.

Pro forma net income, a non-GAAP measure, is GAAP net income adjusted for stock-based compensation, patent amortization and imputed interest, foreign exchange gains and losses on "Other long-term liabilities," and any other non-recurring items. The Company uses pro forma measures internally to evaluate and manage operating performance, and to forecast and plan. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers.

Forward Looking Information

This document and certain other public documents incorporated by reference in this document, contain forward-looking statements to the extent they relate to MOSAID or its management, including those identified by the expressions "anticipate," "believe," "could," "estimate," "expect," "foresee," "intend," "may," "plan," "will," "would" and similar expressions. Similarly, statements in this document that describe MOSAID's business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. These forward-looking statements are not historical facts, but rather reflect MOSAID's current expectations regarding future events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in such forward-looking statements. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: MOSAID's continued expansion of its patent portfolio and of its opportunities for future patent licensing revenue as a result of MOSAID's acquisition of patents from third parties and from development of new inventions; semiconductor and telecommunications product vendors continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; MOSAID's ability to sign new patent licensees; current assumptions as to the identification of products that are unlicensed to MOSAID's wireless patents; and the timing and amount of MOSAID's Research & Development expenses.

Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: MOSAID's ability to negotiate settlements with licensees; legal rulings and/or regulatory investigations, audits or complaints having an adverse impact on the validity, enforceability, royalty rates, potential royalty rates, and strength or breadth of coverage of MOSAID's essential and/or nonessential patents (including, but not limited to, adverse results from litigation or proceedings in patent offices and government regulatory agencies in various countries around the world); judicial, legislative or regulatory changes that impair the ability of patent holders to earn licensing revenues; worldwide economic conditions and demand for technology products; economic, social, and political conditions both globally and in the countries in which MOSAID or patent licensees operate, including conflict, war and, other security risks, health conditions, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates; non-payment or delays in payment by or insolvency of licensees or other debtors; variability in patent licensees' sales of licensed products; failure to maintain and enforce MOSAID's existing patent portfolio, or failure to obtain valuable patents as a result of R&D activities, or failure to acquire valuable patents from third parties; MOSAID's ability to recruit and retain skilled personnel; change in MOSAID's financial position; consolidation of MOSAID's licensees; natural events, such as severe weather and earthquakes in the locations in which MOSAID or patent licensees operate; and changes in the tax rate applicable to MOSAID as the result of changes in the tax law in the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets.

Except as may be required by applicable law or stock exchange regulation, we undertake no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Accordingly, readers should not place undue reliance on forward-looking statements. If we do update one or more forward-looking statements, no inference should be drawn that additional updates will be made with respect to those or other forward-looking statements. Additional information identifying risks and uncertainties affecting MOSAID's business and other factors that could cause MOSAID's financial results to fluctuate are contained in MOSAID's Annual Information Form, under the section entitled "Risk Factors," and in MOSAID's other public filings available online at www.sedar.com.

FINANCIAL STATEMENTS AND NOTES TO FOLLOW

MOSAID Technologies Incorporated

Unaudited Pro Forma Consolidated Statements of Income

For the Quarter Ended January 31, 2010

The attached pro forma consolidated financial statements have been prepared by Management of MOSAID Technologies Incorporated and have not been reviewed by an auditor.

MOSAID TECHNOLOGIES INCORPORATED  
(Subject to the Canada Business Corporations Act)  
CONSOLIDATED PRO FORMA STATEMENTS OF INCOME  
(In thousands of Canadian Dollars, except per share amounts)  
(Unaudited)              
   
  Quarter Ended   Nine Months Ended  
      January 31,     January 31,  
  2010   2009   2010 2009  
   
Revenues $17,688   $18,055   $51,224 $44,502  
   
Operating expenses (income)              
  Patent portfolio management 1,670   1,246   5,203 3,572  
  Patent licensing and litigation 3,066   7,484   6,666 18,429  
  Research and development 621   539   2,137 1,614  
  General and administration 1,615   1,261   4,365 3,295  
  Foreign exchange (gain) loss (28 ) (142 ) 394 (1,077 )
  6,944   10,388   18,765 25,833  
   
Pro forma income from operations 10,744   7,667   32,459 18,669  
Net interest income 96   313   311 1,448  
Pro forma income before income tax expense 10,840   7,980   770 20,117  
Income tax expense 3,580   2,633   10,816 6,639  
Pro forma net income 7,260   5,347   21,954 13,478  
   
Pro forma earnings per share              
  Basic $0.70   $0.53   $2.14 $1.30  
  Diluted $0.70   $0.53   $2.13 $1.30  
   
Weighted average number of shares              
  Basic 10,307,569   10,180,831   10,267,187 10,370,617  
  Diluted 10,367,317   10,180,831   10,324,734 10,386,739  

Pro forma net income is reconciled to GAAP net income as follows:

(Dollar amounts in thousands)     Quarter Ended   Nine Months Ended  
      January 31,       January 31,  
  2010   2009   2010   2009  
  $   $   $   $  
GAAP net income 2,224   2,291   13,699   224  
Add (deduct):                
Stock-based compensation 331   235   789   550  
Patent amortization and imputed interest 3,631   3,439   11,327   10,000  
Foreign exchange (gain) loss (282 ) 790   (3,212 ) 8,245  
Special committee -   -   719   -  
Income tax expense – for the above items (1,154 ) (1,262 ) (3,444 ) (4,658 )
Future income tax revaluation 2,706   -   2,706   -  
Discontinued operations (net of tax) (196 ) (146 ) (630 ) (883 )
Pro forma net income 7,260   5,347   21,954   13,478  

Pro forma foreign exchange (gain) loss is reconciled to GAAP foreign exchange (gain) loss as follows:

(Dollar amounts in thousands)   Quarter Ended
January 31,
  Nine Months Ended
January 31,
 
  2010   2009   2010   2009  
  $   $   $   $  
GAAP foreign exchange (gain) loss (310 ) 648   (2,818 ) 7,168  
Less: foreign exchange loss (gain) on long-term debt (282 ) 790   (3,212 ) 8,245  
Pro forma foreign exchange (gain) loss (28 ) (142 ) 394   (1,077 )

MOSAID Technologies Incorporated

Unaudited Consolidated Financial Statements

For the Quarter Ended January 31, 2010

The attached consolidated financial statements have been prepared by Management of MOSAID Technologies Incorporated and have not been reviewed by an auditor.

MOSAID TECHNOLOGIES INCORPORATED  
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS  
(In thousands of Canadian Dollars, except per share amounts)  
(Unaudited)  
   
  Quarter Ended Nine Months Ended  
      January 31,     January 31,  
  2010   2009 2010   2009  
   
Revenues $17,688   $18,055 $51,224   $44,502  
   
Operating expenses (income)              
  Patent portfolio management 1,670   1,246 5,203   3,572  
  Patent licensing and litigation 3,066   7,484 6,666   18,429  
  Research and development 621   539 2,137   1,614  
  General and administration 1,615   1,261 4,365   3,295  
  Foreign exchange (gain) loss (310 ) 648 (2,818 ) 7,168  
  Stock-based compensation (Note 7) 331   235 789   550  
  Special committee -   - 719   -  
  Patent amortization and imputed interest 3,631   3,439 11,327   10,000  
  10,624   14,852 28,388   44,628  
   
Income (loss) from operations 7,064   3,203 22,836   (126 )
Net interest income 96   313 311   1,448  
Income before income tax expense and discontinued operations 7,160   3,516 23,147   1,322  
Income tax expense 5,132   1,371 10,078   1,981  
Income (loss) before discontinued operations 2,028   2,145 13,069   (659 )
Discontinued operations income (net of tax) (Note 5) 196   146 630   883  
Net income 2,224   2,291 13,699   224  
Dividends 2,581   2,546 7,714   7,774  
Normal course issuer bid -   - -   3,215  
Retained earnings, beginning of period 17,949   8,787 11,607   19,297  
Retained earnings, end of period $17,592   $8,532 $17,592   $8,532  
   
Earnings (loss) per share (Note 4)              
  Basic – before discontinued operations $0.20   $0.21 $1.27   $(0.06 )
  Diluted – before discontinued operations $0.20   $0.21 $1.27   $(0.06 )
   
  Basic – net earnings $0.22   $0.23 $1.33   $0.02  
  Diluted – net earnings $0.21   $0.23 $1.33   $0.02  
   
Weighted average number of shares              
  Basic 10,307,569   10,180,831 10,267,187   10,370,617  
  Diluted 10,367,317   10,180,831 10,324,734   10,386,739  

See accompanying Notes to the Consolidated Financial Statements

MOSAID TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian Dollars)  
 
  As at   As at
  January 31, 2010   April 30, 2009
  (unaudited)   (audited)
 
Current Assets      
  Cash and cash equivalents $66,539   $32,899
  Marketable securities 3,717   18,888
  Accounts receivable 3,915   10,434
  Prepaid expenses 741   759
  Other asset -   446
  Future income taxes recoverable 11,519   11,519
  86,431   74,945
 
Property and equipment 475   563
Acquired intangibles 71,043   79,402
Future income taxes recoverable 11,469   17,549
  $169,418   $172,459
       
Current Liabilities      
  Accounts payable and accrued liabilities $6,421   $6,341
  Income tax payable 1,432   1,432
  Deferred revenue 6,050   3,432
  Other liability 366   -
  Current portion of other long-term liabilities 11,192   20,869
  25,461   32,074
Deferred gain on sale-leaseback 881   1,039
Other long-term liabilities 26,203   28,799
 
  52,545   61,912
 
Shareholders' Equity      
  Share capital (Note 3) 96,274   94,741
  Contributed surplus 3,373   3,753
  Retained earnings 17,592   11,607
  Accumulated other comprehensive income (366 ) 446
  116,873   110,547
  $169,418   $172,459

See accompanying Notes to the Consolidated Financial Statements

MOSAID TECHNOLOGIES INCORPORATED      
CONSOLIDATED STATEMENTS OF CASH FLOWS          
(In thousands of Canadian Dollars)      
(Unaudited)                
   
  Quarter Ended   Nine Months Ended  
      January 31,       January 31,  
  2010   2009   2010   2009  
   
Operating                
  Income (loss) before discontinued operations $2,028   $2,145   $13,069   $(659 )
  Items not affecting cash                
    Amortization 3,039   2,474   9,087   7,404  
    Stock-based compensation 276   235   734   550  
    Loss on disposal of capital assets -   76   -   76  
    Unrealized foreign exchange (gain) loss on other long-term liabilities (282 ) 790   (3,212 ) 8,245  
    Future income tax recoverable 4,654   (282 ) 6,081   (2,625 )
  9,715   5,438   25,759   12,991  
Change in non-cash working capital items from continuing operations 8,086    1,110    10,399    5,619   
  17,801   6,548   36,158   18,610  
   
Investing                
  Acquisition of property and equipment and acquired                
      intangibles (5 ) (9,184 ) (640 ) (10,578 )
  Acquisition of short-term marketable securities -   (13,021 ) (3,316 ) (60,135 )
  Proceeds on disposal/maturity of short-term marketable securities (5 ) 28,595   18,487   77,593  
  (10 ) 6,390   14,531   6,880  
   
Financing                
  Increase (decrease) in long-term liabilities 642   7,707   (9,057 ) 7,543  
  Repurchase of shares -   -   -   (8,415 )
  Dividends paid (2,581 ) (2,546 ) (7,714 ) (7,774 )
  Funding of Restricted Share Unit plan (880 ) -   (880 ) (718 )
  Issuance of common shares 306   75   1,295   242  
  (2,513 ) 5,236   (16,356 ) (9,122 )
   
Net cash inflow from continuing operations 15,278   18,174   34,333   16,368  
Net cash (outflow) inflow from discontinued operations (231 ) (120 ) (693 ) 4,943  
Net cash inflow 15,047   18,054   33,640   21,311  
Cash and cash equivalents, beginning of period 51,492   25,390   32,899   22,133  
Cash and cash equivalents, end of period $66,539   $43,444   $66,539   $43,444  

See accompanying Notes to the Consolidated Financial Statements

MOSAID TECHNOLOGIES INCORPORATED      
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME  
(In thousands of Canadian Dollars)          
(Unaudited)                
   
  Quarter Ended   Nine Months Ended  
      January 31,       January 31,  
  2010   2009   2010   2009  
   
Net income $2,224   $2,291   $13,699   $224  
   
Other comprehensive income, net of tax:                
  Gains and losses on derivatives designated as cash flow hedges 134   (437 ) 1,479   (1,824 )
  Gains and losses on derivatives designated as cash flow hedges in prior periods transferred to revenue in the current period (982 ) 1,094   (2.291 ) 1,683  
Other comprehensive (loss) income (848 ) 657   (812 ) (141 )
   
Comprehensive income $1,376   $2,948   $12,887   $ 83  

See accompanying Notes to the Consolidated Financial Statements 

MOSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Quarters ended January 31, 2010 and 2009
(tabular dollar amounts in thousands of Canadian Dollars, except per share amounts)
(unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and note disclosure required by GAAP for annual financial statements. These financial statements are based upon accounting principles consistent with those used in the annual consolidated financial statements with the exception of new accounting policies described in Note 2. Accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements and notes thereto for the year ended April 30, 2009.

The preparation of these unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments necessary to state fairly the results for the periods presented. Actual results could differ materially from these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

In the opinion of management, all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. Operating results for the interim period presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the full fiscal year ending April 30, 2010.

2. Adoption of New Accounting Standards

Effective May 1, 2009 the Company adopted the following new accounting standard issued by the Canadian Institute of Chartered Accountants (CICA).

Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets, replacing Section 3062, Goodwill and Other Intangible Assets and Section 3450, Research and Development Costs. Various changes have been made to other sections of the CICA Handbook for consistency purposes. The new Section will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2008. Accordingly, the Company adopted the new standards for its fiscal year beginning May 1, 2009. It establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented companies. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.

As a result of adoption of the above policy, there was no material impact on the Consolidated Statement of Income.

3. Shareholders' equity and other comprehensive income

The following are the changes in shareholders' equity for the nine months ended January 31, 2010 and for the year ended April 30, 2009:

       Accumulated   
       other   
 CommonCommonContributed Retained comprehensive   
 sharessharessurplus earnings income (loss) Total 
 (number)($)($) ($) ($) ($) 
Balance at          
April 30, 200910,184,323$94,741$3,753 $11,607 $446 $110,547 
Net income    13,699   13,699 
Dividends    (7,714)  (7,714)
Employee Stock          
Option Program116,6001,388(1,140)    248 
Employee Share          
Purchase Program22,32814526     171 
Stock-based          
compensation  734     734 
Unrealized derivative          
gains on cash flow          
hedges – net      (812)(812)
Balance at          
January 31, 201010,323,251$96,274$3,373 $17,592 $(366)$116,873 
           
         Accumulated   
         other   
 Common Common Contributed Retained comprehensive   
 shares shares surplus earnings (loss) income Total 
 (number) ($) ($) ($) ($) ($) 
Balance at            
April 30, 200810,719,807 $100,403 $2,997 $19,297 $(318)$122,379 
Net income      5,845   5,845 
Dividends      (10,320)  (10,320)
Employee Stock            
Option Program14,713 222 (68)    154 
Employee Share            
Purchase Program8,951 142 34     176 
Stock-based            
compensation  (826)790     (36)
Normal course            
issuer bid(559,148)(5,200)  (3,215)  (8,415)
Unrealized derivative            
gains on cash flow            
hedges – net        764 764 
Balance at            
April 30, 200910,184,323 $94,741 $3,753 $11,607 $446 $110,547 

4. Earnings per Share

The following is a reconciliation of the numerator and denominator of the basic and diluted per share computations:

 Quarter Ended January 31,Nine Months Ended January 31, 
 2010200920102009 
  
      
Income (loss) before discontinued operations$2,028$2,145$13,069$(659)
Discontinued operations (net of tax)196146630883 
Net income$2,224$2,291$13,699$224 
  
Weighted average number of common shares outstanding10,307,56910,180,83110,267,18710,370,617 
Net effect of stock options59,748-57,54716,122 
Weighted average diluted number of common shares outstanding10,367,31710,180,83110,324,73410,386,739 
  
Earnings (loss) per share     
 Basic – before discontinued operations$0.20$0.21$1.27$(0.06)
 Diluted – before discontinued operations$0.20$0.21$1.27$(0.06)
  
 Basic - net income$0.22$0.23$1.33$0.02 
 Diluted - net income$0.21$0.23$1.33$0.02 

For the quarters ended January 31, 2010 and January 31, 2009, 439,131 and 563,095 options, respectively, were excluded from the calculation of diluted earnings per share, as the exercise price of these options exceeded the average market price of the Company's common stock during this period and were therefore anti-dilutive.

For the nine months ended January 31, 2010 and January 31, 2009, 442,131 and 86,128 options, respectively, were excluded from the calculation of diluted earnings per share as the exercise price of these options exceeded the average market price of the Company's common stock during this period and were therefore anti-dilutive.

There were 639,395 and 563,095 options issued and outstanding as at January 31, 2010 and January 31, 2009, respectively.

5. Discontinued operations                

 Quarter Ended January 31, Nine Months Ended January 31,
 20102009 20102009
 
Revenues$-$- $18$156
 
Expenses     
Research and development-28 -36
Selling and marketing-- -5
Restructuring-- --
 -28 1841
 
(Loss) gain from operations-(28)18115
Gain on sale of assets292243 920866
Earnings before tax292215 938981
Income tax expense9669 30898
Discontinued operations (net of tax)$196$146 $630$883

6. Stock-based Compensation                

The Company has an employee stock purchase plan ("ESPP") program whereby employees may elect to designate up to 5% of their annual salary to purchase shares of the Company at a 10% discount from the fair market value. The purchase price is deducted over a six month period via payroll. Directors are also eligible to participate in the ESPP.

Also, the Company has an Employee and Director Stock Option Plan ("ESOP"). The exercise price is no lower than the closing market price on the trading day immediately preceding the date of grant. Options granted under the ESOP expire within a period of six years of granting, with vesting periods determined by the Human Resources Committee.

The Company employs a fair value method of accounting for all options issued to employees and directors on or after April 27, 2002. The fair value of options issued in the quarter was calculated using the Black-Scholes option pricing model and the following assumptions:

 Quarter Ended January 31, 
 2010 2009 
Risk free interest rate0.28%1.92%
Expected life in years5.5 5.5 
Expected dividend yield5.30%11.92%
Volatility38.68%43.14%

For the quarter ended January 31, 2010, the Company issued 16,446 Deferred Share Units in lieu of options to directors and officers of the Company under its Deferred Share Unit Plan. Deferred share units vest evenly over a four year period. Deferred share units do not have an exercise price and can only be settled using cash consideration.

The Company implemented a restricted share unit plan ("RSU Plan") for certain employees in October 2008. The Company has granted 93,278 RSUs during fiscal 2010 (2009 – 72,700). The RSUs vest over three years. Under the RSU Plan, units are settled using common shares of the Company. During fiscal year 2010, the Company funded an independent trustee to purchase 46,639 shares of the 2010 grant (2009 – 72,700) and to provide custodial services. The Company recognizes compensation expense, measured by the purchase price of the shares, if the shares have been purchased, or the intrinsic value otherwise, over the vesting period.

7. Financial Instruments

The Company has exposure to the following risks from its use of financial instruments: credit risk, market risk and liquidity risk.

Credit Risk

Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's accounts receivable and its foreign exchange contracts.

The Company provides extended payment terms to some licensees in the normal course of its operations. The Company's credit risk review includes performing periodic credit evaluations of its most significant licensees. In certain circumstances, the Company may utilize letters of guarantee or credit insurance to mitigate certain credit risks. The Company's licensees are, for the most part, large national and international public companies. Due to the nature of the Company's operations, provisions for doubtful accounts are made on a licensee-by- licensee basis, based upon on-going review of licensee financial status.

Many of the Company's current licensees' operations are focused in the semiconductor industry. The semiconductor industry, particularly the DRAM memory segment, tends to be cyclical and, from time to time, suffer from economic difficulties due to pricing pressure as a result of an oversupply of memory devices.

Due to the long-term nature of many of the Company's licensing arrangements, in certain circumstances, the Company may not be able to obtain, at reasonable cost, credit insurance or other forms of credit risk mitigation instruments. A default of the remaining payments by one of the Company's licensees could have a materially adverse impact on the Company's future revenues, earnings, cash flow and financial position.

The Company limits its exposure to credit risk from counter-parties to derivative instruments by dealing only with major financial institutions. Management does not expect any counter-parties to fail to meet their obligations.

The Company invests its excess cash in investment grade securities, each with a maturity date not exceeding 12 months. The Company relies upon the credit rating of the counter-party to limit its credit risk. The Company does not invest in asset-backed commercial paper.

The carrying amount of financial assets represents the maximum credit exposure. The maximum credit exposure to credit risk at the reporting date was:

 January 31, 2010 April 30, 2009
 
Cash and cash equivalents$66,539 $32,899
Marketable securities3,717 18,888
Accounts receivable3,915 10,434
Other asset (liability)(366)446
 $73,805 $62,667

The aging of accounts receivable at the reporting date was:

 January 31, 2010April 30, 2009
 
Current$602$2,676
Past due3,3127,758
 $3,915$10,434

Of the amount past due, a portion has been recognized as revenue as the Company expects to collect the amount under a credit insurance policy, and a portion has been recorded as deferred revenue as there is uncertainty regarding ultimate collection.

Marketable securities comprise the following:

 January 31, 2010April 30, 2009
 
Bonds & debentures$711$13,099
Discount notes3,0065,789
 $3,717$18,888

Carrying values of bonds and debentures and discount notes include accrued interest and approximate market value. Investments in bonds and debentures and discount notes represent holdings in corporate and government short-term marketable securities as at January 31, 2010 and have a maturity date of one year or less.

Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company's income or the value of its holding of financial instruments.

Foreign Exchange Risk

The Company's revenues are denominated primarily in U.S. dollars, giving rise to exposure to market risks from changes in foreign exchange rates. The Company is exposed to foreign currency fluctuations on its accounts receivable and future cash flows related to licensing arrangements denominated in U.S. dollars, as well as certain operating expenses and its other long-term liabilities obligations.

The Company's foreign exchange risk management includes the use of foreign exchange forward contracts to fix the exchange rates on certain foreign currency exposures. The Company's objective is to manage and control exposures and secure the Company's profitability on existing contracts and anticipated future cash flows. The Company does not utilize derivative instruments for trading or speculative purposes. The Company formally documents all relationships between derivative instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments or anticipated transactions.

The Company also formally assesses, both at the inception and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in off-setting changes in fair values or cash flows of hedged items. Hedge ineffectiveness is insignificant.

The forward foreign exchange contracts primarily require the Company to sell U.S. dollars for Canadian dollars at contractual rates. The Company had the following forward exchange contracts.

(In thousands of dollars) January 31, 2010 
        
    Equivalent to   
TypeNotionalCurrencyMaturityCDN dollars Fair Value 
  
Sell$13,275USD< 3 months$14,899 $465 
Sell$34,100USD3-12 months$36,727 $163 
Sell$-USD> 12 months$- $- 
Buy$5,000USD3-12 months$(6,114)$(506)
Buy$5,000USD> 12 months$(6,093)$(488)
      $(366)
  
(In thousands of dollars)April 30, 2009 
     
    Equivalent to   
TypeNotionalCurrencyMaturityCDN dollars Fair Value 
  
Sell$8,500USD< 3 months$10,576 $289 
Sell$18,600USD3-12 months$23,099 $640 
Buy$5,000USD< 3 months$(6,328)$(240)
Buy$5,000USD3-12 months$(6,114)$(117)
Buy$5,000USD> 12 months$(6,093)$(126)
      $446 

A one cent strengthening (weakening) of the U.S. dollar against the Canadian dollar would have decreased (increased) other comprehensive income by approximately $206,000 for the quarter ended January 31, 2010.

Interest Rate Risk

The Company is exposed to interest rate risk due to its holdings of interest-bearing marketable securities. It is the Company's policy to invest in securities with a maturity date of 12 months or less and Company practice to hold such securities, when possible, until maturity. A 1% increase (decrease) to the interest rate would result in an immaterial decrease (increase) in the fair value of the investments held as at the reporting date.

The Company is also exposed to interest rate risk due to its imputed interest on other long-term liabilities.

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet liabilities when due. At January 31, 2010, the Company had $70.3 million of cash and marketable securities and had a secured bank credit facility of $10.0 million, less off balance sheet arrangements as described in Note 17 to the fiscal 2009 Consolidated Financial Statements to meet liabilities when due. The credit facility is collateralized by a general security agreement and contains no covenants.

All of the Company's financial liabilities, except for its "other long-term liabilities" and operating lease for its premises, have contractual maturities of less than 30 days.

The following chart indicates the contractual obligations to which the Company is bound over the following five years.

Payments Due by Period
(in thousands of dollars)
 
Contractual ObligationsTotalLess than 1 year1-3 years4-5 yearsAfter 5 years
 
Operation leases$1,377$365$496$496$20
 
Other long-term obligations$62,262$10,906$14,081$26,625$10,650
 
Total contractual obligations$63,639$11,271$14,577$27,121$10,670

Fair Value

The fair values of cash, marketable securities, accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity. The recorded amounts of long-term monetary liabilities approximate fair value, estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions.

Fair value of the forward exchange contracts reflects the cash flow due to or from the Company if settlement had taken place on the reporting date.

The fair value of employee and director deferred stock units is determined using the market price of the Company's common stock on the reporting date.

8. Capital Management

The Company's objective is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Management defines capital as the Company's shareholders' equity excluding accumulated other comprehensive income.

The Company has certain credit facilities with a Canadian chartered bank, which consist of an operating line, a foreign exchange forward contract facility and standby letters of credit. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year over year sustainable profitable growth. The Board of Directors also reviews on a quarterly basis the level of dividends paid to the Company's shareholders and monitors the share repurchase program activities. There were no changes in the Company's approach to capital management during the period. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.

9. Business Segment Information

The Company operates in one business segment as a developer and licensor of semiconductor and telecommunications technologies.

10. International Financial Reporting Standards

The Accounting Standards Board of Canada ("AcSB") plans to converge Canadian GAAP for publicly accountable enterprises with International Financial Reporting Standards ("IFRS") over a transition period that will end effective January 1, 2011 with the adoption of IFRS. The AcSB announced on February 13, 2008 that IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. The changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company will convert to these new standards according to the timetable set with these new rules. The Company is currently in the process of developing a conversion implementation plan and assessing the impacts of the conversion on the consolidated financial statements and disclosures of the Company.

11. Subsequent Events

During the quarter, the Company signed a Patent Purchase Agreement (the Agreement) with Samsung Electronics Co., Ltd. (Samsung) to purchase certain patents. The selection of the specific patents is on- going and is expected to be substantially completed during the company's fourth quarter of fiscal 2010. Under the Agreement, the Company will make a series of payment to Samsung during calendar 2014. The value of the payments, on a net present value basis, is approximately $11.6 million.

Subsequent to the quarter end, the Company announced the completion of a Bought Deal equity financing for gross proceeds of approximately $31.0 million. The Company will issue 1,437,500 common shares, including the full 15% over-allotment, at a price of $21.65 per share. The Bought Deal was completed with a syndicate of underwriters, lead by BMO Capital Markets, and including CIBC World Markets Inc., Cormark Securities Inc., and Northern Securities Inc.

Contact Information

  • Investor and Media Inquiries:
    MOSAID Technologies Inc.
    Michael Salter, Director,
    Investor Relations and Corporate Communications
    613-599-9539 x 1205
    salter@mosaid.com