OTTAWA, Ontario, Canada – November 18, 2004 – MOSAID Technologies Incorporated (TSX:MSD) today announced financial results for the second quarter of fiscal 2005, ended October 22, 2004.
Revenues for the second quarter of fiscal year 2005 were $7,049,000 compared to $7,092,000 in the second quarter of fiscal year 2004. Net loss for the quarter was $1,159,000 or $0.11 per diluted share, compared to a net loss of $6,175,000 or $0.60 per diluted share a year ago. Before discontinued operations, related to the termination of the Semiconductor Division in September 2003, loss for the quarter was $1,366,000 or $0.13 per diluted share compared with a net loss of $261,000 or $0.03 per diluted share a year ago.
Revenues for the year to date were $16,304,000 compared to revenues of $12,240,000 reported for the same period last year. Net loss for the first six months of fiscal 2005 was $1,067,000 or $0.10 per diluted share, compared to a net loss of $9,888,000 or $0.96 per diluted share reported in the first half of fiscal 2004. The year to date loss for fiscal 2005 before discontinued operations was $1,294,000 or $0.12 per diluted share compared to a net loss before discontinued operations of $1,799,000 or $0.18 a year ago.
The Company's cash balance and short-term marketable securities at the end of the second quarter was $39.7 million, compared to $41.5 million at the end of the first quarter of fiscal 2005. Following the quarter end, the Company successfully raised an additional $13.7 million by way of a private placement of common shares.
"Results for the second quarter are in line with our preliminary estimates announced October 29, 2004," said George Cwynar, President & CEO of MOSAID. "Revenues and earnings were lower than expected for the quarter due to higher than planned legal expenses related to expedited pre-trial proceedings in the Samsung litigation and the delay in closing a tester sale within our Systems Division. This coupled with a minimal backlog for Systems is indicative of a softness in the memory ATE market."
"This has been a very busy quarter for the Company," said Cwynar. "We have been asserting our patents in both the courtroom and the boardroom; we have tapped into the financial markets for additional capital, and our engineers have been developing new IP and tester products."
Operating Highlights
• Trial Date Set in Lawsuit Against Samsung
As previously announced in July 2004, Magistrate Judge Hedges granted the majority of MOSAID's requested sanctions relating to Samsung's failure to deliver documentation, as required by law, in the discovery phase of the case. On September 1, 2004, he further addressed two of the sanctions imposed, setting the language of the adverse instuction to be given to the jury and awarding MOSAID US$567,000 in attorneys' fees and costs. All four sanctions were subsequently appealed by Samsung on September 17, 2004.
On October 1, 2004, Judge Martini denied Samsung's appeal of two of the sanctions ordered by Judge Hedges. First, he affirmed that MOSAID is permitted to choose any Samsung DRAMs as representative parts, so long as at least one NMOS DRAM is identified as a representative part. Second, he affirmed that Samsung is precluded from challenging MOSAID's expert evidence as to the operation of the representative parts insofar as such challenges rest on any assumptions made as part of performing simulations or other analyses of representative DRAMs. The Court advised that it would rule on Samsung's appeal of the remaining two sanctions, the adverse inference and attorney's fees, in a subsequent opinion.
On October 1, 2004, Judge Martini also set a schedule for pre-trial proceedings and an early trial date of February 1, 2005 for MOSAID's patent infringement case against Samsung.
• Design Licensing Group Announced Availability of BIST Engine
During the quarter, the BIST (built in self-test) controller was announced as available for general license and it has already been generating customer interest. The BIST is a highly advanced, fully programmable engine, which includes a user-friendly test program instruction compiler, and is for use with all types of embedded memories, including SRAM and DRAM. With the BIST solution, the essential functions of an external tester are placed within the device, allowing for full control and observation of the memories. MOSAID's programmable BIST product combines the advantage of detailed analysis capabilities normally obtained with a MOSAID test system or other ATE platforms, with GHz test frequencies.
• Systems Division Continued to Record Strong Profitability
While results were lower than expected due to the delayed closing of a tester sale, the Division reported another quarter of healthy profitability and continued to achieve good progress in its development of new tester products. Next generation products will address expanding market requirements including increased data width and pin count, larger bitmap capacity and more logic test capability.
Conference Call and Webcast
Management will hold a conference call and webcast on Thursday, November 18, 2004 at 5:00 p.m. (EST). Participants wishing to access the conference call should dial 1-800-814-4859. The conference call will also be webcast live at www.mosaid.com and www.newswire.ca, and subsequently archived on MOSAID's web site. A rebroadcast of the conference call will be available until midnight on Thursday, November 25, 2004. To access the rebroadcast, please dial 1-877-289-8525 and enter the passcode 21100391#.
About MOSAID
MOSAID Technologies Incorporated makes memory better through the development and licensing of intellectual property and the supply of memory test and analysis systems to semiconductor manufacturers, foundries and fabless semiconductor companies around the world.
Founded in 1975, MOSAID is based in Ottawa, Ontario, Canada, with offices in Santa Clara, California; Newcastle upon Tyne, U.K; and Tokyo, Japan. For more information, visit the Company's web site at www.mosaid.com.
Forward Looking Information
This document may contain forward-looking statements relating to the Company’s operations or to the environment in which the Company operates. Such statements are based on current expectations that are subject to a variety of risks and uncertainties that are difficult to predict and/or beyond MOSAID’s control. Actual results may differ materially from those expressed in any forward-looking statements, due to factors such as customer demand and timing of purchasing decisions, product and business mix, competitive products, pricing pressures as well as general economic and industry conditions. MOSAID assumes no obligation to update these forward-looking statements, or to update the reasons why actual results could differ from those reflected in any forward-looking statements. Additional information identifying risks and uncertainties is contained in other public filings with the Ontario Securities Commission.
FINANCIAL STATEMENTS AND NOTES FOLLOW
MOSAID TECHNOLOGIES INCORPORATED
(Incorporated under the Ontario Business Corporations Act)
CONSOLIDATED BALANCE SHEET
(In thousands)
| As at | As at | |
| <>October 22, 2004 (unaudited) | <>April 23, 2004 (audited) | |
| Current Assets | ||
| Cash and cash equivalents | $22,722 | $9,021 |
| Short-term marketable securities | 16,974 | 29,140 |
| Accounts receivable | 3,472 | 6,020 |
| Revenues recognized in excess of amounts billed | 182 | - |
| Inventories | 2,915 | 3,201 |
| Prepaid expenses | 712 | 328 |
| 46,977 | 47,710 | |
| Capital Asset | 8,825 | 9,108 |
| Long-term Investments | 670 | 670 |
| Future Income Taxes | 12,025 | 12,025 |
| $68,497 | $69,513 | |
| Current Liabilities | ||
| Accounts payable and accrued liabilities | $6,158 | $7,502 |
| Deferred revenue | 1,059 | 1,265 |
| Mortgage payable | 216 | 207 |
| 7,433 | 8,974 | |
| Mortgage Payable | 4,704 | 4,815 |
| 12,137 | 13,789 | |
|
|
| |
| Shareholders' Equity | ||
| Share capital | 85,949 | 84,556 |
| Contributed surplus | 900 | 590 |
| Deficit | (30,489) | (29,422) |
| 56,360 | 55,724 | |
| $68,497 | $69,513 |
See accompanying Notes to the Consolidated Financial Statements
<>| 13 weeks | 13 weeks | 26 weeks | 26 weeks | |
| ended | ended | ended | ended | |
| October 22, | October 24, | October 22, | October 24, | |
| 2004 | 2003 | 2004 | 2003 | |
| Revenues | $7,049 | $7,092 | $16,304 | $12,240 |
| Expenses | ||||
| Labour and materials | 1,607 | 1,562 | 3,574 | 2,387 |
| Research and development | 1,816 | 1,360 | 3,662 | 2,514 |
| Selling and marketing | 3,904 | 2,614 | 8,225 | 5,971 |
| General and administration | 1,199 | 1,376 | 2,223 | 2,625 |
| 8,526 | 6,912 | 17,684 | 13,497 | |
| (Loss) earnings from operations | (1,477) | 180 | (1,380) | (1,257) |
| Net interest income (Note 2) | 177 | 155 | 262 | 352 |
| Loss on disposal of long-term investment | - | (244) | - | (244) |
| (Loss) earnings before income tax expense and discontinued operations | (1,300) | 91 | (1,118) | (1,149) |
| Income tax expense | 66 | 352 | 176 | 650 |
| Loss before discontinued operations | (1,366) | (261) | (1,294) | (1,799) |
| Discontinued operations (net of tax) (Note 3) | 207 | (5,914) | 227 | (8,089) |
| Net loss | (1,159) | (6,175) | (1,067) | (9,888) |
| Deficit, beginning of period | (29,330) | (24,228) | (29,422) | (20,515) |
| Deficit, end of period | ($30,489) | ($30,403) | ($30,489) | ($30,403) |
| (Loss) earnings per share (Note 4) | ||||
| Basic – before discontinued operations | ($0.13) | ($0.03) | ($0.12) | ($0.18) |
| Diluted – before discontinued operations | ($0.13) | ($0.03) | ($0.12) | ($0.18) |
| Basic – net loss | ($0.11) | ($0.60) | ($0.10) | ($0.96) |
| Diluted – net loss | ($0.11) | ($0.60) | ($0.10) | ($0.96) |
| Weighted average number of shares | ||||
| Basic | 10,339,596 | 10,291,684 | 10,356,510 | 10,275,622 |
| Diluted | 10,339,596 | 10,291,684 | 10,356,510 | 10,275,622 |
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED| 13 weeks | 13 weeks | 26 weeks | 26 weeks | |
| ended | ended | ended | ended | |
| October 22, | October 24, | October 22, | October 24, | |
| 2004 | 2003 | 2004 | 2003 | |
| Operating | ||||
| Net loss before discontinued operations | ($1,366) | ($261) | ($1,294) | ($1,799) |
| Items not affecting cash |
|
| ||
| Amortization | 458 | 580 | 934 | 1,132 |
| Stock option expense | 181 | 26 | 341 | 62 |
| Loss on disposal of capital assets | - | 5 | - | 5 |
| Loss on disposal of long-term investment | - | 244 | - | 244 |
| Restructuring | - | 18 | - | 18 |
| (727) | 612 | (19) | (338) | |
| Change in non-cash working capital items – continuing operations | (1,813) | (1,528) | 1,148 | 1,701 |
| Cash flow from continuing operations | (2,540) | (916) | 1,129 | 1,363 |
| Cash flow from discontinued operations | (97) | (2,304) | (203) | (6,395) |
| (2,637) | (3,220) | 926 | (5,032) | |
| Investing |
|
| ||
| Acquisition of capital assets – net – continuing operations | (460) | (32) | (651) | (92) |
| Acquisition of capital assets – net – discontinued operations | - | - | - | (474) |
| Acquisition of short-term marketable securities | (8,419) | (5,441) | (10,957) | (16,885) |
| Proceeds on disposal / maturity of short-term marketable securities | 6,785 | 22,710 | 23,123 | 44,710 |
| Proceeds on disposal of long-term investments | - | 620 | - | 620 |
|
| (2,094) | 17,857 | 11,515 | 27,879 |
| Financing | ||||
| Repayment of mortgage | (52) | (48) | (102) | (94) |
| Issue of common shares | 1,319 | 144 | 1,592 | 309 |
| Repurchase of shares | - | - | (230) | - |
| 1,267 | 96 | 1,260 | 215 | |
| Net cash (outflow) inflow | (3,464) | 14,733 | 13,701 | 23,062 |
| Cash and cash equivalents, beginning of period | 26,186 | 12,473 | 9,021 | 4,144 |
| Cash and cash equivalents, end of period | $22,722 | $27,206 | $22,722 | $27,206 |
See accompanying Notes to the Consolidated Financial Statements
MOSAID TECHNOLOGIES INCORPORATED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
26 weeks ended October 22, 2004
(tabular dollar amounts in thousands, except per share amounts)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for annual financial statements.
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 22, 2005.
The accounting policies used in preparing these interim financial statements are consistent with those used in preparing the annual financial statements, except as follows:
Hedging Relationships
Effective April 24, 2004, the Company adopted Accounting Guideline 13, Hedging Relationships ("AcG-13"). AcG-13 establishes new criteria for hedge accounting and applies to all hedging relationships in effect for fiscal years beginning on or after July 1, 2003. To qualify for hedge accounting, the hedging relationships must be appropriately documented at the inception of the hedge and there must be reasonable assurance, both at the inception and throughout the term of the hedge, that the hedging relationship will be effective. Effectiveness requires a high correlation of changes in fair values or cash flows between the hedged item and the hedging item. The Company will comply with the requirements of AcG-13, such that any hedging relationships entered into will qualify for hedge accounting when the guideline becomes effective. All outstanding hedges that previously qualified for hedge accounting continue to qualify for hedge accounting.
Stock-based compensation and other stock-based payments
Effective April 24, 2004, the Company adopted the fair value provisions in CICA Handbook Section 3870, Stock-based compensation and other stock-based payments, on a retroactive basis. The recommendation requires the use of fair value methods for all awards to both employees and non-employees. Using the Black-Scholes option pricing model and amortizing the fair value on a straight-line basis, over the vesting period, the impact on previously published results is:
These statements should be read in conjunction with the Company’s audited consolidated financial statements prepared for the fiscal year ended April 23, 2004.
Segmented disclosure
As a result of reclassifying interest expense from operating expense to net interest income for both the current and comparative periods, the expense has been removed from segment profit and into the unallocated amounts.
2. Net Interest Income
Net interest income comprises the following:
| 13 weeks | 13 weeks | 26 weeks | 26 weeks | |
| ended | ended | ended | ended | |
| 22-October | 24-October | 22-October | 24-October | |
| 2004 | 2003 | 2004 | 2003 | |
| Interest income | $277 | $259 | $464 | $561 |
| Interest expense | 100 | 104 | 202 | 209 |
| $177 | $155 | $262 | $352 |
3. Discontinued Operations
The results of operations of the Semiconductor Division have been segregated in the accompanying interim consolidated financial statements. The results of discontinued operations are as follows: