The Company adopted International Financial Reporting Standards ("IFRS") effective May 1, 2011. The accompanying interim financial statements represent the Company's second set of financial statements prepared in accordance with IFRS.
Q2 Fiscal 2012 Results
-- Q2 revenues of $20.2 million, compared with $20.0 million in Q2 fiscal 2011 -- Q2 adjusted net income of $6.4 million, compared with $9.8 million in Q2 fiscal 2011. Adjusted diluted EPS of $0.52, based on 12.2 million diluted shares, compared to $0.82 per diluted share in Q2 fiscal 2011, based on 11.9 million diluted shares -- Q2 IFRS net loss of $4.9 million or $0.40 per share, compared to net income of $6.3 million or $0.53 per share in Q2 fiscal 2011."The second quarter was marked by two landmark events: our acquisition of approximately 2,000 wireless patents and patent applications originally filed by Nokia, and the offer from an investment fund under the management of Sterling Fund Management, LLC (Sterling) to acquire all the outstanding common shares of MOSAID for $46.00 in cash per share," said John Lindgren, President and CEO, MOSAID. "We expect the Nokia patents to drive revenue growth for MOSAID and believe the acquisition affirms our position as one of the world's premiere licensing organizations. The transaction with Sterling resulted from an extensive review process of MOSAID's alternatives and, in the view of the Special Committee and the Board, represents the best sale alternative available for shareholders."
MOSAID had cash and marketable securities of $115.9 million at the end of the second quarter of fiscal 2012, compared to $122.9 million at the end of the first quarter of fiscal 2012. In Q2 fiscal 2012, MOSAID returned $3.0 million to shareholders in quarterly dividend payments. As part of MOSAID's arrangement agreement with Sterling Partners, which was announced on October 27, 2011, MOSAID agreed to suspend payment of its quarterly dividend.
A reconciliation of adjusted net income to IFRS net income is included in the adjusted consolidated financial statements accompanying this press release.
Arrangement Agreement with Sterling
On October 27, 2011, MOSAID announced that it had entered into an Arrangement Agreement with Sterling pursuant to which Sterling will acquire all the outstanding common shares of MOSAID for a cash payment of $46.00 per share.
The transaction will be carried out by way of a statutory Plan of Arrangement, the implementation of which will be subject to approval by at least 66 2/3% of the votes cast at the special meeting of MOSAID shareholders to be held on December 19, 2011. This arrangement transaction also requires the approval of the Ontario Superior Court of Justice.
Pursuant to the terms of the Arrangement Agreement between Sterling and MOSAID, the transaction is also subject to applicable regulatory approvals and the satisfaction of certain closing conditions customary in transactions of this nature. On November 17, 2011, MOSAID announced that an advance ruling certificate was received from the Commissioner of Competition confirming that the Commissioner does not intend to challenge the proposed arrangement under the provisions of the Canadian Competition Act. On November 21, 2011, the Company filed its Premerger Notification and Report Form (HSR Form) with the Bureau of Competition, Federal Trade Commission in the United States.
Assuming the required shareholder and Court approvals are received and all other conditions precedent to closing the transaction are satisfied or waived at the time, MOSAID expects that the arrangement will be effected on or about December 23, 2011.
The Arrangement Agreement provides for, among other things, Board support and non-solicitation covenants (subject to the fiduciary obligations of the MOSAID Board and a Sterling "right to match") as well as the payment to Sterling of a break fee equal to $22 million if the proposed transaction is not completed in certain specified circumstances.
Second Quarter Operational Highlights
Patent portfolio development: MOSAID announced the acquisition of Core Wireless S.a.r.l.(Core Wireless), a Luxembourg company, that held approximately 2,000 wireless patents and patent applications originally filed by Nokia. MOSAID believes that revenues from licensing, enforcing and monetizing this portfolio of wireless patents will surpass the Company's total revenues since its formation in 1975.
MOSAID had approximately 5,385 patents and applications at the end of Q2 fiscal 2012, up 88% from 2,869 at the end of Q2 fiscal 2012, and up 126% from 2,381 one year ago. The increase was driven by the 2,000 wireless patents and patent applications acquired from Core Wireless, and the 500 patents and patent applications acquired earlier in calendar 2011 from Hynix Semiconductor Inc., both of which were recorded during the second quarter.
MOSAID also announced the sale of five patent families for US$11.0 million to an unnamed buyer. MOSAID will collect payment for the patents over several quarters, with the revenue being recognized as amounts become due.
Wireless patent licensing: MOSAID signed a patent license and settlement agreement with Digi International Inc., ending the patent infringement litigation between the two companies. MOSAID granted Digi International a 10-year license to MOSAID's standards-essential Wi-Fi patents, with running royalty payments due on a quarterly basis. MOSAID initiated wireless patent infringement litigation against 17 companies, including Digi International, in March 2011 in the United States District Court for the Eastern District of Texas, Marshall Division.
Research and Development: MOSAID unveiled the industry's fastest Flash memory semiconductor device. The Company's 256Gb HLNAND™ (HyperLink NAND) device operates at up to 800MB/s per channel, twice the speed of any other NAND Flash device now on the market. Targeting mass storage applications, including enterprise data centers and high-performance computing applications, MOSAID's HLNAND2 technology enables product designers to build SSDs (Solid State Drives) with Gigabyte-per-second performance and Terabyte-class storage capacity.
Litigation update: on August 9, 2011, MOSAID filed suit against seven companies, including Adobe Systems, Inc., Alcatel-Lucent USA, Inc., IBM Corp. and Juniper Networks, Inc., for infringing certain of MOSAID's computer networking patents.
Also on August 9, 2011, MOSAID announced that ARM, Ltd. and ARM, Inc. filed a Complaint for Declaratory Judgment against the Company. On April 7, 2011, MOSAID filed suit against NVIDIA Corporation, Freescale Semiconductor, Inc. and Interphase Corp., alleging infringement of seven U.S. patents related primarily to power management techniques and microprocessor architecture. ARM, in its complaint, is seeking a declaration of non-infringement and invalidity with respect to the same seven U.S. patents at issue in MOSAID's suit against NVIDIA, Freescale and Interphase.
On August 12, 2011, MOSAID added a mobile DRAM (Dynamic Random Access Memory) patent to its infringement claims against Elpida Memory, Inc., Buffalo Inc., and Axiontech Technologies. The amended complaint now alleges infringement of seven of MOSAID's U.S. patents.
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.
Due to the nature of the expense, patent licensing and litigation expense can vary significantly quarter-to-quarter.
MOSAID Technologies Inc. is one of the world's leading intellectual property management companies. MOSAID licenses patented intellectual property in the areas of semiconductors and communications and develops semiconductor memory technology. MOSAID counts many of the world's largest technology companies among its licensees. Founded in 1975, MOSAID has offices in Ottawa, Ontario and Plano, Texas. For more information, please visit www.mosaid.com and http://InvestorChannel.mosaid.com
Non-GAAP Measures and Definitions
Throughout this press release, we refer to a number of measures which we believe are meaningful in the assessment of the Company's performance. All these metrics are non-standard measures under IFRS, and are unlikely to be comparable to similarly titled measures reported by other companies. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results or cash flows from operations as determined in accordance with IFRS. For a discussion of the purpose of these non-GAAP measures, please refer to the Company's Fiscal 2011 MD&A on SEDAR at www.sedar.com .