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News & Events > 2002 News Releases > August 22 |
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2002 News Releases "FOR IMMEDIATE RELEASE" MOSAID Announces First Quarter Results for Fiscal Year 2003 OTTAWA, Ontario, Canada – August 22, 2002 – MOSAID Technologies Incorporated (TSE:MSD) today announced financial results for the first quarter of fiscal year 2003 ended July 26, 2002. Revenues for the first quarter of fiscal year 2003 were $7,651,000, compared to $21,774,000 in the first quarter of fiscal year 2002. Net loss for the quarter was $5,367,000 or $0.52 per diluted share, compared to net income of $2,419,000 or $0.23 per diluted share a year ago. Net loss for the quarter excluding restructuring charges of $783,000 was $4,584,000, or $0.45 per diluted share. The Company's cash balance and short-term marketable securities at the end of the first quarter was $52,855,000, compared to $53,430,000 at the end of the fourth quarter of fiscal 2002. "The memory and communications chip markets have continued to languish throughout our first quarter, and MOSAID's financial results reflect these market conditions. However, in spite of the very difficult business environment, we also recorded positive achievements which should be significant in terms of our future financial performance," said George Cwynar, President and Chief Executive Officer of MOSAID. "The signing of the Matsushita agreement validates the extension of the market opportunity for our IP licensing program into the area of embedded memory. We believe embedded DRAM technology has the potential to be a strong segment of the semiconductor market in the future as more companies employ embedded memory in a variety of system-on-a-chip (SOC) products. In our Systems Division we unveiled new products, including the next generation of our world class test equipment and a technical support portal to better serve our customers. And in the Semiconductor business, we strengthened the Division's leadership with the appointment of Lluis Paris as General Manager. Mr. Paris brings a breadth of semiconductor experience to the role and is focused on getting customer traction for our current classification products and delivering the next generation of our Class-IC family of network search engines," said Cwynar. Operating Highlights In the Intellectual Property Division, MOSAID successfully negotiated a patent licensing agreement with Matsushita Electric Co., Ltd., of Osaka, Japan. Matsushita is best known worldwide for its Panasonic, National, Technics, and Quasar brands. This is an important IP licensing milestone for MOSAID as Matsushita is the first semiconductor company, outside of major commodity DRAM manufacturers, to license MOSAID's patent portfolio. It represents a significant new market for the IP Division as MOSAID believes many companies use embedded memory in a variety of semiconductor products. The types of products that use embedded DRAM include consumer goods such as DVD players and recorders, digital camcorders, and advanced cellular telephones, as well as computing and networking applications. There are currently 10 semiconductor manufacturers on notice for patent infringement and MOSAID is actively engaged in licensing discussions with several of these companies. MOSAID's ability to broaden its licensing opportunities is supported by its growing portfolio of 384 issued or pending patents, an increase of 40 over the fourth quarter of fiscal 2002. At the start of the quarter, MOSAID appointed Lluis Paris as General Manager of the Semiconductor Division. "I believe the Content Addressable Memory (CAM) market is a great opportunity and the Semiconductor Division is poised to capitalize on it. After more than twenty-five years of helping customers design and build successful memory products, MOSAID knows how to develop winning products," said Lluis Paris, VP and GM of Semiconductor Division. "Already, our first commercial chip, the DC9288 has achieved competitive commercial yields and will be production ready in September 2002. Its ultra-low power consumption in real-life applications is unparalleled in the marketplace," said Paris. MOSAID has been marketing the DC9288 since February 2002, and is sampling with customers, one of which is a major OEM that has the potential to be a significant volume driver. The Systems Division launched and demonstrated its next generation test system, the MS4205ex, and a technical support portal, MOSAID iAssist, in July at Semicon West in San Jose, California. The new test system is designed to meet the industry's latest demands for engineering test and analysis of high-speed memory devices including DDR2 SDRAM and QDR SRAM. MOSAID iAssist is an Internet-based, technical support tool providing test engineering customers with efficient access to knowledge databases, software releases, product documentation, email notifications and support request status. During the quarter, the Systems Division took measures to lower its operating costs in response to a protracted weak market for test equipment. MOSAID reduced its workforce by 15 employees, primarily in the Systems Division, and recognized a restructuring charge. Conference Call and Webcast About MOSAID
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 For more information, please contact:
MANAGEMENT'S DISCUSSION AND ANALYSIS, FINANCIAL STATEMENTS AND NOTES FOLLOW MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements of MOSAID Technologies Incorporated ("MOSAID" or "the Company") for the thirteen weeks ended July 26, 2002 appearing elsewhere in this report. It should also be read in conjunction with the audited annual Consolidated Financial Statements and the Management's Discussion and Analysis (MD&A) included in the Company's most recent Annual Report for the fiscal year ended April 26, 2002. All dollar amounts are in Canadian dollars, except where otherwise indicated. Overview The Company reported revenues of $7.7 million for the quarter ended July 26, 2002 ("Q1 fiscal 2003"), representing a decrease of 65% from revenues of $21.8 million for the quarter ended July 27, 2001 ("Q1 fiscal 2002"). The net loss for Q1 fiscal 2003 was $5.4 million or $0.52 per diluted share compared to net earnings of $2.4 million or $0.23 per diluted share for the same quarter last year. During the quarter ended July 26, 2002, the Company restructured its operations, recording a charge of $783,000, principally related to the termination of 15 employees, mainly from the Systems Division. Results of Operations The following table shows the percentage of revenues represented by certain items in the Company's consolidated statement of earnings for the fiscal quarters indicated.
The Semiconductor Division showed a net loss of $4.5 million for the first quarter of fiscal 2003 compared to a net loss of $6.6 million for the same quarter last year. The net loss has decreased mainly due to the 54% decrease in head count in the division since the prior year. As a result, there have been significant savings in salaries and benefits. The IP Division's net profit of $3.2 million for Q1 fiscal 2003 compares to a $10.7 million net profit for the same quarter in the previous year. This is mainly due to the decrease in revenues from Q1 fiscal 2002 to Q1 fiscal 2003. A net loss of $4.4 million for the Systems Division for the first quarter of fiscal 2003 compares to a net loss of $961,000 for the same quarter last year. The increase in the net loss is the result of a decrease in revenues quarter over quarter and poorer operating margins, exacerbated by a $826,000 write-down in the value of the inventory during the current quarter and a restructuring charge of $783,000. Revenues
For Q1 fiscal 2003, the Semiconductor Division earned no revenues compared to revenues of $15,000 for Q1 fiscal 2002. While in pre-production mode, revenues in this division may vary significantly from period to period depending on availability of financial contributions from lead customers and others. Both the IP and Systems Divisions showed significant revenue declines from Q1 fiscal 2002 to Q1 fiscal 2003, which were generally reflective of the 62% decline in revenues of DRAM memory manufacturers in 2001. In Q1 fiscal 2003, revenues for the IP Division decreased 66% from Q1 fiscal 2002. The decrease is mainly due to declining payments from existing licensees. Revenues from the IP Division can vary significantly from period to period and depend on licensee revenues and contracted payment schedules. Systems Division revenues for Q1 fiscal 2003 are 64% lower than revenues for the same quarter in the previous year due to deteriorating overall market conditions which resulted in a reduction in capital expenditures by memory manufacturers. The split of revenues between divisions is consistent quarter over quarter. Interest income in Q1 fiscal 2003 is 36% lower than Q1 fiscal 2002, primarily as a result of the decrease in interest rates and reduced cash balances. The approximate geographic breakdown of operating revenues is as follows:
The Company markets its products and services globally. Revenues from the IP Division stem solely from Japan. Due to the low volume and high unit price of test equipment sales, revenues in any given country can be skewed from quarter to quarter, as is evident in the analysis above for Korea, China and Taiwan. Labour and Materials
This category comprises the labour, materials and subcontract costs of assembling, integrating, testing and servicing the memory test systems as well as the labour, material and subcontract costs related to the sale of chips. The increase as a percentage of revenues is in part due to lower revenues quarter over quarter. Labour and materials as a percentage of Systems Division revenues have risen from 48% in Q1 fiscal 2002 to 98% in Q1 fiscal 2003 mainly due to the expensing of $826,000 to inventory in the current quarter. Since the market for test equipment shows signs of remaining depressed in the near future, inventory valuation has been adjusted down to bring it in line with sales expectations. Without the inventory adjustment, labour and materials are 63% of Systems Division revenues compared to 48% in Q1 fiscal 2002 due to lower margins associated with the MS4205 series test system and a higher proportion of fixed costs due to the low volume of shipments. The decrease in labour and materials in absolute amounts from Q1 fiscal 2002 to Q1 fiscal 2003 is mainly due to the decrease in head count quarter over quarter, a reduction in the number of systems sold and efforts to contain costs, offset by the inventory adjustment mentioned above. Research and Development
The increase in R&D as a percentage of revenues reflects the significant reduction in revenues from the IP and Systems Divisions from Q1 fiscal 2002 to Q1 fiscal 2003. The decrease in research and development in absolute amounts from Q1 fiscal 2002 to Q1 fiscal 2003 is mainly due to the decrease in the number of employees resulting from the restructuring in the second quarter of fiscal 2002 and cost containment efforts. Selling and Marketing
The increase in Selling and Marketing (S&M) expenses as a percentage of revenues from Q1 fiscal 2002 to Q1 fiscal 2003 is mainly due to lower revenues in the IP and Systems Divisions. The decrease in S&M expenses in absolute terms is primarily related to commissions associated with the patent licensing activity in the IP Division. S&M expenses in the Semiconductor and Systems Divisions were also down quarter over quarter due to efforts to contain costs. General and Administration
The increase in General and Administration (G&A) as a percentage of revenues is mainly due to the decrease in revenues this quarter as compared to the same quarter last year. The decrease in G&A expenses in absolute amounts was driven by initiatives to contain costs, particularly with respect to travel, professional fees and subcontract costs. The decrease was also caused by a $126,000 foreign exchange gain during Q1 fiscal 2003 compared to an $18,000 loss in the same quarter last year, resulting from large fluctuations in the US exchange rate during the current quarter. Income Taxes Income tax expense of $136,000 for Q1 fiscal 2003 represents the tax effect of ITC's recorded in the quarter at an effective tax rate of 32%. Income tax expense of $1.3 million for Q1 fiscal 2002 represented an effective tax rate of 35%, consistent with tax rates in effect at that time. Restructuring Costs On June 20, 2002, the Company announced a reduction in its workforce by 15 employees, mainly in the Systems Division, in light of continuing uncertainty in the market for memory test equipment and ongoing divisional and Company losses. A restructuring charge of $783,000 was recorded primarily for severance costs and other related payments due to the terminations. Liquidity and Capital Resources In Q1 fiscal 2003, the Company generated a negative cashflow from operations of $456,000, as compared to a positive cashflow of $3.4 million in Q1 fiscal 2002. The decrease is mainly due to the decrease in net earnings quarter over quarter offset by the positive change in non-cash working capital items. Cash and short term marketable securities As of July 26, 2002, the Company had cash and short-term marketable securities of $52.9 million, compared to $53.4 as of the end of fiscal 2002. Working capital decreased to $48.9 million at the end of Q1 fiscal 2003 from $53.6 million at the end of fiscal 2002. The decrease is mainly due to the use of cash and reduced accounts receivable during the quarter. Management believes that the Company is well capitalized with sufficient working capital to fund ongoing operations. A $10,000,000 bank credit facility is available to cover the fluctuations in cash requirements but was not utilized throughout the quarter. The available operating line is calculated using a formula based on accounts receivable. Accounts receivable Accounts receivable decreased to $2.5 million at the end of Q1 fiscal 2003 from $5.0 million at the end of fiscal 2002 mainly due to a reduction in revenues between the current quarter and the last quarter of fiscal 2002 and active collections activity. The Company employs financial instruments (principally forward exchange contracts) in the management of its foreign currency exposures, and has no commitments at the end of the current quarter. Inventory Inventory decreased to $4.1 million at the end of Q1 fiscal 2003, from $4.5 million at the end of fiscal 2002 primarily due to the adjustment of inventory to bring it in line with sales expectations for the coming year, offset by the accumulation of inventory associated with the MS4205ex tester.
Capital assets
During the first quarter of fiscal 2003, the Company expended $269,000 (net) for capital purchases, compared to $4.3 million (net) during the first quarter of fiscal 2002. The current quarter capital purchases related to Systems Division R&D equipment and spare tester parts for the MS4205ex product line. Future income taxes recoverable The July 26, 2002 balance for Future Income Taxes Recoverable is $11.0 million, compared with $10.3 million at the end of fiscal 2002 reflecting an increase in investment tax credits and payments withheld in foreign countries. The intellectual property licensing revenues generated from companies in foreign countries results in withholdings when payments are received from those countries. Accounts payable and accrued liabilities Accounts payable and accrued liabilities increased to $10.8 million at July 26, 2002, from $9.6 million at April 26, 2002 primarily due to the accrual for the June 20, 2002 restructuring and commissions on IP and Systems revenues. Mortgage payable A mortgage of $6,000,000, at a fixed rate of 8.24% per annum and for a ten year term, has been put in place to finance the Company's principal physical facility, which went into service in December 1997. The remaining principal amount at the end of Q1 fiscal 2003 was $5.3 million, of which $180,000 is due within 12 months. The cost of the land and building was $7.9 million, less amortization of $1.3 million, at the end of the quarter. Certain Factors That May Affect Future Results The Company expects that its future operating results may be subject to quarterly and annual fluctuations resulting from a variety of factors, including market conditions, changes in customer and geographic distribution, potential schedule slippages, and the possibility that its patents might be declared invalid. Sales to a relatively small number of customers account for a substantial portion of the Company's total revenues. In the IP Division, revenues are primarily derived from a small number of large contracts, principally related to patent licensing agreements, each with finite payment terms. In the Systems Division, a portion of revenues in any fiscal quarter may result from customer orders received in the same quarter. Delays in booking patent licensing agreements, Systems orders, and schedule slippages in one or more Semiconductor contracts or in networking chip product development projects, may lead to significant volatility in financial performance, particularly in terms of quarterly results. The semiconductor industry is characterized by rapid technological change and evolving industry and customer requirements, specifications and standards. The Company's success will depend on its ability to enhance its existing designs, create new intellectual property, chips and test systems and to develop new designs, patent licensing agreements, chips and test systems on a timely and cost-effective basis. Furthermore, the Company's current orientation to the semiconductor memory and networking equipment markets exposes its quarterly operating results to the influence of the business cycles in these markets.
MOSAID TECHNOLOGIES INCORPORATED
See accompanying Notes to the Consolidated Financial Statements. MOSAID TECHNOLOGIES INCORPORATED
See accompanying Notes to the Consolidated Financial Statements.
MOSAID TECHNOLOGIES INCORPORATED
See accompanying Notes to the Consolidated Financial Statements. MOSAID TECHNOLOGIES INCORPORATED 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in Canada 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 25, 2003. The accounting policies used in preparing these interim financial statements are consistent with those used in preparing the annual financial statements, except for the following new accounting standard change:
These statements should be read in conjunction with the Company's audited consolidated financial statements prepared for the fiscal year ended April 26, 2002. 2. Restructuring During the 13 weeks ended July 26, 2002, the Company undertook a restructuring of its Systems Division and associated administrative activities. The current period amount represents severance and other related payments to terminated employees, the writedown of inventory and other costs related to the downsizing. A breakdown of the restructuring costs is as follows:
3. Earnings per Share The following is a reconciliation of the numerator and denominator of the basic and fully diluted per share computations. 13 weeks ended July 26, 2002 July 27, 2001 Net (loss) earnings $(5,367) $2,419 Basic (loss) earnings per common share $ (0.52) $ 0.25 Fully diluted (loss) earnings per common share $ (0.52) $ 0.23 Weighted average number of common shares outstanding 10,254,055 9,686,633 Effect of dilutive stock options - 659,594 Weighted average number of common shares 10,254,055 10,346,227
4. Stock-based Compensation The Company has an employee stock purchase plan 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. Also, the Company has an Employee and Director Stock Option Plan. The exercise price of issued options are no lower than the market price on the date of grant. Options granted under the Plan expire within a period of six years of granting, with vesting periods determined by the Compensation Committee. CICA 3870 requires proforma disclosure of the net income (loss) and earnings (loss) per share, as if the fair value based method as opposed to the intrinsic value based method of accounting had been applied. The disclosures in the following table show the Company?s net loss and loss per share on a proforma basis using the fair value method, on a straight line basis, as determined using the Black-Scholes option pricing model:
The weighted average fair value of options granted during the quarter was calculated as follows using the Black-Scholes option pricing model and the following assumptions:
5. Business Segment Information Based upon the Company?s internal reporting structure, the following operating segments have been assigned: Semiconductor: The development and sale of networking chips based on a fabless semiconductor model. Intellectual Property (IP): Licensing of the Company?s patent portfolio to semiconductor manufacturers worldwide. Systems: Design, manufacture, marketing and servicing of automatic test equipment and related products and services for memory manufacturers, foundries and fabless chip companies. The significant accounting policies of the above segments are the same as those described in Note 1. Intersegment sales are recorded at cost. General and administrative costs are allocated to the operating segments based upon estimates of usage. The Company has not included interest revenues, foreign exchange gains or losses, bad debts, unusual items, gains or losses of long-term assets or income tax expense in the determination of operating segment profit.
Certain figures for the 13 weeks ended July 27, 2002 have been reclassified to conform to the current period?s presentation. 7. Contingency During the quarter, one of the Company?s portfolio investments announced that it had signed a letter of intent to be acquired. If this transaction were completed, it would result in an approximate loss on disposal of investment of $300,000. As at July 26, 2002, certain actions are being taken by the acquiree?s preferred shareholders to consider alternative transaction structures, which would result in a more beneficial outcome for the various shareholders. As the outcome of these actions is currently not determinable, the Company has not provided for any potential loss on the investment in its financial statements. |
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