MOSAID Announces First Quarter Results for Fiscal 2007

OTTAWA, Aug. 24 /PRNewswire-FirstCall/ -- MOSAID Technologies Incorporated (TSX:MSD) today announced financial results for the first quarter of fiscal 2007, ended July 31, 2006.

Revenues for the first quarter of fiscal 2007 were $23.0 million, up 61% from $14.2 million in the first quarter of fiscal 2006. Revenues for the current quarter increased primarily due to the license with PortalPlayer, Inc. Net income for the first quarter rose 50% to $6.7 million or $0.58 per diluted share, from $4.4 million or $0.38 per diluted share in the first quarter of fiscal 2006. Net income for the first quarter was adversely impacted by an unusual income tax expense of $1.0 million.

The Company's cash balance and marketable securities at the end of the first quarter totaled $68.7 million, compared with $71.3 million at the end of the fourth quarter of fiscal 2006. Working capital at the end of the first quarter was $78.1 million, up from $75.4 million at the end of the fourth quarter.

"The Company recorded an excellent first quarter, marked by the important licensing agreement with Infineon, improved bookings from our Semiconductor IP products group, and the revenue from PortalPlayer, which extends our patent reach beyond the DRAM and embedded DRAM markets," said George Cwynar, President and Chief Executive Officer, MOSAID. "Driven by our patent licensing franchise and the increasing traction of our Semiconductor IP group, we are establishing MOSAID as one of the world's premier intellectual property companies."

According to Gartner's annual ranking of companies that derive revenues from both Semiconductor IP circuit designs and patent licenses, in 2005, MOSAID ranked as the world's seventh largest Semiconductor IP company, up from # 18 in 2004. (Gartner: Market Share: Semiconductor Intellectual Property Worldwide, 2005, May 2006.)

"We are firmly committed to our goal of balancing continued investment in the Company, to achieve our long-term growth and profitability objectives, with actions that provide direct returns to shareholders," said Richard Boadway, Executive Vice President and Chief Financial Officer, MOSAID. "In fiscal 2006, dividend payments to shareholders totaled $7.5 million and we estimate that, based on the current quarterly dividend of $0.25 per share, we will return approximately $11.0 million to shareholders in fiscal 2007. In addition, through our normal course issuer bid, this year we intend to purchase up to 4% of MOSAID's outstanding common shares."

Operating Highlights --------------------

The Intellectual Property Division was highly profitable during the fiscal 2007 first quarter, recording revenue of $19,952,000, with a segment profit of $12,838,000 or 64% of segment revenues. During the quarter, the circuit design products developed by the Semiconductor IP group continued to gain traction with customers. Semiconductor IP bookings in the quarter resulted in the highest backlog since the acquisition of Virtual Silicon Technology, Inc.

As previously guided, results in MOSAID's Systems Division were affected by weaker customer demand and ongoing research and development costs, offset partially by lower labour, materials, and marketing expenses. Systems Division revenues were $3,027,000, with a segment loss of $1,108,000. The Company continues to invest in new product development to maintain and enhance its market position.

The Company also made two senior management appointments. Peter Gillingham, formerly Vice President and General Manager, Intellectual Property Division, was named to the new position of Vice President and Chief Technology Officer. Michael Kaskowitz, an industry veteran with 25 years of technology and management experience in the embedded processing, IP, and electronic design automation industries, was named to the new position of Senior Vice President, Semiconductor IP. Mr. Kaskowitz was formerly President of the VSI Alliance, the leading Semiconductor IP standards body, and before that, General Manager of Mentor Graphics' IP and embedded software divisions.

MOSAID Signs Infineon, Enters Into Litigation with Micron, Builds Patent Portfolio

On June 14, 2006, MOSAID announced the settlement of all patent litigation with Infineon Technologies AG, and that both Infineon and its memory products spin-off, Qimonda AG, had licensed the MOSAID patent portfolio for a six-year term. MOSAID also expanded its patent portfolio with the purchase of 50 patents from Infineon and Qimonda, broadening the Company's licensing reach beyond semiconductor memories into areas such as power management and semiconductor process technology.

On July 25, 2006, Micron Technology, Inc. filed a Complaint for Declaratory Judgment in the Northern District of California, San Jose Division, seeking a declaration of non-infringement and invalidity with respect to 14 of MOSAID's U.S. patents. The following day, MOSAID initiated litigation in the Eastern District of Texas, Marshall Division, against Micron, Powerchip Semiconductor Corporation and ProMOS Technologies for infringement of nine of its U.S. patents. MOSAID claims that Micron, Powerchip and ProMOS have infringed and are infringing MOSAID's patents in the U.S.

At the end of the first quarter, MOSAID's portfolio grew to 654 patents issued or pending, up from 584 at the end of the fourth quarter. Approximately 40% of MOSAID's patents relate to memory technology and 60% to other technology areas. The geographic distribution of the portfolio is 40% in North America, 40% in Asia-Pacific, and 20% in Europe.

MOSAID has 14 companies on notice for patent infringement and is currently in discussions with several of these companies.

Guidance --------

"I am very confident that we will deliver on our business plan for fiscal 2007," said Mr. Cwynar. "Our patent licensing program continues to deliver excellent results, we are making good progress in the Semiconductor IP product group, and anticipate a recovery in the Systems Division in the second half."

Guidance for the Company's revenues in the second quarter of fiscal 2007 is $20.0 million to $21.0 million and for net earnings is $4.5 million to $5.0 million. Guidance for fiscal 2007 is unchanged, with revenues for fiscal 2007 forecast to range between $83.0 million and $88.0 million, with net earnings between $21.0 million and $23.0 million. The Company anticipates that approximately 80% of fiscal 2007 revenues will be generated by the Intellectual Property Division.

------------------------------------------------------------------------- Conference Call and Webcast

Management will hold a conference call and webcast on Thursday, August 24, 2006 at 5:00 p.m. (EST). Participants wishing to access the conference call should dial 1-800-814-4941. The conference call will also be webcast live at http://www.mosaid.com/ and http://www.newswire.ca/, and subsequently archived on MOSAID's web site. A rebroadcast of the conference call will be available until midnight on Thursday, August 31, 2006. To access the rebroadcast, please dial 1-877-289-8525 and enter passcode 21196030(pound key).

------------------------------------------------------------------------- About MOSAID ------------

MOSAID Technologies Incorporated makes semiconductors better through the development and licensing of intellectual property and the supply of memory test and analysis systems. MOSAID counts many of the world's largest semiconductor companies among its customers. Founded in 1975, MOSAID is based in Ottawa, Ontario, with offices in Santa Clara, California; Newcastle upon Tyne, U.K; and Tokyo, Japan. For more information, visit http://www.mosaid.com/.

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", "intend", "may", "plan", "will", "would" and similar expressions. 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 current expectations. 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 and development of new inventions; DRAM manufacturers continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; and MOSAID's ability to sign new licensees.

Factors that could cause actual results to differ materially from expected results include, but are not limited to, the following: declines or unexpected variations in market growth rates for MOSAID's products; the extent of embedded DRAM proliferation in the System-on-a-Chip markets; variability in customer deployment schedules from quarter to quarter; shifts in the mix of products sold; MOSAID's ability to negotiate settlements with licensees; unfavourable legal rulings in MOSAID's patent litigations; foreign currency fluctuations; non-payment by customers/licensees; failure to obtain valuable patents as a result of research and development activities, or to acquire valuable patents; loss of key employees; change in MOSAID's financial position; obsolescence of products or inappropriate targeting to markets that fail to materialize; inability to transition to new technologies to meet customer demand; variations in average sales cycles; key component supply restrictions and/or cost increases; and critical industry transitions.

MOSAID assumes no obligation to update or revise any 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 http://www.sedar.com/.

FINANCIAL STATEMENTS AND NOTES TO FOLLOW MOSAID TECHNOLOGIES INCORPORATED (Subject to the Canada Business Corporations Act) CONSOLIDATED BALANCE SHEETS (In thousands of Canadian Dollars) As at As at July 31, 2006 April 30, 2006 (unaudited) (audited) ------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 18,680 $ 15,542 Marketable securities 49,993 55,788 Accounts receivable 4,123 7,113 Income taxes receivable 138 381 Inventories 1,947 1,779 Prepaid expenses 2,268 1,700 Future income taxes recoverable 11,910 11,910 ------------------------------------------------------------------------- 89,059 94,213 Capital assets 9,470 9,328 Acquired intangibles 18,388 5,385 Goodwill 1,786 1,786 Future income taxes recoverable 23,793 27,439 ------------------------------------------------------------------------- $142,496 $138,151 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Current Liabilities Accounts payable and accrued liabilities $ 4,965 $ 7,653 Income taxes payable - 381 Deferred revenue 1,734 10,545 Mortgage payable 249 244 Current portion of other long-term liabilities (Note 2) 4,005 - ------------------------------------------------------------------------- 10,953 18,823 Mortgage Payable 4,282 4,346 Other long-term liabilities (Note 2) 9,566 - ------------------------------------------------------------------------- 24,801 23,169 ------------------------------------------------------------------------- Shareholders' Equity Share capital 102,210 102,476 Contributed surplus 2,966 2,630 Retained earnings 12,519 9,876 ------------------------------------------------------------------------- 117,695 114,982 ------------------------------------------------------------------------- $142,496 $138,151 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying Notes to the Consolidated Financial Statements MOSAID TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (In thousands of Canadian Dollars, except per share amounts) (unaudited) Quarter ended Quarter ended July 31, 2006 July 31, 2005 ------------------------------------------------------------------------- Revenues $ 22,979 $ 14,233 Expenses Labour and materials 1,223 1,509 Research and development 4,928 2,118 Selling and marketing 3,003 2,389 General and administration 2,146 1,482 Bad debts 83 60 ------------------------------------------------------------------------- 11,383 7,558 ------------------------------------------------------------------------- Income from operations 11,596 6,675 Net interest income 586 283 ------------------------------------------------------------------------- Income before income tax expense 12,182 6,958 Income tax expense 5,525 2,525 ------------------------------------------------------------------------- Net income 6,657 4,433 Dividends 2,831 1,437 Normal course issuer bid 1,183 - Retained earnings, beginning of period 9,876 8,163 ------------------------------------------------------------------------- Retained earnings, end of period $ 12,519 $ 11,159 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share Basic - net earnings $ 0.59 $ 0.39 Diluted - net earnings $ 0.58 $ 0.38 Weighted average number of shares Basic 11,295,626 11,490,423 Diluted 11,482,139 11,660,773 See accompanying Notes to the Consolidated Financial Statements MOSAID TECHNOLOGIES INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of Canadian Dollars) (unaudited) Quarter ended Quarter ended July 31, 2006 July 31, 2005 ------------------------------------------------------------------------- Operating Income before discontinued operations $ 6,657 $ 4,433 Items not affecting cash Amortization 775 452 Stock option expense 336 235 Future income tax recoverable 3,646 951 ------------------------------------------------------------------------- 11,414 6,071 Change in non-cash working capital items from continuing operations (5,378) (3,221) ------------------------------------------------------------------------- 6,036 2,850 ------------------------------------------------------------------------- Investing Acquisition of capital assets and acquired intangibles from continuing operations (13,920) (475) Acquisition of short-term marketable securities (34,069) (50,704) Proceeds on disposal/maturity of short-term marketable securities 39,864 49,146 ------------------------------------------------------------------------- (8,125) (2,033) ------------------------------------------------------------------------- Financing Repayment of mortgage (59) (56) Other long-term liabilities 9,566 - Repurchase of shares (1,913) - Dividends (2,831) (1,437) Issue of common shares 464 189 ------------------------------------------------------------------------- 5,227 (1,304) ------------------------------------------------------------------------- Net cash inflow (outflow) from continuing operations 3,138 (487) Net cash (outflow) from discontinued operations - (62) ------------------------------------------------------------------------- Net cash inflow (outflow) 3,138 (549) Cash and cash equivalents, beginning of period 15,542 7,083 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 18,680 $ 6,534 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying Notes to the Consolidated Financial Statements MOSAID TECHNOLOGIES INCORPORATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Quarter ended July 31, 2006 (tabular dollar amounts in thousands of Canadian Dollars, 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 30, 2006.

The accounting policies used in preparing these interim financial statements are consistent with those used in preparing the annual financial statements.

2. Other long-term liabilities

During Q1 fiscal 2007 the Company settled its patent litigations with Infineon Technologies AG (Infineon) and announced that both Infineon and its memory products spin-off, Qimonda AG (Qimonda), licensed the Company's patent portfolio.

Under the settlement terms, Infineon and Qimonda each receive a six-year license to the Company's entire patent portfolio. In addition, Infineon and Qimonda received a 'lives of the patents' license to the Company's patent families in dispute. Payments will be spread over the six-year term of the licenses. Under the terms of the settlement, financial details will be kept confidential.

The Company also purchased 50 patents from Infineon and Qimonda, ranked as one of the world's largest DRAM companies. The portfolio includes patents related to a range of technologies including DRAM memory, power management ICs, semiconductor process technology and digital radio applications. Payments by the Company for these patents will be spread over six years.

The amount on the Consolidated Balance Sheets represents amounts due by the Company as a result of the patents purchased by the Company, net of any current amounts due by Infineon and Qimonda as a result of the patent license arrangement with the Company.

3. Net Interest Income Net interest income comprises the following: Quarter ended Quarter ended July 31, 2006 July 31, 2005 ------------------------------------- Interest income $ 678 $ 380 Interest expense 92 97 ------------------------------------- $ 586 $ 283 ------------------------------------- ------------------------------------- 4. Earnings per Share

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

Quarter ended Quarter ended July 31, 2006 July 31, 2005 ------------------------------------- Net income $ 6,657 $ 4,433 ------------------------------------- ------------------------------------- Weighted average number of common shares outstanding 11,295,626 11,490,423 Net effect of stock options 186,513 170,350 ------------------------------------- Weighted average diluted number of common shares outstanding 11,482,139 11,660,773 ------------------------------------- ------------------------------------- Earnings per share Basic - net income $ 0.59 $ 0.39 Diluted - net income $ 0.58 $ 0.38

For the quarter ended July 31, 2006, 11,000 options 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 quarter ended July 31, 2005, 16,000 options 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 634,923 and 687,167 options issued and outstanding as at July 31, 2006 and July 31, 2005 respectively.

5. Stock-based Compensation

The Company has an Employee Stock Purchase Plan (ESPP) whereby employees may elect to designate up to 5% of their annual salary to purchase common shares of the Company (Shares). For two six month periods commencing on the second business day after the Company's second quarter or fiscal year end financial results are publicly announced (each an "Offering Period"), eligible employees are given an opportunity to request that a percentage of their salary be deducted each pay period for the purpose of acquiring Shares. The purchase price under the ESPP is the lesser of 90% of the fair market value of the Shares, as determined by calculating the weighted average sale price for board lots as posted on the TSX the ten trading days immediately preceding (i) the first day of the Offering Period in which the purchase date falls or (ii) the purchase date. The Shares are not considered to be issued by the Company until the end of the six month period.

Also, the Company has an Employee and Director Stock Option Plan. The exercise price is 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 Human Resource Committee.

The Company employs a fair value method of accounting for all options issued to employees or 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 Quarter ended July 31, 2006 July 31, 2005 ------------------------------------- Risk free interest rate 4.49% 3.41% Expected life in years 5.5 5.5 Expected dividend yield 4.0% 2.4% Volatility 67.37% 94.76% 6. Business Segment Information

Based upon the Company's internal reporting structure, the following operating segments have been assigned:

Intellectual Property (IP): A developer and licensor of semiconductor intellectual property. Systems: A supplier of engineering memory test and analysis systems.

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 net interest income, foreign exchange gains or losses, unusual items, gains or losses of long-term assets or income tax expense in the determination of operating segment profit.

Segment Information (in thousands of dollars) Quarter ended IP Systems Unallocated July 31, 2006 Division Division Amounts Totals ------------------------------------------------------------------------- Revenues $ 19,952 $ 3,027 $ - $ 22,979 Segment profit (loss) $ 12,838 $ (1,108) $ (5,073) $ 6,657 Segment capital assets(x) $ 18,922 $ 2,127 $ 6,809 $ 27,858 Expenditures on segment capital assets(x) $ 13,480 $ 267 $ 173 $ 13,920 Amortization and write-down of capital assets(x) $ 401 $ 246 $ 128 $ 775 Goodwill $ 1,786 $ - $ - $ 1,786 ------------------------------------------------------------------------- Quarter ended IP Systems Unallocated July 31, 2005 Division Division Amounts Totals ------------------------------------------------------------------------- Revenues $ 9,288 $ 4,945 $ - $ 14,233 Segment profit (loss) $ 5,936 $ 786 $ (2,289) $ 4,433 Segment capital assets(x) $ 410 $ 1,921 $ 7,110 $ 9,941 Expenditures on segment capital assets(x) $ 53 $ 402 $ 20 $ 475 Amortization and write-down of capital assets(x) $ 83 $ 232 $ 137 $ 452 Goodwill $ - $ - $ - $ - ------------------------------------------------------------------------- (x) Capital assets includes acquired intangibles but not goodwill