EX-99.3 4 v352960_ex99-3.htm EXHIBIT 99.3

 

Exhibit 99.3

 

 

 

 

Wi-LAN Inc.

 

2013 Second Quarter

 

Condensed Unaudited Consolidated

 

Financial Results

 

Interim Report

 

 
 

 

Financial statements
   

 

Wi-LAN Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands of United States dollars, except share and per share amounts)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012   June 30, 2013   June 30, 2012 
                 
Revenue                    
Royalties  $19,941   $20,791   $38,310   $45,484 
                     
Operating expenses                    
Cost of revenue   22,479    12,861    42,240    24,164 
Research and development   2,130    1,980    4,281    4,751 
Marketing, general and administration   3,867    3,345    6,796    6,505 
Realized foreign exchange loss (gain)   99    (26)   188    (20)
Unrealized foreign exchange loss (gain)   1,167    1,105    2,111    (4,271)
Restructuring charges   -    418    -    418 
Total operating expenses   29,742    19,683    55,616    31,547 
Earnings  (loss) from operations   (9,801)   1,108    (17,306)   13,937 
Investment income   188    182    383    904 
Interest expense   -    -    -    (1,126)
Debenture financing, net   -    -    -    (31,138)
Loss before income taxes   (9,613)   1,290    (16,923)   (17,423)
                     
Provision for (recovery of) income tax expense                    
Current   1,293    697    2,594    1,922 
Deferred   (3,274)   742    (5,451)   (4,785)
    (1,981)   1,439    (2,857)   (2,863)
Net and comprehensive loss  $(7,632)  $(149)  $(14,066)  $(14,560)
                     
Loss per share (Note 4)                    
Basic  $(0.06)  $(0.00)  $(0.12)  $(0.12)
Diluted  $(0.06)  $(0.00)  $(0.12)  $(0.12)
                     
Weighted average number of common shares                    
Basic   121,225,490    121,338,319    121,384,394    121,577,498 
Diluted   121,225,490    121,338,319    121,384,394    121,577,498 

 

See accompanying notes to condensed consolidated financial statements

 

2013 Second Quarter Financial Results1
 

 

Financial statements
   

 

Wi-LAN Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands of United States dollars)

 

   June 30, 2013   December 31, 2012 
As at          
Current assets          
Cash and cash equivalents  $157,817   $175,246 
Short-term investments   1,474    1,617 
Accounts receivable   5,881    1,139 
Prepaid expenses and deposits   1,132    314 
    166,304    178,316 
           
Loan receivable   989    911 
Furniture and equipment, net   948    1,272 
Patents and other intangibles, net   132,151    116,846 
Deferred tax asset   26,268    20,817 
Goodwill   12,623    12,623 
   $339,283   $330,785 
           
Current liabilities          
Accounts payable and accrued liabilities  $31,477   $22,406 
Current portion of patent and licensing rights finance obligation (Note 5)   16,010    2,547 
    47,487    24,953 
           
Patent and licensing rights finance obligation (Note 5)   14,368    2,670 
Success fee obligation   8,974    10,900 
    70,829    38,523 
           
Commitments and contingencies (Note 7)          
           
Shareholders' equity          
Capital stock (Note 4)   429,372    431,067 
Additional paid-in capital   12,576    11,074 
Accumulated other comprehensive income   16,225    16,225 
Deficit   (189,719)   (166,104)
    268,454    292,262 
   $339,283   $330,785 

 

See accompanying notes to condensed consolidated financial statements

 

2013 Second Quarter Financial Results2
 

 

Financial statements
   

 

Wi-LAN Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(in thousands of United States dollars)

 

   Three months ended   Three months ended   Six months ended   Six months ended 
   June 30, 2013   June 30, 2012   June 30, 2013   June 30, 2012 
Cash generated from (used in)                    
Operations                    
Net loss  $(7,632)  $(149)  $(14,066)  $(14,560)
Non-cash items                    
Stock-based compensation   1,168    876    2,139    1,932 
Depreciation and amortization   6,516    6,171    13,219    12,337 
Foreign exchange loss   671    798    1,252    1,131 
Deferred financing costs   -    -    -    1,746 
Accretion of debt discount   -    -    -    25,175 
Disposal of assets   -    209    -    209 
Disposal of patents   -    -    46    - 
Deferred income tax recovery   (3,274)   742    (5,451)   (4,785)
Accrued investment income   (39)   -    (79)   - 
    (2,590)   8,647    (2,940)   23,185 
Change in non-cash working capital balances                    
Accounts receivable   584    1,680    (4,742)   1,044 
Prepaid expenses and deposits   (283)   (553)   (367)   (1,215)
Payments associated with success fee obligation   (659)   (9,745)   (2,172)   (9,745)
Due to related party   -    -    -    (7,102)
Accounts payable and accrued liabilities   5,023    2,542    8,416    2,402 
Cash (used in) generated from operations   2,075    2,571    (1,805)   8,569 
Financing                    
Dividends paid   (4,867)   (3,679)   (9,101)   (6,720)
Repayment of convertible debentures   -    -    -    (233,247)
Common shares repurchased under normal course issuer bid   (2,256)   (3,171)   (2,912)   (14,638)
Common shares issued for cash on the exercise of options   117    979    478    1,994 
Common shares issued for cash from Employee Share Purchase Plan   102    116    102    116 
Cash used in financing   (6,904)   (5,755)   (11,433)   (252,495)
Investing                    
Sale (purchase) of short-term investments   91    32    143    (38)
Purchase of furniture and equipment   (50)   (222)   (67)   (331)
Purchase of patents and other intangibles   (2,327)   (690)   (3,015)   (1,376)
Cash used in investing   (2,286)   (880)   (2,939)   (1,745)
Foreign exchange gain (loss) on cash held in foreign currency   (671)   (798)   (1,252)   3,056 
                     
Net cash and cash equivalents used in the period   (7,786)   (4,862)   (17,429)   (242,615)
Cash and cash equivalents, beginning of period   165,603    194,433    175,246    432,186 
Cash and cash equivalents, end of period  $157,817   $189,571   $157,817   $189,571 

 

See accompanying notes to condensed consolidated financial statements

 

2013 Second Quarter Financial Results3
 

 

Financial statements
   

 

Wi-LAN Inc.

Condensed Consolidated Statement of Shareholders' Equity

(Unaudited)

(in thousands of United States dollars)

 

   Capital Stock   Additional Paid-in
Capital		   Accumulated Other
Comprehensive Income		   Deficit   Total Equity 
                     
Balance - December 31, 2011  $436,606   $14,061   $16,225   $(135,736)  $331,156 
                          
Comprehensive loss:                         
Net loss   -    -    -    (14,520)   (14,520)
Shares issued:                         
Stock-based compensation expense   -    3,894    -    -    3,894 
Exercise of stock options   4,592    (1,514)   -    -    3,078 
Sale of shares under Employee Share Purchase Plan   231    -    -    -    231 
Shares repurchased under normal course issuer bid   (10,362)   (5,367)   -    -    (15,729)
Dividends declared (Note 4)   -    -    -    (15,848)   (15,848)
Balance - December 31, 2012   431,067    11,074    16,225    (166,104)   292,262 
                          
Comprehensive loss:                         
Net loss   -    -    -    (14,066)   (14,066)
Shares issued:                         
Stock-based compensation expense   -    2,139    -    -    2,139 
Exercise of stock options   721    (243)   -    -    478 
Sale of shares under Employee Share Purchase Plan   102    -    -    -    102 
Shares repurchased under normal course issuer bid (Note 4)   (2,518)   (394)   -    -    (2,912)
Dividends declared (Note 4)   -    -    -    (9,549)   (9,549)
Balance - June 30, 2013  $429,372   $12,576   $16,225   $(189,719)  $268,454 

 

See accompanying notes to condensed consolidated financial statements

 

2013 Second Quarter Financial Results4
 

 

NOTES
   
Wi-LAN Inc.
NOTES TO condensed Unaudited CONSOLIDATED FINANCIAL STATEMENTS
Three months ended June 30, 2013 and 2012
(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

 

 

 

1.nature of business

Wi-LAN Inc. (“WiLAN” or the “Company”) is an intellectual property licensing company which develops, acquires, and licenses and otherwise enforces a range of patented technologies which are utilized in products in the communications and consumer electronics markets. The Company generates revenue by licensing its patents to companies that sell products utilizing technologies including: Wi-Fi, WiMAX, LTE, CDMA, DSL, DOCSIS, Bluetooth and V-Chip. The Company also generates revenue by licensing patent portfolios on behalf of third-party patent holders and, if necessary, the enforcement of their patented technologies.

 

2.basis of presentation

The condensed unaudited consolidated financial statements of WiLAN include the accounts of WiLAN and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, including all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position, operations and cash flows for the interim periods. As the interim financial statements do not contain all the disclosures required in annual financial statements, they should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2012 and the accompanying notes. All inter-company transactions and balances have been eliminated.

 

3.Significant accounting policies

These condensed consolidated interim unaudited financial statements have been prepared following the same accounting policies disclosed in Note 2 of the Company’s audited consolidated financial statements and notes for the year ended December 31, 2012.

 

In February 2013, the Financial Accounting Standards Board (the “FASB”) issued final guidance on the presentation of reclassifications out of other comprehensive income. The amendments require an entity to provide information about the amounts reclassified out of other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in a footnote, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, only if the amount reclassified is required by U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide detail about those amounts. This amendment was effective for interim and fiscal years beginning after December 15, 2012. The amended standard did not impact the Company's financial position or results of operations.

 

4.share capital

The Company paid quarterly cash dividends as follows:

 

   2013   2012 
   Per Share   Total   Per Share   Total 
1st Quarter  $0.035   $4,234   $0.025   $3,041 
2nd Quarter   0.040    4,867    0.030    3,679 
   $0.075   $9,101   $0.055   $6,720 

 

2013 Second Quarter Financial Results5
 

 

NOTES
   
Wi-LAN Inc.
NOTES TO condensed Unaudited CONSOLIDATED FINANCIAL STATEMENTS
Three months ended June 30, 2013 and 2012
(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

 

 

 

The Company declared quarterly dividends as follows:

 

   2013   2012 
1st Quarter  $0.040   $0.030 
2nd Quarter   0.040    0.030 

 

On March 7, 2013, the Company received regulatory approval to make a normal course issuer bid (“NCIB”) through the facilities of the TSX. Under the NCIB, the Company is permitted to purchase up to 11,846,843 common shares. The NCIB commenced on March 11, 2013 and is expected to be completed on March 10, 2014. The Company repurchased 565,100 common shares under the NCIB during the six months ended June 30, 2013 for a total of $2,912.

 

The weighted average number of common shares outstanding used in the basic and diluted earnings per share (“EPS”) computation was:

 

   Three months ended
June 30, 2013		   Three months ended June
30, 2012		   Six months ended June
30, 2013		   Six months ended June
30, 2012		 
Basic weighted average common shares outstanding   121,225,490    121,338,319    121,384,394    121,577,498 
Effect of stock options   -    -    -    - 
Diluted weighted average common shares outstanding   121,225,490    121,338,319    121,384,394    121,577,498 

 

For the three and six months ended June 30, 2013, the effect of stock options totaling 512,640 and 566,913, respectively were anti-dilutive (three and six months ended June 30, 2012 – 1,167,027 and 1,070,286, respectively).

 

5.patent and Licensing Rights finance obligation

During the quarter, the Company acquired the right to license certain patents, the consideration for which is to be fully paid on or before June 18, 2023; however the timing of the payments is subject to the Company entering into certain future license agreements. The Company has set up the liability based on its expected payment schedule using a discount rate of 6.0%.

 

The current and long term portion of this obligation is $13,402 and $13,017, respectively.

 

6.financial instruments

The Company’s loan receivable is a term loan facility which is collateralized by a general security agreement. Management does not expect the borrower to fail to meet its obligations.

 

As of June 30, 2013, the Company held foreign exchange forward contracts totaling approximately $23,950 which mature at various dates through to January 2014. During the three months ended June 30, 2013, the Company recorded an unrealized foreign exchange loss of approximately $1,077 related to the foreign exchange forward contracts held as at June 30, 2013. The Company uses quoted market prices for similar instruments in an active market and, therefore, the foreign exchange forward contracts are classified as Level 2 in the fair value hierarchy.

 

Cash and cash equivalents, short-term investments, accounts receivables, accounts payable and accrued liabilities are short term financial instruments whose carrying value approximates their fair value.

 

The Company considers the rates used to determine the carrying value of the patent and licensing rights finance obligation and loan receivable to be reflective of current rates and therefore their carrying value approximates their fair value.

 

2013 Second Quarter Financial Results6
 

 

NOTES
   
Wi-LAN Inc.
NOTES TO condensed Unaudited CONSOLIDATED FINANCIAL STATEMENTS
Three months ended June 30, 2013 and 2012
(in thousands of United States dollars, except share and per share amounts, unless otherwise stated)

 

 

 

7.Commitments and contingencies

The Company, in the course of its normal operations, is subject to claims, lawsuits and contingencies. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, WiLAN has no reason to believe that the ultimate outcome of these matters would have a significant impact on its consolidated financial position. Management has evaluated the likelihood of an unfavourable outcome and determined that no amount should be accrued with respect to any outstanding matters.

 

2013 Second Quarter Financial Results7
 

 

Wi-LAN Inc.

11 Holland Avenue, Suite 608

Ottawa, ON Canada

K1Y 4S1

 

Tel:      1.613.688.4900

Fax:     1.613.688.4894

        www.wilan.com