QTRH Quarterhill Inc

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 40-F

 

(Check One)

or

For the fiscal year ended December 31, 2014

Commission file number: 001-35152

 

Wi-LAN INC.

(Exact name of registrant as specified in its charter)

 

 

303 Terry Fox Drive, Suite 300,
Ottawa, Ontario, Canada K2K 3J1
(613) 688-4900
(Address and Telephone Number of Registrant’s Principal Executive Offices)

Torys LLP

1114 Avenue of the Americas, 23rd Floor

New York, New York 10036.7703

Attention: Andrew J. Beck
(212) 880-6000
(Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent For Service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

For annual reports, indicate by check mark the information filed with this Form:

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 120,247,647 common shares.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

 

 

 

 

 

 

 

---

FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical facts, included or incorporated by reference in this Annual Report regarding the strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives of Wi-LAN Inc. (“WiLAN” or the “Company”) and its management are forward-looking statements. When used herein, the words “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. WiLAN cannot guarantee that the Company will actually achieve the plans, intentions or expectations disclosed in any of these forward-looking statements or statements of “belief” and undue reliance should not be placed on any such forward-looking statements or statements of “belief”.

All forward-looking statements and statements of “belief” contained in this Annual Report are subject to known and unknown risks, uncertainties, assumptions and other factors outside of management’s control that could cause WiLAN’s actual results to differ materially from those indicated or implied by forward-looking statements or statements of “belief”, including the factors discussed under “Risk Factors” and in other sections of the Annual Information Form for the fiscal year ended December 31, 2014, which is filed as Exhibit 99.1 to this Annual Report. Those factors and the other cautionary statements made in that Annual Information Form should be read as being applicable to all forward-looking statements and statements of “belief” wherever they appear or are incorporated by reference in this Annual Report.

Any forward-looking statements and statements of “belief” represent the Company’s estimates based on information available at the applicable time only and should not be relied upon as representing WiLAN’s estimates as of any subsequent date. The Company’s forward-looking statements contained in the exhibits incorporated by reference into this Annual Report are made as of the respective dates set forth in such exhibits.  In preparing this Annual Report, the Company has not updated such forward-looking statements to reflect any subsequent information, events or circumstances or otherwise, or any change in management’s beliefs, expectations or opinions that may have occurred prior to the date hereof. The Company assumes no responsibility for the accuracy and completeness of any forward-looking statements and statements of “belief” and, except as required by law, WiLAN does not assume any obligation to update any forward-looking statements or statements of “belief”. The Company disclaims any intention or obligation to update or revise any forward-looking statements or statements of “belief”, whether as a result of new information, future events or otherwise.

 

 

 

---

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) was carried out by our management, under the supervision, and with the participation, of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Based upon that evaluation, the CEO and the CFO concluded that as of December 31, 2014, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow for timely decisions regarding required disclosure.  

While the CEO and CFO believe that the Company’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Company’s disclosure controls and procedures will prevent all errors and fraud.  Because of inherent limitations, a control system, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

The Company’s management, including the CEO and the CFO, is responsible for establishing and maintaining adequate internal control over financial reporting, and evaluating the effectiveness of the Company’s internal control over financial reporting as at each fiscal year end. Management has used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 framework to evaluate the effectiveness of the Company’s internal control over financial reporting as at December 31, 2014. Based on this evaluation, management has concluded that as at December 31, 2014, the Company’s internal control over financial reporting was effective.

Exemption from Section 404(b) of the Sarbanes-Oxley Act

Under the Jumpstart Our Business Startups Act (“JOBS Act”), emerging growth companies are exempt from Section 404(b) of the Sarbanes-Oxley Act, which generally requires public companies to provide an independent auditor attestation of management’s assessment of the effectiveness of their internal control over financial reporting. The Company qualifies as an emerging growth company under the JOBS Act and, therefore, this Annual Report does not include an attestation report of the Company’s independent auditor on the effectiveness of its internal control over financial reporting.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the year ended December 31, 2014, no changes occurred in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

NOTICES PURSUANT TO REGULATION BTR

Not applicable.

AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s board of directors has determined that all of the members of the audit committee are “audit committee financial experts” as such term is defined in the General Instructions to the Form 40-F.  Such members are John Gillberry; William Jenkins; and Richard Shorkey.  All such persons are “independent”, as such term is defined under NASDAQ rules.  

CODE OF ETHICS

The Company has adopted a Code of Business Conduct and Ethics which applies to all directors, officers and employees of the Company.  Such code is available on the Company’s website at www.wi-lan.com.  

All amendments to the Company’s Code of Business Conduct and Ethics, and all waivers of the Code with respect to any director, officer or employee of the Company, will be posted on the Company’s website.  

---

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth information on the fees billed by the Company’s external auditor, PricewaterhouseCoopers LLP, to the Company in thousands of U.S. dollars for each of the fiscal years ended December 31, 2013 and December 31, 2014.  

 

Notes:

The Company’s audit committee approved all audit and non-audit services provided to the Company during the periods listed above.  

The following describes WiLAN’s policy relating to the engagement of the external auditors for the provision of non-audit services.  When requiring the use of accounting and taxation and other consulting services, the Company will not utilize the services of the current external auditor where the delivery of the service may create a potential or perceived conflict of interest. Consulting services which require subsequent external auditing cannot be performed by WiLAN’s auditors. For greater clarity, the following consulting services do not present a conflict of interest: advice relating to the accounting treatment of new accounting pronouncements or services ancillary to the audit; preparation of corporate tax returns; and advice on tax related matters.

Non-audit services to be provided by the external auditors must be pre-approved by the Company’s audit committee.  

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.  

DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table lists as of December 31, 2014 information with respect to the Company’s known contractual obligations (stated in thousands of U.S. dollars).

 

---

IDENTIFICATION OF THE AUDIT COMMITTEE

The Company has a separately designated standing audit committee established in accordance with section 3(a)(58) of the Exchange Act.  Its members are John Gillberry, William Jenkins and Richard Shorkey (Chair).

MINE SAFETY DISCLOSURE

Not applicable.  

NASDAQ CORPORATE GOVERNANCE

The Company is a foreign private issuer whose common shares are listed on the NASDAQ Global Select Market. NASDAQ Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of the shareholder quorum requirement under NASDAQ Rule 5620(c).  The NASDAQ minimum quorum requirement under Rule 5620(c) for a shareholders meeting is 33 1/3% of the outstanding common shares. The Company’s bylaws currently provide that quorum for a shareholders meeting is met if at least two shareholders holding at least 10% of the Company’s outstanding common shares entitled to vote at the meeting are present (whether in person or represented by proxy).  

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the staff of the SEC, and to furnish promptly, when requested to do so by the staff of the SEC, information relating to the securities registered pursuant to Form 40-F, the securities in relation to which the obligation to file an annual report on Form 40-F arises or transactions in said securities.

The Company has previously filed with the SEC an Appointment of Agent for Service of Process and Undertaking on Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.

Any change to the name or address of the agent for service of the Company shall be communicated promptly to the SEC by amendment to Form F-X referencing the file number of the Company.

 

 

 

---

SIGNATURES

Pursuant to the requirements of the United States Securities Exchange Act of 1934, as amended, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized.

 

 

 

 

---

EXHIBIT INDEX

 

 

 

Exhibit 99.1

Wi-LAN Inc.

 

Annual Information Form

For the Year Ended December 31, 2014

February 2, 2015

 

 

 

 

---

 

Table of Contents

 

 

 

 

2

---

 

Forward-Looking and Other Statements

All statements, other than statements of historical facts, included in this Annual Information Form regarding the strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives of Wi-LAN Inc. (“WiLAN” or the “Company”) and its management are forward-looking statements. When used in this Annual Information Form, the words “may”, “would”, “could”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. WiLAN cannot guarantee that the Company will actually achieve the plans, intentions or expectations disclosed in any of these forward-looking statements or statements of “belief” and undue reliance should not be placed on any such forward-looking statements or statements of “belief”.

All forward-looking statements and statements of “belief” contained in this Annual Information Form are subject to known and unknown risks, uncertainties, assumptions and other factors outside of management’s control that could cause WiLAN’s actual results to differ materially from those indicated or implied by forward-looking statements or statements of “belief”, including the factors discussed under the heading “Risk Factors” in this Annual Information Form and in other sections of this Annual Information Form. These factors and the other cautionary statements made in this Annual Information Form should be read as being applicable to all forward-looking statements and statements of “belief” wherever they appear in this Annual Information Form.

Any forward-looking statements and statements of “belief” represent the Company’s estimates as of the date of this Annual Information Form only and should not be relied upon as representing WiLAN’s estimates as of any subsequent date. The Company assumes no responsibility for the accuracy and completeness of any forward-looking statements and statements of “belief” and, except as required by law, WiLAN does not assume any obligation to update any forward-looking statements or statements of “belief”. The Company disclaims any intention or obligation to update or revise any forward-looking statements or statements of “belief”, whether as a result of new information, future events or otherwise.

General Matters

Market data and industry forecasts used in this Annual Information Form were obtained from various publicly available sources. Although WiLAN believes that these independent sources are generally reliable, the accuracy and completeness of such information are not guaranteed and have not been independently verified.

“Wi-LAN” and “WiLAN” are the Company’s trade names and “Wi-LAN” is a registered trade-mark in Canada and the United States. This Annual Information Form also includes references to trade names and trade-marks of other companies, which trade names and trade-marks are the properties of their respective owners.

In this Annual Information Form, references to “Common Shares” relate to common shares in the capital of WiLAN and references to the “Board” relate to the Company’s Board of Directors.

Unless otherwise indicated, all financial information in this Annual Information Form is reported in United States dollars.

Glossary of Certain Terms

In addition to the terms defined in the body of this Annual Information Form, the following terms used in this Annual Information Form have the meanings set forth below unless otherwise specified.

“040 patent” means U.S. patent number 8,311,040.

“088 patent” means U.S. patent number 6,240,088.

“326 patent” means U.S. patent number 6,088,326.

“369 patent” means U.S. patent number 5,515,369.

“402 patent” means U.S. patent number 5,828,402.

“640 patent” means U.S. patent number 8,315,640.

“802 patent” means U.S. patent number RE37,802.

3

---

 

“969 patent” means U.S. patent number 6,232,969.

“Bluetooth” is a wireless protocol for exchanging data over short distances between fixed and mobile devices.

“CAFC” means the U.S. Court of Appeal for the Federal Circuit.

“CBCA” means the Canada Business Corporations Act.

“CDMA” means “code division multiple access”, a cellular telecommunications specification.

“EDTX Court” means the U.S. District Court for the Eastern District of Texas.

“IEEE” means the Institute of Electrical and Electronics Engineers, Inc.

“LTE” stands for “Long Term Evolution” and represents a high performance air interface for cellular mobile communications systems designed to increase the capacity and speed of mobile telephone networks.

“NASDAQ” means the NASDAQ Global Select Market.

“SDFL Court” means the U.S. District Court for the Southern District of Florida.

“SDNY Court” means the U.S. District Court for the Southern District of New York.

“SEC” means the U.S. Securities and Exchange Commission.

“TSX” means the Toronto Stock Exchange.

“U.S. Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

“U.S. Sarbanes-Oxley Act” means the U.S. Sarbanes-Oxley Act of 2002.

“USPTO” means the U.S. Patent and Trademark Office.

“V-Chip” is a technology that permits the blocking of television programs at a digital television receiver (such as a digital television, multi-media equipped personal computer or digital set-top box) by viewers based on ratings information carried on the digital television signal.

“Wi-Fi” is the underlying technology of wireless local area networks based on various IEEE 802.11 specifications.

“WiLAN Canada” means Wi-LAN Canada Inc., a corporation existing under the CBCA.

“WiLAN Hong Kong” means Wi-LAN International Hong Kong Inc., a corporation existing under the CBCA.

“WiLAN International” means Wi-LAN International Inc., a corporation existing under the CBCA.

“WiLAN Japan” means Wi-LAN International Japan Inc., a corporation existing under the CBCA.

“WiLAN Taiwan” means Wi-LAN International Taiwan Inc., a corporation existing under the CBCA.

“WiLAN Technologies” means Wi-LAN Technologies Inc., a corporation existing under the General Corporation Law of the State of Delaware.

“WiMAX” means “worldwide interoperability for microwave access”, a standards-based broadband wireless technology that provides metropolitan area network connectivity based on IEEE 802.16 specifications.

4

---

 

1.    Corporate Structure

WiLAN was continued as a corporation under the CBCA on August 2, 2007 and was amalgamated with three of its wholly-owned subsidiaries, Wi-LAN V-Chip Corp., Wi-LAN Technologies Corporation and 7248091 Canada Inc. under the CBCA on October 1, 2009.

The Company was originally incorporated under the Business Corporations Act (Alberta) as 529144 Alberta Ltd. on May 14, 1992 and amended its articles of incorporation to change its name to “Wi-LAN Inc.” on October 29, 1992. On October 3, 1994, WiLAN amended its articles to remove the prohibition on inviting the public to subscribe for the Company’s securities and, on March 24, 1998, amended its articles to remove its remaining private company restrictions and to reorganize its share capital.

WiLAN has six significant directly wholly-owned subsidiaries, WiLAN Canada, WiLAN International, WiLAN Hong Kong, WiLAN Japan and WiLAN Taiwan, each of which is incorporated under the CBCA, and WiLAN Technologies, incorporated under the General Corporation Law of the State of Delaware. Although the Company has other indirect subsidiaries through which it conducts portions of its business, none of those subsidiaries, individually or collectively, either hold assets that exceed 10% of WiLAN’s consolidated assets for its 2014 fiscal year or have revenues that exceed 10% of the Company’s consolidated revenue for its 2014 fiscal year.

Unless otherwise indicated in this Annual Information Form, all references to “WiLAN” or the “Company” in this Annual Information Form include all of the subsidiaries of Wi-LAN Inc.

WiLAN’s head and registered office is located at 303 Terry Fox Drive, Suite 300, Ottawa, Ontario, K2K 3J1, Canada; the Company’s US headquarters are located at 15090 Avenue of Science, Suite 103, San Diego, California, 92128, USA.

WiLAN maintains a website at www.wilan.com; the information on which website is not and should not be considered part of, or incorporated by reference into, this Annual Information Form.

2.    General Development of the Business

Summary

WiLAN is a leading technology innovation and licensing company. Through internal research and development, acquisitions from third-parties and the development of strategic partnerships with third-parties, the Company has acquired intellectual property in the form of patents and patent applications in many different countries, which it has licensed to almost 300 companies in telecommunications and consumer electronics markets around the world and continues to license in these and other markets.

WiLAN was founded in 1992 as a pioneer in the design, development and delivery of broadband wireless technologies. Innovations developed and patented by the Company’s founding team and engineers led to the commercialization of advanced broadband wireless equipment almost 20 years ago.

The Company continues to conduct ongoing technology research with a focus on commercializing inventions in next-generation wireless communication systems and cloud computing. WiLAN’s current major research initiative includes optimizing the transport of multimedia data traffic through the radio access network (RAN) infrastructure, improving RAN capacity, vehicle-to-vehicle communications, monitoring network performance, improving network security, location based services and reducing cloud network congestion.

In addition, WiLAN partners with third-party patent inventors and owners, both large and small, to unlock the value within their patents by securing licenses to their patents with infringers whom the third-party inventors and owners would otherwise be unable to license.

Close to 300 companies have licensed various technologies licensed by WiLAN including Alcatel-Lucent USA Inc. (“Alcatel-Lucent”), AmTRAN Technology Co., Ltd., Atheros Communications, Inc. (“Atheros”), BlackBerry Limited (“BlackBerry”), Broadcom Corporation (“Broadcom”), Cisco Systems Inc. (“Cisco”), Dell Inc. (“Dell”), Fujitsu Microelectronics America, Inc. and its affiliates (“Fujitsu”), Hewlett-Packard Company (“Hewlett-Packard”), Infineon Technologies AG (“Infineon”), Intel Corporation (“Intel”), LG Electronics, Inc. (“LG”), Marvell Semiconductor, Inc. (“Marvell”), Mastercard Corporation (“Mastercard”), Motorola Mobility Holdings, Inc., Motorola Solutions, Inc., NEC Corporation, Nikon Corporation, Novatel Wireless, Inc. (“Novatel”), Panasonic Corporation (“Panasonic”), Samsung Electronics Co., Ltd. (“Samsung”), Sharp Corporation, Sierra Wireless America, Inc. (“Sierra Wireless”) and Stryker Corporation (“Stryker”).

5

---

 

3 Year History: Fiscal 2012 (January 1, 2012 to December 31, 2012)

On January 19, 2012, WiLAN announced that it would repay and retire debentures issued and sold during fiscal 2011 to assist in financing part of the Company’s August 2011 cash offer to purchase the outstanding common shares of MOSAID Technologies Incorporated (now Conversant Intellectual Property Management Inc.), in accordance with the terms of the debentures upon their maturity on January 31, 2012.

On January 23, 2012, the Company filed claims against Research In Motion Limited (now, BlackBerry) and Research In Motion Corporation (now, BlackBerry Corporation) (collectively, “RIM”) before the SDFL Court. WiLAN claimed that RIM had infringed the 369 patent, 088 patent and 969 patent by making and/or selling various wireless communications products.

On February 1, 2012, WiLAN announced that Mr. Paul McCarten, an independent member of the Board, had been appointed Chairman of the Board effective immediately. The Company also announced that it had entered into a new five-year compensation agreement with its President & Chief Executive Officer, James Skippen.

On March 8, 2012, the Company announced that U.S. District Court Judge Kaplan had adopted most of U.S. Magistrate Judge Peck’s recommendations in an action before the SDNY Court, ruling that LG and LG Electronics U.S.A., Inc. (collectively, “LGE”) did not infringe the 402 patent on a claim construction issue, and granted LGE’s motion for summary judgment against the Company. WiLAN appealed this decision to the CAFC and presented its oral argument to the CAFC on December 5, 2012. On December 11, 2012, the Company announced that the CAFC had affirmed the lower court decision.

On April 4, 2012, WiLAN announced that the USPTO had confirmed the validity of all claims in the 402 patent and also allowed more than 30 new claims following an ex-parte re-examination requested by a third-party.

On June 6, 2012, the Company announced that 01 Communique Laboratory Inc. (“01 Communique”) and WiLAN had signed a settlement and patent license agreement with Bomgar Corporation (“Bomgar”) settling all litigation among the parties and providing Bomgar with a license to certain 01 Communique patents.

On July 17, 2012, WiLAN announced that it had acquired a global portfolio of more than 40 patents and applications from Siemens AG related to telecommunication network management and mobile multimedia.

On September 17, 2012, the Company announced that the EDTX Court had consolidated the action against Apple, Alcatel-Lucent, Dell, Hewlett-Packard, HTC America, Inc., Kyocera International, Inc., Kyocera Communications, Inc., Novatel and Sierra Wireless in the EDTX Court (the “2011 Wireless Action”) with another action filed by the Company against HTC Corporation (“HTC”).

On September 19, 2012, WiLAN announced that it had entered into a multi-year exclusive license agreement with SENSIO Technologies Inc. (“SENSIO”) granting the Company with all rights to license certain SENSIO patents relating to 3D technologies for digital displays and associated with SENSIO S2D Switch technology.

On October 1, 2012, the Company announced that it had acquired a portfolio of more than 150 patents and patent applications relating to 4G infrastructure and handsets from Alvarion Ltd. for up to $19 million.

On October 3, 2012, WiLAN announced that General Patent Corporation (“GPC”) and WiLAN had agreed to a new venture focusing on patent acquisition and monetization and had settled the litigation between the parties commenced in the SDNY Court by GPC in October, 2011.

Between October 1, 2012 and December 11, 2012, the Company announced that it had initiated the following matters:

6

---

 

During fiscal 2012, WiLAN entered into new or renewed license agreements with 8 entities including Ikanos Communications, Inc., Alpha Networks Inc. and Alvarion Ltd.

3 Year History: Fiscal 2013 (January 1, 2013 to December 31, 2013)

Between February 28, 2013 and November 25, 2013, WiLAN announced that it had entered into the following non-litigation related patent license agreements:

Between May 27, 2013 and November 21, 2013, WiLAN announced that it had entered into the following patent license agreements with defendants in its litigations:

7

---

 

From March 22, 2013 to October 23, 2013, the Company announced the following litigation developments:

On January 29, 2013, WiLAN announced that it would partner with British Telecommunications Plc (“BT”) to assist BT in licensing certain digital rights management related patents and other patents.

On February 13, 2013, the Company announced that it would partner with Espial Group Inc. (“Espial”) to assist Espial in licensing its portfolio of video-over-IP related patents.

On March 6, 2013, WiLAN announced that the Board had approved the adoption of a share repurchase program pursuant to which the Company expected to purchase up to a maximum of 10% of its outstanding Common Shares (or up to a maximum of 11,847,430 Common Shares) between March 11, 2013 and March 10, 2014 through a normal course issuer bid over the TSX.

On April 24, 2013, the Company announced that all of management’s nominees for election to the Board at WiLAN’s April 23, 2013 annual shareholders’ meeting had been elected as directors. The Company also announced that PricewaterhouseCoopers LLP had been reappointed as WiLAN’s auditors and that the renewal of the Company’s share option plan had been approved by shareholders.

On June 11, 2013, WiLAN announced that it had acquired a portfolio of patents from Cypress Semiconductor Corporation related to phased loop technology used in a wide range of semiconductor products.

On October 24, 2013, the Company provided a financial update disclosing (each as more fully described and explained in the October 24, 2013 press release) that, among other things, the current approximate value of WiLAN’s license agreements signed since mid-2006 was between $725 million and $750 million, the Company’s currently expected revenues for the third and fourth quarters of fiscal 2013 was $20.7 million and between $26.0 and $28.0 million respectively, WiLAN’s currently expected revenues for fiscal 2013 as a whole was between $85 million and $87 million, the current approximate value of the Company’s consolidated revenues since mid-2006 was more than $400 million and the approximate value of the Company’s currently estimated backlog position was between $325 million and $350 million.

On October 30, 2013, WiLAN announced that the Board had initiated a process to explore and evaluate a broad range of potential strategic alternatives to enhance shareholder value, which might include changes to the Company’s dividend policy or other forms of return of capital to shareholders, the acquisition or disposition of assets, joint ventures, the sale of WiLAN, alternative operating models or continuing with the current business plan, among other potential alternatives. The Company also announced that there could be no assurance that this strategic review process would result in the completion of any transaction or other alternative, that no timetable had been set for the completion of the review process and that it did not intend to comment further regarding the process unless a specific transaction or other alternative was approved by the Board, the review process concluded or it otherwise determined that further disclosure was appropriate or required by law.

8

---

 

On November 26, 2013, the Company announced that it had acquired a portfolio of semiconductor patents from IXYS CH GmbH related to microcontroller technologies applicable to safety-critical applications used in the aerospace, medical, industrial and automotive markets, with a share of the revenue generating from licensing these patents to be paid to IXYS CH GmbH.

On December 16, 2013, WiLAN announced that it had entered into a patent assignment agreement with Panasonic pursuant to which Panasonic had agreed to assign to WiLAN indirect subsidiary Collabo Innovations, Inc. over 900 patents and applications in the field of semiconductor devices applicable to a wide range of products including CMOS image sensors, microcontrollers and semiconductors used in optical drives.

During fiscal 2013, WiLAN entered into new or renewed license agreements with 17 entities including Alcatel-Lucent, HTC, Novatel, Samsung and Sierra Wireless.

3 Year History: Fiscal 2014 and Recent Developments (January 1, 2014 to February 2, 2015)

Between January 9, 2014 and January 8, 2015, WiLAN announced that the Company or a WiLAN subsidiary had entered into the following patent license agreements or patent license agreement renewals:

9

---

 

From February 24, 2014 to October 1, 2014, the Company announced the following litigation developments:

Between April 1, 2014 and January 13, 2015, WiLAN announced that the Company had entered into patent acquisition or patent partnership agreements relating to each of the following:

On May 14, 2014, WiLAN announced that the Board had concluded its previously announced strategic review process. Following a comprehensive process involving financial advisor Canaccord Genuity, the Board determined that it was in the Company’s and its shareholders’ best interests to execute an updated business plan focused on business diversification, licensing partnerships, improved profitability and increasing the return of cash generated from operations to shareholders. WiLAN also announced that the Board had approved the entering into of a normal course issuer bid to repurchase for cancellation up to a maximum of 10% of the issued and outstanding Common Shares subject to the receipt of regulatory and other approvals.

On June 17, 2014, the Company announced that Mr. Paul Richman would be rejoining the Company in the capacity of Senior Advisor to the Board and management.

10

---

 

On June 19, 2014, WiLAN announced that all of management’s nominees listed in its May 19, 2014 management proxy circular had been elected as directors of the Company at WiLAN’s June 18, 2014 annual shareholders’ meeting. WiLAN also confirmed that shareholders had approved the appointment of PricewaterhouseCoopers LLP as the Company’s auditors, WiLAN’s new shareholder rights plan, a reduction to of the Company’s stated capital, certain amendments to WiLAN’s By-Law No.1 and the Company’s new By-Law No.2.

On October 8, 2014, the Company announced that a wholly-owned WiLAN subsidiary had entered into an agreement with RPX Corporation.

On November 3, 2014, WiLAN announced that it had moved its U.S. headquarters to San Diego, California from Ft. Lauderdale, Florida.

On December 1, 2014, the Company announced that it entered into a new multi-year licensing partnership agreement with SENSIO, building on their previous agreement signed in 2012, granting WiLAN all rights to license a number of additional SENSIO patents related to 3D technologies for digital displays including SENSIO S2D Switch technology and technology related to temporal interpolation.

During fiscal 2014 and to date in fiscal 2015, WiLAN has entered into new or renewed license agreements with 29 entities including Aluratek Inc., ARCHOS S.A., Aten Technology Inc. and InFocus Corporation.

3.    Description of the Business

Generally, in exchange for disclosing specific, novel and non-obvious inventions that meet applicable legal requirements in a particular country, a granted patent will provide its holder with time-limited, legally enforceable exclusive rights in that country to practice the inventions disclosed in the patent and to exclude others from practicing those inventions. If the inventions disclosed in the claims of a granted patent meet applicable legal validity and enforceability requirements and are important enough that a third-party wishes to practice those inventions or cannot conduct its business without practicing those inventions, the patent may be of great value to that third-party. Unfortunately, many third-parties are content to practice such inventions, thereby infringing the patent in which they are disclosed, without compensating its holder, believing the holder will not discover the infringement, will be unable to convince the third-party to pay any compensation, or will be unable to prove infringement sufficiently to convince a court to force the third-party to pay appropriate compensation.

If the infringer of patented inventions is willing to properly compensate the patent holder for its unauthorized use of these inventions, however, then the holder will typically grant the infringer permission (i.e. a license) to practice those inventions for a period of time (which may be for the life of the patent), free from the threat of legal action. Compensation for such a license may be a single amount (whether paid in a lump sum or over time) or may be based on sales of products or services that rely on the patented inventions as they are sold over the life of the license.

These are the areas in which WiLAN conducts its businesses.

During its entire corporate history, the Company has developed and patented inventions that have proven of great value to third-parties. In addition, WiLAN also has a history of acquiring patents that it believes hold great value from other inventors. WiLAN also works with patent inventors and owners to unlock the value trapped in patents that their inventors or their assignees were unable to obtain by developing and licensing their patents while sharing with those inventors and assignees both any revenues generated by these patents and much of the financial risk associated with these licensing programs.

In mid-2006, WiLAN re-focused its business on technology innovation and licensing. At that time, the Company owned approximately twenty patents including certain patents it believed could be used in a licensing program. In launching this new form of business, a key strategy was to strengthen WiLAN’s patent portfolio to sustain long-term revenue opportunities and associated growth.

Over the past eight years, the Company has grown from 1 employee in mid-2006 to 66 employees at December 31, 2014, increased its patent portfolio from approximately 20 patents in two portfolios to more than 4,000 patents and patent applications worldwide in more than 40 technology portfolios, signed close to 300 licensees, and grown annual revenues from approximately $1.9 million in 2006 to over $98 million in 2014, representing a compound annual growth rate of over 63%.

11

---

 

Since 2006, WiLAN’s principal source of revenue has been from licensing the patents in its own patent portfolio, but the Company expects to generate increasing revenue from licensing patent portfolios on behalf of third-party patent holders with whom it has partnered. WiLAN may also, from time to time, sell patents if revenue from an outright sale of any patent appears to be greater than its licensing potential.

The Company plans to build upon its significant base of signed license agreements and increase its licensing opportunities by growing its patent offerings with a combination of technology innovation through internal research and development, patent acquisitions, licensing partnerships with patent holders and corporate mergers and acquisitions.

WiLAN’s historic patent licensing programs involve Wireless Access and Digital TV and Display technologies.

Technology areas generally included in WiLAN’s Wireless Access program include 3G/4G, Wi-Fi and Bluetooth, as well as other technologies generally applicable to handheld devices or to infrastructure equipment necessary to operate wireless networks. WiLAN has generated licensing revenue from companies that sell products described as cellular handsets (such as smart phones) and infrastructure, tablets, laptop computers and Wi-Fi routers. The Wireless Access portfolio contains more than 1,100 patents and patent applications. In addition, the Company believes that it has identified a number of other potentially licensable products in markets adjacent to “pure” wireless markets.

WiLAN’s Digital TV and Display portfolio originated with the acquisition of its V-Chip technology patents in July 2007 and has been augmented with acquisitions from several other sources. This portfolio now includes approximately 1,400 patents and patent applications around such technology areas as multimedia processing, display and touch screens and graphical user interfaces, all of which are potentially used in smart phones, digital televisions, “smart” televisions, tablet computers and laptop computers. Approximately 35 - 45% of the available North American digital television market has been licensed to WiLAN’s V-Chip patents and signed agreements are expected to generate revenues for an additional two to three years. This market is not, however, expected to grow any further in future and, consequently, revenues derived from these signed agreements are also not expected to grow any further. WiLAN’s Digital TV and Display program does, however, have significant depth above and beyond just V-Chip and all related licensing efforts are still in relatively early stages.

In addition to the Company’s historic patent licensing programs, WiLAN is focussing on entering into relationships with third-party inventors and patent owners to enforce their patents in exchange for sharing in both the reward and the risk in such enforcement. In these relationships, instead of paying significant amounts up front for the acquisition of patents, WiLAN acquires patents from their inventors or owners through a dedicated subsidiary in exchange for a percentage of the recoveries derived from enforcing those patents paid to the inventors or owners. The Company strives to conduct any litigation relating to these patents by way of contingency or “hybrid contingency” arrangements with appropriate legal counsel through which a significant portion of the costs of such counsel are contingent upon and tied to recovery made in any litigation involving the patents. Given the sharing of recoveries among WiLAN, the original inventor or owner of the patents and external legal counsel, the Company believes that these parties’ interests are aligned towards maximizing the recovery from enforcing these patents.

Current patent portfolios acquired by WiLAN through such relationships with third-party inventors and patent owners include patents relating to 3D television technologies, automotive headlight assemblies, phased loop technology, microcontrollers applicable to safety-critical aerospace, medical, industrial and automotive applications, computer gaming, medical stent technologies, irrigation technologies, CMOS image sensors, streaming video technologies, Internet search, building automation, non-volatile Flash memory, semiconductor clocking technologies, smart meter monitoring, LED lighting technologies and many other technologies.

In all of the Company’s licensing programs, if court action is required to protect and enforce its rights, WiLAN strives to litigate third-party infringement of patents using legal counsel based on either a “full” or “hybrid” contingency basis through which the Company shares the financial risks of such litigation with its legal counsel. While WiLAN traditionally sought to obtain 100% of the benefits of any patent litigation, it also bore 100% of the costs relating to that litigation. Where the Company retains litigation legal counsel on a “full” contingency basis, WiLAN pays no legal fees relating to such litigation, instead compensating counsel based on a portion of any actual recovery from the infringer(s) in that litigation, although the Company may bear the expense of third-parties and disbursements incurred related to that litigation. Where the Company retains litigation legal counsel on a “hybrid” contingency basis, WiLAN may agree to pay a set regular amount to counsel throughout the conduct of a litigation, often subject to a cap, which amount will be deducted against any ultimate recovery from the infringer(s) in that litigation, a portion of which will, otherwise, be paid to counsel as their fees.  

Furthermore, WiLAN’s internal research and development efforts seek to generate new inventions in next generation communications technologies and to identify new technology opportunities. This technology innovation complements the Company’s ongoing activities to acquire appropriate technology or to partner with technology owners permitting WiLAN to grow its revenues over time

12

---

 

with the goal of growing and strengthening its licensing offerings. The Company was originally founded as a pioneer in the design, development and delivery of wireless technologies. Innovations developed and patented through the years by WiLAN’s founding team and engineering staff resulted in the commercialization of advanced broadband wireless equipment more than a decade ago. Growing on these foundations, WiLAN is actively engaged in ongoing technology research activities. The Company’s current area of research and development focus is wireless broadband, but WiLAN continues to engage in research and development in other technology areas as opportunities present themselves.

The Company has developed licensing programs that have yielded strong results since mid-2006, having generated cumulative revenues to the end of 2014 of more than half a billion dollars. When approaching a potential licensee, WiLAN presents compelling reasons to enter into a license agreement with detailed infringement analysis along with a fair and reasonable license rate. In many circumstances, the Company also presents a potential licensee with an array of patents or patent families that may be applicable to the licensee’s business or products thus increasing the value in signing a license. WiLAN continues to consistently sign licenses every year and has entered into 11 renewal and 18 entirely new licenses in the last twelve months.

WiLAN’s license agreements generally take into consideration rights to license the patents covered and releases for past infringement. Related payments may be lump-sum, fixed-price with set payments made over a specified period of time or running royalty based depending on a price per-unit and/or a percentage of product sales or service revenues enjoyed by licensees. Running royalty based licensees generally provide the Company with quarterly or semi-annual royalty reports which are typically received subsequent to the period in which the underlying sales occurred.

Consideration for license agreements is generally paid in cash, although WiLAN has accepted a combination of cash and in-kind patents in the past and may do so again in the future if the patents fit its value proposition and strategic objectives. WiLAN recognizes revenue from these arrangements as amounts become due and collection is assured.

Royalty rates and the consideration for a license may vary significantly with different licensees because there are many factors that may make different rates and other terms appropriate. These include, without limitation: the clarity of the reads of patent claims on the prospective licensee’s products; the significance of the patented invention to the performance of such products; the strength of the patents generally; the profitability of the products in question; the propensity of the prospective licensee to resist taking a license or to litigate; the number of applicable patents; the volume of products that infringe; the geographies in which infringing products are manufactured and sold; the prospective licensee’s future sales plans; and the prospective licensee’s financial position.

Although WiLAN prefers to negotiate license agreements without litigation, the Company is prepared to take all necessary steps, including investing in litigation, to ensure it receives fair compensation for the use of its patented technologies. If litigation is initiated against a prospective licensee, WiLAN’s business approach seeks resolution of the litigation through the signing of a license agreement. Licensing discussions may be ongoing with a number of prospective licensees at any time and although the Company cannot anticipate how any litigation may affect ongoing discussions, WiLAN’s experience is that discussions will often continue through the litigation process and that some parties may be inclined to take licenses.

Notwithstanding WiLAN’s early success in many areas, the business and legal environment for patent licensing companies has become increasingly difficult during the past several years. In this more difficult licensing environment, the Company continues to adapt and evolve to achieve success. Recent examples of such evolution include the hiring of highly qualified specialists and subject matter experts in applicable technologies and acquisitions of patents that have strengthened WiLAN’s patent portfolios. As well, the Company signed a number of significant license agreements with large industry leaders in 2011. WiLAN believes these recent accomplishments have established a strong foundation for future operations and growth. It may be, however, that the USPTO, U.S. courts and U.S. juries are becoming less willing to side with patent assertion companies in proceedings brought by or against technology manufacturers, which may lead to those manufacturers and other potential licensees delaying or resisting taking licenses to the Company’s patents or taking licenses on terms less favourable to WiLAN.

The Company’s employees have unique skill sets and proven abilities to conclude license agreements. This is important because the strength of asserted patents is only part of what is needed to derive substantial revenues from them; human expertise in the relevant markets, in patent portfolio development, and in patent licensing and litigation are as crucial as strong patents.

Based on the strength of WiLAN’s portfolio, its licensing capability, human resources and fair business dealings, the Company believes that it is well known in the applicable industries and that companies will accept that licenses will be inevitable and will budget for them. WiLAN also believes that it is well positioned to succeed because of its strong and growing patent portfolio, professional and systematic approach to licensing, experienced management team, track record of signing license agreements, significant base of signed agreements and solid financial position.

13

---

 

WiLAN expects that it will be required to litigate from time to time with parties that infringe its patents but refuse to pay what the Company considers fair consideration for a license or as compensation for past infringement. It is important that prospective licensees know that, when necessary, WiLAN has sufficient funds to conduct protracted and multiple litigations, otherwise a party may be even more reluctant to take a license. In addition to any litigation commenced by the Company, one or more parties may file actions against WiLAN seeking declaratory judgments of non-infringement and/or invalidity against its patents and/or request re-examination or reviews of certain patents before the USPTO or other regulatory bodies.

On December 31, 2014, the Company’s fiscal year-end, WiLAN had approximately $127.6 million in cash and short-term investments on hand. The Company believes this amount represents sufficient financial resources to fund operations for the foreseeable future based on its current plans. WiLAN believes it will remain in a position to fund ongoing operations from license revenues generated for the foreseeable future, although this is not assured.

Employees

At December 31, 2014, the Company had 66 employees. With respect to its staffing needs, the Company expects to manage its human resources and related expenses relative to its licensing opportunities, taking into account licensing results that are achieved and its financial resources.

Risk Factors

The following list of risk factors may not be exhaustive as WiLAN operates in a rapidly changing business and new risk factors emerge from time to time. The Company may not be able to predict any such new risk factors, nor can WiLAN assess the extent to which any risk factor or combination of risk factors may cause actual results to differ materially from those projected, may have a material adverse effect on its business or may cause the price of the Common Shares to decline. Any of the matters described under this “Risk Factors” heading could have a material adverse effect on the Company’s business, results of operations and financial condition, in which case, the trading price of the Common Shares could decline and a holder of Common Shares could lose all or a part of their investment. See also “Forward Looking and Other Statements”.

Risks Related to WiLAN’s Business

Certain of WiLAN’s patents may be found to be invalid, unenforceable and/or not infringed by any specific third-party.

There can be no certainty as to the validity and/or enforceability of any particular WiLAN patent, whether developed internally or acquired from a third-party, and, even if any such patent is valid and enforceable, whether any specific third-party infringes any such patent. Furthermore, even if any specific patent is valid, enforceable and infringed by a specific third-party, there can be no certainty as to whether the Company will be able to successfully license any such patent to that third-party at all or on terms favourable to WiLAN, or successfully litigate against that third-party, including collecting monetary damages.

WiLAN will be required to establish the enforceability of its patents in court to obtain material licensing revenues.

WiLAN has been and continues to be involved in a number of court actions against certain companies it considers to be infringing certain of its patents, has been forced to defend the validity of certain of its patents against challenges from certain of these companies and may be forced to do so again from time to time both in actions started by the Company or started by other parties. Challenges to WiLAN’s patents involve complex factual, technical and legal issues that may give rise to uncertainty as to the applicability, validity, scope and enforceability of a particular patent. Litigation can be costly and time-consuming, outcomes are uncertain and involvement in intellectual property litigation could result in significant expense and exposure to related patents, thereby potentially adversely affecting the licensing of any challenged patents and diverting management’s efforts, whether or not such litigation is ultimately resolved in the Company’s favour.

Any failure by a court to confirm the applicability, enforceability and validity of WiLAN’s patents could materially adversely affect the Company. Prolonged litigation could also delay the receipt of licensing revenues by WiLAN and deplete the Company’s financial resources. It is difficult to predict the outcome of U.S. patent litigation, in part because, at the trial level, juries may find complex patented technologies difficult to understand properly. As such, there can be no assurance that any of WiLAN’s patents will be determined to be infringed by any party or will not be invalidated, circumvented, challenged, rendered unenforceable or licensed to others.

In addition, the Company’s patent enforcement actions have historically been exclusively prosecuted in U.S. federal courts. These U.S. federal courts also hear criminal cases which take priority over patent enforcement actions. As a result, it is difficult to predict the length of time it may take to complete any particular U.S. enforcement action. Moreover, WiLAN’s management believes that there

14

---

 

may be a trend in increasing numbers of U.S. civil lawsuits and criminal proceedings before U.S. federal judges and, as a result, the risk of delays in the Company’s patent enforcement actions may have a greater effect on WiLAN’s business in the future unless this trend changes.

Furthermore, appeals of patent enforcement litigation decisions are heard by the CAFC which has U.S. nationwide jurisdiction in a variety of subject areas, including international trade, government contracts, patents, trademarks, certain money claims against the U.S. government, federal personnel, veterans’ benefits and public safety officers’ benefits claims. As the CAFC has such a wide jurisdiction and it normally holds court sessions during the first week of each month, obtaining a date for a hearing may further delay the completion of a patent enforcement action.

The Company generally expects to be involved in similar legal proceedings in the future, including proceedings to ensure proper and full payment of royalties by licensees under the terms of their license agreements or to otherwise protect WiLAN’s rights under those agreements.

These existing and any future legal actions may harm the Company or hinder its ability to enter into new license agreements. For example, they could cause an existing licensee to cease making payments or to challenge the validity and enforceability of WiLAN’s patents or the scope of their license agreements, and could significantly damage the Company’s relationship with any such licensee. Litigation could also severely disrupt or shut down the business operations of licensees, which in turn would significantly harm ongoing relations and cause the Company to lose royalty revenues. Litigation stemming from these or other disputes could also harm WiLAN’s relationships with other licensees or its ability to gain new licensees, who often postpone licensing decisions pending the outcome of the litigation or dispute.

Whether or not determined in WiLAN’s favour or ultimately settled, litigation diverts managerial, technical, legal and financial resources from the Company’s business operations. Furthermore, an adverse decision in any legal action could limit the value of WiLAN’s patents or otherwise negatively impact the market price of the Common Shares or the value of the Company’s business and consolidated financial position, results of operations or cash flows.

Even if WiLAN prevails in its actions, significant contingencies will exist to their settlement and final resolution, including the scope of the liability of each party, the Company’s ability to enforce judgments against the parties, the ability and willingness of the parties to make any payments owed or agreed upon and the dismissal of the legal action by the relevant court, none of which are completely within WiLAN’s control. Parties that may be obligated to pay royalties could also decide to alter their business, activities, sales of products or corporate structure, which could affect the Company’s ability to collect such royalties.

WiLAN cannot predict the outcome of any of its existing actions or the myriad of procedural and substantive motions associated with these actions. All of the foregoing could have a material adverse effect on WiLAN’s business, results of operations and financial condition.

Finding, retaining and appropriately compensating expert legal counsel to represent WiLAN in litigation matters can be complex and expensive.

Each patent litigation matter brought by or against WiLAN requires representation by the best possible legal counsel to protect and advance the Company’s rights. Depending on the identity of the counterparties in any litigation matter, WiLAN’s preferred legal counsel may have conflicts of interest in respect of one or more of those counterparties, precluding such legal counsel from acting against any such counterparties. The Company’s inability to retain its preferred legal counsel in any given litigation may result in delays, additional costs and unpredictable outcomes in any such litigation.

In addition, the cost of patent litigation in the United States continues to rise, in many cases faster than the size of related recoveries from infringers. Costs associated with patent legal proceedings are typically very high, often unpredictable and not completely within WiLAN’s control. These costs may be materially higher than expected, which could adversely affect the Company’s operating results and lead to volatility in the market price of Common Shares. WiLAN strives to control patent litigation costs by entering into “full” and “hybrid” contingency fee arrangements with litigation legal counsel where appropriate, but cannot be assured that any particular legal counsel will be willing to represent the Company on any contingent basis or that any costs outside a contingent fee structure will not be significant. Any of the foregoing could have a material adverse effect on WiLAN’s business, results of operations and financial condition.

15

---

 

Certain of WiLAN’s patents are, and others may be, subject to administrative proceedings that could invalidate or limit the scope of those patents.

Requests for ex-parte re-examination and petitions for inter-partes review have been filed against certain of WiLAN’s patents in the USPTO with respect to certain key claims at issue in one or more of its litigation proceedings. Under a re-examination or review proceeding, and upon completion of the proceeding, the USPTO may leave a patent in its present form or amend the scope of the patent by cancelling, amending or adding claims to the patent grant. Although the Company has responded to the USPTO’s actions in regard to each of these patents and has the right to appeal any adverse rulings, if any such adverse rulings are upheld on appeal and some or all of the claims of the key patents are cancelled, WiLAN’s business may be significantly harmed. In addition, defendants in the Company’s litigation proceedings may seek and may obtain orders to stay such litigations based upon the USPTO’s re-examination of WiLAN’s patent claims. Also, courts may make findings that are adverse to the Company’s interests or even contrary to decisions of the USPTO, as USPTO decisions are not binding on U.S. courts.

If there is an adverse ruling in any re-examination or review proceeding relating to the validity or enforceability of any of the Company’s key patents, or if the USPTO limits the scope of the claims of any of WiLAN’s key patents, the Company could be prevented from enforcing or earning future revenues from such key patents, and the likelihood that companies will take new licenses and that current licensees will continue to pay under their existing licenses could be significantly reduced. WiLAN cannot predict the outcome of any of these proceedings or the myriad procedural and substantive motions in these proceedings. Furthermore, regardless of the merits of any re-examination and/or review proceeding, the continued maintenance of these administrative proceedings may result in substantial legal expenses and could divert management’s time and attention away from other business operations.

Changes in patent or other applicable laws or in the interpretation or application of those laws could materially adversely affect WiLAN.

The Company’s ability to earn licensing and other revenues is principally dependent on the strength of the rights conferred under applicable laws. Changes in patent or other applicable laws, regulations or rulings that impact the patent enforcement process or the rights of patent holders in Canada, the U.S. or elsewhere, or in the interpretation or application of those laws by the courts could materially adversely affect WiLAN’s business and financial condition. Limitations on the ability to bring patent enforcement claims, limitations on potential liability for patent infringement, lower evidentiary standards for invalidating patents, increased difficulty obtaining injunctions, increased cost to resolve patent disputes, increased means for challenging patent validity through the USPTO and other similar developments could negatively affect the Company’s ability to assert its patent rights successfully, decrease the revenue associated with asserting or licensing WiLAN’s patent rights and increase the cost of bringing patent enforcement actions. Any of these events could result in a material adverse effect to the Company’s business, results of operations and financial condition.

As an example, the U.S. Leahy-Smith America Invents Act codifies significant changes to U.S. patent laws including, among other things, changing from a “first to invent” to a “first inventor to file” system, limiting how accused infringers may be joined together in a patent suit, replacing interference proceedings with derivation proceedings, creating procedures for the supplemental examination of patents, creating procedures for the inter-partes review of an issued patent and creating a post-grant review process to challenge the validity of issued patents. The effects of these changes on WiLAN’s patent portfolio and business have yet to be fully realized because the USPTO is continuing to implement rules relating to these changes and the courts are just beginning to address certain provisions of the U.S. Leahy-Smith America Invents Act and have yet to address many other provisions. In addition, in recent years, U.S. courts have had varied interpretations of U.S. patent laws and regulations and, in particular, the U.S. Supreme Court has decided a number of patent cases and continues to actively review more patent cases than it has in the past.

Some of these changes may not be advantageous to the Company and may make it more difficult to obtain adequate patent protection or to enforce its patent rights against third-parties’ unauthorized use of such patents rights without an adequate license or the payment of adequate royalties. These changes could increase the costs and uncertainties surrounding the prosecution of WiLAN’s patent applications and the enforcement or defense of its patent rights and could have a deleterious effect on the Company’s licensing programs and, consequently, its business, results of operations and financial condition.

16

---

 

WiLAN’s industry is subject to increased regulatory scrutiny, political commentary and related proceedings.

The patent licensing industry of which WiLAN’s business is part has been subject to increased regulatory scrutiny in recent years, particularly in the United States. For example, the Company understands that the U.S. Federal Trade Commission (the “FTC”) has recently initiated a process to solicit public comments on proposed information requests to “patent assertion entities” and other entities asserting patents in the wireless communications sector. Any such FTC requests would be made under the FTC’s investigative powers under Section 6(b) of the U.S. Federal Trade Commission Act which, among other things, enables the FTC to conduct wide-ranging economic studies that do not have a specific law enforcement purpose. It is possible that WiLAN may be subject to such FTC requests if, as and when they are issued, the results of which may require the Company to change its business practices in a materially adverse manner.

U.S. President Barack Obama’s executive branch of the United States federal government has also made public statements indicating an antipathy towards the pursuit of intellectual property rights that it views as being not “legitimate”. Despite the Company’s belief that its business and practices are entirely legitimate and ethical, follow all applicable laws and reward innovation, these views could manifest in changes to United States laws and regulations relating to patents that could materially and negatively impact the Company’s patent licensing activities, business and results.

Furthermore, the increased regulatory scrutiny of the patent licensing industry and comments by President Obama and other U.S. federal government officials may have an impact on the views of the USPTO, U.S. courts and U.S. juries which, regardless of any changes to United States patent laws and regulations, may impact decisions made by these bodies relating to WiLAN and participants in the U.S. patent licensing industry.

The generation of future V-Chip revenues and the likelihood of WiLAN signing additional V-Chip licenses could be negatively impacted by changes in government regulation. The failure of leading digital television manufacturers to adopt or to continue to use the Company’s patented V-Chip technologies or to adopt competing technologies may harm its business.

The success of WiLAN’s V-Chip technology is substantially dependent on the establishment and maintenance by the U.S. federal government of requirements mandating the adoption of rating systems compatible with the V-Chip technology and the encoding of such ratings in television signals and other broadcast mediums in the manner set out in the Company’s patented technology. The failure of the U.S. federal government to establish or maintain such requirements or any decision to significantly modify them may have a material adverse effect on WiLAN’s business, financial condition, liquidity and operating results.

Furthermore, there can be no assurance that digital television receivers that currently use the Company’s patented V-Chip technology will continue to do so, nor can there be any assurance that manufacturers of digital television receivers that use WiLAN’s patented technology will be successful in their markets in order to generate expected revenues. In addition, manufacturers may claim that they do not infringe WiLAN’s related patents and, consequently, refuse to enter into license agreements or pay royalties under signed agreements. If manufacturers do not adopt the Company’s patented V-Chip technologies, cease to use such technologies for any reason or stop paying for any reason, this could have a material adverse effect on WiLAN’s business, results of operations and financial condition.

Licensing the Company’s patents can take an extremely long time and may be subject to variable cycles.

Licensing WiLAN’s technologies is a long and complex process and may take many years. Management spends a substantial amount of time educating potential licensees about the Company’s technologies. Because the acquisition of a license to WiLAN’s technologies often represents a substantial investment, potential licensees may take a considerable period of time to evaluate the technologies, to determine the size of their exposure to the technologies, and to obtain the necessary expenditure authorizations and financing required to license the technologies. The process of entering into a license agreement typically involves lengthy negotiations and this process may be extended if the potential licensee is using or selling the Company’s technologies as part of a larger project or system. Because many licensees do not pay up-front license fees and WiLAN does not recognize related revenue until payments have been made, there may be significant delays of weeks or months between when the Company licenses its technologies and when any related revenue can be recognized.

Potential licensees do not generally voluntarily seek to enter into licenses to WiLAN’s patents before they commence manufacturing or selling devices that use the Company’s technologies. Negotiating license agreements with reluctant prospective licensees each requires significant time, effort and expense. Additional challenges may arise from time to time with respect to significant negotiating issues. Considering all such challenges, WiLAN cannot be sure that all prospective licensees will be identified or, if they are identified, can be persuaded to enter into a license agreement either at all or on terms that are acceptable to the Company.

17

---

 

In addition, WiLAN may spend a significant amount of time and money negotiating with a potential licensee that ultimately does not license its technologies. Any delay in licensing the Company’s technologies could cause its operating results to vary significantly from any projected results. Also, WiLAN may not be able to accurately predict sales by its licensees since they do not always provide information about the status of possible sales and other revenue opportunities with their customers. Sales of products by licensees also depend on the timing of the roll-out of their own products and systems. The Company has no control over the timing of licensees’ roll-outs, and may not be informed of when these roll-outs will occur. WiLAN has been, in the past, and may, in the future, be required to offer favourable terms to certain licensees. In certain cases, if future licensees are granted better terms than were granted to certain earlier licensees, the Company may be required to adjust such earlier licensees’ terms downwards. To date there have been no such circumstances, but there can be no guarantee that such a situation may not occur in the future.

Because of these factors, it is especially difficult to forecast WiLAN’s revenue and operating results. The Company’s inability to accurately predict the timing and magnitude of revenues could cause a number of problems, including: (i) expending significant management efforts and incurring substantial expenses in a particular period that do not translate into signed license agreements during that period or at all; and (ii) having difficulty meeting WiLAN’s cash flow requirements and obtaining credit because of delays in receiving payment for licenses. The challenges resulting from the lengthy and variable licensing cycle could impede WiLAN’s growth, harm its valuation and restrict its ability to take advantage of new opportunities.

The Company is reliant on licensees paying royalties under existing license agreements and on the additional licensing of its patent portfolio to generate future revenues and increased cash flows.

WiLAN is currently reliant on licensing its patent portfolio to generate revenues and cash flows. Although the Company has a number of existing licensing arrangements, there is no assurance that WiLAN will continue to receive material revenues from these license agreements or that the Company will enter into additional license agreements with any other licensees. If WiLAN fails to enter into additional licensing arrangements, the Company’s business, operational results and financial condition could be materially adversely affected.

Delays in renewing or an inability to renew existing license agreements could cause revenue and cash flow to decline.

Many of WiLAN’s license agreements have fixed terms. Although the Company endeavors to renew license agreements with fixed terms prior to their expiration, many factors, including the technology and business needs and competitive positions of licensees and, at times, reluctance on the part of licensees to participate in renewal discussions, may result in WiLAN not being able to renegotiate license agreements on acceptable terms before the expiration of the original agreement, on acceptable terms after the expiration of the original agreement, or at all.

If there is a delay in renegotiating and renewing a license agreement prior to its expiration, there could be a gap in time during which the Company may not be able to recognize revenue from that licensee or may be forced to renegotiate and renew the license agreement on terms that are more favorable to that licensee and, as a result, revenue and cash flow could be materially adversely affected. In addition, if WiLAN fails to renegotiate and renew license agreements at all, it could lose existing licensees and revenue and cash flow could be materially adversely affected.

Royalty rates could decrease for future license agreements.

Royalty payments under future license agreements could be lower than anticipated. Certain licensees are demanding that royalty rates be lower than historic rates. There is also increasing downward pricing pressure on many consumer electronics products, including cellular handsets, laptop and tablet computers and digital televisions that implement WiLAN’s patented inventions. In addition, a number of other companies also claim to hold patents that are essential with respect to products in the technology markets in which the Company holds patents. The increasing pricing pressure, as well as the number of patent holders seeking royalties on their technologies from WiLAN’s licensees and prospective licensees, could result in a decrease in the royalty rates for use of the Company’s patented inventions, which could have a material adverse effect on WiLAN’s business, results of operations and financial condition.

Reduced spending by consumers and businesses due to the uncertainty of economic and geopolitical conditions may negatively affect WiLAN.

Many of the Company’s licensees, prospective licensees and their respective customers are directly affected by economic and geopolitical conditions affecting the broader world markets. Current and future conditions in the domestic and global economies remain uncertain. A slowdown in spending by WiLAN’s licensees, prospective licensees and/or their respective customers, coupled with existing economic and geopolitical uncertainties globally and in the communications and consumer electronics markets, may

18

---

 

create uncertainty for market demand and may affect the Company’s revenues. It is difficult to estimate the level of growth for the economy as a whole and even more difficult to estimate growth in various parts of the economy, including the markets in which WiLAN’s licensees and prospective licensees participate. Because all components of the Company’s budgeting and forecasting are dependent upon estimates of growth in the markets that WiLAN’s licensees and prospective licensees serve and demand for their respective products and services, economic uncertainties make it difficult to estimate future revenues and expenditures. Downturns in the economy or geopolitical uncertainties may cause end-users to reduce their budgets or reduce or cancel orders for products from the Company’s licensees which could have a material adverse impact on WiLAN’s business, operating results and financial condition.

Fluctuations in foreign exchange rates impact and may continue to impact WiLAN’s operating expenses, potentially adversely affecting financial results.

The Company’s functional currency is the U.S. dollar and WiLAN reports its financial performance in U.S. dollars. The Company’s operating results are subject to changes in the exchange rate of the U.S. dollar relative to the Canadian dollar. Any decrease in the value of the U.S. dollar relative to the Canadian dollar will have an unfavourable impact on Canadian denominated operating expenses. WiLAN may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into forward foreign exchange contracts and engaging in other hedging strategies. To the extent that the Company engages in risk management activities related to foreign exchange rates, it may be subject to credit risks associated with the counterparties with whom it contracts.

WiLAN will need to acquire or develop new patents to continue and grow its business.

All patents have a limited life and will generally expire twenty years after the date on which the application for the patent was filed. In order to be successful in the long term, WiLAN will have to continue to acquire or develop additional patents or acquire rights to license new patents, however, there can be no assurance that the Company will be able to do so. If WiLAN fails to acquire or develop additional patents or to acquire rights to license new patents, the Company’s business, operational results and financial condition may be materially adversely affected.

The Company may engage in acquisitions or other strategic transactions or make investments that could result in significant changes or management disruption and fail to enhance shareholder value.

WiLAN continues to evaluate and may acquire businesses, technology and/or intellectual property, enter into joint ventures or other strategic transactions and purchase equity and debt securities in other entities, including minority equity interests and other securities in publicly-traded and privately-held companies. Such strategic investments may serve as consideration for a license in lieu of cash royalties. Most strategic investments entail a high degree of risk and will not become liquid for a significant time from the date of investment, if at all. Acquisitions or strategic investments may not generate financial returns or result in increased adoption or continued use of WiLAN’s patented technologies. In addition, other investments may not generate financial returns or may result in losses due to market volatility, the general level of interest rates and inflation expectations. The Company could make strategic investments in early-stage companies, which may require WiLAN to consolidate or record its share of the earnings or losses of those companies. The Company’s share of any such losses may adversely affect its financial results until WiLAN exits from or reduces its exposure to these investments, if ever.

Achieving the anticipated benefits of acquisitions depends in part upon the Company’s ability to integrate the acquired businesses in an efficient and effective manner. The integration of acquired companies or businesses may result in significant challenges, and WiLAN may be unable to accomplish the integration smoothly or successfully. The Company cannot provide any assurance that the integration of acquired businesses, technology and/or intellectual property with WiLAN’s business will result in the realization of the full benefits it anticipates to result from such acquisitions. The Company may not derive any commercial value from the acquired technology, products and intellectual property or from future technologies and products based on the acquired technology and/or intellectual property, and it may be subject to liabilities that are not covered by any indemnification protection WiLAN may obtain.

19

---

 

Diversification into new technology areas may result in additional cost, delay and complication in WiLAN’s licensing efforts.

As a result of WiLAN’s increasing number of relationships with third-party patent inventors and owners, the Company has acquired and plans to continue acquiring patent assets in technology areas that are new to WiLAN, thereby diversifying away from its historical and well-understood technology focuses. The Company’s operating subsidiaries have recently obtained rights to patents in the fields of 3D television technologies, automotive headlight assemblies, computer gaming, medical stent technologies, irrigation technologies, CMOS image sensors, streaming video technologies, Internet search, building automation, non-volatile Flash memory, semiconductor clocking technologies, smart meter monitoring, LED lighting technologies and many other technologies. As a result, WiLAN may need to recruit internal and external subject matters experts in each of these new technology fields to assist in the monetization of such patents. Any such requirement may result in delays in monetizing such patents and/or incurring additional expense both to obtain such expertise and to monetize the relevant patents.

The Company may not be able to compete effectively against others to acquire patent assets. Any failure to compete effectively could harm WiLAN’s business and results of operations.

In the current intellectual property environment, the Company competes with numerous third-parties to acquire valuable patent assets. WiLAN’s competitors in the market for patent assets include both operating companies that practice the inventions claimed in such patents and other entities that seek to accumulate patent assets, patent licensing entities such as Acacia Research, Altitude Capital Partners, Coller IP, Conversant IP, Intellectual Ventures, Millennium Partners and Rembrandt IP Management and patent-buying consortiums such as RPX Corporation and Allied Security Trust. Many of WiLAN’s current or potential patent acquisition competitors may have longer operating histories, greater name recognition and significantly greater financial resources than the Company. In addition, many of WiLAN’s patent acquisition competitors have complicated corporate structures that include a large number of subsidiaries, so it may be difficult or impossible to know who the ultimate parent entity is and how much capital the related entities have available to acquire patent assets. WiLAN also faces competition for patent assets from operating companies, including current or prospective licensees or defendants in the Company’s litigations that seek to acquire patent assets in connection with new or existing product and service offerings or for defensive tactics.

WiLAN expects to face more direct competition in the future from other established and emerging companies. Given the rapidly changing nature of the intellectual property industry, the Company has limited reliable insight into trends that may develop and affect its business and WiLAN may make errors in predicting and reacting to relevant business trends, making the Company unable to compete effectively against others.

WiLAN may not be able to maintain or improve its competitive position against its current or future competitors, and the Company’s failure to do so could seriously harm its business, results of operations and financial condition.

The Company’s acquisitions of patents and patent rights are time consuming, complex and costly, which could adversely affect its operating results.

WiLAN’s acquisitions of patents and patent rights are time consuming, complex and costly to consummate. The Company uses many different transaction structures in its acquisitions and the terms of the acquisition agreements are usually very heavily negotiated. Consequently, WiLAN often incurs significant operating expenses during acquisition negotiations even where the acquisition is ultimately not consummated. Even if the Company successfully acquires patents or patent rights, there is no guarantee that WiLAN will generate sufficient revenue related to those patents or rights to offset related acquisition costs. Although the Company conducts confirmatory due diligence on patents it proposes to acquire, WiLAN may acquire patents or patent rights that are ultimately determined not to have been owned by the seller from whom they were purchased, to be invalid, unenforceable or to not be infringed; the Company may be required to spend significant resources to defend any such patents and its interests in them and, if WiLAN is not successful, it could lose part or all of its investment in those patents.

The Company may occasionally identify patents that are available at a higher price than it is prepared to spend with its own capital resources or that may be infringed in a very small market. In these circumstances, WiLAN may structure a transaction in which it partners with third-parties to acquire those patents or rights to those patents. Any such structures may be quite complex and the Company may incur significant costs to organize and negotiate such a structured acquisition that does not ultimately result in an acquisition of any patents or rights to those patents, which costs could adversely affect WiLAN’s operating results.

WiLAN has made and may make (or attempt to make) future acquisitions of technologies or businesses which could materially adversely affect the Company.

WiLAN continually evaluates opportunities to acquire additional technologies or businesses. Acquisitions may result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, and amortization expense related to intangible

20

---

 

assets acquired, some of which may occur even if the acquisition is ultimately not consummated, any of which could materially adversely affect the Company’s business, financial condition and results of operations. In addition, acquired businesses may be experiencing operating losses, which may adversely affect WiLAN’s earnings. Acquisitions involve a number of risks, including difficulties in the assimilation of the acquired company’s operations and products, diversion of management’s resources, uncertainties associated with operating in new markets and working with new customers, and the potential loss of the acquired company’s key employees.

The Company’s quarterly revenue and operating results can be difficult to predict and can fluctuate substantially.

WiLAN’s revenue is difficult to forecast, is likely to fluctuate significantly and may not be indicative of its future performance from quarter to quarter. In addition, the Company’s operating results may not follow any past trends. The factors affecting WiLAN’s revenue and results, many of which are outside of its control, include:

Because the Company’s quarterly revenue is dependent upon a relatively small number of transactions, even minor variations in the rate and timing of payment of royalties could cause WiLAN to plan or budget inaccurately, and those variations could adversely affect its financial results. Delays or reductions in the amounts of royalty payments would adversely affect the Company’s business, results of operations and financial condition.

WiLAN may require investment to translate its intellectual property position into sustainable profit in the market.

WiLAN’s future growth may depend on its ability to make the expenditures necessary to develop, market and license its patent portfolio and, if necessary, to enforce its patents. There can be no assurance that the Company will be able to obtain additional financial resources that may be required to successfully compete in its markets on favourable commercial terms, or at all. Failure to obtain such financing could result in the delay or abandonment of some or all of WiLAN’s plans for developing and licensing its patent portfolio or for commencing litigation, which could have a material adverse effect on the business and financial condition of the Company.

There can be no assurance as to the payment of future dividends.

On June 3, 2009, WiLAN announced that the Board had declared a cash dividend of CDN$0.0125 per Common Share payable on August 5, 2009 to holders of record of Common Shares at the close of business on June 29, 2009. Similar dividends have been declared by the Board and paid each fiscal quarter since that date with the most recent such dividend declared in the amount of CDN$0.0525 per Common Share on January 28, 2015 and payable on April 7, 2015 to holders of record of Common Shares at the close of business on March 23, 2015. Future dividend payments will be subject to an ongoing evaluation and approval by the Board on a quarterly basis. The decision as to the amount and timing of future dividends paid by WiLAN, if any, will be made by the Board in light of the Company’s financial condition, capital requirements and growth plans, as well as other factors the Board may deem relevant, and there can be no assurance as to whether any such future dividends will be declared or, if declared, as to the amount and timing of the payment of any such future dividends.

21

---

 

WiLAN’s ability to recruit and retain management and other qualified personnel is crucial to its ability to develop, market and license its patented technologies.

The Company depends on the services of its key technical, licensing and management personnel. The loss of any of these key persons could have a material adverse effect on WiLAN’s business, results of operations and financial condition. The Company’s success is also highly dependent on its continuing ability to identify, hire, train, motivate and retain highly qualified technical, licensing and management personnel. Competition for such personnel can be intense, and WiLAN cannot provide assurance that it will be able to attract or retain highly qualified technical, licensing and management personnel in the future. Stock options comprise a significant component of the Company’s compensation of key employees, and if the market price of the Common Shares declines, it may be difficult to recruit and retain such individuals due to the related decline in value of any options to purchase Common Shares.

In addition, pursuant to the rules of the TSX, WiLAN’s unallocated options require periodic approval from shareholders in order to continue to be available for grant under its Share Option Plan. TSX rules and/or the size of the Company’s option pool may limit its ability to use equity incentives as a means to recruit and retain key employees. WiLAN’s inability to attract and retain the necessary technical, licensing and management personnel may adversely affect its future growth and profitability. It may be necessary for the Company to increase the level of compensation paid to existing or new employees to a degree that its operating expenses could be materially increased. WiLAN does not currently maintain corporate life insurance policies on key employees.

The Company’s business could be negatively affected as a result of actions of activist shareholders.

Publicly-traded companies have increasingly become subject to campaigns by investors seeking to advocate certain governance changes or corporate actions such as financial restructuring, special dividends, share repurchases or even sales of assets or the entire company. WiLAN could be subject to such shareholder activity or demands. Given the challenges the Company has encountered in its business in the past two years, recent changes to WiLAN’s governance and strategic focus may not satisfy such shareholders who may attempt to promote or effect further changes, or acquire control over the Company. Responding to proxy contests, media campaigns and other actions by activist shareholders, if required, will be costly and time-consuming, disrupt WiLAN’s operations and would divert the attention of the Board and senior management from the pursuit of its business strategies, particularly its current strategic review, which could adversely affect the Company’s results of operations, financial condition and/or prospects. If individuals are elected to the Board with a specific agenda to increase short-term shareholder value, it may adversely affect or undermine WiLAN’s ability to effectively implement its plans. Perceived uncertainties as to the Company’s future direction as a result of shareholder activism could also result in the loss of potential business opportunities as prospective licensees may refrain from taking licenses until any uncertainty is fully resolved, and may make it more difficult to attract and retain qualified personnel and business partners, to WiLAN’s detriment.

Risks Related to the Ownership of Common Shares

The trading price of the Common Shares has been, and may continue to be, subject to large fluctuations.

The Common Shares are listed on both the TSX and the NASDAQ. The trading price of the Common Shares has been, and may continue to be, subject to large fluctuations and, therefore, the value of the Common Shares may also fluctuate significantly, which may result in losses to investors who have acquired or may acquire Common Shares.

The trading price of the Common Shares may increase or decrease in response to a number of events and factors, including:

In addition, different liquidity levels, volume of trading, currencies and market conditions on the TSX and NASDAQ may result in different prevailing trading prices between these stock exchanges.

22

---

 

Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. WiLAN may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources, which could adversely affect the Company’s business. Any adverse determination in litigation against WiLAN could also subject it to significant liabilities.

As a foreign private issuer, WiLAN is subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to the Company’s shareholders.

WiLAN is a “foreign private issuer” under applicable U.S. federal securities laws and, consequently, is not required to comply with all the periodic disclosure and current reporting requirements of the U.S. Exchange Act and related rules and regulations. As a result, shareholders may not have the same information provided to shareholders of companies that are not foreign private issuers. For example, WiLAN does not file the same reports that a U.S. domestic issuer would file with the SEC, although it must file or furnish to the SEC the continuous disclosure documents that it is required to file in Canada under Canadian securities laws. In addition, the Company’s officers and directors are exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the U.S. Exchange Act. Therefore, shareholders may not know on as timely a basis when WiLAN’s officers and directors purchase or sell their Common Shares and other securities, as the reporting deadlines under the corresponding Canadian insider reporting requirements may be different. In addition, as a foreign private issuer WiLAN is exempt from the proxy rules under the U.S. Exchange Act.

WiLAN may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses.

The Company may lose its foreign private issuer status in the future if the majority of the Common Shares are held in the U.S. and WiLAN fails to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and compliance costs to the Company under U.S. securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the multijurisdictional disclosure system (“MJDS”) adopted by the U.S. and Canada. If WiLAN is not a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, WiLAN may lose the ability to rely upon exemptions from NASDAQ corporate governance requirements that are available to foreign private issuers.

The financial reporting obligations of being a public company in the U.S. are expensive and time consuming, and place significant additional demands on management.

Prior to listing on the NASDAQ on June 1, 2011, WiLAN was not subject to public company reporting obligations in the U.S. The additional obligations of being a public company in the U.S. require significant additional expenditures and place additional demands on the Company’s management including, in particular, Section 404 of the U.S. Sarbanes-Oxley Act and the SEC rules and regulations implementing Section 404, to all of which WiLAN could be subject with respect to its fiscal year ending December 31, 2015. If, when and as the Company is subject to these U.S. securities laws, WiLAN will require an annual evaluation of its internal controls over financial reporting to be attested to by an independent auditing firm. If an independent auditing firm is unable to provide the Company with an attestation and an unqualified report as to the effectiveness of its internal controls, investors could lose confidence in the reliability of WiLAN’s financial statements, which could result in a decrease in the value of the Common Shares.

WiLAN is an “emerging growth company” under the U.S. Jumpstart Our Business Startups Act of 2012. The Company cannot be certain whether the reduced disclosure requirements applicable to emerging growth companies could make the Common Shares less attractive as an investment.

The Company meets the definition of an “emerging growth company” as defined in the U.S. Jumpstart Our Business Startups Act of 2012 and is permitted to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”. These include, without limitation, not being required to comply with the auditor attestation requirements of Section 404 of the U.S. Sarbanes-Oxley Act. WiLAN cannot predict whether investors could find the Common Shares less attractive as an investment because it may rely on these exemptions. If certain investors find the Common Shares less attractive an investment as a result of the Company’s reliance on these exemptions, there could be a less active trading market for Common Shares and the market price of the Common Shares could decrease or be more volatile.

23

---

 

An investor may be unable to bring actions or enforce judgments against WiLAN and certain of its directors and officers.

Wi-LAN Inc. is incorporated under the laws of Canada and its principal executive offices are located in Canada. A majority of the Company’s directors and officers and its independent public accounting firm reside principally outside the U.S. and all or a substantial portion of WiLAN’s assets and the assets of these persons are located outside the U.S. Consequently, it may not be possible for an investor to effect service of process within the U.S. on WiLAN or those persons. Furthermore, it may not be possible for an investor to enforce judgments obtained in U.S. courts based upon the civil liability provisions of U.S. federal securities laws or other laws of the U.S. against WiLAN or those persons.

WiLAN’s actual financial results may vary from its publicly disclosed forecasts.

WiLAN’s actual financial results are likely to vary from any publicly disclosed forecasts and these variations could be material and adverse. The Company may periodically provide guidance on future financial results. These forecasts and guidance reflect numerous assumptions concerning expected performance, as well as other factors that are beyond WiLAN’s control and which may not turn out to be correct. Although the Company believes that the assumptions underlying any such guidance and other forward-looking statements are reasonable when they are made, actual results could be materially different. WiLAN’s financial results are subject to numerous risks and uncertainties, including those identified throughout these risk factors. See also “Forward Looking and Other Statements”.

If the Company’s actual results vary from any announced guidance, the price of the Common Shares may decline, and such a decline could be substantial. Except as required under applicable securities legislation, WiLAN does not undertake to update any guidance or other forward-looking information it may provide, whether as a result of new information, future events or otherwise.

If at any time WiLAN is classified as a passive foreign investment company (a “PFIC”) under U.S. tax laws, U.S. holders of Common Shares may be subject to adverse tax consequences.

A non-U.S. corporation would be classified as a PFIC, for U.S. federal income tax purposes, in any taxable year in which, after applying relevant “look-through” rules with respect to the income and assets of its subsidiaries, either at least 75% of the composition of its gross income is “passive income,” or on average at least 50% of the gross value of the composition of its assets is attributable to assets that produce passive income or are held for the production of passive income. Based on current operations and financial projections, WiLAN expects that it will not be a PFIC for U.S. federal income tax purposes for its 2014 fiscal year. An annual determination will, however, need to be made as to whether the Company is a PFIC based on the types of income it earns and the types and value of its assets from time to time, all of which are subject to change. WiLAN cannot, therefore, provide any assurance that it will not be a PFIC for its current taxable year or any future taxable year. If the Company were to be treated as a PFIC for any taxable year, certain adverse U.S. federal income tax consequences could apply to U.S. holders of Common Shares.

U.S. holders of Common Shares are urged to consult their tax advisors with respect to the U.S. federal, state and local tax consequences of the acquisition, ownership, and disposition of their Common Shares if WiLAN is a PFIC in any taxable year as may be applicable to their particular circumstances.

The acquisition of, investment in and disposition of Common Shares has tax consequences.

Prospective investors should be aware that the acquisition, holding and/or disposition of Common Shares has tax consequences both in the U.S. and Canada that are not described in this Annual Information Form. Holders of Common Shares should consult their own tax advisors with respect to the tax consequences of the acquisition, ownership and disposition of Common Shares as may be applicable to their particular circumstances.

Substantial future sales of Common Shares by existing shareholders, or the perception that such sales may occur, could cause the market price of the Common Shares to decline, even if WiLAN’s business is doing well.

If WiLAN’s existing shareholders, including its directors and executive officers, sell substantial amounts of Common Shares in the public market, or are perceived by the public market as intending to sell substantial amounts of Common Shares, the trading price of the Common Shares could decline. At December 31, 2014, 120,247,647 Common Shares were outstanding, all of which are freely tradable, without restriction, in the public market, subject to blackout periods and applicable laws relating to insider trading, of which approximately 3,298,639 Common Shares were held by WiLAN’s directors and executive officers.

24

---

 

In addition, fully vested options to purchase up to approximately 4,759,776 Common Shares were held by the Company’s directors and executive officers at December 31, 2014, and additional options to purchase Common Shares continue to vest in accordance with the terms of those options. All such Common Shares would be freely tradable upon issue, without restriction, in the public market, subject to blackout periods and applicable laws relating to insider trading.

If any of these Common Shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of the Common Shares could decline.

WiLAN may require additional capital in the future and no assurance can be given that such capital will be available at all or available on terms acceptable to the Company.

WiLAN may need to raise additional funds through public or private debt or equity financings in order to:

Any additional capital raised through the sale of equity will dilute the percentage ownership of each shareholder in the Common Shares and such dilution may be significant. Capital raised through debt financing would require the Company to make periodic interest payments and may impose restrictive covenants on the conduct of its business. Furthermore, additional financing may not be available on terms favourable to WiLAN, or at all. A failure to obtain additional financing could prevent the Company from making expenditures that may be required to grow or maintain its operations.

Certain Canadian laws could delay or deter a change of control.

The Investment Canada Act (Canada) subjects an acquisition of control of Wi-LAN Inc. by a non-Canadian to government review if the value of the Company’s assets as calculated pursuant to the legislation exceeds a certain threshold amount. A reviewable acquisition may not proceed unless the relevant minister of Canada’s federal government is satisfied that the investment is likely to be a net benefit to Canada. This could prevent or delay a change of control and may eliminate or limit strategic opportunities for shareholders to sell their Common Shares.

WiLAN’s authorized capital permits its directors to issue preferred shares which may prevent a takeover by a third-party.

The Company’s authorized share capital consists of an unlimited number of Common Shares, 6,350.9 special preferred shares and an unlimited number of preferred shares, issuable in series. There are no special preferred shares or preferred shares outstanding. The Board has the authority to issue preferred shares and determine the price, designation, rights, preferences, privileges, restrictions and conditions, including dividend rights, of these shares without any further vote or action by shareholders. The rights of the holders of Common Shares will be subject to, and may be adversely affected by, the rights of holders of any preferred shares that may be issued in the future. WiLAN’s ability to issue preferred shares could make it more difficult for a third-party to acquire a majority of the outstanding Common Shares, the effect of which may be to deprive the Company’s shareholders of a control premium that might otherwise be realized in connection with an acquisition.

25

---

 

4.    Dividends

During WiLAN’s past three fiscal years, the Board has declared the following dividends on the Common Shares:

 

Each of these dividends has been designated as an “eligible dividend” for the purposes of Canadian federal and provincial income tax laws. Until otherwise noted on WiLAN’s Internet website, any subsequent dividends paid by the Company will also be “eligible dividends”.

WiLAN intends to continue to declare quarterly dividends in line with its overall financial performance and cash flow generation, but there can be no assurance as to the amount or payment of such dividends in the future. Decisions on dividend payments are made on a quarterly basis by the Board.

5.    Capital Structure

WiLAN is authorized to issue an unlimited number of Common Shares, 6,350.9 special preferred shares and an unlimited number of preferred shares, issuable in series. There are no special preferred shares or preferred shares outstanding.

On December 31, 2014, there were 120,247,647 Common Shares issued and outstanding. In addition, at that date there were options outstanding to purchase up to 9,465,372 Common Shares and approximately 244,525 outstanding deferred stock units.

The following is a summary of the rights, privileges, restrictions and conditions attaching to the Common Shares, the special preferred shares and the preferred shares.

Common Shares

The holders of Common Shares are entitled to notice of and to vote at all meetings of shareholders (except meetings at which only holders of a specified class or series of shares are entitled to vote) and are entitled to one vote per share. Subject to the preferences accorded to holders of preferred shares and any other shares ranking senior to the Common Shares from time to time with respect to the payment of dividends, holders of Common Shares are entitled to receive, if, as and when declared by the Board, such dividends as may be declared thereon by the Board from time to time. In the event of the liquidation, dissolution or winding-up of WiLAN, or any other distribution of assets among the Company’s shareholders for the purpose of winding-up its affairs (any such event, a “Distribution”), holders of Common Shares, subject to the preferences accorded to holders of preferred shares and any of WiLAN’s other shares ranking senior to the Common Shares from time to time with respect to payment on a Distribution, are entitled to share equally, share for share, in the Company’s remaining property.

Special Preferred Shares

The holders of WiLAN’s special preferred shares are not entitled, subject to applicable law, to receive notice of or to attend any meeting of the Company’s shareholders and are not entitled to vote at such meetings. The special preferred shares rank ahead of all other classes of WiLAN’s shares with respect to the payment of dividends and the holders are entitled to receive a fixed non-cumulative dividend up to a maximum of CDN$3.50 per year. In the event of a Distribution, the holders of the special preferred shares are entitled to receive CDN$50.00 per share together with any declared but unpaid dividends prior to any payment or distribution to any of the Company’s other classes of shares, but shall not be entitled to share any further in the Distribution. The Board may, at its

26

---

 

option, redeem all or any of the special preferred shares at any time for CDN$50.00 per share plus the amount of any declared but unpaid dividends. Each holder of special preferred shares may require WiLAN to redeem all or any of their shares at any time after April 28, 2000 for CDN$50.00 plus the amount of any declared but unpaid dividends.

Preferred Shares

The Company’s preferred shares at any time and from time to time may be issued in one or more series, each series to consist of such number of shares as may, before the issuance thereof, be determined by the Board. From time to time the Board may fix, before the designation of a series, the rights, privileges, restrictions and conditions attaching to each series of preferred shares including, without limiting the generality of the foregoing, the amount, if any, specified as being payable preferential to such series on a Distribution; the extent, if any, of further participation in a Distribution; voting rights, if any; and dividend rights (including whether such dividends be preferential, or cumulative or non-cumulative), if any. In the event of the voluntary or involuntary liquidation, dissolution or winding-up of WiLAN, or any other Distribution, holders of each series of preferred shares will be entitled, in priority to holders of Common Shares and any of the Company’s other shares ranking junior to the preferred shares from time to time with respect to payment on a Distribution, to be paid rateably with holders of each other series of preferred shares the amount, if any, specified as being payable preferentially to the holders of such series on a Distribution. The holders of each series of preferred shares will be entitled, in priority to holders of Common Shares and any of WiLAN’s other shares ranking junior to the preferred shares from time to time with respect to the payment of dividends, to be paid rateably with holders of each other series of preferred shares, the amount of accumulated dividends, if any, specified as being payable preferentially to the holders of such series.

Shareholder Rights Plan

On March 1, 2011, the Board adopted a shareholder rights plan (the “Rights Plan”) which was approved by the Company’s shareholders on April 27, 2011 and was re-approved by WiLAN’s shareholders on June 18, 2014. The term of the Rights Plan extends to the close of business on the date of WiLAN’s 2017 annual meeting of shareholders.

The Rights Plan is designed to ensure fair treatment for all shareholders if the Company is the subject of an unsolicited take-over bid, and to provide shareholders and the Board with adequate time to evaluate any bid for WiLAN and to take steps to maximize shareholder value in the event of any unsolicited take-over bid. The Company is not aware of any contemplated takeover bid. The terms of the Rights Plan are consistent with the terms of plans recently adopted by other Canadian public companies and with guidelines for such plans as published by shareholder rights advocate groups. The rights issued to shareholders under the Rights Plan may be exercised only when a person, including any related party, acquires or announces its intention to acquire more than 20% of the outstanding Common Shares without either complying with the “permitted bid” provisions of the Rights Plan or obtaining the approval of the Board. Should such an acquisition occur, each right would, upon exercise, effectively entitle a holder, other than the person pursuing the acquisition and related parties, to purchase Common Shares at a 50% discount to the market price of the Common Shares at that time. Under the Rights Plan, a permitted bid is a bid made to all shareholders and is open for acceptance for no less than 60 days. If more than 50% of the outstanding Common Shares, other than those owned by the person pursuing the acquisition and related parties, have been tendered, the person pursuing the acquisition may purchase and pay for the shares but must extend the bid for a further 10 days to allow the other shareholders to tender. Under the permitted bid mechanism, shareholders will have more time to consider the bid and any other options that may be available before deciding whether or not to tender to the bid. The Board will also have time to consider and pursue alternatives and to make recommendations to shareholders.

27

---

 

6.    Market for Securities

Trading Price and Volume of Common Shares

The Common Shares are listed and posted for trading on the TSX under the symbol “WIN”. The volume of trading and price range of the Common Shares for the periods indicated are set forth in the following table.

 

7.    Directors and Officers

Directors

The following table sets forth the name, province and country of residence of each director of WiLAN, their position with the Company and the year in which they became a director of WiLAN. The term of office for each of the directors will expire at the time of the next annual shareholders’ meeting.

 

Notes:

28

---

 

At December 31, 2014, as a group, the Company’s directors and executive officers beneficially owned, directly or indirectly, or exercised control over approximately 3,298,639 Common Shares, which represented approximately 2.74% of the outstanding Common Shares at that date.

Except as disclosed below, each of WiLAN’s directors has been engaged for more than five years in his present principal occupation or in other capacities with the Company or organization (or predecessor thereof) in which he currently holds his principal occupation. The information provided below has been provided by the individuals themselves and has not been independently verified by WiLAN.

Robert Bramson: Since 1996, Partner, Bramson & Pressman, a technology licensing law firm.

Dr. Michel Tewfik Fattouche: July 1986 to present – Professor Electrical and Computer Engineering, University of Calgary.

John Kendall Gillberry: 1996 to present – Founder and President, Bayfield Capital Group, a corporate finance advisory firm focused on special situations; February 2012 to December 2014 – Executive Vice-President and Chief Financial Officer of eSentire Inc., a multinational cyber security managed services corporation; May 2011 to February 2012 – Executive Vice-President & Chief Financial Officer of QHR Technologies Inc.; January 2010 to May 2012 – Chief Executive Officer of Utilitran Corporation.

William Keith Jenkins: Global Vice-Chair & Partner, Dentons Canada LLP.

W. Paul McCarten: Retired as a Partner of Borden Ladner Gervais LLP, Barristers & Solicitors on December 31, 2011.

Jim Roche: President & CEO of Stratford Managers, a company he founded in 2006. Prior to starting Stratford, Jim was President & CEO of Tundra Semiconductor Corporation, a company he co-founded in 1995.

Richard J. Shorkey: Mr. Shorkey has provided part-time and interim chief financial officer services to several technology companies since September 2002.

James Douglas Skippen: June 2006 to present – President, Chief Executive Officer & Chief Legal Officer of WiLAN.

Executive Officers

The following table sets forth the name, province (or state) and country of residence and position with WiLAN of each person who is an executive officer as of the date hereof.

 

29

---

 

Except as disclosed below, each of the Company’s executive officers has been engaged for more than five years in his present principal occupation or in other capacities with WiLAN or organization (or predecessor thereof) in which he currently holds his principal occupation. The information provided below has been provided by the individuals themselves and has not been independently verified by the Company.

James Douglas Skippen: June 2006 to present – President, Chief Executive Officer & Chief Legal Officer.

Michael Shaun McEwan: February 2008 to present – Chief Financial Officer of WiLAN.

Michael Vladescu: March 2012 to present – Chief Operating Officer of WiLAN; October 1996 to March 2012 – a series of executive positions with MOSAID Technologies Incorporated, with the final position being Vice-President, Licensing and Intellectual Property.

Andrew Parolin: November, 2010 to present – Senior Vice-President, Licensing of the Company; November 2007 to November, 2010 – Vice-President, Wireless Technologies of WiLAN.

Marc J. Frechette: July 2013 to Present – Vice-President & Business Unit Leader and Senior Patent Counsel of WiLAN; October 2011 to April 2013 – Senior Vice President, Acacia Research Corporation; June 2007 to October 2011 – Vice President, Acacia Research Corporation; November 2006 to June 2007 – Director, Acacia Research Corporation.

Prashant Watchmaker: October 2007 to present – Vice-President, Corporate Legal & Corporate Secretary of WiLAN.

Doug MacCrae: May 2009 to present – Vice-President, Finance of WiLAN.

Paul Lerner: July 2014 to present – Vice-President & Business Unit Leader and Senior Patent Counsel of WiLAN ; September 2011 to July 2014 – Senior Legal Counsel & President, Gladios IP Inc.; February 2010 to September 2011 – General Counsel of General Patent Corporation; December 1999 to February 2010 – Senior Vice-President, General Counsel and Director of General Patent Corporation.

Ken Stanwood: October 2010 to present – President, Wi-LAN Labs, Inc. (formerly Cygnus Broadband, Inc.); December 2008 to October 2010 – independent consultant.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

Except as set forth below, no director or executive officer of WiLAN and, to the knowledge of the Company, no shareholder holding a sufficient number of securities of WiLAN to materially affect its control is or was, in the 10 years preceding the date of this Annual Information Form, a director or executive officer of any company that was, while that person was acting in that capacity, (a) the subject of a cease trade or similar order or an order that denied any such company access to any exemption under securities legislation for a period of more than 30 consecutive days, (b) subject to an event that resulted, after such person ceased to be a director or executive officer, in such company being the subject of any such order or (c) within a year of such person ceasing to act in that capacity, became bankrupt, made a proposal under any bankruptcy or insolvency related legislation or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

To the Company’s knowledge, Solutrea Corp. (formerly, Powerstar International Inc.) (“Solutrea”) is subject to cease trade orders made by the Alberta Securities Commission and the Ontario Securities Commission due to delays in filing certain financial statements. Mr. James Skippen was a member of the board of Solutrea from June 28 to December 31, 2007.

BreconRidge Manufacturing Solutions Limited, a private limited company incorporated under the laws of the United Kingdom and a wholly-owned subsidiary of BreconRidge Corporation, a private CBCA company (“BreconRidge”), was placed into voluntary liquidation and administration in November 2006 as part of a global restructuring of BreconRidge. Mr. Shaun McEwan was an employee of BreconRidge at this time and, in that capacity, served as one of BreconRidge’s nominee directors on the board of this wholly-owned subsidiary from August 21, 2001 to November 27, 2006.

The Company understands that MedcomSoft Inc. (“MedcomSoft”) filed a Notice of Intention to make a proposal to creditors under the Bankruptcy and Insolvency Act (Canada) on November 2, 2008. Mr. John Gillberry was a member of the board of MedcomSoft from January 2, 2008 to November 1, 2008.

30

---

 

No director or executive officer of the Company and, to the knowledge of the Company, no shareholder holding a sufficient number of securities of WiLAN to materially affect its control, within the 10 years preceding the date of this Annual Information Form, has become bankrupt, made a proposal under any bankruptcy or insolvency related legislation or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

8.    Audit Committee Information

Audit Committee Charter

The text of the Audit Committee’s Charter is attached at Appendix “A” to this Annual Information Form.

Composition

The current members of the Audit Committee are Richard Shorkey (Chairman), John Gillberry and William Jenkins, each of whom is an “independent” director and each of whom is “financially literate” as such terms are defined in Multilateral Instrument 52-110 – Audit Committees of the Canadian Securities Administrators.

Education and Experience

Richard Shorkey: Mr. Shorkey is a Chartered Professional Accountant with more than 30 years of industry experience holding senior financial and general management roles in a number of public and private companies. He is a member of the Chartered Professional Accountants of Ontario and of CPA Canada. Mr. Shorkey has been a member of the Board from March 22, 2007 and a member of the Audit Committee since May 10, 2007.

John Gillberry: Mr. Gillberry holds an MBA from the Ivey School of Business at the University of Western Ontario. Mr. Gillberry was the Chief Financial Officer and Chief Operating Officer of Coreworx Inc., an enterprise software development company, until its acquisition of Coreworx by Acorn Energy Inc. in July 2009. In December 2009 he was appointed Chief Executive Officer of Utilitran Corporation, a technology company engaged in data analytics and procurement software in the retail sector. Mr. Gillberry has been a member of audit committees for private and public companies including serving as a board member and chair of the audit committee for Datawind Inc. (TSX:DW) and has been a financial consultant on corporate finance matters for several venture-backed businesses. Mr. Gillberry has been a member of the Board since May 2005 and has been a member of the WiLAN audit committee since fiscal 2005.

William Jenkins: Mr. Jenkins holds a B.A. in Economics and an LL.B from the University of Western Ontario. He is Global Vice-Chair of Dentons, an international legal practice, and a Partner of Dentons Canada LLP. Mr. Jenkins has advised corporations, investment dealers and banks on public securities offerings, equity and debt financings, mergers and acquisitions as well as other corporate finance transactions which have provided him the opportunity to review, analyze and evaluate financial reporting. Mr. Jenkins is also the Presiding Member of the Dentons Canada LLP Partnership Board and a member of the audit committee of the Dentons Canada LLP Partnership Board. Mr. Jenkins has been a member of the Board since May 2005 and a member of its Audit Committee since May 10, 2007.

Pre-approval of Non-audit Services

The following describes WiLAN’s policy relating to the engagement of the external auditors for the provision of non-audit services.

When requiring the use of accounting, taxation and other consulting services, the Company will not utilize the services of the current external auditor where the delivery of the service may create a potential or perceived conflict of interest. Consulting services which require subsequent external auditing cannot be performed by WiLAN’s auditors. For greater clarity, the following consulting services do not present a conflict of interest: advice relating to the accounting treatment of new accounting pronouncements or services ancillary to the audit; preparation of corporate tax returns; and advice on tax related matters.

Non-audit services to be provided by the external auditors must be pre-approved by the Audit Committee.

31

---

 

External Auditor Service Fees ⁽¹⁾

 

Notes:

9.    Legal Proceedings

In the normal course of WiLAN’s business, the Company is subject to various legal claims, as well as potential legal claims. While the results of litigation and claims cannot be predicted with certainty, WiLAN does not believe that any litigation to which the Company or its subsidiaries are party involves a claim for damages, exclusive of interest and costs, in excess of 10% of WiLAN’s consolidated assets, nor does the Company believe that any liability arising from any such litigation will have a material adverse effect on WiLAN’s consolidated financial position, results of operations or cash flows.

10.    Interests in Material Transactions

No material transactions with the directors, senior officers, promoters or principal holders of WiLAN’s securities or any of their respective affiliates or associates have occurred in the last three completed fiscal years or the current fiscal year. All of the Company’s current executive officers were hired during the period from May 2006 through August 2013, and entered into employment agreements with WiLAN in the normal course of business.

11.    Transfer Agent and Registrar

The registrar and transfer agent for the Common Shares is Computershare Investor Services Inc. at its offices in Toronto, Ontario.

12.    Material Contracts

WiLAN did not enter into any material contracts during its 2014 fiscal year other than in the ordinary course of its business and is not currently party to any material contracts entered into in prior fiscal years that are still in effect other than in the ordinary course of its business.

13.    Interests of Experts

The Company’s auditors are PricewaterhouseCoopers LLP (“PwC”), Chartered Accountants, 99 Bank Street, Suite 800, Ottawa, Ontario, K1P 1E4. PwC were appointed on October 25, 2006 following WiLAN’s move to Ottawa from Calgary. PwC has confirmed their independence in accordance with the Institute of Chartered Professional Accountants of Ontario.

32

---

 

14.    Additional Information

Additional information with respect to WiLAN, including remuneration and indebtedness of directors and officers, principal holders of the Company’s securities and options to purchase securities is contained in the information circular in respect of the annual and special meeting of shareholders to be held on May 13, 2015 that will be delivered to shareholders in advance of that meeting. Additional financial information is provided in WiLAN’s fiscal 2014 audited financial statements and management’s discussion and analysis for its 2014 fiscal year. Additional information relating to the Company may be found on the SEDAR website at www.sedar.com.

 

 

 

33

---

 

Appendix “A” – Wi-LAN Inc. - Audit Committee Mandate

Wi-LAN Inc.

Audit Committee Mandate

Purpose

The Board of Directors (the “Board”) of Wi-LAN Inc. (“Wi-LAN”) has established the Audit Committee (the “Committee”) as a standing committee of the Board for the purposes of managing the relationship between Wi-LAN and its external auditors, overseeing the audit and financial reporting process, ensuring the adequacy and effectiveness of Wi-LAN’s internal controls and procedures for financial reporting and ensuring the adequacy and effectiveness of Wi-LAN’s risk management program. The Committee is hereby constituted with all the powers and duties conferred on it by the laws governing Wi-LAN and such powers and duties as may be conferred on it from time to time by resolution of the Board.

Member Qualifications, Appointment and Removal

The members of the Committee (the “Members”), and from among those Members, the Chairman of the Committee, shall be appointed annually by the Board. The Board shall appoint not less than three directors as Members.

The Committee and each Member must meet the independence and audit committee composition requirements promulgated by all governmental and regulatory bodies exercising control over Wi-LAN as may be in effect from time to time, including those of any stock exchange upon which Wi-LAN’s shares are listed. In general, no director who is an officer or employee of Wi-LAN (or any related entity of Wi-LAN) may be a Member and each Member must be free of any relationship with Wi-LAN that could or could be reasonably expected to, in the opinion of the Board, interfere with the exercise of that director’s independent judgment as a Member.

Subject to exceptions specified in National Instrument 52-110 – Audit Committees of the Canadian Securities Administrators or any replacement or supplementary instrument or rule (the “National Rule”), all Members of the Committee must be “financially literate” (as that term is defined from time to time in the National Rule or, if it is not so defined, as that term is interpreted by the Board), which generally means that they must be able to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issue that can reasonably be expected to be raised by Wi-LAN’s financial statements. At least one Member must have a professional accounting certification (or equivalent) or comparable experience and background that results in that Member’s financial sophistication.

Any Member may be removed or replaced at any time by the Board as needed. A Member shall cease to be a Member upon ceasing to be a Wi-LAN director. The Board will fill vacancies on the Committee by the appointment of other qualified directors.

Duties and Responsibilities

In general, the Committee performs a number of roles including: (i) assisting directors to meet their financial oversight responsibilities; (ii) providing better communication between directors and Wi-LAN’s external auditors; (iii) enhancing the independence of the external auditor; (iv) increasing the credibility and objectivity of financial reports; and (v) strengthening the role of the directors by facilitating in-depth discussions among directors, management and the external auditor. The Committee will have the specific duties and responsibilities set out below, as well as other such duties that are, in the opinion of the Board, in line with the purpose of the Committee as stated above.

Relationship with Auditors

The Committee is responsible for managing, on behalf of Wi-LAN’s shareholders, the relationship between Wi-LAN and its external auditors. In furtherance of this responsibility, as delegated by the Board, the Committee shall:

34

---

 

Audit and Financial Reporting

The Committee is responsible for overseeing the audit and financial reporting process. In furtherance of this responsibility, as delegated by the Board, the Committee shall:

Internal Controls and Procedures

Wi-LAN’s President & Chief Executive Officer and Chief Financial Officer are responsible for overseeing the design, implementation and on-going effectiveness of a system of disclosure controls and procedures and internal control over financial reporting (collectively, the “Internal Controls”). The Committee is responsible for ensuring that Wi-LAN’s President & Chief Executive Officer and Chief Financial Officer address these responsibilities, in furtherance of which, as delegated by the Board, the Committee shall:

35

---

 

Risk Management

The Committee is responsible for overseeing the process by which Wi-LAN assesses and manages risk. In furtherance of this responsibility, as delegated by the Board, the Committee shall:

Other

In furtherance of its duties, the Committee shall:

Meetings, Structure and Reporting

The Committee meets as required, but at least quarterly, typically on the day of the full Board to allow ample time for discussion. A majority of the Committee shall constitute a quorum. At all meetings of the Committee, every question shall be decided by a majority of the votes cast on the question. Attendance by Wi-LAN’s Chief Financial Officer at all Committee meetings is expected and attendance by Wi-LAN’s Vice-President, Finance or similar officer (when in place) and Wi-LAN’s President & Chief Executive Officer is desirable. Wi-LAN’s Corporate Secretary, or his or her designee, shall attend all Committee meetings for the purposes of recording minutes. The audit partner from Wi-LAN’s external auditor will be invited to meet with the Committee at least twice a year and may request a meeting with the Committee at any time. The Committee may exclude the external auditor and any or all of the above Wi-LAN officers from any part of its deliberations as and when it considers appropriate.

36

---

 

The Committee shall report to the Board on all proceedings, deliberations, decisions and recommendations of the Committee at the first subsequent meeting of the Board and at such other times and in such manner as the Board may require or as the Committee may, in its discretion, consider advisable.

Chairman

The Chairman’s primary role is to ensure that the Committee functions properly, meets its obligations and responsibilities, fulfills its purpose and that its organization and mechanisms are in place and are working effectively. More specifically, the Chairman shall:

Authority

The Committee shall have unrestricted direct access to Wi-LAN’s external auditors, Wi-LAN personnel and documents and shall be provided with the resources necessary to carry out its duties. The Committee may, in its sole discretion and at Wi-LAN’s expense, retain and agree to compensate independent counsel or advisors to assist with the performance of its duties. The Committee may adopt policies and procedures for carrying out its responsibilities.

37

Exhibit 99.2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For the Twelve Months ended December 31, 2014 and 2013

February 2, 2015

 

 

 

 

---

 

Introduction

This Management’s Discussion and Analysis (“MD&A”) is dated February 2, 2015. It should be read in conjunction with the audited consolidated financial statements and notes thereto for Wi-LAN Inc. for the year ended December 31, 2014 (the “Financial Statements”). References in this MD&A to “WiLAN,” “Company”, “our company,” “we,” “us” and “our” refer to Wi-LAN Inc. and its consolidated subsidiaries during the periods presented unless the context requires otherwise. The Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP” or “GAAP”) and applicable United States Securities and Exchange Commission (“SEC”) regulations for annual financial information.

Unless otherwise indicated, all financial information in this MD&A is reported in thousands of United States dollars (“U.S. dollars”), with the exception of share and earnings per share data which is reported in number of shares and U.S. dollars respectively. The tables and charts included in this document form an integral part of this MD&A.

We prepared this MD&A with reference to National Instrument 51-102 - Continuous Disclosure Obligations of the Canadian Securities Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with Canadian disclosure requirements which may differ from U.S. disclosure requirements. This MD&A provides information for the year ended December 31, 2014 and up to and including January 30, 2015.  Additional information filed by us with the Canadian Securities Administrators, including quarterly reports, annual reports and our annual information form for the year ended December 31, 2014 (our “AIF”), is available on-line at www.sedar.com and also on our website at www.WiLAN.com.  Our Form 40-F can be found on the SEC’s EDGAR website at www.sec.gov.

Our management is responsible for establishing appropriate information systems, procedures and controls to ensure that all financial information disclosed externally, including this MD&A, and used internally by us, is complete and reliable. These procedures include the review and approval of our financial statements and associated information, including this MD&A, first by our management’s Disclosure Committee, then by our Board of Directors’ Audit Committee (the “Audit Committee”) and, finally, by our Board of Directors as a whole (the “Board”).

Cautionary Note Regarding Forward-Looking Statements

This MD&A contains forward-looking statements and forward-looking information within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other applicable United States and Canadian securities laws, including such statements relating to:

The words “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “would”, “intend”, “believe”, “plan”, “continue”, “anticipate”, “project” or the negative of these words or other variations on these words, comparable terms and similar expressions are intended to identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information are based on estimates and assumptions made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate in the circumstances.

 

---

 

We provide forward-looking statements and forward-looking information to assist external stakeholders in understanding our management’s expectations and plans relating to the future as of the date of this MD&A and such statements and information may not be appropriate for any other purposes. The forward-looking statements and forward-looking information in this MD&A are made as of the date of this MD&A only. We have no intention and undertake no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

Risks and Uncertainties

Many factors could cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements and forward-looking information, including, without limitation, the following factors, which are discussed in greater detail under the heading “Risk Factors” in our AIF and should be reviewed in detail by all readers:

 

---

 

These factors should be considered carefully, and readers should not place undue reliance on our forward-looking statements and forward-looking information.

EXPLORATION OF POTENTIAL STRATEGIC ALTERNATIVES

On October 30, 2013 we announced that the Board had initiated a process to explore and evaluate potential strategic alternatives for WiLAN, which could have included a sale or other transaction.

On May 14, 2014 we announced that the Board had concluded its review of strategic alternatives for the Company. Following a comprehensive process, the Board determined that it is in the best interests of the Company and our shareholders to execute an updated business plan focused on business diversification, licensing partnerships, improved profitability and increasing the return of cash generated from operations to shareholders.

Non-GAAP Disclosure

We use the term “adjusted earnings” to reference earnings from continuing operations before stock-based compensation expense, depreciation & amortization expense, interest expense, unrealized foreign exchange gains or losses, restructuring charges, incentive buy-out, success fee, transaction costs, investment income, debenture financing costs, provision for income taxes, and certain other charges all as disclosed in the reconciliation of net earnings/loss to adjusted earnings included in this MD&A. We report adjusted earnings in the belief that it may be useful for certain investors and readers of the financial statements as a measure of our performance. ADJUSTED EARNINGS IS NOT A MEASURE OF FINANCIAL PERFORMANCE UNDER U.S. GAAP. IT DOES

 

---

 

NOT HAVE ANY STANDARDIZED MEANING PRESCRIBED BY U.S. GAAP AND IS THEREFORE UNLIKELY TO BE COMPARABLE TO SIMILARLY TITLED MEASURES USED BY OTHER COMPANIES. Adjusted earnings should not be interpreted as an alternative to net earnings and cash flows from operations as determined in accordance with U.S. GAAP or as a measure of liquidity.

DESCRIPTION OF THE BUSINESS

Generally, in exchange for disclosing specific, novel and non-obvious inventions that meet applicable legal requirements in a particular country, a granted patent will provide its holder with time-limited, legally enforceable exclusive rights in that country to practice the inventions disclosed in the patent and to exclude others from practicing those inventions. If the inventions disclosed in the claims of a granted patent meet applicable legal validity and enforceability requirements and are important enough that a third-party wishes to practice those inventions or cannot conduct its business without practicing those inventions, the patent may be of great value to that third-party. Unfortunately, many third-parties are content to practice such inventions, thereby infringing the patent in which they are disclosed, without compensating its holder, believing the holder will not discover the infringement, will be unable to convince the third-party to pay any compensation, or will be unable to prove infringement sufficiently to convince a court to force the third-party to pay appropriate compensation.

If the infringer of patented inventions is willing to properly compensate the patent holder for its unauthorized use of these inventions, however, then the holder will typically grant the infringer permission (i.e. a license) to practice those inventions for a period of time (which may be for the life of the patent), free from the threat of legal action. Compensation for such a license may be a single amount (whether paid in a lump sum or over time) or may be based on sales of products or services that rely on the patented inventions as they are sold over the life of the license.

We seek to apply our licensing, technology, and legal expertise to crystallize the value in patented inventions by obtaining licenses to use inventions we own outright and licenses for the inventions for which third-party inventors and assignees have entrusted the licensing program to us.

During our entire corporate history, we have developed and patented inventions that have proven of great value to third-parties. In addition, we also have a history of acquiring patents that we believe hold great value from other inventors. We also work with patent inventors and owners to unlock the value trapped in patents by developing and licensing their patents while sharing with those inventors and assignees both any revenues generated by these patents and much of the financial risk associated with these licensing programs.

In mid-2006, WiLAN re-focused its business on technology innovation and licensing. At that time, we owned approximately twenty patents including certain patents we believed could be used in a licensing program. In launching this new form of business, a key strategy was to strengthen WiLAN’s patent portfolio to sustain long-term revenue opportunities and associated growth.

Over the past eight years, we have grown from 1 employee in mid-2006 to 66 employees at December 31, 2014, increased our patent portfolio from approximately 20 patents in two portfolios to more than 4,000 patents and patent applications worldwide in more than 40 technology portfolios, signed close to 300 licensees, and grown annual revenues from approximately $1.9 million in 2006 to over $98 million in 2014, representing a compound annual growth rate of over 63%.

We plan to build upon our significant base of signed license agreements and increase our licensing opportunities by growing our patent offerings with a combination of technology innovation through internal research and development, patent acquisitions, licensing partnerships with third-party inventors or prior assignees and corporate mergers and acquisitions.

Historically, we licensed patents categorized as Wireless Access and Digital TV and Display technologies.

Technology areas generally included in the Wireless Access program include 3G/4G, Wi-Fi and Bluetooth, as well as other technologies generally applicable to handheld devices or to infrastructures necessary to operate wireless networks. We have generated licensing revenue from companies that sell products described as cellular handsets (such as smart phones) and infrastructure, tablets, laptop computers and Wi-Fi routers. The Wireless Access portfolio contains more than 1,100 patents and patent applications.

The Digital TV and Display portfolio originated with the acquisition of our V-Chip technology patents in July 2007 and has been augmented with acquisitions from several other sources. This portfolio now includes approximately 1,400 patents and patent

 

---

 

applications around such technology areas as multimedia processing, display and touch screens and graphical user interfaces, all of which are potentially used in smart phones, digital televisions, “smart” televisions, tablet computers and laptop computers. Approximately 35 - 45% of the available North American digital television market has been licensed to our V-Chip patents and signed agreements are expected to generate revenues for an additional two to three years. This market is not, however, expected to grow any further and, consequently, revenues derived from these signed agreements are also not expected to grow any further. The Digital TV and Display program does, however, have significant depth beyond V-Chip and we are actively licensing these additional technologies.

In addition to our historic patent licensing programs, we are focusing on entering into relationships with third-party inventors and patent owners to license their patents in exchange for sharing in both the reward and the risk in such licensing programs. In these relationships, instead of paying significant amounts up front for the acquisition of patents, we acquire patents from their inventors or owners through a dedicated subsidiary in exchange for a percentage of the recoveries derived from licensing those patents paid to the inventors or owners. We strive to conduct any litigation relating to these patents by way of contingency or “hybrid contingency” arrangements with appropriate legal counsel through which a significant portion of the costs of such counsel are contingent upon and tied to recovery made in any litigation involving the patents. Given the sharing of recoveries among the original inventor or owner of the patents, external legal counsel, and ourselves, we believe that all parties’ interests are aligned towards obtaining an appropriate recovery from licensing these patents.

Current patent portfolios that we have acquired through such relationships with third-party inventors and patent owners include patents relating to 3D television technologies, automotive headlight assemblies, phased loop technology, microcontrollers applicable to safety-critical aerospace, medical, industrial and automotive applications, computer gaming, medical stent technologies, irrigation technologies, CMOS image sensors, streaming video technologies, Internet search, building automation, non-volatile Flash memory, semiconductor clocking technologies, smart meter monitoring, LED lighting technologies and many other technologies.

In all of the our licensing programs, if court action is required to protect and enforce our rights, we strive to use legal counsel based on either a “full” or “hybrid” contingency basis through which we share the financial risks of such litigation with its legal counsel. Historically, and in particular for the Wireless Access and Digital TV and Display programs, we sought to retain 100% of the benefits of any patent litigation and therefore we bore 100% of the costs relating to that litigation.

Where we retain litigation counsel on a “full” contingency basis, we pay no legal fees relating to such litigation, instead compensating counsel based on a portion of any actual recovery from the infringer(s) in that litigation, although we may bear the expense of third-parties and disbursements incurred related to that litigation.

Where we retain litigation legal counsel on a “hybrid” contingency basis, we would modify a full contingency model as outlined above to include an agreement to pay a set regular amount to counsel throughout the conduct of a litigation, often subject to a maximum amount, with such payments being considered an advance against the agreed contingency amount.

Finally, our internal research and development efforts seek to generate new inventions in next generation communications technologies and to identify new technology opportunities. This technology innovation complements our ongoing activities to acquire appropriate technology or to partner with technology inventors and owners permitting us to grow our revenues over time. We are actively engaged in ongoing technology research activities generally in the area of wireless broadband, but we continue to engage in research and development in other technology areas as opportunities present themselves.

THE BUSINESS MODEL

We have developed licensing programs that have yielded strong results since mid-2006, having generated cumulative revenues to the end of 2014 of more than half a billion dollars. When approaching a potential licensee, we present compelling reasons to enter into a license agreement with detailed infringement analysis along with a fair and reasonable license rate. In many circumstances, we also present a potential licensee with an array of patents or patent families that may be applicable to the licensee’s business or products thus increasing the value in signing a license. We continue to consistently sign licenses every year and have entered into 11 renewal and 18 entirely new licenses in the last twelve months.

 

---

 

Generally our license agreements take into consideration rights to license the patents covered and releases for past infringement. Related payments may be lump-sum, fixed-price with set payments made over a specified period of time or running royalty based depending on a price per-unit and/or a percentage of product sales or service revenues enjoyed by licensees. Running royalty based licensees generally provide us with quarterly or semi-annual royalty reports which are typically received subsequent to the period in which the underlying sales occurred.

Consideration for license agreements is generally paid in cash, although we have accepted a combination of cash and in-kind patents in the past and may do so again in the future if the patents fit our value proposition and strategic objectives. We recognize revenue from these arrangements as amounts become due and collection is assured.

Royalty rates and the consideration for a license may vary significantly with different licensees because there are many factors that may make different rates and other terms appropriate. These include, without limitation: the clarity of the reads of patent claims on the prospective licensee’s products; the significance of the patented invention to the performance of such products; the strength of the patents generally; the profitability of the products in question; the propensity of the prospective licensee to resist taking a license or to litigate; the number of applicable patents; the volume of products that infringe; the geographies in which infringing products are manufactured and sold; the prospective licensee’s future sales plans; and the prospective licensee’s financial position.

Although we prefer to negotiate license agreements without litigation, we are prepared to take all necessary steps, including investing in litigation, to ensure we receive fair compensation for the use of our patented inventions. If litigation is initiated against a prospective licensee, we seek resolution of the litigation through the signing of a license agreement as early as possible. Licensing discussions may be ongoing with a number of prospective licensees at any time and although we cannot anticipate how any litigation may affect ongoing discussions, our experience is that discussions will often continue through the litigation process and that some parties may be inclined to take licenses before the commencement of trial proceedings or even after the conclusion of trial proceedings.

Notwithstanding our early success in many areas, the business and legal environment for patent licensing companies has become increasingly difficult during the past several years.  In this more difficult licensing environment, we will continue to adapt and evolve to achieve success. Recent examples of this evolution include the hiring of highly qualified specialists and subject matter experts in applicable technologies, acquisitions of patents that have strengthened our patent portfolio and entry into significant relationships to gain access to additional patents. As well we signed a number of significant license agreements with large industry leaders in 2011 and 2013. We believe these recent accomplishments have established a strong foundation for our future operations and growth. It may be, however, that the United States Patent and Trademark Office, U.S. courts and U.S. juries are becoming less willing to side with patent assertion companies in proceedings brought by or against technology manufacturers, which may lead to those manufacturers and other potential licensees delaying or resisting taking licenses to our patents or taking licenses on terms less favourable to us.

We have addressed changes in the licensing and the litigation landscape proactively.  In our initial phase of development, we adopted a strategy characterized by outright acquisitions of patent portfolios and a full fee litigation model.  Under this model, we would retain all of the benefit of a license agreement and would pay the litigation expenses as and when incurred.  This model would generally be characterized by litigation expense accounting for approximately 35% of the total license revenue available which is consistent with our experience to date.

While we retain a higher portion of the overall revenues under such a model, the risks are more significant and therefore the rate of return is commensurate.  We have adopted a new fee model for the majority of our litigations which include an increased component of the compensation for the external litigation counsel being comprised of a percentage of actual license revenues received in consequence of the particular litigation.

In the hybrid model, generally applicable to license programs where we do not have a recovery sharing component, we will agree to a fixed fee amount, generally a fraction of the overall expected litigation budget, which is a component of an overall contingent amount that reflects the success of the licensing program.  We have contingent amounts under such programs ranging from 25% to 35% as of the date of this MD&A.  

As outlined above, we have adopted a model wherein the third-party inventor or prior assignee of patents we acquire will be compensated as a percentage of the net recoveries from those patents. Generally, these arrangements are characterized by contingent litigation relationships which may be of the hybrid nature referred to above or where the litigation counsel is exclusively paid through a share of the overall proceeds.  The third-party inventor or prior assignee of patents we acquire will share with WiLAN in any recoveries from such patents, generally on a 50/50 basis.  We have the flexibility to structure arrangements in a number of ways to address the needs and specific sets of circumstances presented by each of the unique third-party inventors or prior assignees of patents

 

---

 

we acquire, and the above discussion is intended to provide a general overview of the various approaches employed to both acquire and license portfolios in the face of a constantly changing marketplace.

The following charts have been included to assist in understanding the various strategies we employ and generally reflect the strategies and outcomes in four broad categories.  

 

 

 

 

 

---

 

 

 

 

 

---

 

Results and outlook

Overall performance

The following table sets forth consolidated statements of operations data, which is expressed in thousands of U.S. dollars, except share and per share amounts, for the indicated years as well as certain balance sheet data as at December 31, 2014, 2013, and 2012.

 

 

 

Revenues for the twelve months ended December 31, 2014 were $98,311 representing an increase of $10,102 over the twelve months ended December 31, 2013. The increase in revenue is attributable to license agreements signed during the twelve months ended December 31, 2014.

 

---

 

Our license agreements can generally be classified as either: (1) running royalty agreements in which licensees provide reports on their sales activities for the previous fiscal quarter, and calculate and remit the appropriate royalty; or (2) fixed fee arrangements with periodic payments that may be over a period shorter than or equal to the license term.  In all cases, licenses provide for a release of past infringement and a license to some or all of our patents for a specified period of time.  In certain cases, licenses may also extend to certain patents acquired by us during the term of the license.  In all cases, the continued right to the license is subject to the licensee making the required payments defined in the agreement, all of which are non-refundable once received by us.  We recognize revenue, generally, when the license fee is earned, fixed and determinable, collectability is reasonably assured, and all other conditions of revenue recognition are met.

Our business is unique because, left to their own devices, entities who infringe our patents are content to not pay fair compensation to us for the right to use the inventions claimed in those patents. Our licensing process involves the preparation of claim charts which are detailed descriptions of the claims in our patents and how those claims relate to a particular technology standard or a particular product offering.  These claim charts are presented to entities which we believe to be infringing these patents as the first step in commencing licensing discussions.  The licensing process then generally includes countering arguments relating to technology and legal matters relating to these and other patents, arriving at mutually satisfactory business, financial and legal terms for license agreements and signing such license agreements.  We note that with more than 4,000 patents, we generally only prepare claim charts on a small subset of the entire portfolio.  Accordingly, we will commence license discussions focusing on only a small number of patents that we believe are being infringed.

If licensing discussions are not productive, we may resort to litigation as a means to motivate a potential licensee to negotiate a license.  Although our preference is to reach a negotiated license agreement without commencing patent litigation, we have found that many entities will not engage in substantive discussions without litigation.  If litigation is required, it will most certainly be on only a subset of the patents that we believe are infringed, for example on only two or three patents out of our entire portfolio.  We may also engage in additional infringement litigation against a potential licensee to create additional pressure to enter into a negotiated license agreement.

As a result of the above, we are not necessarily in control of when a license is executed and, accordingly, we may experience fluctuations in revenues year over year.

Operating expenses for the twelve months ended December 31, 2014 were $78,220 or 80% of revenues, representing a decrease of $28,889 or 27% as compared to the twelve months ended December 31, 2013. The decrease in operating expenses is primarily attributable to lower litigation expenses partially offset by an increase in amortization expense.    

Litigation expense accounted for approximately $9,908 and $44,942 or 13% and 42% of total operating expenses in each of fiscal 2014 and 2013 respectively.  As noted, we would prefer to negotiate licenses without the use of litigation but that is not always possible. Given the number of litigations we are currently involved in, litigation expenses for 2015 are expected to increase over the 2014 levels, perhaps materially.  Litigation activities, and therefore expenses, are difficult to predict as there are many factors that can influence any action that is commenced.

We recorded net earnings for the twelve months ended December 31, 2014 of $9,711 or $0.08 per basic and diluted share as compared to a net loss for the twelve months ended December 31, 2013 of $18,093 or $0.15 per basic and diluted share.

We consider adjusted earnings, a non-GAAP measure, to be a good indicator of performance for the business as it more accurately captures financial performance in a given period related to the operations of the business.

 

---

 

The table below reconciles the net earnings/loss to the adjusted earnings.

The adjusted earnings for the twelve months ended December 31, 2014 were $58,737 as compared to $17,555 for the twelve months ended December 31, 2013.  The increase in adjusted earnings as compared to last year is primarily attributable to an increase in revenue and a decrease in litigation expenses.

Results of Operations for the twelve months ended December 31, 2014 as compared to the twelve months ended December 31, 2013

Revenues

Revenues for the twelve months ended December 31, 2014 were $98,311, representing an increase of $10,102.

 

 

Our revenues are derived from five principal sources: (i) running royalty agreements pursuant to which licensees pay us royalties based on either a percentage of the net selling price of licensed products or a fixed fee per licensed product sold; (ii) fixed fee royalties consisting of a set quarterly or annual amount for all licensed products sold by licensees; (iii) one-time lump sum fees to cover the sale of all licensed products by a particular licensee, subject to certain limitations; (iv) licensing patents on behalf of our partners; or (v) brokerage which provides the acquirer exclusive rights to the technology.  License agreements are generally for a five to eight year period but can be significantly longer. We consider revenue to be earned when we have persuasive evidence of an arrangement, all obligations that we need to perform have been fulfilled in accordance with the terms of the license agreement, including delivery and acceptance, the revenue amount is reasonably determinable and collection is reasonably assured.  

Revenues can vary significantly from quarter to quarter depending upon the type of royalty arrangement with licensees, the timing of royalty reporting by licensees, the cyclical nature of licensees’ markets and fluctuations in foreign currency and other factors. Revenues can fluctuate based on individual licensees’ growth and success rates in their respective markets, and other market factors

 

---

 

on their respective businesses and other factors outside of our control. See “Risk Factors” contained in our AIF for more detailed information.

Two licensees individually accounted for 15% and 13%, respectively, of revenues from royalties for the twelve months ended December 31, 2014 as compared to two licensees individually accounted for 20% and 14%, respectively, of revenues from royalties for the twelve months ended December 31, 2013.  For the twelve months ended December 31, 2014, the top ten licensees accounted for 74% of revenues from royalties, whereas in the comparable period last year the top ten licensees accounted for 79% of revenues from royalties, respectively.

For the twelve months ended December 31, 2014 and 2013, there were no revenues from brokerage. We may sell patents from our portfolio when we believe the revenue from an outright sale of patents is greater than what can be derived from licensing the patents.

Cost of Revenue

Cost of revenue is comprised of patent licensing expenses which includes royalty obligations, cost of patents sold through brokerage activities (if any), employee related costs and other costs incurred in conducting license negotiations, contingent partner payments and legal fees, litigation expense and amortization of patents expense related to acquired patents. We also consider the expenses related to the management of our patent portfolio as cost of revenue. The management of our patent portfolio involves filing patent applications, prosecuting applications to obtain issued patents, documenting infringement, assessing validity of issued patents, conducting due diligence on patents and applications to be acquired, and other general administrative tasks. Many of these costs are directly related to the size and breadth of our patent portfolio and, therefore, as we add or reduce patents, these costs would be expected to increase or decrease accordingly. We are continuously looking at ways to reduce costs including reducing our patent count if revenues will not be impacted.

Litigation and amortization expenses are not necessarily variable with revenues.  We also include, as a cost of revenue, any costs related to sourcing new patent portfolios or developing new strategic partnerships.

The table below provides the details of cost of revenue:

 

 

 

---

 

Cost of revenue for the twelve months ended December 31, 2014 was $63,201 or 64% of revenues as compared to $88,648 or 100% of revenues.

The decrease in expenses is primarily attributable to a decrease in litigation expense partially offset by an increase in amortization expense, patent maintenance, prosecution and evaluation expenses, compensation and benefits and contingent partner payments and contingent legal fees. In general, patent licensing expenses are proportional to the breadth and depth of our licensing and brokerage programs and should be expected to increase as we add programs to our business operations. As a result of the expansion of the number of our licensing programs and an increase in partnering agreements with contingent partner payment arrangements with the previous patent owners and contingent legal fee arrangements with law firms, licensing expenses are expected to increase in fiscal 2015.

Patent management expenses were reclassified as cost of revenue for the twelve months ended December 31, 2014 and the comparative periods adjusted accordingly.

A key element of our strategy involves acquiring additional patents or obtaining exclusive licensing arrangements through relationships with patent holders that may be accounted for as acquisitions.  Any further acquisitions will increase amortization expense from our current levels.  We have acquired approximately $304,000 in patents since November 1, 2006.

Litigations are a normal part of our business which may extend over multiple years and are principally a discretionary cost, not directly related to or necessarily proportional to the revenues we generate.  Our litigation expenses consist of all expenses related to the conduct of our litigation activities and include the costs of external legal counsel and third-party costs including those of expert witnesses and other service providers required during the course of litigations.

Pursuant to our engagement of McKool Smith (“McKools”) in respect of certain litigations that concluded in 2011, in consideration for a discount on fees in connection with such litigations, we have agreed to pay McKools a success fee based on achieving certain minimum financial measures attributable to such litigations. Upon achieving these financial measures, McKools will be entitled to receive a percentage of the proceeds actually received pursuant to the licensing agreements relating to these litigations up to a maximum of $27,986. We have collected and expect to collect proceeds from these license agreements over the next four years.  Should we collect these amounts as contemplated in the agreements, McKools will be entitled to the entire success fee. We accrued the full amount of the success fee obligation in fiscal 2011. As at December 31, 2014, the current and long term portion of the success fee obligation is $3,736 and $3,639, respectively. During the twelve months ended December 31, 2014, we paid McKools $4,032 (twelve months ended December 31, 2013 - $3,896) based on proceeds collected as of September 30, 2014.

For the twelve months ended December 31, 2014, litigation expenses amounted to $9,908 as compared to $44,942 for the same period last year. The decrease in litigation expenses is attributable to a decrease in the level of litigation activities in comparison to the same period last year and new shared risk fee arrangements entered into with our external counsel. Litigation expenses are expected to vary from period to period due to the variability of litigation activities and any contingent payments that may be required from licenses signed in any particular quarter. We expect an increase in litigation expenses in fiscal 2015 as a result of an increase in litigation activities.

In the course of our normal operations, we are subject to claims, lawsuits and contingencies. Accruals are made in instances where it is probable that liabilities may be incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, we have no reason to believe that the ultimate outcome of these matters would have a significant impact on our consolidated financial position.

On December 16, 2013, we engaged the services of McKools to represent us in certain patent infringement litigation. Pursuant to this engagement, in consideration for a discounted fixed fee arrangement, we have agreed to pay McKools a success fee which is based on a percentage of proceeds received (as defined in the respective agreements) pursuant to future license agreements resulting from these patent infringement litigations. As at December 31, 2014, the success fees are not yet determinable because the total proceeds have not yet been determined and therefore no amounts have been accrued.

Our partnering programs relate to specific patent portfolios owned or controlled by our operating subsidiaries, have contingent partner payment arrangements with the previous patent owners and most often contingent legal fee arrangements with law firms. As these licensing programs generate revenues we will expect to incur contingent partner payments and contingent legal fees. The contingent partner payments and contingent legal fees are expected to fluctuate from period to period based on the amount of revenues

 

---

 

recognized each period, the terms and conditions of the particular contingent legal fee arrangements, the type of contingent partner payment arrangements with the previous patent owners and the mix of specific patent portfolios generating revenues each period.

Research and development expense

We designed, developed and sold or licensed a variety of advanced digital wireless technologies, systems and products since our inception in the early 1990s until 2006. Over the course of our history, we have been able to explore emerging technologies, identify needs created by the development of advanced wireless systems and build technologies for those new requirements.  Today, we are focusing our research and development (“R&D”) efforts on advanced wireless technologies.  These efforts have fostered inventions that form the basis of a number of new patent applications.  The costs associated with these efforts, principally staff costs (including stock-based compensation) and certain external consultants, are classified as R&D.  Research expense is predominately employee related costs and therefore any changes in spending will be a result of changes to future staffing levels.

The table below provides the details of R&D expense:

 

For the twelve months ended December 31, 2014, R&D expenses were $2,416 or 2% of revenue as compared to $2,858 or 3% of revenue for the twelve months ended December 31, 2013. The decrease in spending for the twelve months ended December 31, 2014 is primarily attributable to a decrease in stock-based compensation expense and depreciation partially offset by an increase in staffing costs as a result of an increase in R&D staffing from six to seven and accrued variable compensation costs.

Marketing, general and administration expense

Marketing, general and administration (“MG&A”) expenses represent the cost of corporate services including facilities, executive management, finance, corporate legal, human resources, office administration, marketing and communications, information technology and all costs associated with being a public company.

The table below provides the details of MG&A expense:

 

 

---

 

For the twelve months ended December 31, 2014, MG&A expenses amounted to $10,565 or 11% of revenues as compared to $13,065 or 15% of revenue.  The decrease in spending for the twelve months ended December 31, 2014 is primarily attributable to a decrease in staffing costs as a result of changes in staffing levels, stock-based compensation, consulting costs, travel costs and recruiting costs partially offset by an increase in accrued costs related to deferred stock units granted to the non-executive members of our Board during the three months ended March 31, 2014..

MG&A costs will vary from period to period depending on activities and initiatives undertaken, and changes in staffing levels in any given period.

Foreign exchange loss

The table below provides the details of the foreign exchange loss:

 

Our realized foreign exchange loss is attributable to unhedged transactions denominated in currencies other than our functional currency, U.S. dollars. The realized foreign exchange loss is a result of the change in exchange rates in effect when foreign denominated transactions are initially recorded and the corresponding settlement.

The unrealized foreign exchange loss recognized in the twelve months ended December 31, 2014 resulted from the translation of monetary accounts, primarily cash and cash equivalents, short-term investments, dividends, and accounts payable, denominated in Canadian dollars to U.S. dollars and foreign exchange contracts we held at December 31, 2014.  The change from the same period last year is attributable to the decrease in the level of monetary accounts denominated in Canadian dollars.

In addition to the impact of the translation of our foreign currency denominated monetary balances in the twelve months ended December 31, 2014, the unrealized foreign exchange loss relates to the foreign exchange contracts we held as at December 31, 2014. From time to time we utilize forward contracts to enhance our ability to manage foreign currency exchange rate risk and exposure to currency rate fluctuations related primarily to future cash outflows of Canadian dollars. The foreign exchange forward contracts require us to sell U.S. dollars for Canadian dollars at prescribed rates.

As at December 31, 2014, we held foreign exchange forward contracts totaling approximately $17,700 which mature at various dates through to October 2015. During the twelve months ended December 31, 2014, we recorded an unrealized foreign exchange loss of approximately $732 related to the foreign exchange forward contracts held as at December 31, 2014.

We cannot accurately predict foreign exchange movements and as such, cannot accurately predict future gains and losses related to unhedged transactions denominated in currencies other than U.S. dollars.

Investment income

Our recorded investment income for the twelve months ended December 31, 2014 was $533 as compared to $728 for the twelve months ended December 31, 2013.  Investment income includes interest earned on deposits and short-term investments as well as, gains on equity holdings. For the twelve months ended December 31, 2014 and 2013, investment income included gains on equity holdings of nil. The decrease in investment income for the twelve months ended December 31, 2014 is attributable to a decreased cash position.

 

---

 

Provision for (recovery of) income taxes

The table below provides the details of income tax expense/recovery:

 

 

Income tax expense for the twelve months ended December 31, 2014 was $10,913 as compared to an income tax recovery of $79 for the same period last year.

The increase in the deferred income tax expense is primarily attributable to the utilization of certain previously recognized Canadian loss carryforwards and an increase in the valuation allowance for our Canadian and U.S. subsidiaries. There is a valuation allowance of $14,323 as at December 31, 2014 (December 31, 2013 - $10,983) against deferred tax assets for our Canadian and U.S. subsidiaries.  We establish a valuation allowance for any portion of our deferred tax assets for which management believes it is more likely than not that we will be unable to utilize the assets to offset future taxes. We will continue to evaluate our deferred income tax position quarterly and record any adjustment necessary in that period.

We expect to continue to utilize certain previously recognized Canadian loss carryforwards. Until such time as our licensing programs in certain of our Canadian and U.S, subsidiaries generate sufficient taxable income we expect to continue to maintain a full valuation allowance against deferred tax assets for these Canadian and U.S. subsidiaries. As a result, we expect our provision for deferred income tax expense to be disproportionately higher when compared to our estimated average annual rate.

We claim R&D expenditures and related investment tax credits based on our interpretation of the applicable legislation in the Income Tax Act (Canada). These claims are subject to review by the Canada Revenue Agency. For the twelve months ended December 31, 2014, we recorded non-refundable investment tax credits earned of nil.

The current income tax expense for the twelve months ended December 31, 2014 and 2013, consisted primarily of foreign taxes withheld on royalty revenues received from licensees in foreign tax jurisdictions for which there is no treaty relief. Withholding tax expense for the twelve months ended December 31, 2014 was 4.7% of revenue as compared to 6.8% of revenue for the same period last year. The decrease in withholding tax expense as a percentage of revenue is attributable to an increase in revenue from jurisdictions for which there is tax treaty relief.

 

---

 

selected consolidated quarterly Results

(Unaudited)

 

 

 

---

 

Historically, our operating results have fluctuated on a quarterly basis and we expect that quarterly results will continue to fluctuate in the future. The operating results for interim periods should not be relied upon as an indication of the results to be expected or achieved in any future period or any fiscal year as a whole. The factors affecting our revenue and results, many of which are outside of our control, include the factors set out under the heading “Risks and Uncertainties” above which are discussed in greater detail under the heading “Risk Factors” in our AIF which we urge readers to review carefully and, also include the following:

Because our quarterly revenue is dependent upon a relatively small number of transactions, even minor variations in the rate and timing of payment of royalties could cause us to plan or budget inaccurately, and those variations could adversely affect our operating results. Delays or reductions in the amounts of royalty payments would adversely affect our business, results of operations and financial condition.

Capital and Liquidity

Cash and cash equivalents, and short-term investments amounted to $127,647 at December 31, 2014, representing a decrease of $4,204 from the $131,851 held at December 31, 2013. The decrease is primarily attributable to the payments for patents acquired in the current and previous years totaling $43,062 and the payment of dividends totaling $18,725, partially offset by cash generated from operations of $58,629.

At December 31, 2014 we had working capital of $94,006, long-term success fee obligation of $3,639 and patent finance obligations of $27,465 which relates to deferred payment terms on patents and patent rights we acquired in fiscal 2013 and 2014.

During the twelve months ended December 31, 2014, patent acquisitions have totaled approximately $29,198 of which $26,500 were acquired under deferred payment terms. As at December 30, 2014, the current and long-term portions of the patent finance obligation are $17,418 and $27,465, respectively. We expect the repayment of the long-term portion of the patent finance obligation to be completed within the next one to four years.

The $43,062 of payments for patents acquired in the current and previous years is comprised of $2,716 for patents acquired during fiscal 2014, $5,000 for patents acquired in fiscal 2013, and $35,346 for patents acquired under deferred payment terms in fiscal 2011, 2013 and 2014.

We have a revolving credit facility available in the amount of CDN$8,000 or the equivalent in U.S. dollars for general corporate purposes and a further CDN$2,000 for foreign exchange facility. Canadian dollar or U.S. dollar amounts advanced under this credit facility are payable on demand and bear interest at the bank's Canadian prime rate plus 1.0% per annum or U.S. base rate plus 1.0% per annum. Borrowings under this facility are collateralized by a general security agreement over our cash and cash equivalents, receivables and present and future personal property. As at and during the twelve months ended December 31, 2014, we had no borrowings under this facility.  

 

---

 

On March 7, 2013, we received regulatory approval to make a normal course issuer bid (the “2013NCIB”) through the facilities of the TSX. Under the 2013 NCIB, we could purchase up to 11,846,843 common shares. The 2013 NCIB commenced on March 11, 2013 and wascompleted on March 10, 2014. We repurchased 1,903,200 common shares under the 2013 NCIB during the twelve months ended December 31, 2013 for a total of $7,134. During the twelve months ended December 31, 2014, nil common shares were repurchased under the 2013 NCIB.

Effective May 27, 2014, we received regulatory approval to make a normal course issuer bid (the “2014 NCIB”) pursuant to which we are permitted to purchase up to 11,676,510 common shares for cancellation. The 2014 NCIB commenced on May 29, 2014 and will be completed on May 28, 2015. During the twelve months ended December 31, 2014, we repurchased 150,000 common shares under the 2014 NCIB for a total of $472.

We plan to use our cash resources to fund our operations and any litigation that might be required, and to purchase additional high quality patent portfolios and patent licensing businesses that are identified and fit our value proposition and strategic objectives.

Our ability to generate cash from operations going forward is based on collecting royalties under our signed licenses and additional licensing of our patent portfolio to companies around the world. It is difficult to predict the timing and nature of future licenses.

We plan to finance our cash requirements for operating expenses, litigation costs and technology acquisitions by a combination of cash generated from licensing our patent portfolio and, if desirable based on market conditions, by selling common shares and debt securities to the public.

A summary of our contractual obligations due by period for the next 5 years is noted below:

 

Outstanding Common Share Data

We are authorized to issue an unlimited number of common shares, 6,350.9 special preferred, redeemable, retractable, non-voting shares and an unlimited number of preferred shares, issuable in series.  As at December 31, 2014, there were 120,247,647 common shares and no special or preferred shares issued and outstanding. We also maintain a Share Option Plan, an Employee Share Purchase Plan and a Deferred Stock Unit Plan.  Under the Share Option Plan, we can issue a maximum of 10% of our issued and outstanding common shares from time to time which was, as at December 31, 2014, 12,024,765 common shares combined.  The common shares authorized for issuance under the Employee Share Purchase Plan and the Deferred Stock Option Plan are limited to 500,000 and 430,000, respectively. As at December 31, 2014, we had 9,465,372 options outstanding, 244,526 deferred stock units outstanding and have issued 441,400 shares under the Employee Share Purchase Plan.  

Off-Balance sheet arrangements

There are no off-balance sheet arrangements.

Transactions with related parties

Dr. Michel Fattouche, a member of our Board of Directors, has provided consulting services to us. For the twelve months ended December 31, 2014, consulting services have totaled $76 (twelve months ending December 31, 2013 – $98) all of which had been paid as at year end.

 

---

 

Fourth quarter review

Results of Operations for the three months ended December 31, 2014 as compared to the three months ended December 31, 2013

Revenues

Revenues for the three months ended December 31, 2014 were $22,102, representing a decrease of $7,073 or 24% over the same period last year. The decrease in revenues is primarily attributable to license agreements signed during fiscal 2013 certain of which had front end loaded fixed payment amounts.

 

Three licensees individually accounted for 14%, 12%, and 10%, respectively, of revenues from royalties for the three months ended December 31, 2014 as compared to three licensees individually accounted for 24%, 15%, and 11%, respectively, for the three months ended December 31, 2013.  For the three months ended December 31, 2014 and 2013, the top ten licensees accounted for 81% and 88% respectively, of revenues from royalties.

Cost of Revenue

The table below provides the details of cost of revenue:

 

Cost of revenue for the three months ended December 31, 2014 was $16,460 or 74% of revenues as compared to $17,532 or 60% of revenues.  The decrease in expenses is primarily attributable to a decrease in litigation expenses partially offset by an increase in amortization and compensation and benefits costs.

For the three months ended December 31, 2014, litigation expenses amounted to $3,471 as compared to $4,565 for the same period last year. The decrease in litigation for the three months ended December 31, 2014 is attributable to a decrease in the level of litigation

 

---

 

activities in comparison to the same period last year and new shared risk fee arrangements entered into with our external counsel. Litigation expenses are expected to vary from period to period due to the variability of litigation activities.

During the three months ended December 31, 2014, we paid McKools $869 of the success fee payable based on proceeds collected during the three months ended September 30, 2014.

Research and development expense

The table below provides the details of R&D expense:

 

For the three months ended December 31, 2014, R&D expenses were $572 or 3% of revenue as compared to $662 or 2% of revenue for the three months ended December 31, 2013. The decrease in spending for the three months ended December 31, 2014 is primarily attributable to a decrease in stock-based compensation and depreciation partially offset by an increase in staffing costs.

Marketing, general and administration expense

The table below provides the details of MG&A expense:

 

For the three months ended December 31, 2014, MG&A expenses amounted to $2,131 or 10% of revenues as compared to $3,546 or 12% of revenue.  The decrease in spending for the three months ended December 31, 2014 is primarily attributable to a decrease in staffing costs, stock based compensation, and consulting costs in support of the strategic alternative review announced in October 2013 which was concluded in May 2014.

 

---

 

Foreign exchange loss

The table below provides the details of the foreign exchange loss:

 

The unrealized foreign exchange loss recognized in the three months ended December 31, 2014 resulted from the translation of monetary accounts, primarily cash and cash equivalents, short-term investments, dividends, and accounts payable, denominated in Canadian dollars to U.S. dollars and foreign exchange contracts we held at December 31, 2014.   The change from the same period last year is attributable to the decrease in the level of monetary accounts denominated in Canadian dollars.

Investment income

Our recorded investment income for the three months ended December 31, 2014 was $131 as compared to $175 for the three months ended December 31, 2013.  Investment income includes interest earned on deposits and short-term investments, as well as, gains on equity holdings.

Provision for income taxes

The table below provides the details of the provision for income taxes:

 

 

---

 

Income tax expense for the three months ended December 31, 2014 was $1,868 as compared to $4,114 for the same period last year.

The decrease in the deferred income tax expense as compared to the same period last year is primarily attributable to a decrease in earnings resulting in a decrease in the utilization of certain previously recognized Canadian loss carryforwards .

We claim R&D expenditures and related investment tax credits based on our interpretation of the applicable legislation in the Income Tax Act (Canada). These claims are subject to review by the Canada Revenue Agency. For the three months ended December 31, 2014, we recorded non-refundable investment tax credits earned of nil.

The current income tax expense for the three months ended December 31, 2014 and 2013, consisted primarily of foreign taxes withheld on royalty revenues received from licensees in foreign tax jurisdictions for which there is no treaty relief. Withholding tax expense for the three months ended December 31, 2014 was 4.1% of revenue as compared to 7.2% of revenue for the same period last year. The decrease in withholding tax expense as a percentage of revenue is attributable to an increase in revenue from jurisdictions for which there is tax treaty relief.

Proposed transactions

There are no proposed transactions.

Critical Accounting Policies, Including Initial Adoption of Policies, and Critical Estimates

Our management is required to make judgments, assumptions and estimates in applying our accounting policies and practices which have a significant impact on our financial results.  The following outlines the accounting policies and practices involving the use of professional judgment and estimates that are critical to determining our financial results.

Revenue recognition

Our revenue consists principally of royalty revenue from licensing our own patent portfolio. We also generate royalty revenue from licensing patent portfolios on behalf of our partners. We consider revenue to be earned when we have persuasive evidence of an arrangement, the obligation has been fulfilled in accordance with the terms of the licensing agreement, including delivery and acceptance, the amounts are fixed or determinable and collection is reasonably assured. We defer recognizing revenue until such time as all criteria are met. Determination of whether or not these criteria have been met may require us to make judgments, assumptions and estimates based upon current information and historical experience.

Our royalty revenues consist of fixed fee and running royalty payments.

Royalties from running royalty arrangements can be based on either a percentage of sales or number of units sold for which we earn royalties at the time the licensees’ sales occur. The licensees are obligated to provide us with quarterly or semi-annual royalty reports. Our licensees do not, however, report and pay royalties owed for sales in any given reporting period until after the conclusion of that reporting period. As we are unable to estimate the licensees’ sales in any given reporting period to determine the royalties due to us, we recognize running royalty revenues based on royalties reported by the licensees during the quarter and when other revenue recognition criteria are met. We monitor the receipt of reports to ensure that there is not a disproportionate number of months of revenue in any given fiscal year.

Royalties from fixed fee royalty arrangements may consist of one or more installments of cash. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Where agreements include multiple elements, we assess if the deliverables have standalone value upon delivery, and if so, we account for each deliverable separately. When multiple-deliverables included in an arrangement are separated into different units of accounting, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. We determine the relative selling price for a deliverable based on our best estimate of selling price (“BESP”). We determine BESP by considering our overall pricing objectives and market conditions. Significant pricing practices taken into consideration include discounting practices, the size and volume of transactions, the customer demographic, the geographic area

 

---

 

covered by licenses, price lists, licensing strategy, historical standalone licenses and contracted royalty rates. The determination of BESP is made through consultation with and approval by management, taking into consideration the licensing strategy.

Generally, as part of our partnering agreements with third-parties, we are able to recover certain out-of-pocket expenses and legal costs. These amounts are included in revenue in the period which the aforementioned revenue criteria is met and the amounts become reimbursable.

Revenue arrangements with extended payment terms, where fees are fixed in one or more installments of cash and which contain terms that could impact the amounts ultimately collected, are generally recognized as collection becomes reasonably assured.

Investment Tax Credits

At December 31, 2014, we have approximately $6,171 (December 31, 2013 - $5,935) of non-refundable investment tax credits carried forward, relating primarily to past R&D. These credits can be applied against future income taxes payable and are subject to a 20 year carry-forward period. Judgment is required in determining the amount of unutilized investment tax credits to record as an asset. In assessing the potential utilization of investment tax credits, we have considered whether it is more likely than not that some portion or all of the unutilized investment tax credits will be realized based upon estimates of our anticipated income tax position in future periods.  We will continue to evaluate our future income tax position quarterly and record any adjustment necessary in that period.

Valuation of Deferred Income Tax Assets and Future Income Tax Expense/Recovery

As at December 31, 2014, we had accumulated $19,813 of unused R&D expenditures for income tax purposes. These deductions are available without expiry to reduce future year’s taxable income. We also had approximately $92,396 of temporary differences and tax losses available for carry forward. As a result, as of December 31, 2014, we have a deferred income tax asset of $34,910 of which $20,587 has been recorded. Judgment is required in determining the amounts of deferred income tax assets and liabilities and the related valuation allowance recorded against the net deferred income tax assets. In assessing the potential realization of deferred income tax assets, we consider all available evidence, both positive and negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. Our forecasted future operating results are highly influenced by, among other factors, assumptions regarding (1) our ability to achieve forecasted revenue, (2) our ability to effectively manage our expenses relative to our forecasted revenue and (3) market conditions in the technology areas in which we operate. We considered both positive and negative evidence and based on revenue from existing contracts and spending managed to the revenue levels determined future taxable income will be sufficient to utilize existing tax attributes.

We assess the probability that deferred income tax assets will be recovered from future taxable income, and whether a valuation allowance is required to reflect any uncertainty at each reporting period. We will continue to evaluate our deferred income tax position quarterly and record any adjustment necessary in that period. As at December 31, 2014, we had a valuation allowance of $14,323 (December 31, 2013 - $10,983) primarily related to net operating losses and capital losses in certain operating subsidiaries which we have assessed as more likely than not that these losses will not be utilized.

Patents

We have acquired patents and patent rights (hereinafter, collectively “patents”) directly, through business acquisitions or as full or partial payments for licensing fees. In determining the fair value of these patents, we make estimates and judgments about the future income-producing capabilities of these assets and related future cash flows. We also make estimates about the useful lives of these assets based on assessment of the legal and economic lives of the patents and potential future licensing revenues achievable from our patent portfolio. Our patent portfolio as at December 31, 2014 is being amortized on a straight-line basis over the remaining useful lives of the patents which range from approximately one to fourteen years. If our basis for assessing the useful lives of the intangibles and potential future licensing revenues achievable from our patent portfolio is adversely affected by future events or circumstances, we will record write-downs of patents, write-down of other intangible assets, or changes in the estimated useful lives of these assets, which would result in changes to amortization expense in the future. Such changes would not affect cash flows.

The carrying value of patents is reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. Impairments are determined by comparing the carrying value to the estimated undiscounted future cash flows to be generated by those assets. If this assessment indicates that the carrying value of the patents is not recoverable, the carrying value is

 

---

 

then compared with the estimated fair value of the assets, and the carrying value is written down to the estimated fair value.  We have determined that there were no indications of possible impairment during the twelve months ended December 31, 2014.

Goodwill

Goodwill is subject to annual impairment tests or on a more frequent basis if events or conditions indicate that goodwill may be impaired.

As a whole, we are considered one reporting unit. We estimate the value of our reporting unit based on market capitalization. If we determine that our carrying value exceeds our fair value, we would conduct the second step of the goodwill impairment test which compares the implied fair value of the goodwill (determined as the excess fair value over the fair value assigned to our other assets and liabilities) to the carrying amount of goodwill.

We have determined there were no indications of possible impairment during the twelve months ended December 31, 2014.

Estimation uncertainty

Critical accounting policies and estimates utilized in the normal course of preparing our consolidated financial statements require the determination of the best estimate of selling price, future cash flows utilized in assessing net recoverable amounts and net realizable values, discount rates, amortization, allowance for bad debt, legal contingency estimate, useful lives of property, equipment and intangible assets, valuation of intangibles, valuation of debt securities, assumptions for the fair value of stock options granted, timing of payments related to patent finance obligations and measurement of deferred taxes. In making estimates, management relies on external information and observable conditions where possible, supplemented by internal analysis where required.

These estimates have been applied in a manner consistent with that in the prior periods and there are no known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in the consolidated financial statements. The estimates are impacted by many factors, some of which are highly uncertain. The interrelated nature of these factors prevents us from quantifying the overall impact of these movements on our financial statements in a meaningful way. These sources of estimation uncertainty relate in varying degrees to virtually all asset and liability account balances.

Critical accounting estimates are defined as estimates that are very important to the portrayal of our financial position and operating results and require management to make judgments based on underlying assumptions about future events and their effects.

These underlying assumptions are based on historical experience and other factors that we believe to be reasonable under the circumstances and are subject to change as events occur, as additional information is obtained and as the environment in which we operate changes.

Critical accounting estimates and accounting policies are reviewed annually or more often if needed, by the Audit Committee.

Recent accounting pronouncements

See Note 2, “Significant Accounting Policies”, of Notes to Audited Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective expected dates of adoption.

Disclosure Controls and Procedures

In conformance with National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators, we have filed certificates signed by our Chief Executive Officer and Chief Financial Officer that, among other things, deal with the matter of disclosure controls and procedures.

Our management has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2014, and based on our evaluation has concluded that these are effective.

The evaluation took into consideration our corporate disclosure policy and the functioning of our executive officers, Board and Board Committees. In addition, our evaluation covered our processes, systems and capabilities relating to regulatory filings, public disclosures and the identification and communication of material information.

 

---

 

Critical accounting estimates are defined as estimates that are very important to the portrayal of our financial position and operating results and require management to make judgments based on underlying assumptions about future events and their effects.

These underlying assumptions are based on historical experience and other factors that we believe to be reasonable under the circumstances and are subject to change as events occur, as additional information is obtained and as the environment in which we operate changes.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and our Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements on a timely basis.

Our management evaluated, under the supervision of the Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting as at December 31, 2014. We based our evaluation on criteria established in “Internal Control over Financial Reporting – 2013” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and, based on that evaluation, we have concluded that, as of December 31, 2014, our internal control over financial reporting is effective.

No Attestation Report of the Registered Public Accounting Firm

Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to an exemption for emerging growth companies under the U.S. Jumpstart Our Business Startups Act.

We shall continue to be deemed an emerging growth company until the earliest of:

As an emerging growth company we are exempt from Section 404(b) of the U.S. Sarbanes-Oxley Act of 2002 and in particular exempt from the requirement that the registered accounting firm attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.

CHANGES IN INTERNAL CONTROLS

There have been no changes in our “internal control over financial reporting” that occurred during the twelve months ended December 31, 2014 which have materially affected or are reasonably likely to materially affect the internal control over financial reporting.

 

 

 

 

---

 

Wi-LAN Inc.

303 Terry Fox Drive, Suite 300

Ottawa, ON Canada

K2K 3J1

 

 

 

Exhibit 99.3

 

Wi-LAN Inc.

2014 Audited Consolidated

Financial Results

 

 

 

 

 

 

 

 

 

2014 Financial Results

---

 

February 2, 2015

 

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Wi-LAN Inc.

We have audited the accompanying consolidated financial statements of Wi-LAN Inc. and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2014 and 2013 and the consolidated statements of operations and comprehensive earnings, shareholders’ equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with generally accepted accounting principles in the United States of America and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Wi-LAN Inc. and its subsidiaries as at December 31, 2014 and 2013 and their financial performance and their cash flows for the years then ended in accordance with generally accepted accounting principles in the United States of America.

 

Chartered Professional Accountants, Licensed Public Accountants

 

 

 

 

 

---

 

Wi-LAN Inc.

Consolidated Statements of Operations and Comprehensive Earnings

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

 

 

See accompanying notes to consolidated financial statements

 

 

 

 

 

---

 

Wi-LAN Inc.

Consolidated Balance Sheets

(in thousands of United States dollars)

 

See accompanying notes to consolidated financial statements

On behalf of the Board:

 

 

 

 

 

 

---

 

Wi-LAN Inc.

Consolidated Statements of Cash Flow

(in thousands of United States dollars)

 

See accompanying notes to consolidated financial statements

 

 

 

 

 

---

 

Wi-LAN Inc.

Consolidated Statements of Shareholders’ Equity

(in thousands of United States dollars)

 

See accompanying notes to consolidated financial statements

 

 

 

 

 

---

 

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

(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, 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 its partners and, if necessary, the enforcement of their patented technologies.

 

 

2.      SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with the generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements of WiLAN include the accounts of WiLAN and its wholly owned subsidiaries. All inter-company transactions and balances have been eliminated in the consolidated financial statements.

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year. None of these reclassifications had an impact on reported net earnings/ loss for any of the years presented.

The significant accounting policies are summarized below:

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the years. Actual results could differ from those estimates. The significant accounting policies contained herein include estimates and assumptions with respect to best estimate of selling price, determination of discount rates, recoverability of deferred tax assets, determination of indicators of impairment assessment, initial estimate of risk of concessions, timing of payments related to patent finance obligations, and the assumptions for the fair value of stock options granted.

Revenue Recognition

The Company’s revenue consists principally of royalty revenue from licensing its own patent portfolio. The Company may also generate royalty revenue from licensing patent portfolios on behalf of its partners. The Company considers revenue to be earned when it has persuasive evidence of an arrangement, the obligation has been fulfilled in accordance with the terms of the licensing agreement, including delivery and acceptance, the amounts are fixed or determinable and collection is reasonably assured. The Company defers recognizing revenue until such time as all criteria are met. Determination of whether or not these criteria have been met may require the Company to make judgments, assumptions and estimates based upon current information and historical experience.

 

 

 

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

The Company’s royalty revenues consist of fixed fee and running royalty payments.

Royalties from running royalty arrangements can be based on either a percentage of sales or number of units sold for which the Company earns royalties at the time the licensees’ sales occur. The licensees are obligated to provide the Company with quarterly or semi-annual royalty reports and these reports are typically received subsequent to the period in which the licensees underlying sales occurred. The Company’s licensees do not, however, report and pay royalties owed for sales in any given reporting period until after the conclusion of that reporting period. As the Company is unable to estimate the licensees’ sales in any given reporting period to determine the royalties due to it, the Company recognizes running royalty revenues based on royalties reported by the licensees during the quarter and when other revenue recognition criteria are met. The Company monitors the receipt of royalty reports to ensure that there is not a disproportionate number of months of revenue in any given fiscal year.

Royalties from fixed fee royalty arrangements may consist of one or more installments of cash. The timing and amount of revenue recognized from each licensee depends upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. Where agreements include multiple elements, the Company assesses if the deliverables have standalone value upon delivery, and if so, accounts for each deliverable separately. When multiple-deliverables included in an arrangement are separated into different units of accounting, the arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. WiLAN determines the relative selling price for a deliverable based on its best estimate of selling price (“BESP”). WiLAN determines BESP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include discounting practices, the size and volume of transactions, the customer demographic, the geographic area covered by licenses, price lists, licensing strategy, historical standalone licenses and contracted royalty rates. The determination of BESP is made through consultation with and approval by management, taking into consideration the licensing strategy.

As part of the partnering agreements with third parties, the Company is able to recover certain out-of-pocket expenses and legal costs. These amounts are included in revenue in the years which the aforementioned revenue criteria is met and the amounts become reimbursable.

Revenue arrangements with extended payment terms, where fees are fixed in one or more installments of cash and which contain terms that could impact the amounts ultimately collected, are generally recognized as collection becomes assured.

Stock-based Compensation

The Company has a share option plan (“Option Plan”) for certain employees, directors and consultants. The Company accounts for stock options using the fair value method. Compensation expense is measured at the estimated fair value of the options at the date of grant and charged to earnings on a straight-line basis over the vesting periods. The amount expensed is credited to additional paid-in capital in the period. Upon the exercise of stock options, cash received is credited to share capital together with any amount previously credited to additional paid-in capital related to the options exercised.

Deferred Stock Units (“DSUs”)

The Company has a DSU plan for certain employees and directors. The DSUs vest immediately and the Company has the right to settle the DSUs in either cash or by the issuance of common shares. The liability for outstanding units and related expense for the DSUs are adjusted to reflect the market value of the common shares at each balance sheet date.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

Restricted Share Units (“RSUs”)

The Company has a RSU plan for certain employees and directors. Under the RSU plan, units are settled in cash based on the market value of WiLAN’s common shares on dates the RSUs vest. The RSUs vest over a three-year period. The accrued liability and related expense for the RSUs are adjusted to reflect the market value of the common shares at each balance sheet date.

Income Taxes

The Company uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are determined based on the difference between the accounting and tax bases of the assets and liabilities and measured using the substantively enacted tax rates that are expected to be in effect when the differences are estimated to be reversed. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of deferred income tax assets is dependent upon the generation of sufficient future taxable income during the periods prior to the expiration of the associated tax attributes.

Cost of Revenue

Cost of revenue includes patent licensing expenses, royalty obligations, staff costs (including stock-based compensation) and other costs incurred in conducting license negotiations as well as litigation, the expenses related to the management of the patent portfolio, contingent partner payments and legal fees and amortization expense related to acquired patents, are expensed as incurred.

Research and Development (“R&D”)

R&D includes engineering expenses, staff costs (including stock-based compensation) and certain external consultants related to the development efforts, as well as, are expensed as incurred.

Computation of Earnings (Loss) Per Share

Basic earnings/loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings/loss per share is computed using the treasury stock method.

Foreign Currency Translation

The Company’s functional currency is the U.S. dollar; monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing at the balance sheet date. Revenue and expenses are translated at the average rate for the period. The gains and losses from foreign currency denominated transactions are included in foreign exchange gain/loss in the consolidated statement of operations and comprehensive earnings.

The Company enters into forward foreign exchange contracts, from time to time, to manage its exposure to currency rate fluctuations related primarily to future cash inflows and outflows of Canadian dollars. The Company does not hold or issue derivative financial instruments for trading or speculative purposes and it has chosen not to designate them as hedges. Therefore these contracts must be fair valued each quarter. The resulting gain or loss on the valuation of these financial instruments is included in foreign exchange gain/loss in the consolidated statement of operations and comprehensive earnings.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash in bank accounts, term deposits and Guaranteed Investment Certificates (“GICs”) with maturities of three months or less at the date of the investment.

Short-term Investments

Short-term investments are designated as “held to maturity” and accounted for at amortized cost using the effective interest rate method. Short-term investments comprise GICs with maturities of one-year or less at the date of investment and their carrying value approximates their fair value.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

Loan Receivable

The loan receivable is accounted for at amortized cost using the effective interest rate method.

Furniture and Equipment

Furniture and equipment is carried at cost less accumulated depreciation. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets as follows:

 

Patents

Patents include patents and patent rights (hereinafter, collectively “patents”) and are carried at cost less accumulated amortization. Amortization is calculated on the straight-line basis over the estimated useful life or the remaining term of the patent (up to 20 years), whichever is less. The carrying value of patents is reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. The need for impairment is assessed by comparing the carrying value to the estimated undiscounted future cash flows to be generated by those assets. If this assessment indicates that the carrying value of the patents is not recoverable, the carrying value is then compared with the estimated fair value of the assets and the carrying value is written down to the estimated fair value.

Goodwill

Goodwill is recorded as at the date of the business combination and represents the excess of the purchase price of acquired businesses over the fair value assigned to identifiable assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired.

The impairment test is carried out in two steps. In the first step, the carrying value of the reporting unit including goodwill is compared with its fair value. When the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not to be impaired and the second step is unnecessary. The Company has one reporting unit.

In the event the fair value of the reporting unit, including goodwill, is less than the carrying value, the implied fair value of the reporting unit’s goodwill is compared with its carrying value to measure the amount of any impairment loss. When the carrying value of goodwill in the reporting unit exceeds the implied fair value of the goodwill, an impairment loss is recognized in an amount equal to the excess.

Patent Finance Obligations

Patent finance obligations have maturities beyond one year. Patent finance obligations, at inception, are recorded at their fair value using an estimated risk-adjusted discount rate and the carrying value is at amortized cost using the effective interest rate method.

Business Segment Information

The Company has one operating segment; Intellectual Property. The Company generates the majority of its revenues in U.S. dollars from several geographic regions; however it has allocated its revenues to the location in which the license originated. Licenses and revenue are substantially attributable to Canada, as are long-lived assets.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

Adoption of accounting pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-9 “Revenue from Contracts with Customers.” The new accounting standards update requires an entity to apply a five step model to recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, as well as, a cohesive set of disclosure requirements that would result in an entity providing comprehensive information about the nature, timing, and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard becomes effective for reporting periods beginning after December 15, 2016, with no early adoption permitted. The Company is currently assessing the impact of this new standard.

 

 

3.      TAXES

The reconciliation of the expected provision for income tax expense/recovery to the actual provision for income tax recovery/expense reported in the consolidated statements of operations and comprehensive earnings/loss for the years ended December 31, 2014 and 2013 is as follows:

 

 

During the years ended December 31, 2014 and 2013, the reported loss before income taxes includes foreign losses of $7,940 and $3,239, respectively.

The significant components of the Company’s future income tax assets and liabilities as at December 31, 2014 and 2013 are as follows:

 

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

 

Management has assigned probabilities to the Company’s expected future taxable income based on significant risk factors, sensitivity analysis and timing of non-capital tax losses. The amount of the future income tax asset considered realizable could change materially in the near term, based on future taxable income during the carryforward period. The valuation allowance consists of $6,515 in Canada and $7,808 in the US.

 

 

As at December 31, 2014, the Company had unused non-capital tax losses of approximately $92,396 (2013 - $108,283) and SR&ED expenditure pool totaling $19,813 (2013 - $20,198) that are due to expire as follows:

 

 

The Company also has investment tax credits of $6,171, that expire in various amounts from 2017 to 2032, and $22,068 of capital losses carried forward with no expiry date. Investment tax credits, which are earned as a result of qualifying SR&ED expenditures, are recognized and applied to reduce income tax expense in the year in which the expenditures are made and their realization is reasonably assured.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

A reconciliation of the beginning and ending amounts of uncertain income tax benefits for the years ended December 31, 2014 and 2013 is as follows:

 

 

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax provision. In the years ended December 31, 2014 and 2013, there were no interest or penalties included in the income tax provision.

The Company files Canadian and U.S. federal and state income tax returns. The Company is subject to examination by the tax authorities for the tax years ended 2008 through 2013.

 

 

4.      LOAN RECEIVABLE

On October 19, 2012 (the “Closing Date”), the Company advanced a term loan facility in the amount of $1,000 to Montebello Technologies LLC (the “Borrower”). The loan bears interest at 15% per annum, compounded annually and a maturity date of October 18, 2017 at which time the outstanding principal and accrued interest is to be fully repaid. The term loan facility is collateralized by a general security agreement.

In accordance with the terms and conditions of the loan agreement the use of the funds is solely and exclusively for the purchase and monetization of patents and for the period commencing on the Closing Date to and including the tenth anniversary of the Closing Date, the Company will be entitled to receive (a) 15% of the first $10 million in gross revenue and (b) 10% of all gross revenue over the first $10 million realized by the Borrower from any patents acquired utilizing the term loan facility.

To estimate the fair value, at inception, the Company considered the estimated future cash flow projections using an effective interest rate of 18%.

The carrying value of the term loan facility is as follows:

 

 

 

 

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

5.      FURNITURE AND EQUIPMENT

 

 

The Company purchased furniture and equipment totaling $422 during 2013 (2013 - $1,795).

 

 

6.      PATENTS

 

The Company purchased patents totaling $29,198 during 2014 (2013 - $61,020) and recorded amortization expense of $32,738 (2013 - $27,798). As of December 31, 2014, the estimated remaining economic useful lives of the patents range from one to fourteen years.

The estimated future amortization expense of patents as of December 31, 2014 is as follows:

 

 

 

 

 

7.      GOODWILL

At December 31, 2014 and 2013, the fair value of the reporting unit exceeded its carrying value. Accordingly, the Company determined that goodwill was not impaired and no further testing was performed.

 

 

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

8.      PATENT FINANCE OBLIGATIONS

On January 27, 2011, the Company acquired certain patents for future considerations while entering into a licensing agreement with the same counter-party. The Company has accounted for the non-monetary transaction at fair value using the income approach to value the patents acquired. To estimate the fair value, the Company considered the estimated future royalties, related costs and applied a discount rate of 16.5%. The obligation is based on the quarterly discounted payment stream of $688 and an effective interest rate of 4.75%.

 

As at December 31, 2014, the current and long-term portion of this obligation is nil.On June 18, 2013, 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 with third-parties. The Company has set up the liability based on its expected payment schedule using a discount rate of 6.0%. The discount rate is an estimate of a risk-adjusted rate giving consideration to rates for revolving debt with no fixed payments.

As at December 31, 2014, the current and long-term portion of this obligation is $4,271 and $13,120, respectively.

On September 13, 2013, the Company acquired certain patents which were determined at a future date while entering into a licensing agreement with the same counter-party. The obligation was based on the quarterly payment stream of $1,389 using a discount rate of 4.5%. The discount rate is an estimate of a risk-adjusted rate giving consideration to rates for secured term debt with fixed payments over a five year term.

As at December 31, 2014, the current and long-term portion of this obligation is $4,792 and $14,345, respectively.

 

On June 26, 2014, the Company acquired certain patents for future considerations while entering into a licensing agreement with the same counter-party. The obligation was based on an initial payment of $2,143, a $12,000 payment in July 2014 and, beginning August 2014, six quarterly payments of $2,143 using a discount rate of 4.75%. The discount rate is based on interest rates for secured term debt with fixed payments over a two year term.

 

As at December 31, 2014, the current and long term portion of this obligation is $8,355 and nil, respectively.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

The current and long-term portions of these obligations are reflected as follows:

 

Payments are expected to be as follows:

 

 

 

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

9.      ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

The success fee obligation is pursuant to the Company’s engagement with a law firm, for which the firm is entitled to a percentage of proceeds actually received from certain license agreements signed by the Company related to certain litigation matters concluded in 2011 in which the firm was representing the Company. Should the Company collect these amounts as contemplated in the agreements, the firm will be entitled to the entire success fee of $27,986. For the year ended December 31, 2011, the Company accrued the full, undiscounted amount of the success fee obligation.

The current and long term portion of this liability is reflected as follows:

 

 

 

 

10.      SHARE CAPITAL

a)      Authorized

Unlimited number of common shares.

6,350.9 special preferred, redeemable, retractable, non-voting shares.

An unlimited number of preferred shares, issuable in series.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

 

b)      Issued and Outstanding

The issued and outstanding common shares of WiLAN, along with equity instruments convertible into common shares, are as follows:

 

 

As at December 31, 2014, no preferred shares or special preferred shares were issued or outstanding.

c)      Common Shares

 

 

The Company paid quarterly cash dividends as follows:

 

 

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

The Company declared quarterly dividends as follows:

 

On March 7, 2013, the Company received regulatory approval to make a normal course issuer bid (the “2013 NCIB”) through the facilities of the TSX. Under the 2013 NCIB, the Company is permitted to purchase up to 11,846,843 common shares. The 2013 NCIB commenced on March 11, 2013 and was completed on March 10, 2014. The Company repurchased 1,903,200 common shares under the 2013 NCIB for a total of $7,134.

 

On May 27, 2014, the Company received regulatory approval to make a normal course issuer bid (the “2014 NCIB”) through the facilities of the Toronto Stock Exchange. Under the 2014 NCIB, the Company is permitted to purchase up to 11,676,510 common shares. The 2014 NCIB commenced on May 29, 2014 and is expected to be completed on May 28, 2015. The Company repurchased 150,000 common shares under the 2014 NCIB during the twelve months ended December 31, 2014 for a total of $532.

 

The Company records share repurchases as a reduction to shareholders’ equity. A portion of the purchase price of the repurchased shares is recorded as a decrease to additional paid-in capital when the price of the shares repurchased exceeds the average original price per share received from the issuance of Common Stock or an increase to additional paid-in capital when the prices of the shares repurchased is less than the average original price per share received from the issuance of Common Stock. During the year ended December 31, 2014, the cumulative price of the shares repurchased was less than the proceeds received from the issuance of the same number of shares. For the year ended December 31, 2014, $60 was recorded as an increase to additional paid-in capital). During the year ended December 31, 2013, the cumulative price of the shares repurchased exceeded the proceeds received from the issuance of the same number of shares. For the year ended December 31, 2014, $388 was recorded as a decrease to additional paid-in capital.

d)      Stock Options

WiLAN has an Option Plan, a DSU plan, an Employee Stock Purchase Plan, and a RSU plan for its directors, employees and consultants. The current RSU plan calls for settlement only in cash. The Option Plan, the DSU plan and the Employee Stock Purchase Plan are considered “security based compensation arrangements” for the purposes of the TSX. The Company is authorized to issue up to an aggregate of 10% of its outstanding common shares under these “security based compensation arrangements”, with the common shares authorized for issuance under the DSU plan limited to 430,000 and under the Employee Purchase Plan limited to 500,000. The options vest at various times ranging from immediate vesting on grant to vesting over a three to four year period. Options generally have a six-year life.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

Option activity for the years ended December 31, 2014 and 2013 was as follows:

 

The Company uses the Black-Scholes model for estimating the fair value of options granted, with the following weighted average assumptions:

 

The weighted average fair value per option granted during the year ended December 31, 2014 was CDN $1.04 (2013 – CDN $1.15).

The intrinsic value of options exercised was CDN $610 for the year ended December 31, 2014 (2013 – CDN $465). Intrinsic value is the total value of exercised options based on the price of the Company’s common shares at the time of the exercise less the proceeds received from the employees to exercise the options.

The intrinsic value of the exercisable options was $544 as at December 31, 2014.

The total fair value of options vested was $3,891 for the year ended December 31, 2014.

As of December 31, 2014, there was $1,425 of total unrecognized stock-based compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plan. This cost is expected to be recognized over a weighted average period of 1.61 years.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

Details of the outstanding options at December 31, 2014 are as follows:

 

Stock-based compensation expense for the year ended December 31, 2014 was $2,081 (2013 - $4,192). The following provides a summary of the stock-based compensation expense for the years ended December 31, 2014 and 2013:

 

During the year ended December 31, 2014, 1,007,565 stock options were forfeited as they related to former employees.

e)      Deferred Stock Units

The Company has a Deferred Stock Unit (“DSU”) plan as a tool to assist in the retention of selected employees and directors and to help conserve the Company’s cash position. Under the DSU plan, DSUs may be awarded and will become due when the conditions of retention have been met and employment terminated or completed. The value of each DSU is determined in reference to the Company’s common share price, and the DSU value is payable in either cash or shares at the Company’s option.

DSUs issued and outstanding as at December 31, 2014 were 244,526 (2013 - 89,198). The liability recorded in respect of the outstanding DSUs was $742 as at December 31, 2014 (2013 - $301). The change in the liability is recorded as compensation expense.

During the year ended December 31, 2014, DSUs were granted to certain directors in lieu of cash for their quarterly fees earned and dividends paid during the year ended December 31, 2013.

f)      Restricted Share Units

The Company implemented a Restricted Share Unit (“RSU”) plan for certain employees and directors in January 2007. Under the RSU plan, units are settled in cash based on the market value of WiLAN’s common shares on the dates when the RSUs vest. The accrued liability and related expense for the RSUs are adjusted to reflect the market value of the common shares at each balance sheet date. The liability recorded in respect of the vested RSUs was $1,376 as at December 31, 2014 (2013 - $579). The change in the liability is recorded as compensation expense.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

RSU activity for the years ended December 31, 2014 and 2013 was as follows:

 

During the year ended December 31, 2014, 203,041 RSUs (2013 – 32,248) were forfeited as they related to former employees.

g)      Per Share Amounts

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

 

The effect of options totaling 8,763,349 for fiscal 2014 (fiscal 2013 – 9,215,081), were anti-dilutive.

 

 

11.      FINANCIAL INSTRUMENTS

The Company is exposed to a number of risks related to changes in foreign currency exchange rates, interest rates, collection of accounts receivable and loan receivable, settlement of liabilities and management of cash and cash equivalents.

 

Fair Value

The Company uses various valuation techniques and assumptions when measuring fair value of its assets and liabilities. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. This guidance established a hierarchy that prioritizes fair value measurements based on the types of input used for the various valuation techniques (market approach, income approach and cost approach). The levels of the hierarchy are described below:

Level 1 Inputs — Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 2 Inputs — Level 2 includes financial instruments for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets with insufficient volume or infrequent transactions (less

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

active markets) or model-driven valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data, including market interest rate curves, referenced credit spreads and pre-payment rates.

Level 3 Inputs — Level 3 includes financial instruments for which fair value is derived from valuation techniques including pricing models and discounted cash flow models in which one or more significant inputs are unobservable, including the company’s own assumptions. The pricing models incorporate transaction details such as contractual terms, maturity and, in certain instances, timing and amount of future cash flows, as well as assumptions related to liquidity and credit valuation adjustments of marketplace participants.

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and cash equivalent, and short-term investments: The carrying amount approximates fair value because of the short maturity of those instruments.

Loan receivable: The fair value is estimated based on currently available market interest rates for instruments with similar terms.

Patent finance obligations: The fair values are estimated based on the quoted market prices for those or similar instruments or on the current rates offered to the Company for debt of similar terms.

Foreign exchange contracts: The fair value of foreign currency contracts is estimated by obtaining quotes from brokers.

The estimated fair values of the Company’s financial instruments are as follows:

 

As of December 31, 2014, the Company held foreign exchange forward contracts totaling approximately $17,700 which mature at various dates through to October 2015. 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.

Credit risk

Credit risk is the risk of financial loss to the Company if a licensee or counter-party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable, loan receivable, and forward foreign exchange contracts.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

The Company’s cash and cash equivalents, and short-term investments consist primarily of deposit investments that are held only with Canadian chartered banks. Management does not expect any counter-parties to fail to meet their obligations.

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.

The Company’s exposure to credit risk with its accounts receivable from licensees is influenced mainly by the individual characteristics of each licensee. The Company’s licensees are for the most part, manufacturers and distributors of telecommunications and consumer electronics products primarily located in the United States, Canada, Taiwan, Korea, Japan, Hong Kong and China. Credit risk from accounts receivable encompasses the default risk of the Company’s licensees. Prior to entering into licensing agreements with new licensees the Company assesses the risk of default associated with the particular company. In addition, on an ongoing basis, management monitors the level of accounts receivable attributable to each licensee and the length of time taken for amounts to be settled and where necessary, takes appropriate action to follow up on those balances considered overdue. The Company has had no significant bad debts for any periods presented.

Two licensees individually accounted for 15% and 13%, respectively of revenues from royalties for the year ended December 31, 2014 (for the year ended December 31, 2013 – two licensees individually accounted for 20% and 14%, respectively). Management does not believe that there is significant credit risk arising from any of the Company’s licensees for which revenue has been recognized. However, should one of the Company’s major licensees be unable to settle amounts due, the impact on the Company could be significant. The maximum exposure to loss arising from accounts receivable is equal to their total carrying amounts. At December 31, 2014, one licensee individually accounted for 57% of total accounts receivable (December 31, 2013 – three licensees individually accounted for 58%, 17% and 10%, respectively of total accounts receivable).

Financial assets past due

The following table provides information regarding the aging and collectability of the Company’s accounts receivable balances as at December 31, 2014:

 

The definition of items that are past due is determined by reference to terms agreed with individual licensees. As at January 22, 2015, approximately $7 of past due amounts have been collected. None of the amounts outstanding have been challenged by the respective licensees and the Company continues to conduct business with them on an ongoing basis. Accordingly, management has no reason to believe that this balance is not fully collectable in the future.

The Company reviews financial assets past due on an ongoing basis with the objective of identifying potential matters which could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made with the respective company to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual terms. At December 31, 2014, the Company had a provision for doubtful accounts of $138 (2013 - $193) which was made against accounts receivable where collection efforts to date have been unsuccessful.

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s objective in managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due.

At December 31, 2014, the Company had cash and cash equivalents and short-term investments of $127,647, credit facilities of $8,000 and accounts receivable of $2,198 available to meet its obligations.

 

The Company has a revolving credit facility available in the amount of CDN$8,000 or the equivalent in U.S. dollars for general corporate purposes and a further CDN$2,000 for foreign exchange facility. Canadian dollar or U.S. dollar amounts advanced under this credit facility are payable on demand and bear interest at the bank's Canadian prime rate plus 1.0% per annum or U.S. base rate plus 1.0% per annum. Borrowings under this facility are collateralized by a general security agreement over our cash and cash equivalents, receivables and present and future personal property. As at and during the twelve months ended December 31, 2014, the Company had no borrowings under this facility.

 

Market risk

Market risk is the risk to the Company that the fair value of future cash flows from its financial instruments will fluctuate due to changes in interest rates and foreign currency exchange rates. Market risk arises as a result of the Company generating revenues in foreign currencies.

Interest rate risk

The only financial instruments that expose the Company to interest rate risk are its cash and cash equivalents and short-term investments. The Company’s objectives of managing its cash and cash equivalents and short-term investments are to ensure sufficient funds are maintained on hand at all times to meet day to day requirements and to place any amounts which are considered in excess of day to day requirements on short-term deposit with the Company’s banks so that they earn interest. When placing amounts of cash and cash equivalents into short-term investments, the Company only places investments with Canadian chartered banks and ensures that access to the amounts placed can be obtained on short-notice. A one percent increase/decrease in interest rates could have resulted in an approximate increase/decrease to investment income of $1,276.

Currency risk

A portion of WiLAN’s revenues and operating expenses are denominated in Canadian dollars. Because the Company reports its financial performance in US dollars, WiLAN’s operating results are subject to changes in the exchange rate of the Canadian dollar relative to the US dollar. Any decrease in the value of the Canadian dollar relative to the US dollar has an unfavourable impact on Canadian dollar denominated revenues and a favourable impact on Canadian dollar denominated operating expenses. Approximately 9% of the Company’s cash and cash equivalents and short term investments are denominated in Canadian dollars and are subject to changes in the exchange rate of the Canadian dollar relative to the US dollar.

For the year ended December 31, 2014, the Company had revenues and expenses denominated in Canadian dollars of approximately nil and $18,135, respectively. Fluctuations in foreign currency rates between the U.S. and Canadian dollars could impact the net exposure approximating $18,135 and adversely affect net earnings of the Company.

At December 31, 2014, the Company had Canadian dollar denominated cash and cash equivalents and short-term investments, and accounts receivable balances of approximately $14,523 and nil respectively, offset by accounts

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

payable and accrued liabilities totaling approximately $11,288. Fluctuations in foreign currency rates between the U.S. and Canadian dollars could impact the net exposure approximating $3,235 and adversely affect net earnings of the Company.

A one cent increase/decrease in foreign currency rates between the U.S. and Canadian dollars could have resulted in an approximate increase/decrease to net and comprehensive loss of $24.

The Company may manage the risk associated with foreign exchange rate fluctuations by, from time to time, entering into forward foreign exchange contracts and engaging in other hedging strategies. To the extent that WiLAN engages in risk management activities related to foreign exchange rates, it may be subject to credit risks associated with the counterparties with whom it contracts.

The Company’s objective in obtaining forward foreign exchange contracts is to manage its risk and exposure to currency rate fluctuations related primarily to future cash inflows and outflows of Canadian dollars. The Company does not use forward foreign exchange contracts for speculative or trading purposes.

As of December 31, 2014, the Company held foreign exchange forward contracts with a notional value totaling approximately $17,700 maturing at various dates through to October 2015. For the year ended December 31, 2014 the Company recorded approximately $732 of losses related to its foreign exchange forward contracts.

 

 

12.      COMMITMENTS AND CONTINGENCIES

a)      Operating lease

The Company has lease agreements for office space and equipment with terms extending to 2023. The aggregate minimum annual lease payments under these agreements are as follows:

 

b)      Other

In connection with the acquisition of certain patents and patent rights, the Company has agreed to future additional payments to the former owners of the respective patents or patent rights, based on future revenues (as defined in the respective agreements) generated as a result of licensing the respective patents or patent portfolios. For the year ended December 31, 2014, partner royalties have totaled $974 (year ended December 31, 2013 – Nil) all of which remains outstanding as at December 31, 2014.

On December 16, 2013, the Company engaged the services of an external law firm to represent the Company in certain patent infringement litigations. Pursuant to this engagement, in consideration for a discounted fixed fee arrangement, the Company has agreed to pay the firm a success fee which is based on a percentage of proceeds received (as defined in the respective agreements) pursuant to future license agreements resulting from these patent infringement litigations. As at December 31, 2014, the success fees are not yet determinable because the total proceeds have not yet been determined and therefore no amounts have been accrued.

 

 

 

.    

 

---

Wi-LAN Inc.

NOTES TO audited CONSOLIDATED FINANCIAL STATEMENTS

Years ended December 31, 2014 and 2013

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

 

 

 

 

 

 

 

13.      SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

14.      RELATED-PARTY TRANSACTION

Dr. Michel Fattouche, a member of the Company’s Board of Directors, has provided consulting services to the Company. For the year ended December 31, 2014, consulting services have totaled $76 (year ended December 31, 2013 – $98) all of which had been paid as at year end.

 

 

 

Exhibit 99.4

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, James Douglas Skippen, certify that:

Date: February 2, 2015

 

 

 

Exhibit 99.5

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934

I, Michael Shaun McEwan, certify that:

Date: February 2, 2015

 

 

 

Exhibit 99.6

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Wi-LAN Inc. (the “Company”) on Form 40-F for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, James Douglas Skippen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

Date: February 2, 2015

 

 

 

Exhibit 99.7

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Wi-LAN Inc. (the “Company”) on Form 40-F for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Michael Shaun McEwan, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

Date: February 2, 2015

 

 

 

Exhibit 99.8

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use of our report dated February 2, 2015, with respect to the consolidated financial statements of Wi-LAN Inc. included in this Annual Report on Form 40-F.

We also consent to incorporation by reference of the above mentioned audit report in Wi-LAN Inc.’s Registration Statement on Form S-8 (333-179407).