QTRH Quarterhill Inc

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

__________________________

 

FORM 6-K 

__________________________

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

August 17, 2015
Commission File Number: 001-35152

 

__________________________

 

WI-LAN INC.

 

(Translation of registrant’s name into English)

 

__________________________

 

303 Terry Fox Drive
Suite 300
Ottawa, Ontario K2K 3J1
Canada
(Address of principal executive office)

 

__________________________

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F   ¨             Form 40-F   þ

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

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EXHIBIT LIST

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Exhibit 99.1

 

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

For the Three Months ended March 31, 2015 and 2014

April 28, 2015

 

 

 

 

2015 First Quarter Financial Results

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Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (this “MD&A”) is dated April 28, 2015. It should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto for Wi-LAN Inc. for the three months ended March 31, 2015 (the “Financial Statements”). References in this MD&A to “WiLAN”, “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”) for interim financial information. These Financial Statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. Accordingly, this MD&A should be read in conjunction with our audited consolidated financial statements and notes for the year ended December 31, 2014 and the related management’s discussion and analysis of financial condition and results of operations for our year ended December 31, 2014 dated February 2, 2015 (the “Annual MD&A”), each as filed with the Canadian securities regulators on SEDAR and furnished to the United States Securities and Exchange Commission (the “SEC”) on Form 40-F on EDGAR.

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 three months ended March 31, 2015 and up to and including April 28, 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, 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:

 

 

 

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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 those which are discussed in greater detail under the heading “Risk Factors” in our February 2, 2015 Annual Information Form for the year ended December 31, 2014 (“AIF”).

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.

 

 

 

 

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selected financial information

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 periods indicated as well as certain balance sheet data as at March 31, 2015 and December 31, 2014.

 

 

 

 

 

 

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Results of operations overview

Revenues for the three months ended March 31, 2015 were $20,410 representing a decrease of $5,568 or 21% over the three months ended March 31, 2014.  The decrease in revenues is primarily attributable to lower fixed-payment amounts for certain agreements as compared to the three months ended March 31, 2014.

Operating expenses for the three months ended March 31, 2015 were $24,722 or 121% of revenues, representing an increase of $5,163 or 26% as compared to the three months ended March 31, 2014.  The increase in operating expenses is primarily attributable to higher litigation expenses.  

Litigation expense, which is included in cost of revenue, accounted for approximately $6,240 and $1,709 or 25% and 9% of total operating expenses for the three months ended March 31, 2015 and 2014 respectively.  Our preference is to negotiate licenses without the use of litigation; that is not, however, always possible. Given the number of litigations we are currently involved in, litigation expenses for fiscal 2015 are expected to increase from fiscal 2014 levels, perhaps materially.  Litigation activities and, therefore, litigation expenses are difficult to predict as there are many factors that can influence any action that is commenced.

We recorded a net loss for the three months ended March 31, 2015 of $4,758 or $0.04 per basic and diluted share as compared to net earnings for the three months ended March 31, 2014 of $3,969 or $0.03 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 three months ended March 31, 2015 were $6,818 as compared to $16,769 for the three months ended March 31, 2014.  The decrease in adjusted earnings as compared to last year is primarily attributable to the decrease in revenue and an increase in litigation expenses.

 

 

 

 

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Results of Operations for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014

Revenues

Revenues for the three months ended March 31, 2015 were $20,410, representing a decrease of $5,568 or 21% over the three months ended March 31, 2014.

 

 

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.

For the three months ended March 31, 2015 and 2014, 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.

Four licensees individually accounted for 15%, 13%, 10% and 10% of revenues from royalties for the three months ended March 31, 2015 as compared to three licensees which individually accounted for 25%, 12%, and 10% of revenue from royalties for the three months ended March 31, 2014.  For the three months ended March 31, 2015 and 2014, the top ten licensees accounted for 78% and 81% of revenues from royalties, respectively.

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 licensing expense, any costs related to sourcing new patent portfolios or developing new strategic partnerships.

 

 

 

 

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The table below provides the details of cost of revenue:

 

 

Cost of revenue for the three months ended March 31, 2015 was $19,466 or 95% of revenues as compared to $14,630 or 56% of revenues for the same period last year.  The increase in cost of revenue is primarily attributable to an increase in litigation expense. 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, an increase in litigation matters and an increase in partnering arrangements with the previous patent owners and contingent legal fee arrangements with law firms, cost of revenue is expected to increase in fiscal 2015.

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 external 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 with 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. McKools is entitled to receive a percentage of the proceeds actually received pursuant to the license 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 eighteen months.  We accrued the full amount of the success fee obligation in fiscal 2011.  As at March 31, 2015, the current and long-term portion of the success fee obligation is $2,668 and $3,533, respectively. During the three months ended March 31, 2015, we paid McKools $1,174 (three months ended March 31, 2014 - $1,074) based on proceeds collected as of December 31, 2014.

For the three months ended March 31, 2015, litigation expenses amounted to $6,240 as compared to $1,709 for the same period last year. The increase in litigation for the three months ended March 31, 2015 is attributable to an increase in the level of litigation activities in comparison to the same period last year. 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 given the level of litigation matters that are currently active.

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. We are currently not subject to any claims or lawsuits and therefore no amounts have been accrued.

On December 16, 2013, we engaged the services of McKools to represent us in certain patent infringement litigations. 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 March 31, 2015, the success fees are not yet determinable because the total proceeds have not yet been determined and therefore no amounts have been accrued.

All fixed fee amounts are expensed in the period they are incurred.

 

 

 

 

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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 have 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 (“R&D”)

Our R&D efforts are specifically focused on generating patents in advanced wireless technologies. The costs associated with these efforts, principally staff costs (including stock-based compensation) and certain external consultants, are classified as R&D.  R&D expense is predominately employee related costs and therefore any changes in spending will be a result of changes to staffing levels.

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

 

 

For the three months ended March 31, 2015, R&D expenses were $719 or 4% of revenue as compared to $608 or 2% of revenue for the three months ended March 31, 2014. The increase in spending for the three months ended March 31, 2015 is primarily attributable to an increase in consulting costs, stock-based compensation expense, and staffing costs partially offset by a decrease in depreciation.

We believe staffing levels are sufficient for the foreseeable future and therefore don’t expect these expenses to increase materially from current levels.

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:

 

 

 

 

 

 

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MG&A expenses for the three months ended March 31, 2015, amounted to $2,251 or 11% of revenues as compared to $2,932 or 11% of revenue for the same period last year.  The decrease in spending for the three months ended March 31, 2015 is primarily attributable to a decrease in public company costs for the accrued costs related to deferred stock units granted to certain non-executive members of our Board during the three months ended March 31, 2014, and a decrease in stock-based compensation partially offset by an increase in compensation costs for accrued variable compensation related to employee restricted share units.

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 three months ended March 31, 2015 resulted from the translation of monetary accounts denominated in Canadian dollars to U.S. dollars and foreign exchange contracts we held at March 31, 2015. The change from the same period last year is attributable to the decrease in the value of the Canadian dollar relative to the U.S. dollar, and the level of monetary accounts denominated in Canadian dollars.

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 March 31, 2015, we held foreign exchange forward contracts with a notional value of approximately $11,500 which mature at various dates through to October 2015. During the three months ended March 31, 2015, we recorded an unrealized foreign exchange loss of approximately $1,066 related to the foreign exchange forward contracts held as at March 31, 2015.

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

Investment income

Our recorded investment income for the three months ended March 31, 2015 was $122 as compared to $135 for the three months ended March 31, 2014.  Investment income includes interest earned on deposits and short-term investments. The decrease in investment income for the three months ended March 31, 2015 is attributable to a decreased cash position.

Provision for (recovery of) income taxes

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

 

 

 

 

 

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Income tax expense for the three months ended March 31, 2015 was $568 as compared to $2,585 for the same period last year. The provision for income tax is recognized based on our management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the three months ended March 31, 2015 and 2014 was approximately 26.5%.

The decrease in the deferred income tax expense is primarily attributable to the recognition of certain Canadian losses partially offset by an increase in the valuation allowance. There is a valuation allowance of $16,144 as at March 31, 2015 (December 31, 2014 - $14,323) 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 disproportionate 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 three months ended March 31, 2015, we recorded non-refundable investment tax credits earned of nil.

The current income tax expense for the three months ended March 31, 2015 and 2014, 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 March 31, 2015 and 2014 was 4.9% of revenue and 5.6% of revenue, respectively. 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)

 

 

 

 

 

 

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Our revenues have decreased over the past five quarters due to the timing and amount of fixed and lump sum payment based licenses. Our operating expenses have increased over the past five quarters which is primarily attributable to an increase in litigation spending as a result of a higher number of litigation matters, the expansion of our licensing programs and an increase in foreign exchange losses. In addition, our quarterly expenses are impacted by timing of partner payment obligations and contingent legal fees associated with our partnering program.  

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:

 

 

 

 

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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 $118,452 at March 31, 2015, representing a decrease of $9,195 from the $127,647 held at December 31, 2014. The decrease is primarily attributable to the payment of dividends totaling $5,183 and patent acquisitions totaling $6,532 which includes payments totaling $5,532 for the repayment of patent finance obligations for patents acquired in 2013 and 2014 partially offset by $2,361 of cash generated from operations.

At March 31, 2015, we had working capital of $91,208, long-term success fee obligation of $3,533 and patent finance obligations of $26,424 which relates to deferred payment terms on patents we acquired during fiscal 2013 and 2014.  

At March 31, 2015, the current and long-term portions of the patent finance obligations are $13,300 and $26,424, respectively.

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$3,000 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 three months ended March 31, 2015, we had no borrowings under this facility.

Effective May 27, 2014, we received regulatory approval to make a normal course issuer bid (the “NCIB”) pursuant to which we are permitted to purchase up to 11,676,510 common shares for cancellation. The NCIB commenced on May 29, 2014 and will be completed on May 28, 2015. During the three months ended March 31, 2015, we repurchased 125,000 common shares under the NCIB for a total of $329.

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 portfolios to companies around the world. It is difficult to predict the timing and nature of future licenses from existing patent portfolios and from future patent portfolios we acquire or obtain through partnering arrangements.

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 or debt securities to the public.

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 March 31, 2015, there were 120,747,848 common shares and no special or preferred shares issued and outstanding. We also maintain a Share Option Plan, an Employee Stock Purchase Plan and a Deferred Stock Unit Plan.  Under all these plans, we can issue a maximum of 10% of our issued and outstanding common shares from time to time which was, as at March 31, 2015, 12,074,785 common shares combined.  The common shares authorized for issuance under the Employee Stock Purchase Plan and the Deferred Stock Option Plan are limited to 500,000 and 430,000, respectively. As at March 31, 2015, we had 8,605,902 options outstanding, 247,444 deferred stock units outstanding and have issued 441,400 shares under the Employee Stock Purchase Plan.  

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.  Our significant accounting policies are described in Note 2 of our audited consolidated financial statements and notes for the year ended December 31, 2014. A discussion of our critical accounting policies, and the estimates related to them, are included in our Annual MD&A. Except as outlined below, there has been no material changes in our existing critical accounting policies from the disclosures included in our audited consolidated financial statements and notes for

 

 

 

 

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the year ended December 31, 2014 and our Annual MD&A. Refer to Note 2, “Basis of Presentation,” in the Notes to Unaudited Condensed Consolidated Financial Statements updates related to new accounting pronouncements.

Patents and other intangibles

We have determined that there were no indications of possible impairment during the three months ended March 31, 2015.

Goodwill

We have determined that there were no indications of possible impairment during the three months ended March 31, 2015.

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 March 31, 2015, 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 March 31, 2015. 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 March 31, 2015, our internal control over financial reporting is effective.

CHANGES IN INTERNAL CONTROLS

There have been no changes in our “internal control over financial reporting” that occurred during the three months ended March 31, 2015 which have materially affected or are reasonably likely to materially affect the internal control over financial reporting.

 

 

 

 

 

 

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Wi-LAN Inc.

303 Terry Fox Drive, Suite 300

Ottawa, ON Canada

K2K 3J1

 

 

 

Exhibit 99.2

 

Wi-LAN Inc.

2015 First Quarter

Unaudited Condensed Consolidated

Financial Results

Interim Report

 

 

 

 

 

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Wi-LAN Inc.

Condensed Consolidated Statements of Operations and Comprehensive Earnings

(Unaudited)

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

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

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Wi-LAN Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands of United States dollars)

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

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Wi-LAN Inc.

Condensed Consolidated Statements of Cash Flow

(Unaudited)

(in thousands of United States dollars)

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

 

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Wi-LAN Inc.

Condensed Consolidated Statement of Shareholders' Equity

(Unaudited)

(in thousands of United States dollars)

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

 

 

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Wi-LAN Inc.

NOTES TO unaudited condensed CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31, 2015 and 2014

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

 

 

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

The unaudited condensed consolidated financial statements of WiLAN include the accounts of WiLAN and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information, including all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position, operations and cash flows for the interim periods. As the interim financial statements do not contain all the disclosures required in annual financial statements, they should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2014 and the accompanying notes. All inter-company transactions and balances have been eliminated.

These unaudited condensed consolidated financial statements have been prepared following the same accounting policies disclosed in Note 2 of the Company’s audited consolidated financial statements and notes for the year ended December 31, 2014.

In February 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-02 “Consolidations (Topic 810)—Amendments to the Consolidation Analysis”. The new standard makes amendments to the current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities will be considered a variable-interest entity (“VIE”) unless the limited partners hold substantive kick-out rights or participating rights. The standard is effective for annual periods beginning after December 15, 2015. The Company is currently evaluating the standard and the impact, if any, on its business model and financial statements.

The Company paid quarterly cash dividends as follows:

 

 

The Company declared quarterly dividends as follows:

 

 

On May 27, 2014, the Company received regulatory approval to make a normal course issuer bid (“NCIB”) through the facilities of the Toronto Stock Exchange. Under the NCIB, the Company is permitted to purchase up to 11,676,510 common shares. The NCIB commenced on May 29, 2014 and is expected to be completed on May 28, 2015. The Company repurchased 125,000 common shares under the NCIB during the three months ended March 31, 2015 for a total of $329.

 

 

 

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Wi-LAN Inc.

NOTES TO unaudited condensed CONSOLIDATED FINANCIAL STATEMENTS

Three months ended March 31, 2015 and 2014

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

 

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

 

 

For the three months ended March 31, 2015, the effect of stock options totaling 8,605,748, were anti‑dilutive (three months ended March 31, 2014 – 8,933,880).

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

As of March 31, 2015, the Company held foreign exchange forward contracts with a notional value of approximately $11,500 which mature at various dates through to October 2015. During the three months ended March 31, 2015, the Company recorded an unrealized foreign exchange loss of approximately $1,066 related to the foreign exchange forward contracts held as at March 31, 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.

Cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities are short-term financial instruments whose carrying value approximates their fair value. The Company minimizes credit risk on cash and cash equivalents and short-term financial instruments by transacting with only reputable financial institutions.

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

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 and contingent legal fee arrangements with certain law firms based on future revenues (as defined in the respective agreements) generated as a result of licensing the respective patents or patent portfolios. For the three months ended March 31, 2015 partner royalties and contingent legal fees totaled $655 (three months ended March 31, 2014 – Nil) all of which remains outstanding as at March 31, 2015.

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 March 31, 2015, the success fees are not yet determinable because the total proceeds have not yet been determined and therefore no amounts have been accrued.

Dr. Michel Fattouche, a member of the Company’s Board of Directors, has provided consulting services to the Company. For the three months ended March 31, 2015, consulting services have totaled $50 (three months ended March 31, 2014 – Nil) all of which had been paid as at March 31, 2015.

 

 

 

 

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Exhibit 99.3

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, James D. Skippen, President & Chief Executive Officer of Wi-LAN Inc., certify the following:

Date: April 30, 2015

 

 

Exhibit 99.4

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Shaun McEwan, Chief Financial Officer of Wi-LAN Inc., certify the following:

Date: April 30, 2015