AETH Aether

Aether Holdings, Inc. ("Aether" or the "Company") (Nasdaq:AETH), today reported financial results for the quarter ended June 30, 2006.(1) Net loss for the second quarter of 2006 was ($0.03) per share, or approximately ($1,520,000), compared to net income of $0.02 per share, or approximately $778,000 in the second quarter of 2005 and net loss of ($0.00) per share or approximately ($133,000) in the first quarter of 2006. The net loss for the second quarter of 2006 included a share-based compensation charge of $608,000, along with a restructuring charge of $789,000 which resulted from the Company's previously announced acquisition of UCC Capital Corporation ("UCC") on June 6, 2006. UCC is an industry leader in providing strategic advice and structured finance solutions to intellectual property ("IP") centric companies and is the platform for the Company's new IP acquisition strategy. The Company stated that it also recognized an other than temporary impairment charge of $324,000 on its mortgage-backed securities ("MBS") portfolio during the current quarter. "As a result of our acquisition of UCC, we have begun implementing our new IP acquisition strategy while continuing to manage our MBS portfolio," said Robert D'Loren, Aether's Chief Executive Officer. "We believe that UCC's combination of experience, expertise and approach will enable us to quickly assemble a large and diverse portfolio of IP and IP-centric companies and create significant value for our shareholders." The Company reported net interest income from MBS of $1.3 million in the second quarter of 2006, as compared to $1.6 million in the second quarter of 2005 and $1.2 million in the first quarter of 2006. Revenue from the Company's IP business was $11,000 since the date of acquisition of UCC and is anticipated to increase significantly in future quarters as the Company implements its IP strategy. Operating expenses were approximately $2.9 million in the second quarter of 2006, as compared to approximately $918,000 (excludes $60,000 of other income which is now classified as part of other operating income) in the first quarter of 2006. The increase in operating expenses, exclusive of a one-time credit of $180,000 recognized in the first quarter of 2006, was primarily attributable to share-based compensation and restructuring charges previously noted, along with approximately $204,000 in operating expenses associated with UCC's operations. The Company anticipates that operating expenses excluding restructuring charges will continue to increase in the next several quarters as it reports full quarter results for UCC and continues executing upon its new IP strategy. At June 30, 2006, the Company's MBS portfolio had a fair value of $87.4 million, compared to a fair value of $94.8 million at March 31, 2006. The reduction in fair value during the quarter was attributable to principal repayments of approximately $7.1 million and an impairment charge of approximately $324,000. The Company also stated that due to ongoing increases in short-term interest rates that produced a negative impact on the value and performance of its MBS portfolio it did not purchase any MBS or borrow any amounts under repurchase agreements during the second quarter of 2006. The weighted average coupon on the Company's MBS was 4.47% during the quarter ending June 30, 2006, compared to 4.44% at June 30, 2005 and 4.33% at March 31, 2006. All of the Company's MBS are guaranteed by a U.S. government-chartered agency. In addition, all of the Company's MBS are hybrid adjustable-rate securities that have initial fixed interest rates for three years and thereafter generally reset on an annual basis. In Q2 2006, the weighted average annualized yield on MBS was 4.47%, versus 4.12% in Q2 of 2005 and 4.25% in Q1 of 2006. The Company had no interest rate spread during the second quarter of 2006 as it had no borrowings under repurchase agreements. For the second quarter of 2005, the Company's weighted average cost of funds was 3.03%, which equates to an interest rate spread of 1.09% for the quarter. The Company's weighted average cost of funds was 4.49% for the first quarter of 2006 which equates to a negative interest rate spread of (0.24%). The weighted average constant prepayment rate on the Company's MBS portfolio was 25.7% during the second quarter of 2006, as compared to 17.0% and 25.7% for the second quarter of 2005 and the first quarter of 2006, respectively. The Company reiterated that it will continue to operate its existing MBS business but does not expect to purchase additional MBS in the near term. It will make a decision about the future of that business based upon the progress associated with its new IP business along with a further assessment of the outlook for MBS market conditions. The Company also stated that as of June 30, 2006 it had accumulated net operating and capital loss carryforwards totaling $779.5 million and $290.7 million, respectively. Conference Call Aether will host a conference call on Friday, August 4, 2006 at 8:30 a.m., Eastern Time. Interested parties may access the call at www.aetherholdings.com or by telephone at (800) 289-0746 / (913) 981-5573. Please ask for confirmation code 9568403. Replay of this call will be available until August 23, 2006, by calling (888) 203-1112 / (719) 457-0820, access code 9568403. About Aether Holdings Aether Holdings owns and manages a leveraged portfolio of mortgage-backed securities through its wholly-owned subsidiary Aether Systems, Inc. Through the acquisition of UCC, Aether will begin to build a new business focused on the acquisition of a diversified portfolio of IP and IP centric companies. Aether's business objective is to become profitable and produce taxable earnings that will enable it to realize value, in the form of tax savings, from its significant accumulated tax loss carryforwards. Forward-Looking Statement Disclosure This press release contains "forward-looking statements," as such term is used in the Securities Exchange Act of 1934, as amended. Such forward-looking statements include those regarding expectations for the development of the new IP strategy business, anticipated benefits of the UCC acquisition, the Company's ability to develop the business conducted historically by UCC and to acquire IP and IP centric businesses. When used herein, the words "anticipate," "believe," "estimate," "intend," "may," "will," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties. They are not guarantees of future performance or results. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include: (1) we may not be successful in implementing the new IP strategy, (2) our MBS business continues to involve significant risks related primarily to changes in interest rates; (3) we may not be able to realize value from our accumulated tax loss carryforwards, because of a failure to generate sufficient taxable earnings, regulatory limits or both; (4) we may not be able to acquire IP or IP centric companies or finance or exploit them on terms that are acceptable to the Company, (5) we are likely to face substantial competition in seeking to acquire and market desirable IP and IP centric companies, and competitors may have substantially greater resources than we do, (6) as a result of continued negative market conditions for MBS, the value of our MBS may decline further and we may realize additional losses if we sell additional MBS and (7) other factors discussed in our filings with the Securities and Exchange Commission. -0- *T (1) In accordance with generally accepted accounting principles ("GAAP"), the results of Aether's Transportation and Mobile Government businesses, which were sold in September 2004, and its Enterprise Mobility Systems business, which was sold in January 2004, have been presented as discontinued operations for all periods, so that period-to-period comparisons are presented on a comparable basis. Aether's continuing operations reflect the results of its mortgage-backed securities business. AETHER HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS June 30, December 31, 2006 2005 ------------ ------------ in thousands (Unaudited) Cash and cash equivalents $ 29,570 $ 1,092 Mortgage-backed securities, at fair value 87,360 253,900 Interest receivable 558 1,174 Restricted cash 8,633 8,633 Property and equipment, net 320 255 Prepaid expenses and other assets 854 954 Intangible assets 4,523 - Goodwill 9,946 - ------------ ------------ Total assets $ 141,764 $ 266,008 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 3,412 $ 4,465 Repurchase agreements - 133,924 Accrued employee compensation and benefits 384 70 Accrued interest payable - 48 Accrued restructuring costs 789 - Other liabilities 1,039 1,114 ------------ ------------ Total liabilities 5,624 139,621 Stockholders' equity 136,140 126,387 Commitments and contingencies ------------ ------------ Total liabilities and stockholders' equity $ 141,764 $ 266,008 ============ ============ AETHER HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ---------- in thousands except per share data Interest income from mortgaged-backed securities $ 1,007 $ 3,314 $ 3,556 $ 3,906 Interest income from cash and cash equivalents 342 20 356 235 Interest expense on repurchase agreements - (1,707) (1,354) (1,719) ---------- ---------- ---------- ---------- Net interest income 1,349 1,627 2,558 2,422 ---------- ---------- ---------- ---------- Loss on sale of mortgage- backed securities - 423 (490) 423 Other than temporary impairment on mortgage- backed securities (324) - (552) - Other income 21 19 82 207 Advisory and other fees 11 - 11 - ---------- ---------- ---------- ---------- Other operating income (loss) (292) 442 (949) 630 ---------- ---------- ---------- ---------- Operating expenses -------------------------- Selling, general and administrative expenses (2,016) (1,278) (2,865) (3,094) Investment advisor fees (44) (155) (90) (197) Depreciation (25) (29) (49) (78) Restructuring charge (789) - (789) 7 ---------- ---------- ---------- ---------- Total operating expenses (2,874) (1,462) (3,793) (3,362) ---------- ---------- ---------- ---------- Operating income (loss) (1,817) 607 (2,184) (310) Non-operating income (expense) -------------------------- Other interest income 296 301 542 570 Investment gain (loss), net - (9) - (19) ---------- ---------- ---------- ---------- Total non-operating income (expense) 296 292 542 551 ---------- ---------- ---------- ---------- Loss from continuing operations (1,521) 899 (1,642) 241 Discontinued operations -------------------------- Gain (loss) on sale of discontinued operations 1 (121) (11) (121) ---------- ---------- ---------- ---------- Gain (loss) from discontinued operations 1 (121) (11) (121) ---------- ---------- ---------- ---------- Net income (loss) $ (1,520) $ 778 $ (1,653) $ 120 ========== ========== ========== ========== Income (loss) per share - basic and diluted - from continuing operations $ (0.03) $ 0.02 $ (0.04) $ 0.00 Income (loss) per share - basic and diluted - gain on sale of discontinued operations 0.00 0.00 0.00 0.00 ---------- ---------- ---------- ---------- Net income (loss) per share - basic and diluted $ (0.03) $ 0.02 $ (0.04) $ 0.00 ========== ========== ========== ========== Weighted average shares outstanding Basic 44,721 44,009 45,460 44,000 ========== ========== ========== ========== Diluted 44,721 44,591 45,460 44,595 ========== ========== ========== ========== *T