Aether (NASDAQ:AETH)
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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.
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(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