News Release Details

Wi-LAN Announces 2001 Third Quarter Results

09/24/2001


CALGARY, Canada - September 24, 2001 - Wi-LAN Inc. (TSE:WIN), an innovator of wireless data/Internet communications, today announced financial results for the quarter and nine months ended July 31, 2001. All financial amounts are expressed in thousands of Canadian dollars unless otherwise noted. 

Wi-LAN’s wireless revenue for the nine months ended July 31, 2001 was $19,443, approximately 110% greater than the $9,239 of wireless revenue for the nine months ended July 31, 2000. Wireless revenue for the three months ended July 31, 2001 was $7,574, an increase of 115% over $3,528 for the three months ended July 31, 2000, and 22% growth over $6,194 for the three months ended April 30, 2001. Wi-LAN met its third quarter guidance of $7.0 million to $9.0 million in broadband wireless revenue, which was revised upwards on July 5, 2001 from the $6.0 million to $9.0 million forecast in May. These increases can be attributed to growing wireless product sales, including the sale of antennas from TIL-TEK Antennas (TIL-TEK), acquired June 29, 2000, and products from UC Wireless, acquired April 10, 2001. The sales grew in spite of slower than expected customer equipment rollouts, caused largely by slowing macro-economic conditions in North America. For further disclosure regarding wireless revenue, please refer to the "Wi-LAN" column in Note 4 to the financial statements.

For the nine months ended July 31, 2001, the Company saw an increase in consolidated revenue of 89% to $67,223 compared with $35,598 for the nine months ended July 31, 2000. For the three months ended July 31, 2001 consolidated revenue was $23,144, approximately 11% greater than the $20,903 of consolidated revenue for the three months ended July 31, 2000. This increase can be attributed to the increased revenue contribution of the Company’s U.S. subsidiary Digital Transmission Systems (DTS), acquired January 7, 2000, largely due to its acquisition of Asurent Technologies (formerly Telcor Communications) (Asurent) on March 31, 2000, as well as the increased wireless revenue described in the prior paragraph. For further disclosure regarding consolidated revenue, please refer to Note 4 to the financial statements.

A $3,979 non-cash writedown of wireless inventory to market value materially reduced the gross product margin for the three months ended July 31, 2001. For the nine months ended July 31, 2001, Wi-LAN’s gross product margin including the writedown but excluding DTS decreased 27 percentage points, compared to the nine months ended July 31, 2000, from 37% to 10%. For the three months ended July 31, 2001 Wi-LAN’s gross product margin including the writedown but excluding DTS decreased 39 percentage points, compared to the three months ended July 31, 2000, from 24% to -15%. For the nine months ended July 31, 2001, Wi-LAN’s gross product margin excluding such writedown and DTS decreased 6 percentage points, compared to the nine months ended July 31, 2000, from 37% to 31%. For the three months ended July 31, 2001 Wi-LAN’s gross product margin excluding such writedown and DTS increased 14 percentage points, compared to the three months ended July 31, 2000, from 24% to 38%. These differences were primarily due to variances in selected discounted pricing for volume and strategic customer broadband equipment orders to accelerate market penetration and increasing gross margin contributions of TIL-TEK and UC Wireless.

The company’s operating loss for the nine months ended July 31, 2001 increased $46,296 to $61,025 from $14,729 for the nine months ended July 31, 2000. For the three months ended July 31, 2001 the company’s operating loss increased by $31,881, compared to the three months ended July 31, 2000, from $10,251 to $42,132. DTS’s contribution to the three-month operating loss was $24,697, of which $14,005 is attributable to non-cash special charges to adjust the assets of Asurent to their estimated fair values because, in conjunction with the Company’s on-going review of operations, management has made the decision to dispose of a portion of the Asurent operations owned by DTS. Wi-LAN’s operating loss for the three months ended July 31, 2001 excluding DTS was $17,435. Special charges accounted for $4,433 of this amount, of which $389 was a cash charge related to workforce reduction severance payments and the balance of $4,044 was primarily an accrual for the cost of excess space at Wi-LAN’s Calgary office over the life of its long-term lease, pursuant to recent reductions in headcount. Another unusual item was the writedown of inventory to market value of $3,979, mentioned above. The remaining $9,023 Wi-LAN operating loss excluding DTS for the three months ended July 31, 2001 was attributable to ongoing core operations.

A non-cash loss on impairment of assets of $31,491 was recorded in the three months ended July 31, 2001. As explained above with regard to special charges, the Company has made the decision to dispose of a portion of the Asurent operation. The remaining goodwill of Asurent in the amount of $16,942 has been written off because, based on the expected proceeds of disposition, no portion of the recorded goodwill related to Asurent is expected to be recovered. Also, fixed assets of Asurent have been written down by $4,615 based on the expected proceeds of disposition. In addition, the remaining goodwill associated with the acquisition of the DTS operation in the amount of $5,591 has been written off because, as a result of continuing operating losses in DTS and no prospects of profitability in the near term, there is substantial doubt that any of Wi-LAN’s investment in DTS will be recovered. The Company has also reviewed the fair value of portfolio investments held and has recorded a writedown of $4,343 million on these investments because some investments have been identified as having no value due to the poor financial position of the companies concerned, their lack of past profitability and the lack of prospect for profitability of those companies in the near term. For further disclosure regarding the loss on impairment of assets, please refer to Note 6 to the financial statements.

During the nine months ended July 31, 2001 the Company had cash flow applied to operations of $26,708, a $8,660 increase compared to cash flow applied to operations of $18,048 in the nine months ended July 31, 2000. During the three months ended July 31, 2001 the Company had cash flow applied to operations of $9,479, a $2,346 decrease compared to a cash flow applied to operations of $11,825 in the three months ended July 31, 2000. The increase in cash flow applied to operations for the nine months ended July 31, 2001 was due to an increase in the Company’s expenditures and a net outflow of cash related to the non-cash working capital position primarily due to increased receivable balances, inventories, prepaid expenses and deposits made during the first six months of the fiscal year. The decrease in cash flow applied to operations for the three months ended July 31, 2001 was achieved as the Company continued to grow sales while controlling expenditures. Cash flow in future periods will be positively impacted by restructuring actions taken by Wi-LAN on July 17 and September 14, 2001. On July 17, 2001, Wi-LAN initiated a restructuring plan, which is expected to improve the company’s cash flow applied to operations by approximately $1,500 per month. The overall expenditure reduction included reducing staff by approximately 70 people, which resulted in a $389 cash charge related to workforce reduction severance payments. On September 14, 2001, Wi-LAN announced further management and structural changes, which are expected to improve the company’s cash flow applied to operations by approximately $500 per month. This initiative included a staff reduction of approximately 65 people, which is expected to result in a cash charge of approximately $800 related primarily to workforce reduction severance payments. For further disclosure regarding the September 14, 2001 changes, please refer to Note 10 to the financial statements.

2001 Third Quarter Operational Highlights
Wi-LAN accomplished several significant strategic initiatives in the third quarter that will contribute to the company’s future growth.

FCC Certification: On May 10, 2001, the Federal Communications Commission (FCC) granted Wi-LAN an interim waiver to permit the sale and use of W-OFDM products in the United States in the 2.4 GHz band. On June 5, 2001, the OFDM-based BWS 300-24 product was certified by the FCC for use in the 2.4 GHz band in the United States. This opens the door for certification of Wi-LAN's next-generation W-OFDM products in the 2.4 GHz band.

Financing: On May 15, 2001, Wi-LAN completed a financing in the form of a public offering of 1.5 million units at a price of $8.00 per unit for gross proceeds of $11.6 million. The net proceeds of $10.8 million are being used to provide additional funding for product development, to support sales growth and for general corporate purposes. Each unit consists of one common share and one-half of one common share purchase warrant. Each warrant entitles the holder to acquire one common share of Wi-LAN at an exercise price of $9.50 at any time on or before May 15, 2003.

Board Appointment: Henry Burkhalter was appointed to Wi-LAN’s Board of Directors. Most recently, in his position as COO for WorldCom Wireless Solutions, Mr. Burkhalter was responsible for the deployment of licensed wireless spectrum for broadband access services throughout the United States. Mr. Burkhalter has served in several positions with the Wireless Communications Association International (WCA) and has testified on behalf of the wireless industry before the U.S. Congress and the FCC.

Product Certifications in China: The Wi-LAN AWE 120-58, a 12-megabit-per-second advanced wireless Ethernet bridge, was approved for use in the 5.8 GHz ISM Frequency band in China by the State Regulatory Radio Commission (SRRC), the agency that regulates spectrum allocation licensing in that country. 

Distribution Channels: Wi-LAN signed Graybar Canada as a Gold Certified Partner in its Channel Partner Program. Graybar Canada distributes Wi-LAN’s broadband wireless access products to its network of resellers. These resellers then distribute Wi-LAN’s products to enterprises and to Internet Service Providers serving business customers. Also, UC Wireless, a wholly owned subsidiary of Wi-LAN, signed two authorized distributor agreements for the Peoples Republic of China with Sunbeam Technologies Development Corporation based in Beijing, China as well as Spectrum Communications Systems, a Chinese distributor headquartered in Auburn, California.

Business Restructuring: On July 17, 2001, Wi-LAN initiated a restructuring plan, which is expected to improve the company’s cash flow used in operations by approximately $1.5 million per month. This restructuring is in response to the slower than expected growth of the fixed wireless access market. The overall expenditure reduction includes reducing staff of 280 by approximately 30%. Other reductions encompass operating expenditures and a one-third reduction in overall cash compensation for executive officers. 

Master Service Agreement: Wi-LAN signed a master service agreement (MSA) with Massachusetts-based systems integrator General Dynamics Wireless Services. The agreement will combine the efforts of Wi-LAN and General Dynamics on a project-specific basis to deliver a superior wireless communications system to the client.

Awards
Wi-LAN was recognized by Profit 100 Magazine’s PROFIT 100 - Canada’s Fastest Growing Companies competition as the fourth fastest-growing company in Canada, and first in the Prairie region, on the basis of revenue.

Wi-LAN was recognized as one of the country’s best-performing publicly traded high-technology companies for 2001 according to Canadian Business Magazine’s annual Tech 100 listing. Wi-LAN received top rankings in numerous categories, leading to an overall ranking as fifth across Canada.

Wi-LAN’s AWE 120-24 advanced wireless Ethernet bridge earned the "NetWORKS As Advertised" award from Miercom, an independent networking consultancy and product test center based in Princeton Junction, New Jersey. Miercom's testing acknowledges that the product works according to its published specifications.

OFDM Forum News
The OFDM Forum is a market development association comprised of hardware manufacturers, software firms, telecommunications companies and other users interested in Orthogonal Frequency Division Multiplexing (OFDM) technology in wireless applications. Founded in December 1999, the OFDM Forum was established to promote a single, compatible global OFDM standard for cost- effective, high-speed wireless networks on a variety of devices. Founding companies are: Ericsson, Nokia, Philips Semiconductors, Samsung Electro-Mechanics, Sony, Wi-LAN and the Testbed Center for Interoperability at the University of California at Santa Barbara (a division of Caltrans). The OFDM Forum has grown to include 60 members to date, 15 of which are listed as Principal Members of the organization. More information on the OFDM Forum can be found at www.ofdm-forum.com.

The OFDM Forum endorsed the Dedicated Short Range Communications (DSRC) 5.9 GHz Standards Writing Group’s technology selection to provide the interoperability for DSRC Public Safety-based applications. A variant of the IEEE 802.11a standard, this roadside application proposal, known as 802.11a/RA, uses OFDM in its next generation wireless communication networks. There are several early-adopter applications for 802.11a/RA, including automatic toll payment, vehicle/bus probes, tractor-trailer interface, truck data log polling, route specific traffic advisories, and safety vehicle warning systems.

The OFDM Forum announced National Semiconductor as its newest Associate Member and Soongsil University as a new Academic Member.

Subsequent Events
Mr. Steve Bellamy has been appointed to the role of Chief Financial Officer, effective September 1, 2001. Mr. Bellamy has been with UC Wireless since 1998 and is the current Chief Financial Officer for this Wi-LAN subsidiary in Santa Barbara, California. Mr. Bellamy replaces Mr. Peter Kinash, Wi-LAN's former Chief Financial Officer, who left the company August 31, 2001 to pursue other interests. Mr. Bellamy has 20 years of experience in financial operations across Europe and the United States, with strength in mergers and acquisitions, fund raising and cash management.

Dr. Michel Fattouche resigned from Wi-LAN’s board of directors in order to focus more on his other responsibilities.

Wi-LAN’s new BWS 3500 broadband wireless access system, based on W-OFDM technology, has been certified for use in the 3.5 GHz frequency band in China. This approval was granted by the State Regulatory Radio Commission (SRRC).

On September 14, Wi-LAN reduced its staff by 55 percent to approximately 55 people excluding Til-Tek, UC Wireless and DTS to further improve its cash flow by approximately $0.5 million per month and maintain an expected minimum cash balance of $3 million over the next 12 months. Due to the reduced size of the company, Bill Hews agreed to resign as President and Dr. Hatim Zaghloul will assume the duties of President, CEO and Chairman. Mr. Hews will continue as a Director of the company.

All financial information in this document is reported in Canadian dollars, unless otherwise indicated. 

Conference Call Information
The Wi-LAN third quarter conference call will be held on September 25, 2001 at 9 a.m. Mountain Time (11 a.m. Eastern). The call-in number is 416-695-5806 in Toronto or 1-800-273-9672. A replay of the call will be available until 10:00 p.m. MST (12 a.m. EST) on September 27 at 416-695-5800 / 1-800-408-3053 (passcode: 908476)). The call will also be audio webcast from Wi-LAN's website 
(www.wi-lan.com) and will be archived there.

Forward Looking Information
Certain statements in this release, other than statements of historical fact, are forward-looking information that involves various risks and uncertainties. These can include, without limitation, statements based on current expectations involving a number of risks and uncertainties related to all aspects of the wireless data communications industry. These risks and uncertainties include, but are not restricted to, continued increased demand for the Company's products, the Company's ability to maintain its technological leadership in the field of high-speed data communications, the Company's ability to attract and maintain key employees, the enforceability of the Company's patents, and the availability of key components. These uncertainties may cause actual results to differ from information contained herein. There can be no assurance that such statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. These and all subsequent written and oral forward-looking statements are based on the estimates and opinions of management on the dates they are made and expressly qualified in their entirety by this notice. The Company assumes no obligation to update forward-looking statements should circumstances or management's estimates or opinions change.

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