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
Aether (NASDAQ:AETH)
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Aether (NASDAQ:AETH)
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