These interim Consolidated Financial Statements were approved and authorized for issuance by the Board of Directors on November 22, 2011. On October 27, 2011, MOSAID announced that it had entered into an arrangement agreement with Sterling Partners. Sterling will acquire all the outstanding common shares of MOSAID for a cash payment of $46.00 per share as disclosed in Note 16.
2. Basis of Presentation
In conjunction with the Company's annual audited consolidated financial statements to be issued under International Financial Reporting Standard ("IFRS") for the year ended April 30, 2011, these interim consolidated financial statements present the Company's financial results of operations and financial position under IFRS, as at and for the three and six months ended October 31, 2011, including fiscal year 2011 comparative periods. As a result, they have been prepared in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standard" and with IAS 34, "Interim Financial Reporting." The consolidated interim financial statements do not include all of the information required for full annual financial statements. Previously the Company prepared its interim and annual consolidated Financial Statements in accordance with Canadian generally accepted accounting principles ("previous GAAP").
The preparation of these interim consolidated financial statements resulted in selected changes to the Company's accounting policies as compared to those disclosed in the Company's annual audited consolidated financial statements for the period ended April 30, 2011 issued under previous GAAP. A summary of significant changes to MOSAID's accounting policies is disclosed in Note 15 along with reconciliations presenting the impact of the transition to IFRS for comparative periods as at May 1, 2010, for the six months ended October 31, 2010, and for the twelve months ended April 30, 2011.
A summary of MOSAID's significant accounting policies under IFRS is presented in Note 3. These policies have been retrospectively and consistently applied except where specific exemptions permitted an alternative treatment upon transition to IFRS in accordance with IFRS 1 as disclosed in Note 15.
The consolidated interim financial statements have been prepared on the historical cost basis except for marketable securities, derivative financial instruments and share-based payment transactions that are measured at fair value.
These consolidated interim financial statements are presented in Canadian dollars, which is the functional currency of the Company and its subsidiaries.
3. Accounting Policies
Consolidation
These consolidated financial statements include the accounts of MOSAID Technologies Incorporated and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include all readily tradable instruments such as bonds, debentures and discount notes with an original maturity of three months or less.
Marketable securities
Marketable securities include readily tradable instruments such as bonds, debentures and discount notes with original maturities in excess of three months and are carried at their fair value as they are classified as held for trading.
Property and equipment
Property and equipment are recorded at cost. Amortization is provided over the estimated useful lives of the assets as follows:
Equipment 35% declining balance Furniture and fixtures 20% declining balance Leasehold improvement shorter of useful life or term of the leaseAmortization commences when an asset is available for use. Amortization methods and useful lives are reviewed at each annual reporting date and adjusted if appropriate.
Acquired intangible assets
Acquired intangible assets consist of patents, exclusive sub-licensing rights, and software. Acquired intangible assets are recorded at their fair value at the date of acquisition. Amortization is provided over the estimated useful lives of the assets as follows:
Patents and exclusive sub-licensing rights 1-14 years Software 35% declining balanceAmortization commences when an asset is available for use. Amortization methods and useful lives are reviewed at each annual reporting date and adjusted if appropriate.
Asset impairment
At each balance sheet date, the Company reviews the carrying amount of tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash generating unit to which the asset belongs. An impairment loss is recorded if the recoverable amount, determined as the higher of its fair value less costs to sell and the value in use of the individual asset or the cash generating unit as appropriate, is less than its carrying value.
Research and development
Research costs are expensed as incurred. Development costs are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Such costs are amortized, commencing when the product is available for use, over the expected life of the product. To date, no development costs have met the criteria for deferral.
Government assistance and investment tax credits
Government assistance and investment tax credits are recorded as a reduction of the related expense or cost of the asset acquired. The benefits are not recognized until there is reasonable assurance that the Company has complied with the terms and conditions of the approved grant program or applicable tax legislation and the grants will be received.
Revenue recognition
The Company earns revenue from monetizing patented technology, primarily through licensing agreements. Revenue is measured at the fair value of the consideration received or receivable and is recognized on an accrual basis when it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably.
Revenue from fixed payments associated with long-term license agreements is recognized as payments become due from the licensee. Royalty revenue from long-term license agreements, which is typically based upon sale of product by the licensee, is recognized upon notification of the sale by the licensee. The Company from time to time may sell patents within its portfolio and revenue is recognized as payments become due.
Deferred revenue arises on license agreements where the payment is received in advance of being due, or where the earnings process is complete but there is not reasonable assurance of collectability at the time of billing.
Foreign currency translation
Transactions in foreign currencies are translated into Canadian dollars at the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated at the rate of exchange in effect at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to Canadian dollars at the exchange rate at the date that the fair value was determined. Non-monetary items denominated in a foreign currency that are measured in terms of historical cost are translated at historical exchange rates. Revenues and expenses are translated at rates in effect during the year except for amortization, which is translated at the same rate as the asset to which it relates. The resulting translation adjustments are included in the determination of net income.
Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under the asset and liability method, the change in the deferred income tax asset and liability is to be included in the determination of net income. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The Company recognizes deferred income tax assets to the extent that it is probable that future taxable profits will be available against which they can be utilized.
