MOSAID Announces Third Quarter Results for Fiscal Year 2004

OTTAWA, Ontario – February 19, 2004 – MOSAID Technologies Incorporated (TSX:MSD) today announced financial results for the third quarter of fiscal 2004 ended January 23, 2004.

As a result of exiting the fabless semiconductor business focussed on networking chips and discontinuing operations of the Semiconductor Division in September 2003, the Company revised certain previously disclosed results of operations and amended its financial presentation, in accordance with Canadian generally accepted accounting principles.

Revenues for the third quarter of fiscal year 2004 were $7,611,000 compared to $11,052,000 in the third quarter of fiscal year 2003. Net income for the quarter was $430,000 or $0.04 per diluted share, compared to a net loss of $2,703,000 or $0.26 per diluted share a year ago. Before discontinued operations, earnings for the quarter was $372,000 or $0.04 per diluted share compared with earnings of $1,572,000 or $0.15 per diluted share a year ago.

Revenues for the fiscal year to date were $20,412,000 compared to revenues of $26,576,000 reported for the same period last year. Net loss for the first three quarters of fiscal 2004 was $9,396,000 or $0.91 per diluted share, compared to a net loss of $11,508,000 or $1.12 per diluted share reported in the first three quarters of fiscal 2003. The year to date loss for fiscal 2004 before discontinued operations was $1,372,000 or $0.13 per diluted share compared to earnings before discontinued operations of $735,000 or $0.07 a year ago.

The Company’s cash balance and short-term marketable securities at the end of the third quarter were $37.9 million, an increase of $400,000 over the $37.5 million at the end of the second quarter of fiscal 2004.

"We are pleased to report our first quarter of profitability after two years of losses resulting from the downturn in the memory and networking markets," said George Cwynar, President and Chief Executive Officer of MOSAID. "Our improved financial performance and increased cash balance is the result of continued cost control, the discontinuation of our unprofitable semiconductor business and an improvement in our Systems business. The Systems Division posted increased revenues and margins on a sequential basis, and a healthy profit driven by the strength of their offering and by the recovery in the memory market."

"In the Intellectual Property Division, we continued to expand our patent licensing opportunity and to assert our patent portfolio in licensing discussions. Further, we remain confident in the strength of our current litigations against Samsung and Infineon as they have advanced beyond the January 2004 Markman hearing."

Operating Highlights

Joint Markman Hearing Held and Trial Date Set

On January 27 and 30, 2004, the joint claims construction, or Markman hearing, in the Samsung and Infineon cases was held before Judge Martini of the U.S. District Court for New Jersey. Judge Martini is expected to rule on the matter within the next few months.

On February 11, 2004, a joint Status Conference was held before Magistrate Judge Hedges of the U.S. District Court for New Jersey to define the next steps in the Samsung and Infineon cases. In the Samsung case, Magistrate Hedges set a trial date of December 7, 2004. In the Infineon case, the initial fact discovery deadline is May 28, 2004. The Infineon case will be ultimately transferred back to the Northern District of California for trial. Currently, all parties await Magistrate Hedges' final Order from the February 11, 2004 Status Conference.

During the third quarter, MOSAID announced the addition of two new patents to its claims in the actions against both Infineon and Samsung. The U.S. Patent Office granted these new patents to MOSAID after considering allegations of prior invention documented by Samsung during the current litigation. MOSAID believes these additions have strengthened its ongoing cases against Samsung and Infineon.

At the end of the quarter, MOSAID had 532 issued or pending patents, representing an increase of seven over the second quarter of fiscal 2004. There are now a total of fifteen companies on notice for patent infringement and MOSAID is in active licensing discussions with a number of these companies.

Systems Division Returned to Profitability

During the third quarter, the Systems Division returned to profitability, recording an operating profit of $898,000 on revenues of $4,632,000. Increased shipments of the Division’s MS4205 and MS4205ex test systems, on a sequential basis, reflect the growing demand from semiconductor manufacturers to acquire high performance test capability for the latest high-speed Flash and DRAM memories.

In January 2004, the Systems Division introduced a new version of its Test Control Software (TCS 5.3), expanding the bitmap capture and display capacity to handle up to 2Gbit memory chips. TCS 5.3 also adds features to MOSAID’s patented Graphical Sequence Editor, a sophisticated software tool that vastly simplifies the process of implementing the complex address and data sequences required to test modern memory devices. TCS 5.3 is applicable to MOSAID’s MS4205 and MS4204ex test systems.

Conference Call and Webcast

Management will hold a conference call and webcast on Thursday, February 19, 2004 at 5:00 p.m. (EST). Participants wishing to access the conference call should dial 1-800-814-4859. The conference call will also be webcast live at www.mosaid.com and www.newswire.ca, and subsequently archived on MOSAID’s web site. A rebroadcast of the conference call will be available until midnight on Thursday, February 26, 2004. To access the rebroadcast, please dial 1-877-289-8525 and enter the passcode 21037413 #.

About MOSAID

MOSAID Technologies Incorporated is an independent semiconductor company operating through two divisions:

Intellectual Property
Systems

Founded in 1975, MOSAID is based in Ottawa, Ontario, Canada, with offices in Santa Clara, California; Newcastle upon Tyne, U.K; and Tokyo, Japan. For more information, visit the Company’s web site at www.mosaid.com.

Forward Looking Information
This document may contain forward-looking statements relating to the Company’s operations or to the environment in which the Company operates. Such statements are based on current expectations that are subject to a variety of risks and uncertainties that are difficult to predict and/or beyond MOSAID’s control. Actual results may differ materially from those expressed in any forward-looking statements, due to factors such as customer demand and timing of purchasing decisions, product and business mix, competitive products, pricing pressures as well as general economic and industry conditions. MOSAID assumes no obligation to update these forward-looking statements, or to update the reasons why actual results could differ from those reflected in any forward-looking statements. Additional information identifying risks and uncertainties is contained in other public filings with the Ontario Securities Commission.

MANAGEMENT’S DISCUSSION AND ANALYSIS,
FINANCIAL STATEMENTS AND NOTES FOLLOW

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

The following discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements of MOSAID Technologies Incorporated ("MOSAID" or "the Company") for the period ended January 23, 2004, appearing elsewhere in this report and with the audited annual Consolidated Financial Statements and the Management’s Discussion and Analysis (MD&A) included in the Company’s most recent Annual Report for the fiscal year ended April 25, 2003. All dollar amounts are in Canadian dollars, except where otherwise indicated.

Overview

On September 16, 2003, the Company announced the closure of its fabless semiconductor operation, which was the business of the Semiconductor Division, whose mission was the development and sale of networking chips. As a result, the financial statements, notes and this report reflect Discontinued Operations in the current quarter and all other financial periods, in order to present comparable data, and to be consistent with the Canadian generally accepted accounting principles.

The Company reported revenues of $7.6 million for the 13 weeks ended January 23, 2004 ("Q3 fiscal 2004"), representing a decrease of 31% from revenues of $11.1 million for the 13 weeks ended January 24, 2003 ("Q3 fiscal 2003"). The net income for Q3 fiscal 2004 were $430,000 or $0.04 per diluted share, compared to a net loss of $2.7 million or $0.26 per diluted share for Q3 fiscal 2003. The earnings before discontinued operations for Q3 fiscal 2004 was $372,000 or $0.04 per diluted share, compared to earnings before discontinued operations of $1,572,000 or $0.15 per diluted share for Q3 fiscal 2003. Revenues of $20.4 million for the 39 weeks ended January 23, 2004 represent a decrease of 23% from revenues of $26.6 million for the same period a year ago. The net loss for the 39 weeks ended January 23, 2004 was $9.4 million or $0.91 per diluted share, compared to a net loss of $11.5 million or $1.12 per diluted share for the same period a year ago. The loss before discontinued operations for the 39 weeks ended January 23, 2004 was $1.4 million, or $0.13 per diluted share, compared to an earnings before discontinued operations of $735,000 or $0.07 per diluted share for the 39 weeks ended January 24, 2003.

Results of Operations
The following table shows the percentage of revenues represented by certain items in the Company's consolidated statement of earnings for the fiscal periods indicated.

Amounts in Thousands	13 Weeks Ended				39 Weeks Ended
	January 23, 2004		January 24, 2003		January 23, 2004		January 24, 2003
	$	%	$	%	$	%	$	%

Revenues	7,611	100%	11,052	100%	20,412	100%	26,576	100%

Expenses:
Labour and Materials	1,463	19%	2,424	22%	3,845	19%	6,208	23%
Research & Development	1,691	22%	2,577	23%	4,309	21%	6,704	25%
Selling and Marketing	2,844	37%	2,484	22%	8,678	43%	5,608	21%
General & Administration	1,029	14%	1,864	17%	3,847	19%	5,237	20%
Bad Debt (recovery)	-	-	(5)	0%	-	-	(70)	-
Restructuring	-	-	-	-	-	-	783	3%
	7,027	92%	9,344	85%	20,679	101%	24,470	92%
	584	8%	1,708	15%	(267)	(1%)	2,106	8%
Loss on write down of Long-Term Investment	-	-	-	-	-	-	(518)	(2%)
Gain (loss) on disposal of Long-Term Investment	87	1%	-	-	(156)	(1%)	(426)	(2%)
Income (loss) before income tax expense and discontinued operations	671	9%	1708	15%	(423)	(2%)	1,162	4%
Income Tax Expenses	299	4%	136	1%	949	5%	427	2%
Earnings (loss) earnings before discontinued operations	372	5%	1572	14%	(1,372)	(7%)	735	3%
Discontinued operations (net of tax)	58	1%	(4,275)	(39%)	(8,024)	(39%)	(12,243)	(46%)
Net Income (loss)	430	6%	(2,703)	(24%)	(9,396)	(46%)	(11,508)	(43%)

With the discontinuation of the Semiconductor Division, the Company provides a segmented report on the two remaining Divisions – the Intellectual Property (IP) Division and the Systems Division. The financial results of these two Divisions, for the current and previous financial periods, reported incorporate a re-allocation of all General and Administrative expenses, reflecting the Semiconductor Division’s discontinuation. The results of the discontinued operations are detailed in Note 2 to the Consolidated Financial Statements ("Restructuring and Discontinued Operations"), as well as in the Discontinued Operations provided in the "Business Segment Information" provided in Note 5 to the Consolidated Financial Statements.

The Intellectual Property ("IP") Division’s segment loss of $503,000 for Q3 fiscal 2004 compares to a $3.0 million segment profit for the same quarter in the previous year. The segment loss of $744,000 for the 39 weeks ended January 23, 2004 compares with the segment profit of $10.5 million for the same period last year. The decline in profitability is mainly due to the decrease in license revenues in fiscal 2004 versus fiscal 2003, combined with an increase in litigation costs.

A segment profit of $898,000 for the Systems Division for the 13 weeks ended January 23, 2004 compares to a segment loss of $1.5 million for the same period last year. The improvement is the result of higher margins and reduced R&D and Sales and Marketing expenses. For the 39 weeks ended January 23, 2004, the segment loss was $583,000 compared to a segment loss of $9.3 million for the same period a year ago.

Revenues

(Amounts in thousands)	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
IP Division	$2,766	$5,833	$8,930	$15,891
Systems Division	$4,632	$4,927	$10,709	$9,794
Revenues from Operations	$7,398	$10,760	$19,639	$25,685
Interest	$213	$292	$773	$891
Total Revenues	$7,611	$11,052	$20,412	$26,576

In the IP Division, patent licensing revenues decreased $3.1 million in Q3 fiscal 2004 from Q3 fiscal 2003. In the 39 weeks ended January 23, 2004 patent licensing revenues decreased $7.0 million to $8.9 million, from $15.9 million in the same period last year. Revenues from the IP Division can vary significantly from period to period depending on royalties based on customer revenues and contracted payment schedules.

Systems Division revenues for Q3 fiscal 2004 were 6% lower than revenues for the same quarter in the previous year. Revenues for the 39 weeks ended January 23, 2004 were 9% higher than revenues for the same period last year. This is mainly due to a higher average selling price per unit.

% of Total Revenues	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
IP Division	36%	53%	44%	60%
Systems Division	61%	45%	52%	37%
Revenues from Operations	97%	98%	96%	97%
Interest	3%	2%	4%	3%
Total Revenues	100%	100%	100%	100%

The change in the revenue split, with proportionately more revenues coming from the Systems Division, reflects the decline in revenues from the IP Division as payments from existing licensees decrease.

Interest income for the 13 weeks and the 39 weeks ended January 23, 2004 declined 27% and 13% respectively compared to the same period last year, primarily as a result of reduced cash balances.

The approximate geographic breakdown of revenues from operations is as follows:

	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
Japan	44.7%	53.8%	48.9%	61.6%
United States	4.0%	25.5%	5.8%	18.7%
Taiwan	25.1%	5.4%	29.8%	6.5%
Korea	23.9%	7.6%	13.7%	6.2%
Other	2.3%	7.7%	1.8%	7.0%

The Company markets its products and services globally. The percentage decrease in the Japanese market is due to the decrease in patent licensing revenues. The increase in the percentage of sales from Taiwan and Korea results primarily from the increase in percentage of revenues being derived from the Systems Division.

Labour and Materials

(Amounts in thousands)	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
Labour and Materials	$1,463	$2,424	$3,845	$6,208
As a percentage of total revenues	19%	22%	19%	23%
As a percentage of Systems Division revenues	32%	49%	36%	64%
Increase (decrease) from same period last year	(40%)		(38%)

This category comprises the labour, materials and subcontracting costs to assemble, integrate, test and service the memory test systems.

Labour and materials for the 13 weeks and the 39 weeks ended January 23, 2004 have decreased as a percentage of both total revenues and revenues from the Systems Division compared to the same period last year. The decrease is related to higher average selling prices as a result of sales mix and channel mix, and lower labour and material costs as result of improved efficiency of tester assembly, continued cost containment practices and reduced fixed costs relative to total costs.

Research and Development

(Amounts in thousands)	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
Research & Development	$1,691	$2,577	$4,309	$6,704
As a percentage of total revenues	22%	23%	21%	25%
Increase (decrease) from the same period last year	(34%)		(27%)

The decrease in research and development expenditures in absolute amounts, for the current quarter and for the 39 weeks ended January 23, 2004 as compared to the same periods last year, is mainly due to the reduction in the number of Systems employees and projects since the restructurings that were undertaken in Q1 and Q4 fiscal 2003. The launch of the design licensing business within the IP Division, resulted in R&D costs being recorded from the time of closure of the Semiconductor Division, in September 2003.

For Q3 fiscal 2004, research and development, as a percentage of total revenues, was approximately the same as in Q3 fiscal 2003. For the 39 weeks ended January 23, 2004, research and development decreased as a percentage of total revenues as compared to the same period last year, mainly reflecting reduced headcount and a reduced number of R&D projects.

In fiscal 2004, investment tax credits are not being recorded as an offset to R&D expense, whereas they represented an offset of $137,000 in Q3 fiscal 2003 and $450,000 for the first three quarters of fiscal 2003.

Sales and Marketing

(Amounts in thousands)	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
Sales and Marketing	$2,844	$2,484	$8,678	$5,608
As a percentage of total revenues	37%	22%	43%	21%
Increase (decrease) from the same period last year	15%		55%

The increase in S&M expenses in absolute terms for the current quarter and for the first three quarters of fiscal 2004 as compared to the same periods last year, is primarily related to the litigation expense in the IP Division. Further, a reversal of commissions previously accrued, and reversed in the 13 weeks ending October 25, 2002, biased the sales and marketing expense down for that period.

The increase in S&M expenses as a percentage of revenues is due to increased costs of litigation relative to reduced revenues. Further, during the 13 weeks ending October 25, 2002 a reversal of accrued commissions biased the sales and marketing expense down for that period.

General and Administration

(Amounts in thousands)	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
General and Administration	$1,029	$1,864	$3,847	$5,237
As a percentage of total revenues	14%	17%	19%	20%
Increase (decrease) from the same period last year	(45%)		(27%)

The decrease in G&A expenses in absolute amounts is driven by decreases in labour related costs, resulting from a halving of headcount and reduced professional fees and subcontract expenses as the Company continues to make efforts to contain costs. Further, during Q3 fiscal 2004, the Company resolved a dispute with a utility resulting in a one-time reversal of previously accrued amounts. During the current quarter, the Company recorded a foreign exchange loss of $25,000 and a net gain of $287,000 for the year to date. In the prior year the foreign exchange loss was $150,000 for the 13 weeks ended January 24, 2003 and $22,000 for the 39 weeks ended January 24, 2003.

Gain on disposal of long-term investment

During the quarter, a gain of $87,000 was recorded in conjunction with the final resolution of escrow matters related to the disposition of our interest in Atmos Corporation.

Income Taxes

Income tax expense of $299,000 for Q3 fiscal 2004 and $949,000 for the 39 weeks ended January 23, 2004 was recorded to reflect the withholding tax on international royalty income. The Company has not recorded the future income benefit related to current year losses and earned ITC’s. Income tax expense of $136,000 for Q3 fiscal 2003 and $427,000 for the 39 weeks ended January 24, 2003, represented an effective tax rate of approximately 32%, applied to the ITC’s recorded in the respective periods.

Discontinued Operations

The Discontinued Operations expense relates to the closure of the Semiconductor Division in Q2 Fiscal 2004. The documentation of the direct revenues and expenses associated with that discontinued division in all earlier quarters are detailed in Note 2 to the Consolidated Financial Statements.

(Amounts in thousands)	13 weeks ended		39 weeks ended
	January 23, 2004	January 24, 2003	January 23, 2004	January 24, 2003
Discontinued Operations	$58	($4,275)	($8,024)	($12,243)

The Discontinued Operations expense for Q3 fiscal 2004 reflects reversal of overaccrued ex-employees’ benefits at calendar year end. The Q3 fiscal 2003 loss of $4.3 million represents the costs of the Semiconductor Division operation for the entire quarter.

Liquidity and Capital Resources

During the 13 weeks ended January 23, 2004, the Company generated positive cashflow from operations of $289,000 compared to negative cashflow from operations of $4.5 million in the same period last year. With respect to investing activities, there was minimal purchase of capital assets and routine acquisition and disposition of short-term marketable securities. During the quarter, financing activities provided cash and cash equivalents of $76,000 primarily due to the issuance of common shares under the Employee Stock Purchase Plan(ESPP).

During the 39 weeks ended January 23, 2004, the Company generated a negative cashflow of $4.7 million from operations, as compared to a negative cashflow from operations of $9.8 million in the same period last year. With respect to investing activities, there was investment in capital assets of $568,000, offset by the proceeds on disposal of long-term investments of $620,000, and the routine acquisition and disposition of short term marketable securities. For the period, financing activities provided cash and cash equivalents $278,000, consisting, in the main, of the issuance of common shares under the ESPP for proceeds of $439,000 and repayment of the mortgage principal of $142,000.

Cash and short term marketable securities

As of January 23, 2004, the Company had cash and short-term marketable securities of $37.9 million, compared to $42.3 million as of the end of fiscal 2003. Working capital decreased to $36.7 million at the end of Q3 fiscal 2004 from $41.0 million at the end of fiscal 2003. The decrease was mainly due to the use of cash to fund operations and reduced accounts receivable during the period. Management believes that the Company is well capitalized with sufficient working capital to fund ongoing operations.

A $10,000,000 bank credit facility is available to cover the fluctuations in cash requirements but was not used during the quarter. The available operating line is calculated using a formula based on accounts receivable.

Accounts receivable

Accounts receivable decreased to $3.9 million at the end of Q3 fiscal 2004, from $7.6 million at the end of fiscal 2003, due to a reduction in revenues as well as due to timing of collections. The Company employs financial instruments (principally forward exchange contracts) in the management of its foreign currency exposures, and has committed to sell, by July 20, 2004, US $6,000,000 at an average rate of 1.32.

Inventory

Inventory levels decreased to $3.2 million at the end of Q3 fiscal 2004, from $3.5 million at the end of fiscal 2003, due to routine drawdowns of stock.

Capital assets

During the three quarters of fiscal 2004, the Company’s capital assets decreased by $4.0 million as a result of minimal capital additions, net of amortization of $2.4 million and writedown of assets of $2.2 million.

Future income taxes recoverable

The January 23, 2004 balance for Future Income Taxes Recoverable is $12.7 million, compared with $12.7 million at April 25, 2003. The Company’s view is that this amount is more likely than not to be realized through its operations. The Company does not currently record investment tax credits earned as an offset to R&D expense, and any withholding taxes on international royalty income are record as income tax expense.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities decreased to $7.8 million at January 23, 2004, from $12.4 million at April 25, 2003, primarily due to the reduction in the accrual related to the April 25, 2003 and September 16, 2003 restructurings and the timing of trade payables.

Mortgage payable

A mortgage of $6,000,000, at a fixed rate of 8.24% per annum and for a ten-year term, has been put in place to finance the Company’s principal physical facility, which went into service in December 1997. The remaining principal amount at the end of Q3 fiscal 2004 was $5.1 million, of which $203,000 is due within 12 months. The cost of the land and building was $7.9 million, less amortization of $1.7 million at the end of the quarter.

Risks and Uncertainties

The Company expects that its future operating results may be subject to quarterly and annual fluctuations resulting from a variety of factors, including market conditions, changes in customer and geographic distribution, potential schedule slippages, and the possibility that its patents might be declared invalid. Sales to a relatively small number of customers account for a substantial portion of the Company’s total revenues. In the IP Division, revenues are primarily derived from a small number of large contracts, principally related to patent licensing agreements, each with finite payment terms. In the Systems Division, a portion of revenues in any fiscal quarter may result from customer orders received in the same quarter. Delays in booking patent licensing agreements or Systems orders may lead to significant volatility in financial performance, particularly in terms of quarterly results. The semiconductor industry is characterized by rapid technological change and evolving industry and customer requirements, specifications and standards. The Company’s success will depend on its ability to enhance its existing designs, create new intellectual property and test systems and to develop new designs, patent licensing agreements, and test systems on a timely and cost-effective basis. The Company’s current orientation to the semiconductor memory and networking equipment markets exposes its quarterly operating results to the influence of the business cycles in these markets. Furthermore, the Company is in litigation with two companies related to their alleged infringement of MOSAID’s intellectual property, and the quarterly legal costs of these actions may lead to significant volatility in quarterly results.

MOSAID TECHNOLOGIES INCORPORATED
(Incorporated under the Ontario Business Corporations Act)
CONSOLIDATED BALANCE SHEETS
(in thousands)