NORSAT INTERNATIONAL INC.
Consolidated Financial Statements (Unaudited)
Three Months Ended as at March 31, 2008
Page 1
Norsat International Inc.
Consolidated Balance Sheets
(See note 1 – Organization and Going Concern Uncertainty)
(Unaudited - Expressed in US Dollars)
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| March 31, |
| December 31, |
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| 2008 |
| 2007 |
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Assets (note 5) |
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Current assets: |
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| Cash | $ | 1,355,174 | $ | 686,508 | |
| Short-term investments |
| 37,319 |
| 100,512 | |
| Accounts receivable |
| 1,917,009 |
| 3,432,050 | |
| Inventories |
| 4,656,318 |
| 4,190,232 | |
| Prepaid expenses and other |
| 124,025 |
| 116,289 | |
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| 8,089,845 |
| 8,525,591 |
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Long-term prepaid expenses and other |
| 9,742 |
| 10,088 | ||
Property and equipment |
| 937,640 |
| 991,985 | ||
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| $ | 9,037,227 | $ | 9,527,664 |
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Liabilities and Shareholders' Equity |
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Current liabilities: |
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| Operating line of credit (note 5) | $ | - | $ | 500,012 | |
| Accounts payable |
| 677,221 |
| 1,281,186 | |
| Accrued liabilities |
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| 746,076 |
| 1,562,693 |
| Deferred revenue |
| 285,113 |
| 329,968 | |
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| 1,708,410 |
| 3,673,859 |
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| Long-term deferred revenue |
| 60,994 |
| 56,635 | |
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Shareholders' equity: |
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| Share capital (note 6) |
| 37,379,345 |
| 35,342,663 | |
| Contributed surplus (note 6) |
| 3,538,575 |
| 4,147,433 | |
| Accumulated other comprehensive income |
| 1,059,138 |
| 1,306,800 | |
| Deficit |
| (34,709,235) |
| (34,999,726) | |
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| 7,267,823 |
| 5,797,170 |
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| $ | 9,037,227 | $ | 9,527,664 |
Commitments (note 12) |
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See accompanying notes to consolidated financial statements. |
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Page 2
Norsat International Inc.
Consolidated Statements of Operations, Deficit and Comprehensive (Loss) Income
(See note 1 – Organization and Going Concern Uncertainty)
(Unaudited - Expressed in US Dollars)
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| Three months ended March 31, | ||
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| 2008 |
| 2007 |
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Sales | $ | 2,928,547 | $ | 3,762,471 | |
Cost of sales |
| 1,438,926 |
| 1,774,229 | |
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| 1,489,621 |
| 1,988,242 |
Expenses: |
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| |
| Selling, general and administrative |
| 1,303,096 |
| 1,119,535 |
| Product development |
| 185,055 |
| 223,043 |
| Amortization |
| 89,702 |
| 64,056 |
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|
| 1,577,853 |
| 1,406,634 |
Net (loss) earnings for the period before |
| (88,232) |
| 581,608 | |
Other (income) expenses (note 7) |
|
| (93,327) |
| 119,883 |
Net earnings for the period |
| 5,095 |
| 461,725 | |
Deficit, beginning of period |
| (34,999,726) |
| (36,413,522) | |
Transitional adjustment on adoption |
| 285,396 |
| - | |
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Deficit, end of period | $ | (34,709,235) | $ | (35,951,797) | |
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Net earnings for the period | $ | 5,095 | $ | 461,725 | |
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Other comprehensive income: |
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| Currency translation adjustment (note 3) |
| (247,662) |
| 122,135 |
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Comprehensive (loss) income for the period | $ | (242,567) | $ | 583,860 | |
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Net earnings per common share - basic | $ | 0.00 | $ | 0.01 | |
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See accompanying notes to consolidated financial statements. |
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Page 3
Norsat International Inc.
Consolidated Statement of Accumulated Other Comprehensive Income
(See note 1 – Organization and Going Concern Uncertainty)
(Unaudited - Expressed in US Dollars)
| March 31, | December 31, |
| 2008 | 2007 |
Accumulated other comprehensive income, | $ 1,306,800 | $ 553,910 |
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Currency translation adjustment (note 3) | (247,662) | 752,890 |
Accumulated other comprehensive income, | $ 1,059,138 | $ 1,306,800 |
See accompanying notes to consolidated financial statements.
Page 4
Norsat International Inc.
Consolidated Statements of Cash Flows
(See note 1 – Organization and Going Concern Uncertainty)
(Unaudited - Expressed in US Dollars)
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| Three months ended March 31, | |||
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| 2008 |
| 2007 |
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Cash provided by (used in): |
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Operations: |
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| Net earnings for the period | $ | 5,095 | $ | 461,725 | |
| Items not involving cash: |
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| Amortization |
| 89,702 |
| 64,056 |
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| Interest accreted on long-term debt and deferred |
| - |
| 58,286 |
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| Foreign exchange (gain) |
| (31,463) |
| (10,417) |
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| Stock-based compensation |
| 21,754 |
| 24,402 |
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| Other non-operating item - government contributions |
| (99,550) |
| - |
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| Changes in non-cash working capital (note 10) |
| (244,524) |
| (1,049,971) |
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| Cash used in operations |
| (258,986) |
| (451,919) |
Investments: |
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| Short-term investments |
| 61,052 |
| - | |
| Purchase of property and equipment |
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| (69,024) |
| (32,546) |
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| Cash used in investment activities | (7,972) |
| (32,546) | |
Financing: |
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| Payment on convertible debt |
| - |
| (1,970,902) |
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| Payment on the operating line of credit |
| (500,000) |
| - |
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| Proceeds from short term loan |
| - |
| 1,014,932 |
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| Proceeds from exercise of warrants |
| 1,384,737 |
| - |
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| Proceeds from government contributions |
| 39,088 |
| - |
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| Proceeds from private placement |
| - |
| 398,513 |
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| Cash provided by (used in) financing activities |
| 923,825 |
| (557,457) |
Effect of change in exchange rates on cash |
| 34,041 |
| 9,749 | ||
Effect of foreign currency translation on cash |
| (22,242) |
| (892) | ||
Increase (decrease) in cash |
| 668,666 |
| (1,033,065) | ||
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Cash, beginning of period |
| 686,508 |
| 1,538,734 | ||
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Cash, end of period | $ | 1,355,174 | $ | 505,669 |
Supplemental cash flow and other disclosures (note 10)
See accompanying notes to consolidated financial statements
Page 5
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
1. Organization and Going Concern Uncertainty
The Company is incorporated under the laws of British Columbia and its principal business activities include the marketing, design and sales of microwave products and portable satellite products that provide rapidly deployable broadband satellite data and video continuity in areas where traditional communication infrastructure is insufficient, damaged or non-existent.
The Company has incurred recurring operating losses and has a deficit of $34,709,235 as at March 31, 2008. Consequently, there is significant doubt about its ability to continue as a going concern. Management implemented a new cost structure in late 2006 aimed to achieve net profits and generate positive cash flows through its operations. The Company has so far generated profits in the last six successive quarters.
In view of these conditions, the ability of the Company to continue as a going concern is dependent upon sustaining profitable operations and on the ability of the Company to obtain additional financing. The outcome of these matters cannot be predicted at this time. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue in business.
2. Basis of Presentation
These financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial reporting and the accounting polices used are consistent with the most recent audited annual financial statements except for those included in note 3. These financial statements do not contain all disclosures required by Canadian GAAP for annual financial statements, and accordingly, should be read together with the audited 2007 annual consolidated financial statements included in the Company's 2007 Annual Report.
The results for the three months ended March 31, 2008 may not be indicative of the results that may be expected for the full year or any other period.
The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles, which presume the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
3. Changes in Accounting Policies
EIC – 130 – Change in Reporting Currency
Effective January 1, 2008, the Company changed its reporting currency to the US Dollar (USD). Prior to January 1, 2008, the Company reported its annual and quarterly consolidated balance sheets and the related consolidated statements of operations, deficit and comprehensive income (loss) and cash flows in Canadian dollars (CDN). In making the change in reporting currency, the Company followed the recommendations of the Emerging Issues Committee (EIC) of the Canadian Institute of Chartered Accountants (CICA), set out in EIC-130 – “Translation Method when the Reporting Currency Differs from the Measurement Currency or there is a Change in the Reporting Currency”
In accordance with EIC-130, the financial statements for all the years and periods presented have been translated to the new reporting currency (USD) using the current rate method. Under this method, the statements of operations, deficit and comprehensive (loss) income and cash flows statement items for each year and period have been translated into the reporting currency using the average exchange rates prevailing during each reporting period. All assets and liabilities have been translated using the exchange rate prevailing at the consolidated balance sheets dates. Shareholders’ equity transactions have been translated using the rates of exchange in effect as at the date of the various capital transactions. All
Page 6
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
resulting exchange differences arising from the translation are included as a separate component of other comprehensive income. All comparative financial information has been restated to reflect the Company’s results as if they had been historically reported in US dollars.
CICA 3031 – “Inventories”
On January 1, 2008, the Company adopted CICA Handbook Section 3031 - “Inventories”, which replaces Section 3030, of the same name. The new section provides guidance on the basis and method of measurement of inventories and allows for reversal of previous write-downs. The section also establishes new standards on disclosure of accounting policies used, carrying amounts, amounts recognized as an expense, write-downs and the amount of any reversal of any write-downs. As a result of adopting CICA Section 3031, a reversal of previous write downs of $285,396 was recorded as an increase to inventory and a decrease in opening deficit.
CICA 1535 – “Capital Disclosures”
On January 1, 2008, the Company adopted CICA Handbook Section 1535 – “Capital Disclosures” (“Section 1535”). Section 1535 requires a company to disclose information that enables users of its financial statements to evaluate the Company’s objectives, policies and processes for managing capital, including disclosures of any externally imposed capital requirements and the consequences of non-compliance.
The Company's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future development of the business. The Company monitors the debt to equity ratio, which it defines as total liabilities divided by shareholders’ equity as shown in the consolidated balance sheet.
While management recognizes the possibility of higher returns that might be possible with the leverage afforded by higher borrowing levels, the target is to create value for its shareholders over the long-term through the security afforded by a sound capital position.
In January and February, 2008, the Company paid off the operating line of credit outstanding from December 31, 2007.
In March 2008 warrants that were set to expire March 3, 2008 were exercised prior to the expiry date. Proceeds of $1,384,737 from the exercise of the warrants were credited to share capital and $624,039 was reclassified from contributed surplus to share capital. (See note 6)
There were no changes in the Company's approach to capital management during the period. Under its debt financing agreements, the Company’s working capital ratio (current assets divided by current liabilities) cannot be less than 1.15:1 and debt to tangible net worth ratio (total liabilities divided by the sum of total assets minus total liabilities) cannot exceed 2.5:1. As at March 31, 2008, the Company’s working capital ratio was at 4.74:1 and the debt to tangible net worth ratio was at 0.24:1.
CICA 3862 and 3863 – “Financial Instruments – Presentation”
On January 1, 2008, the Company adopted CICA Handbook Sections 3862 and 3863 – “Financial Instruments – Presentation” (“Sections 3862 and 3863”). Sections 3862 and 3863 require an increased emphasis on disclosures about the nature and extent of risk arising from financial instruments and how a company manages these risks (See note 4).
Page 7
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
4. Financial Instruments
Fair value of financial instruments
All financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are measured in the balance sheet either at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on their initial classification, as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the instrument is derecognized or compared.
The Company has classified its cash and short-term investments as held-for-trading. Accounts receivable are classified as loans and receivables. Accounts payable, accrued liabilities, and operating line of credit are classified as other liabilities.
Carrying value and fair value of financial assets and liabilities as at March 31, 2008 and December 31, 2007 are summarized as follows:
(in thousands of dollars) |
| March 31, 2008 |
|
| December 31, 2007 | ||
| Carrying Value | Fair Value |
| Carrying Value | Fair Value | ||
Held-for-trading | 1,393 | 1,393 |
| 787 | 787 | ||
Loans and receivables | 1,917 | 1,917 |
| 3,432 | 3,432 | ||
Held-to-maturity | - | - |
| - | - | ||
Other liabilities | 1,423 | 1,423 |
| 3,344 | 3,344 |
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
The Company is exposed to foreign exchange fluctuations in the U.S. dollar as components of cost and receivables being denominated in currencies other than the United States dollar.
To manage the exposure to foreign exchange risk the company will enter into short term FX forward contracts as part of its cash management strategy.
On November 16, 2007, the Company entered into a forward contract to deliver EUR 487,036 at the rate of Cdn$1.4227 = €1 (Cdn$692,906). On February 27, 2008, the contract was closed at the rate of Cdn$1.4792 = € (Cdn$720,424). As a result, realized loss of Cdn$27,518 (2007 – unrealized loss of Cdn$10,197) was recorded.
(in thousands of dollars) |
| March 31, 2008 |
|
| December 31, 2007 | ||
| Carrying Value | Fair Value |
| Carrying Value | Fair Value | ||
Euro foreign exchange forward contract | - | - |
| 693 | 703 |
As at March 31, 2008, the Company does not have any outstanding foreign exchange forward contracts.
Page 8
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
Credit Risk
Credit risk is the risk of a financial loss if a customer or counterparty to a financial instrument fails to meet its obligations under a contract. This risk primarily arises from the Company’s receivables from customers.
The Company’s exposure to credit risk is dependent upon the characteristics of each customer. Each customer is assessed for creditworthiness. The credit worthiness of customers is assessed using third party credit scores and through direct monitoring of their financial well being on a continual basis. In some cases, where customers fail to meet the Company's benchmark creditworthiness, the Company may choose to transact with the customer on a prepayment basis.
The Company regularly reviews the collectiblility of its accounts receivable and establishes an allowance for doubtful accounts based on its best estimates of any potentially uncollectible accounts. As at March 31, 2008, the balance of the allowance for doubtful accounts was $44,207 (2007 – 44,687). Pursuant to their respective terms, accounts receivable are aged as follows as at March 31, 2008 and December 31, 2007:
(in thousands of dollars) | March 31, 2008 | December 31, 2007 |
Current | 1,229 | 1,916 |
0-30 days overdue | 465 | 1,037 |
31-60 days overdue | 35 | 200 |
61-90 days overdue | 88 | 68 |
Over 90 days overdue | 22 | 82 |
| 1,839 | 3,303 |
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company ensures, as far as possible, that it will always have sufficient liquidity to meet obligations when due and monitors cash flow requirements daily.
The Company also maintains two operating lines of credit in both Canadian and US dollars that can be drawn down to meet short-term financing obligations.
As at March 31, 2008, the Company has not availed of any funds from either operating line of credit.
Stock based compensation risk
Stock based compensation risk refers to the probability of increased expense due to the increase in the Company’s share price.
Based on a 100% increase in share price from December 31, 2007 there will be an annual increase in expense of approximately $24,000.
The Company does not have a stock based compensation program in place to manage its risk. The cost of implementing a stock based compensation risk management program is not commensurate with the level of risk.
Page 9
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
5. Operating Line of Credit
On January 31, and February 29, 2008 the Company repaid US$300,000 (Cdn$301,270) and US$200,000 (Cdn$196,880) respectively of the operating line of credit outstanding at December 31, 2007.
During the first quarter of 2008, the Company obtained another secured operating line of credit from a financial institution for Cdn$500,000 or US$400,000 under Export Development Canada’s (EDC) Master Receivable Guarantee (MARG) program.
Terms and conditions are as follows:
·
interest at the rate of the Bank’s Prime Rate plus 0.85% per annum
·
all amounts under the loans shall be repaid on demand by the Bank
·
general security agreement given by the Company creating a first fixed and floating charge and security interest over all present and after acquired assets of the Company
·
general assignment of book debts creating a first priority assignment of the debts and accounts receivable of the Company
·
assignment / endorsement by the Company to the Bank of all risk insurance (including extended coverage endorsement) in amounts and from an issuer acceptable to the Bank, on all of the Company’s real and personal property including, without limitation, equipment and inventory owned by the Company, showing the bank as first loss payee by way of standard mortgage endorsement, such policy to include business interruption and public liability insurance.
·
MARG of Cdn$450,000 from EDC
·
the working capital ratio (current assets divided by current liabilities) shall not at any time to be less than 1.15:1
·
the Debt to Tangible Net Worth ratio (total liabilities divided by the sum of total assets minus total liabilities) shall not at any time exceed 2.5:1
As at March 31, 2008, the company has not availed of this stand-by line of credit.
6. Share Capital
(a)
Authorized
75,000,000 common shares without par value
(b) Issued
Shares issued and outstanding |
| |
| Number # | Amount $ |
Balance, December 31, 2007 | 50,646,026 | 35,342,663 |
Warrants exercised | 2,915,235 | 1,384,737 |
Reclassification of contributed surplus upon exercise of warrants | - | 624,039 |
ESPP warrants exercised | 44,444 | 21,333 |
Reclassification of contributed surplus upon exercise of ESPP warrants | - | 6,573 |
Balance, March 31, 2008 | 53,605,705 | 37,379,345 |
Warrants that were set to expire March 3, 2008 were exercised prior to the expiry date. Of the 3,065,232 warrants outstanding, 2,915,235 were exercised at the strike price of $0.475 while the remaining 149,997 expired. Proceeds of $1,384,737 from the exercise of the warrants were credited to share capital and $624,039 was reclassified from contributed surplus to share capital.
Page 10
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
On March 5, 2008, 44,444 ESPP warrants were exercised at the strike price of $0.48 for proceeds of $21,333. The proceeds were credited to share capital along with $6,573 reclassified from contributed surplus to share capital.
(c) Share purchase option plan
The Company has reserved 6,306,505 common shares under its 1999 (amended)incentive share option plan. The plan provides for the granting of stock options at the fair market value of the Company at the grant date, with terms to a maximum of ten years and vesting provisions to be determined by the Board of Directors.
Share purchase options outstanding at March 31, 2008 include:
Share purchase option outstanding | Number of options | Weighted average exercise price |
Balance, December 31, 2007 | 1,534,450 | $ 1.26 |
Granted | 130,000 | 0.83 |
Forfeited | (5,000) | 1.35 |
Balance, March 31, 2008 | 1,659,450 | $ 1.18 |
| Options outstanding |
| Options exercisable | |||
Range of exercise prices Cdn$ | Number of options outstanding | Weighted average remaining contractual life(years) | Weighted average exercise price |
| Number of options exercisable | Weighted average exercise price |
$0.50 to $2.39 | 1,470,950 | 2.78 | $0.81 |
| 873,950 | $0.95 |
$2.40 to $4.29 | 94,250 | 3.51 | $2.87 |
| 94,250 | $2.87 |
$4.30 to $6.19 | 94,250 | 3.51 | $5.19 |
| 94,250 | $5.19 |
$0.50 to $6.19 | 1,659,450 | 2.87 | $1.18 |
| 1,062,450 | $1.49 |
The exercise price of all share purchase options granted during the period are equal to the closing market price at the grant date. Using an option pricing model with assumptions noted below, the estimate fair value of all options granted during 2008 and 2007 have been reflected in the statements of operations as follows:
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| Three months ended March 31 | ||
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| 2008 | 2007 |
Total compensation credited to contributed surplus |
|
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| 21,754 | 24,402 |
Page 11
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
The weighted average assumptions used to estimate the fair value of options during the period were:
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| Three months ended March 31, | ||
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| 2008 | 2007 |
Risk free interest rate |
|
|
| 3.866% | 3.963% |
Expected life |
|
|
| 3.500 | 3.935 |
Vesting period |
|
|
| 2 to 10 years | 2 to 10 years |
Expected volatility |
|
|
| 73.55% | 83.88% |
Expected dividends |
|
|
| nil | nil |
130,000 stock purchase options were granted with a weighted average fair market value of $0.45 for the three months ended March 31, 2008.
Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a reliable measure of the fair value of the Company’s share purchase options.
(d) Warrants
The continuity of share purchase warrants is as follows:
Expiry date | 8-Apr-09 | 3-Mar-08 | 6-Nov-08 | 12-Jan-09 | Total |
Exercise price | Cdn$1.09 | US$0.475 | US$0.45 | US$0.48 | Number of warrants outstanding |
Balance, December 31, 2007 | 1,206,811 | 3,065,232 | 1,250,000 | 527,484 | 6,049,527 |
Warrants exercised | - | (2,915,235) | - | (44,444) | (2,959,679) |
Warrants expired | - | (149,997) | - | - | (149,997) |
Balance, March 31, 2008 | 1,206,811 | - | 1,250,000 | 483,040 | 2,939,851 |
(e) Contributed surplus
Balance, December 31, 2007 | $ 4,147,433 |
Change during 2007 |
|
Stock-based compensations | 21,754 |
Reclassification to share capital upon exercise of warrants (note 6b) | (624,039) |
Reclassification to share capital upon exercise of ESPP warrants (note 6b) | (6,573) |
Balance, March 31, 2008 | $ 3,538,575 |
Page 12
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
7. Other Expenses
|
|
| Three months ended March 31, | ||
|
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|
| 2008 | 2007 |
Net interest - cash |
|
|
| $ 17,558 | $ 90,880 |
Interest - non-cash |
|
|
| - | 29,153 |
Foreign currency (gain) |
|
|
| (110,885) | (150) |
|
|
|
| $ (93,327) | $ 119,883 |
8. Earnings per Share
Basic earnings per share for the three months ended March 31, 2008 is $0.00 (2007 - $0.01) and the weighted average number of shares used in calculating basic nets earnings per is 51,911,170 (2007 – 50,486,397). As the exercise of in-the-money warrants or options are dilutive, the diluted earnings per share for the three months ended March 31, 2008 is $0.00 (2007 - $0.01) and the weighted average number shares used in calculating diluted net earnings per share is 55,658,051 (2007 – 55,743,493).
9. Segmented Information
The following tables set forth information by operating segments from continuing operations for the three months ended March 31, 2008 and 2007 respectively.
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| Three months ended March 31, | ||
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| 2008 | 2007 |
Sales |
|
|
| $ | $ |
Microwave |
|
|
| 1,973,711 | 2,289,765 |
Satellite system |
|
|
| 954,836 | 1,472,706 |
|
|
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| 2,928,547 | 3,762,471 |
|
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|
|
Gross Profit |
|
|
|
|
|
Microwave |
|
|
| 852,317 | 1,063,383 |
Satellite system |
|
|
| 637,304 | 924,859 |
|
|
|
| 1,489,621 | 1,988,242 |
|
| Microwave | Satellite System | Consolidated |
As at March 31, 2008 |
| $ | $ | $ |
Total assets related to operations | 6,090,691 | 2,946,536 | 9,037,227 | |
Property and equipment | 631,928 | 305,712 | 937,640 | |
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| |
As at March 31, 2007 |
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|
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Total assets related to operations | 4,787,014 | 2,796,025 | 7,583,039 | |
Property and equipment | 698,783 | 408,150 | 1,106,933 |
Page 13
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
10. Supplemental cash flow and other disclosures
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| Three months ended March 31, | ||||||
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| 2008 |
| 2007 |
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Changes in non-cash operating working capital: |
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| |||||
| Accounts receivable |
|
| $ | 1,488,341 | $ | 33,138 | |||
| Inventories |
|
|
| (341,083) |
| (7,572) | |||
| Prepaid expenses and other |
|
|
| (11,981) |
| (191,528) | |||
| Accounts payable |
|
|
| (572,267) |
| (328,542) | |||
| Accrued liabilities |
|
|
| (779,702) |
| (384,476) | |||
| Deferred revenue |
|
|
| (34,271) |
| (170,991) | |||
| Long-term deferred revenue |
|
|
| 6,439 |
| - | |||
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (244,524) | $ | (1,049,971) |
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Supplementary information: |
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Interest paid |
|
|
|
| $ | 5,993 | $ | 77,609 | ||
Income taxes paid |
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|
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| $ | nil | $ | nil |
11. Comparative Figures
Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in 2008.
12. Commitments
Future minimum payments at March 31, 2008 under various purchasing commitments, loan commitments and operating lease agreements for each of the next four years are approximately as follows:
| 2008 | 2009 | 2010 | 2011 |
Inventory purchase obligation | 2,106,390 | | | |
Operating lease obligations | 381,524 | 472,406 | 471,545 | 425,187 |
Total | 2,487,914 | 472,406 | 471,545 | 425,187 |
In the normal course of operations the Company enters into purchase commitments. Included in 2008 commitments are inventory and material purchase obligations of $2,106,390.
13. Government Contributions
In October 2007, Norsat was awarded a non-repayable Cdn$200,000 government contribution through Canada’s National Research Council– Industrial Research Assistance Program (NRC-IRAP). The program provides non-repayable contributions to Canadian small to medium sized businesses that are interested in using technology to commercialize services, products and processes to grow their presence in Canadian and international markets. Norsat intends to use the proceeds for research and development initiatives targeted at expanding its portable satellite systems suite of offerings. Through this program, Cdn$100,000 was claimed and reported as a reduction to product development costs in the first quarter of
Page 14
Norsat International Inc.
Notes to the Consolidated Financial Statements
Three months ended March 31, 2008
(Unaudited - Expressed in US dollars)
2008. As at March 31, 2008 Cdn$39,265 cash has been received and Cdn$60,735 is still outstanding as a receivable.
14. Subsequent Events
Employee stock option plan
On April 1, 2008, 208,000 stock options were granted to 40 individuals at a strike price of $1.34 (Cdn$1.37). The stock options have a vesting period of 2 years and an expiry of 5 years. The stock option grant was awarded to all full time permanent employees and Board of Directors present as at December 31, 2007.
Page 15