CONDENSED INTERIM Consolidated
Financial Statements (UNAUDITED)
For the three months ended March 31, 2013 and 2012
(Expressed in US dollars)
1 |
Norsat International Inc. | |||
Condensed Interim Consolidated Statements of Financial Position | |||
(Expressed in US Dollars - Unaudited) | |||
Notes | March 31, 2013 | December 31, 2012 | |
ASSETS | |||
Current assets | |||
Cash and cash equivalents | $ 2,477,295 | $ 5,053,445 | |
Short term investments | - | - | |
Trade and other receivables | 7 | 7,265,875 | 7,093,169 |
Contract work in progress | - | - | |
Inventories | 9,168,151 | 9,039,415 | |
Prepaid expenses and other | 575,986 | 624,025 | |
Current assets | 19,487,307 | 21,810,054 | |
Non-current assets | |||
Property and equipment, net | 854,652 | 941,352 | |
Intangible assets, net | 8,157,193 | 8,544,267 | |
Goodwill | 5,275,466 | 5,388,501 | |
Long-term prepaid expenses and other | 9,340 | 26,295 | |
Deferred income tax assets | 4,172,000 | 4,172,000 | |
Non-current assets | 18,468,651 | 19,072,415 | |
Total assets | $ 37,955,958 | $ 40,882,469 | |
LIABILITIES | |||
Current liabilities | |||
Trade and other payables | $ 1,741,178 | $ 2,340,985 | |
Accrued liabilities | 2,297,609 | 3,482,535 | |
Provisions | 396,134 | 385,950 | |
Promissory note payable | 5 | 362,500 | 693,129 |
Taxes payable | 203,225 | 174,939 | |
Deferred revenue | 191,263 | 231,068 | |
Current liabilities before acquisition loan | 5,191,909 | 7,308,606 | |
Acquisition loan | 6,137,409 | 6,953,255 | |
Current liabilities | 11,329,318 | 14,261,861 | |
Non-current liabilities | |||
Long-term deferred revenue | 7,728 | 22,344 | |
Deferred income tax liabilities | 2,259,494 | 2,364,702 | |
Non-current liabilities | 2,267,222 | 2,387,046 | |
Total liabilities | 13,596,540 | 16,648,907 | |
SHAREHOLDERS' EQUITY | |||
Issued capital | 39,850,648 | 39,850,648 | |
Treasury shares | (131,474) | (131,474) | |
Contributed surplus | 4,131,907 | 4,041,715 | |
Accumulated other comprehensive income | (125,009) | 251,826 | |
Deficit | (19,366,654) | (19,779,153) | |
Total shareholders' equity | 24,359,418 | 24,233,562 | |
Total liabilities and shareholders' equity | $ 37,955,958 | $ 40,882,469 | |
See accompanying notes to the unaudited condensed interim consolidated financial statements. | |||
Approved by the Board and authorized for issue on May 7, 2013 |
“ Fabio Doninelli” | “ James Topham” |
Board of Director | Board of Director |
2 |
Norsat International Inc. | |||
Condensed Interim Consolidated Statements of Earnings and Comprehensive Income | |||
(Expressed in US Dollars - Unaudited) | |||
Three months ended March 31 | |||
Notes | 2013 | 2012 | |
Revenue | 10 | $ 8,353,654 | $ 10,408,596 |
Cost of sales | 4 | 4,991,511 | 5,850,758 |
Gross profit | 10 | 3,362,143 | 4,557,838 |
Expenses: | |||
Selling and distributing expenses | 4 | 1,589,491 | 1,737,434 |
General and administrative expenses | 4 | 1,029,777 | 1,477,104 |
Product development expenses, gross | 4 | 878,398 | 789,741 |
Less: Government contributions | 7 | (625,713) | (260,205) |
2,871,953 | 3,744,074 | ||
Earnings before other expenses | 490,190 | 813,764 | |
Loss on disposal of property and equipment | 8,367 | 15,016 | |
Interest and bank charges | 126,754 | 148,166 | |
Gain on foreign exchange | (48,313) | (111,441) | |
Earnings before income taxes | 403,382 | 762,023 | |
Current income tax expense | 59,535 | 276,668 | |
Deferred income recovery | (68,652) | (70,361) | |
Net earnings for the period from continuing | 412,499 | 555,716 | |
operations | |||
Net loss for the period from discontinued | |||
operations | - | (38,045) | |
Net earnings for the period | $ 412,499 | $ 517,671 | |
Other comprehensive income | |||
Exchange differences on translation of operations | |||
in currencies other than US Dollars | (376,835) | 172,803 | |
Total comprehensive income for the period | $ 35,664 | $ 690,474 | |
Net earnings (loss) per share | |||
Basic earnings (loss) per share | |||
Earnings from continuing operations | 9 | $ 0.01 | $ 0.01 |
Earnings (loss) from discontinued operations | $ - | $ (0.00) | |
Total | $ 0.01 | $ 0.01 | |
Diluted earnings (loss) per share | |||
Earnings from continuing operations | 9 | $ 0.01 | $ 0.01 |
Earnings (loss) from discontinued operations | $ - | $ (0.00) | |
Total | $ 0.01 | $ 0.01 | |
Weighted average number of shares outstanding | |||
Basic | 9 | 58,036,732 | 58,316,532 |
Diluted | 9 | 58,113,477 | 58,343,257 |
See accompanying notes to the unaudited condensed interim consolidated financial statements. |
3 |
Norsat International Inc.
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in US Dollars - Unaudited)
Notes | Issued capital | Treasury shares | Contributed surplus | Accumulated other comprehensive income | Deficit | Total shareholders' equity | |
As at January 1, 2013 | $ 39,850,648 | $ (131,474) | $ 4,041,715 | $ 251,826 | $ (19,779,153) | $ 24,233,562 | |
Net earnings for the period | - | - | - | - | 412,499 | 412,499 | |
Other comprehensive loss | - | - | - | (376,835) | - | (376,835) | |
Total | 39,850,648 | (131,474) | 4,041,715 | (125,009) | (19,366,654) | 24,269,226 | |
Stock-based compensation | 8 | - | - | 90,192 | - | - | 90,192 |
As at March 31, 2013 | $ 39,850,648 | $ (131,474) | $ 4,131,907 | $ (125,009) | $ (19,366,654) | $ 24,359,418 | |
Issued capital | Treasury shares | Contributed surplus | Accumulated other comprehensive income | Deficit | Total shareholders' equity | ||
As at January 1, 2012 | $ 39,850,648 | $ - | $ 3,812,151 | $ (70,746) | $ (24,914,155) | $ 18,677,898 | |
Net loss for the period | - | - | - | - | 517,671 | 517,671 | |
Other comprehensive income | - | - | - | 172,803 | - | 172,803 | |
Total | 39,850,648 | 3,812,151 | 102,057 | (24,396,484) | 19,368,372 | ||
Stock-based compensation | 8 | - | - | 51,850 | - | - | 51,850 |
As at March 31, 2012 | $ 39,850,648 | $ - | $ 3,864,001 | $ 102,057 | $ (24,396,484) | $ 19,420,222 | |
See accompanying notes to the unaudited condensed interim consolidated financial statements. |
4 |
Norsat International Inc. | ||||||
Condensed Interim Consolidated Statements of Cash Flows | ||||||
(Expressed in US Dollars - Unaudited) | ||||||
Three months ended March 31 | ||||||
Notes | 2013 | 2012 | ||||
Cash and cash equivalents provided by (used in) | ||||||
Operating activities: | ||||||
Net earnings for the period | $ 412,499 | $ 517,671 | ||||
Income taxes paid | - | (579,304) | ||||
Non-cash adjustments to reconcile net earnings to net cash flows: | ||||||
Amortization | 332,334 | 359,858 | ||||
Foreign exchange gain | (48,313) | (224,801) | ||||
Loan acquisition cost amortization | 6,787 | 6,725 | ||||
Loss on disposal of property and equipment | 8,367 | 15,016 | ||||
Gain on sale of subsidiary | - | - | ||||
Impairment of assets | - | - | ||||
Current income tax expense | 59,535 | 276,668 | ||||
Deferred income tax recovery | (68,652) | (70,361) | ||||
Share-based payments | 8 | 90,192 | 51,850 | |||
Accretion of promissory notes | 31,871 | 27,774 | ||||
Government contribution | 7 | (650,887) | (302,653) | |||
Changes in non-cash working capital | 11 | (1,642,964) | (1,259,991) | |||
Net cash flows used in operating actitivies | (1,469,231) | (1,181,548) | ||||
Investing activities: | ||||||
Purchase of intangible assets, property and equipment | (36,164) | (191,113) | ||||
Proceeds from government contributions | ||||||
for acquisition of property and equipment | - | 260,214 | ||||
Proceeds from sale of property and equipment | 4,200 | 42,390 | ||||
Redemption of short-term investment | - | 38,212 | ||||
Proceeds from sale of subsidiary | 13,583 | - | ||||
Acquisition of subsidiary, net of cash acquired | 5 | - | - | |||
Net cash flows (used in) provided by investing activities | (18,381) | 149,703 | ||||
Financing activities: | ||||||
Repayment of acquisition loan | (750,000) | (600,000) | ||||
Payment of promissory note | (362,500) | - | ||||
Proceeds from government contributions | 7 | 61,094 | 393,727 | |||
Purchase of treasury shares | - | - | ||||
Proceeds from acquisition loan | 14 | - | - | |||
Proceeds from shares issued under ESOP, | ||||||
net of share issuance costs | 16 | - | - | |||
Repurchase of common shares and related fees | 16 | - | - | |||
Proceeds from exercising warrants and options | 16 | - | - | |||
Net cash flows used in financing activities | (1,051,406) | (206,273) | ||||
Effect of foreign currency translation on | ||||||
cash and cash equivalents | (37,132) | 56,861 | ||||
Decrease in cash and cash equivalents | (2,576,150) | (1,181,257) | ||||
Cash and cash equivalents, beginning of period | 5,053,445 | 4,192,875 | ||||
Cash and cash equivalents, end of period | $ 2,477,295 | $ 3,011,618 | ||||
Supplemental cash flow and other disclosures (note 11) | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements. |
5 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
1. | Basis of Preparation |
These unaudited condensed interim consolidated financial statements for the three months ended March 31, 2013, including comparatives, have been prepared in accordance with International Accounting Standard (“IAS”) 34 “Interim Financial Reporting”. They do not include all of the information required in annual financial statements in accordance with International Financial Reporting Standards (“IFRS”), and should be read in conjunction with the Company’s 2012 annual audited consolidated financial statements which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”).
These unaudited condensed interim consolidated financial statements are presented in United States Dollars, except when otherwise indicated.
The unaudited condensed interim consolidated financial statements for the three months ended March 31, 2013 have been approved and authorized for issue by the board of directors on May 7, 2013.
Seasonal fluctuations
Quarterly results from our four business segments fluctuate from quarter to quarter due to seasonal influences on sales volumes. In our Sinclair Technologies segment, the first and second quarters are historically the strongest, as most of Sinclair’s customers build inventories as they commence installation in the spring and winter seasons. Among our other three segments, the third and fourth quarters are typically the strongest, as these are traditionally the periods when military sales occur. The timing of contract awards also creates significant fluctuations in our quarterly results as some large contracts represent a significant share of sales for a given quarter. The timing of these orders is unpredictable.
2. | Significant Accounting Policies |
The unaudited condensed interim consolidated financial statements have been prepared using accounting policies consistent with those used in the preparation of the audited consolidated financial statements as at December 31, 2012.
During the three months ended March 31, 2013, the Company adopted the following accounting policies:
IFRS 10 Consolidated Financial Statements builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 10 Consolidated Financial Statements replaces SIC-12 Consolidation-Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. The application of this standard does not materially affect the Company.
IFRS 12 Disclosure of Interests in Other Entities is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates, special purpose vehicles and other off-balance sheet vehicles. The application of this standard does not materially affect the Company.
IFRS 13 Fair Value Measurements explains how to measure fair value by providing a clear definition and introducing a single set of guidance for (almost) all fair value measurements. It clarifies how to measure fair value when a market becomes less active and improves transparency through additional disclosures. The application of this standard does not materially affect the Company.
6 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
3. | Significant Management Judgement and Estimation Uncertainty |
The preparation of unaudited condensed interim consolidated financial statements in conformity with IFRS requires the Company’s management to undertake a number of judgements, estimates and assumptions that affect amounts reported in the unaudited condensed interim consolidated financial statements and notes thereto. Actual amounts may ultimately differ from these estimates.
The judgements, estimates and assumptions applied in the unaudited condensed interim consolidated financial statements, including key sources of estimation uncertainty were the same as those applied in the Company’s last annual audited consolidated financial statements for the year ended December 31, 2012, with the addition of the following estimates:
Government Repayment:
The Company is required to make annual repayments under the SADI I contract as outlined under Note 7. The Company estimates the repayment based on its revenue forecast for the current fiscal year. Actual revenue may be substantially different from forecasted revenue, resulting in differences between accrual and actual payment due.
7 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
4. | Cost of Sales and Expenses |
Three months ended March 31 | |||
2013 | 2012 | ||
Cost of Sales | |||
Direct cost of sales | $ 4,932,071 | $ 5,708,028 | |
Depreciation and amortization | 33,043 | 22,590 | |
Transfer from expenses | 26,397 | 120,140 | |
$ 4,991,511 | $ 5,850,758 | ||
Selling and distributing expenses | |||
Direct expenses | $ 1,411,821 | $ 1,590,336 | |
Depreciation and amortization | 194,636 | 183,888 | |
Transfer to cost of sales | - | (8,487) | |
Less: Government contribution (Note 7) | (16,966) | (28,303) | |
$ 1,589,491 | $ 1,737,434 | ||
General and administrative expenses | |||
Direct expenses | $ 1,040,002 | $ 1,560,429 | |
Transfer to cost of sales | (26,397) | (93,356) | |
Depreciation and amortization | 24,381 | 42,473 | |
Less: Government contribution (Note 7) | (8,208) | (32,442) | |
$ 1,029,778 | $ 1,477,104 | ||
Product development expenses, net | |||
Direct expenses | $ 798,124 | $ 678,834 | |
Depreciation and amortization | 80,274 | 110,907 | |
$ 878,398 | $ 789,741 | ||
Transfer to cost of sales | - | (18,297) | |
Government contribution (Note 7) | (625,713) | (241,908) | |
$ (625,713) | $ (260,205) | ||
$ 252,685 | $ 529,536 | ||
Supplementary information: | |||
Short-term employee benefits | $ 3,011,704 | $ 3,686,304 |
Short-term employee benefits include wages, salaries, bonus, sales commissions, social security contributions, extended health premiums, Medical Services Plan payments, Registered Retirement Savings Plan contributions and vacation accrual.
5. | Business Combination |
Acquisition of Sinclair Technologies Holdings Inc.
During the three months ended March 31, 2013, the Company released $1,000,000 in cash from escrow to the vendors as part of the purchase consideration. The funds were originally held in escrow to act as security for certain events should the Company be subject to any liabilities, claims or similar arising from representation or warranties made by the vendors.
8 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
On March 28, 2013, the Company paid $376,203 in cash to the vendors as part of the purchase consideration, representing 50% of the principal of the promissory note plus accumulated interest. The balance of the principal plus interest is to be paid on June 28, 2013.
The value of the promissory notes as at March 31, 2013 was $362,500 (December 31, 2012-$693,129).
Also, please refer to note 14 Events after Reporting Date.
6. | Capital Disclosures |
On March 28, 2013, the Company entered into an agreement with the Canadian Federal Minister of Industry (the “Minister”) through the Strategic Aerospace & Defense Initiative (“SADI”) whereby the Minister will provide funding of 30% of eligible spending related to the research and development of the aerospace, defence, space or security (“A&D”) technology development projects to a maximum funding amount of Cdn$13,270,265 for eligible costs starting from July 27, 2012 up to and including December 31, 2017 (“SADI II”). The Company is obliged to repay the funding over the SADI II repayment period (Note 7).
As at March 31, 2013 the Company is in compliance with its externally imposed covenants.
7. | Government Contributions |
Strategic Aerospace & Defense Initiative
The Company entered into an agreement (“SADI I”) with the Minister through the SADI in September 2008 and subsequently amended in October 2011, whereby the Minister provided funding of 35% of eligible spending related to the research and development of A&D technology development projects to a maximum funding amount of Cdn$5,975,200 for eligible costs starting from September 21, 2007 up to and including December 31, 2012. The Company has claimed the maximum funding under this agreement as at December 31, 2012.
As at March 31, 2013, $580,603 (Cdn$592,270) remains in trade and other receivables (December 31, 2012- $595,169 (Cdn$592,270) related to SADI I.
Starting in 2013, the Company is obligated to accrue annual repayments over the repayment period, with the following terms:
Ø | The repayment period begins January 1, 2013 and will continue for 15 years, or until such time as the maximum amount of Cdn$8,962,800, representing 1.5 times the contributions (actual amounts disbursed by the Minister) to be repaid is reached, whichever occurs earlier. |
Ø | Annual repayment amounts under the SADI I repayment period are calculated based on a repayment rate of 0.94% multiplied by gross business revenue as defined in the agreement multiplied by the adjustment rate (based on the growth of gross business revenue over the previous year). The adjustment factor is based on year-over-year change of gross business revenue. For fiscal 2013, the Company estimates that the adjustment factor will be 1.0 based on estimated annual gross business revenue growth compared to fiscal 2012. |
As at March 31, 2013, the Company recorded a SADI I royalty payment accrual of $160,909 as an increase in Satellite Solutions costs of sales ($40,431), Microwave Products cost of sales ($41,364) and Sinclair Technologies cost of sales ($79,114).
9 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
For the three months ended March 31, 2013, the Company has recorded $599,902 as a reduction to product development expenses in the condensed interim consolidated statements of earnings and comprehensive income and $11,812 as a reduction to property and equipment costs relating to SADI II. As at March 31, 2013, $610,477 (Cdn$620,215) remains in trade and other receivables relating to this project for costs incurred.
SADI II repayment is contingent on performance benchmarks established at the end of the Company’s fiscal 2017 year end and is capped at the lesser of 1.5 times the contribution (actual amounts disbursed by the Minister) and the amounts actually repaid over a period of 15 years, commencing in 2018. Annual repayment amounts are calculated based on a percentage of gross business revenue as defined in the agreement multiplied by the adjustment rate (based on the growth of gross business revenue over the previous year). As at March 31, 2013, the Company did not accrue any liability for repayment relating to SADI II as the amount cannot yet be determined since the repayment amount is contingent on 2018 financial results compared to those achieved in 2017.
Digital Technology Adoption Pilot Programs (“DTAPP”)
For the three months ended March 31, 2013, the Company has recorded $50,985 as a reduction to expenses in the condensed interim consolidated statements of earnings and comprehensive income relating to its DTAPP agreements. Total cash received was $61,094 for the three months ended March 31, 2013 (for the three months ended March 31, 2012 - $83,653). As at March 31, 2013, $25,572 (Cdn$25,980) remains in trade and other receivables for costs incurred (December 31, 2012 - $36,662 (Cdn$36,623)).
Effective February 1, 2013, the NRC extended the August DTAPP agreement from March 15, 2013 to September 30, 2013 with all other terms and conditions remaining unchanged.
8. | Issued Capital |
Share Purchase Option Plan
Share purchase options outstanding as at March 31, 2013 are as follows:
Share purchase options outstanding | Number of options | Weighted average exercise price Cdn$ | ||
Balance, December 31, 2012 | 1,775,400 | $ 0.69 | ||
Granted | 611,928 | 0.54 | ||
Expired | (20,000) | 1.51 | ||
Forfeited | (9,000) | 0.83 | ||
Balance, March 31, 2013 | 2,358,328 | $ 0.65 |
The following table summarizes information pertaining to the Company’s share purchase options outstanding at March 31, 2013:
Options outstanding | Options exercisable | |||||
Range of exercise prices Cdn$ | Number of options outstanding | Weighted average remaining contractual life(years) | Weighted average exercise price Cdn$ | Number of options exercisable | Weighted average exercise price Cdn$ | |
$0 to $0.49 | 418,000 | 3.73 | 0.48 | - | - | |
$0.50 to $0.99 | 1,858,128 | 3.47 | 0.65 | 840,200 | 0.77 | |
$1.00 to $1.49 | 82,200 | 0.00 | 1.37 | 82,200 | 1.37 | |
2,358,328 | 3.40 | 0.65 | 922,400 | 0.82 |
10 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
The exercise price of all share purchase options granted during the period are equal to the closing market price at the grant date. The Company calculates share based payment from the vesting of stock options using the Black Scholes Option Pricing Model with assumptions noted below and records related compensation expense as follows for the three months ended March 31, 2013 and 2012:
Three months ended March 31 | |||
2013 | 2012 | ||
Total compensation - options | $ 71,830 | $ 51,850 |
The weighted average assumptions used to estimate the fair value of options granted during the three months ended March 31, 2013 and 2012 were:
Three months ended March 31 | |||
2013 | 2012 | ||
Risk free interest rate | 1.25% | 1.27% | |
Expected life | 3.1 | 3.5 | |
Vesting period | 2 years | 2 years | |
Expected volatility | 52% | 71% | |
Expected dividends | Nil | Nil | |
Average fair value | Cdn$0.20 | Cdn$0.25 | |
Forfeiture rate | 18% | 14% |
A total of 611,928 stock purchase options were granted at an exercise price of Cdn$0.54 and fair value of Cdn$0.20 during the three months ended March 31, 2013.
Options vest in 2 years and expire 5 years from the grant date.
During the three months ended March 31, 2013, a total of 274,759 and 75,543 options were granted to senior management and directors, respectively at an exercise price of Cdn$0.54 and fair value of Cdn$0.20.
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.
Restricted Share Unit (“RSU”) Plan
RSUs outstanding as at March 31, 2013 were as follows:
# of RSUs outstanding | ||||
Balance, December 31, 2012 | 330,272 | |||
Forfeited | (888) | |||
Balance, March 31, 2013 | 329,384 |
The Company charged the following share-based payments to general and administrative expenses, with a corresponding increase in contributed surplus:
Three months ended March 31 | |||
2013 | 2012 | ||
Total compensation - RSUs | $ 18,362 | $ - |
11 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
9. | Earnings per Share |
The reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations was as follows for the three months ended March 31, 2013 and 2012:
Three months ended March 31 | |||
2013 | 2012 | ||
Numerator | |||
Net earnings from continuing operations | $ 412,499 | $ 555,716 | |
Denominator: | |||
Weighted average number of shares | |||
outstanding used to compute basic EPS | 58,036,732 | 58,316,532 | |
Dilution from exercise of stock options | 76,745 | 26,725 | |
Dilution from exercise of warrants | - | - | |
Weighted average number of shares | |||
outstanding used to compute diluted EPS | 58,113,477 | 58,343,257 | |
Net earnings per share - from continuing | |||
operations: | |||
Basic | $ 0.01 | $ 0.01 | |
Diluted | $ 0.01 | $ 0.01 |
The calculation of assumed exercise of stock options includes the effect of the dilutive options. Where their effect was anti-dilutive because their exercise prices were higher than the average market price of the Company’s common shares at the end of the periods shown in the table, assumed exercise of those particular stock options were not included.
12 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
10. | Segmented Information |
The accounting policies of the segments are the same as those described in the summary of significant accounting policies as described in our annual audited consolidated financial statements for the year ended December 31, 2012.
The following tables set forth sales and gross profit information by operating segments for the three months ended March 31, 2013 and 2012. Due to limited activity, Norsat Power Solutions segment sales are included under the Sinclair Technologies segment and Maritime Solutions segment sales under the Satellite Solutions segment:
Three months ended March 31 | |||
2013 | 2012 | ||
Sales to external customers | |||
Sinclair Technologies | $ 5,576,292 | $ 6,167,356 | |
Satellite Solutions | 1,372,862 | 2,142,587 | |
Microwave Products | 1,404,500 | 2,098,653 | |
$ 8,353,654 | $ 10,408,596 | ||
Gross Profit | |||
Sinclair Technologies | $ 2,419,196 | $ 2,776,657 | |
Satellite Solutions | 391,948 | 888,977 | |
Microwave Products | 550,999 | 892,204 | |
$ 3,362,143 | $ 4,557,838 |
Total assets related to operations for each segment are calculated based on the percentage of total sales to external customers of each segment (Sinclair Technologies and Norsat Power Solutions, Satellite Solutions and Maritime Solutions, and Microwave Products) over total consolidated sales, whereas property, equipment, and intangible assets of each segment reflect the carrying value of the assets.
Sinclair Technologies | Satellite Solutions | Microwave Products | Consolidated | |
As at March 31, 2013 | ||||
Total assets related to operations | $ 23,047,468 | $ 7,369,331 | $ 7,539,159 | $ 37,955,958 |
Property and equipment, net | 446,601.00 | 201,701.00 | 206,350.00 | 854,652 |
Intangible assets, net | 8,128,515 | 14,176 | 14,502 | 8,157,193 |
As at December 31, 2012 | ||||
Total assets related to operations | $ 24,735,365 | $ 7,675,672 | $ 8,471,432 | $ 40,882,469 |
Property and equipment, net | 604,627 | 160,065 | 176,660 | 941,352 |
Intangible assets, net | 8,419,994 | 59,074 | 65,199 | 8,544,267 |
Substantially all property and equipment and intangible assets are located in Canada.
13 |
Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
The Company generated revenues from external customers located in the following geographic locations:
Three months ended March 31 | |||
2013 | 2012 | ||
Canada | $ 2,091,585 | $ 2,308,375 | |
United States | 4,816,974 | 5,521,561 | |
Europe and other | 1,445,095 | 2,578,660 | |
$ 8,353,654 | $ 10,408,596 | ||
Customer Concentration:
For the three months ended March 31, 2013 and 2012, two customers of the Sinclair Technologies operating segment individually represented 10% or more of total consolidated revenue. The two customers represented a total of 25% of total consolidated revenue (three months ended March 31, 2012 - 24%).
11. | Supplemental cash flow and other disclosures |
Three months ended March 31 | |||
2013 | 2012 | ||
Change in non-cash operating working capital: | |||
Trade and other receivables | $ 290,794 | $ 920,900 | |
Contract work in progress | - | (135,001) | |
Inventories | (215,635) | 586,882 | |
Prepaid expenses and other | 58,189 | 42,072 | |
Accounts payable and accrued liabilities | (1,732,075) | (2,613,295) | |
Provisions | 10,184 | 1,354 | |
Deferred revenue | (54,421) | (62,903) | |
$ (1,642,964) | $ (1,259,991) | ||
Supplementary information: | |||
Interest paid | $ 109,503 | $ 97,356 |
12. | Related Party Transactions |
Compensation of key management personnel including the Company’s President and Chief Executive Officer, Chief Financial Officer and General Manager (2012- President and Chief Executive Officer, Chief Financial Officer, General Manager and former President of a significant subsidiary) are as follows:
Three months ended March 31 | |||
2013 | 2012 | ||
Short-term employee benefits | $ 305,092 | $ 808,859 | |
Share based payments | 27,404 | 12,146 | |
Total | $ 332,496 | $ 821,005 |
The amounts disclosed in the above table are the amounts recognized as an expense during the reporting period related to key management personnel.
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Norsat International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
Three months ended March 31, 2013 and 2012
(Expressed in US dollars - Unaudited)
13. | Commitments and Contingencies |
Future minimum payments at March 31, 2013 under various loan commitments, purchasing commitments and operating lease obligations for each of the next five calendar years are approximately as follows:
Remaining 2013 | 2014 | 2015 | 2016 | 2017 and after | |
Acquisition loan | $ 2,250,000 | $ 3,000,000 | $ 937,176 | $ - | $ - |
Promissory note payable | 376,450 | - | - | - | - |
Inventory purchase obligations | 4,610,497 | 374,346 | - | - | - |
Operating lease obligations | 633,842 | 836,921 | 454,556 | 417,985 | 7,855 |
Total | $ 7,870,789 | $ 4,211,267 | $ 1,391,732 | $ 417,985 | $ 7,855 |
Repayment of the acquisition loan assumes that the Company elects the option under the terms of the credit facilities to repay the annual lump sum payment over a 12 month consecutive period from the payment due date.
The promissory note includes accumulated interest payment of $13,950.
The Company, in the normal course of business, enters into purchase commitments, including inventory purchase obligations as disclosed above.
The Company has operating lease commitments that extend to June 2017.
Legal Proceedings
From time to time the Company may enter into legal proceedings relating to certain potential claims. It is impossible at this time for the Company to predict with any certainty the outcome of any such claims. However, management is of the opinion, based on legal assessment and information available, that it is unlikely that any liability would be material in relation to the Company’s consolidated financial position.
14. | Events after Reporting Date |
Acquisition of US-Based Satellite Communication Business
On April 16, 2013, the Company entered into a definitive agreement to acquire certain business assets and assume certain liabilities of a US-based satellite communication systems business. The Company paid US$530,170 and financed the transaction with cash from operations. The acquired assets include new products and associated IP that align with the Company’s existing product roadmap and allow the Company to immediately enter new and additional areas within the satellite communications markets with solid state power amplifiers (“SSPAs”), high power block upconverters (“BUCs”), SATCOM baseband kits and Microsatellite terminals (terminals with antenna sizes below 1 metre).
The Company is currently working on the allocation of the purchase consideration to the fair values of assets acquired and liabilities assumed at the acquisition date.
Acquisition Loan
Subsequent to March 31, 2013, the Company has elected the option under the terms of the credit facilities to repay the scheduled annual lump sum payment of $600,000 over a 12-month consecutive period from the payment due date on April 30, 2013.
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