Exhibit 99.2
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
For the three and six months ended June 30, 2015 and 2014
(Expressed in US dollars)
1
Norsat International Inc. |
Condensed Interim Consolidated Statements of Financial Position |
(Expressed in US dollars - Unaudited) |
Notes | June 30, 2015 | December 31, 2014 | |||||
ASSETS | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 2,595,212 | $ | 5,513,733 | |||
Trade and other receivables | 8,486,133 | 7,570,110 | |||||
Inventories | 11,039,411 | 10,120,374 | |||||
Prepaid expenses and other | 493,388 | 426,093 | |||||
Current assets | 22,614,144 | 23,630,310 | |||||
Non-current assets | |||||||
Property and equipment, net | 701,563 | 855,978 | |||||
Intangible assets, net | 5,622,128 | 6,360,336 | |||||
Goodwill | 4,464,888 | 4,736,470 | |||||
Long-term prepaid expenses and other | 9,340 | 9,340 | |||||
Deferred income taxassets | 4,700,000 | 4,900,000 | |||||
Non-current assets | 15,497,919 | 16,862,124 | |||||
Total assets | $ | 38,112,063 | $ | 40,492,434 | |||
LIABILITIES | |||||||
Current liabilities | |||||||
Trade and other payables | $ | 2,363,548 | $ | 2,831,911 | |||
Accrued liabilities | 2,889,739 | 2,601,163 | |||||
Provisions | 865,699 | 766,371 | |||||
Taxes payable | - | 120,038 | |||||
Deferred revenue | 505,821 | 1,169,816 | |||||
Current liabilities before acquisition loan | 6,624,807 | 7,489,299 | |||||
Acquisition loan | 7 | - | 2,371,266 | ||||
Current liabilities | 6,624,807 | 9,860,565 | |||||
Non-current liabilities | |||||||
Long-term deferred revenue | 22,483 | 18,426 | |||||
Deferred income taxliabilities | 1,495,480 | 1,629,001 | |||||
Non-current liabilities | 1,517,963 | 1,647,427 | |||||
Total liabilities | 8,142,770 | 11,507,992 | |||||
SHAREHOLDERS' EQUITY | |||||||
Issued capital | 8 | 39,850,648 | 39,850,648 | ||||
Treasury shares | 9 | (416,423 | ) | (326,527 | ) | ||
Contributed surplus | 4,292,106 | 4,371,778 | |||||
Accumulated other comprehensive loss | (3,113,340 | ) | (3,033,963 | ) | |||
Deficit | (10,643,698 | ) | (11,877,494 | ) | |||
Total shareholders' equity | 29,969,293 | 28,984,442 | |||||
Total liabilities and shareholders' equity | $ | 38,112,063 | $ | 40,492,434 |
See accompanying notes to the unaudited condensed interim consolidated financial statements.
Approved by the Board and authorized for issue on August 5, 2015
“ 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 June 30 | Six months ended June 30 | ||||||||||||
Notes | 2015 | 2014 | 2015 | 2014 | |||||||||
Revenue | 11 | $ | 8,950,091 | $ | 9,583,906 | $ | 17,360,416 | $ | 18,701,611 | ||||
Cost of sales | 4 | 5,467,065 | 5,544,946 | 10,519,547 | 10,899,129 | ||||||||
Gross profit | 3,483,026 | 4,038,960 | 6,840,869 | 7,802,482 | |||||||||
Expenses: | |||||||||||||
Selling and distributing expenses | 4 | 1,271,795 | 1,373,018 | 2,538,788 | 2,676,735 | ||||||||
General and administrative expenses | 4 | 933,710 | 1,044,618 | 1,927,028 | 1,903,900 | ||||||||
Product development expenses, gross | 4 | 730,932 | 757,152 | 1,489,708 | 1,452,589 | ||||||||
Less: Government contributions | 4 | (312,933 | ) | (182,766 | ) | (643,957 | ) | (569,757 | ) | ||||
Total expenses | 2,623,504 | 2,992,022 | 5,311,567 | 5,463,467 | |||||||||
Earnings before other expenses/(income) | 859,522 | 1,046,938 | 1,529,302 | 2,339,015 | |||||||||
Other expenses/(income): | |||||||||||||
Write-off of property and equipment | - | - | 31,139 | - | |||||||||
Other income | (198,997 | ) | - | (198,997 | ) | - | |||||||
Interest and bank charges | 40,908 | 48,263 | 76,306 | 100,878 | |||||||||
Loss/(gain) on foreign exchange | 210,792 | 281,733 | 388,541 | (585,759 | ) | ||||||||
Earnings before income taxes | 806,819 | 716,942 | 1,232,313 | 2,823,896 | |||||||||
Current income tax recovery | - | (213,163 | ) | (66,068 | ) | (213,163 | ) | ||||||
Deferred income tax expense/(recovery) | 132,710 | (69,792 | ) | 64,585 | (139,584 | ) | |||||||
Net earnings | $ | 674,109 | $ | 999,897 | $ | 1,233,796 | $ | 3,176,643 | |||||
Other comprehensive income/(loss) | |||||||||||||
Exchange differences on translation of operations | |||||||||||||
in currencies other than US Dollars | 464,402 | 742,295 | (79,377 | ) | (551,407 | ) | |||||||
Total comprehensive income | $ | 1,138,511 | $ | 1,742,192 | $ | 1,154,419 | $ | 2,625,236 | |||||
Net earnings per share | |||||||||||||
Basic earnings per share | 10 | $ | 0.12 | $ | 0.17 | $ | 0.21 | $ | 0.55 | ||||
Diluted earnings per share | 10 | $ | 0.12 | $ | 0.17 | $ | 0.21 | $ | 0.55 | ||||
Weighted average number of shares outstanding | |||||||||||||
Basic | 8 and 10 | 5,759,439 | 5,766,360 | 5,762,789 | 5,766,360 | ||||||||
Diluted | 8 and 10 | 5,783,048 | 5,769,535 | 5,785,985 | 5,771,980 |
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) |
Treasury | Contributed | Accumulated other | Total shareholders' | |||||||||||||||
Notes | Issued capital | shares | surplus | comprehensive loss | Deficit | equity | ||||||||||||
As at January 1, 2015 | $ | 39,850,648 | $ | (326,527 | ) | $ | 4,371,778 | $ | (3,033,963 | ) | $ | (11,877,494 | ) | $ | 28,984,442 | |||
Net earnings for the period | - | - | - | - | 1,233,796 | 1,233,796 | ||||||||||||
Other comprehensive income | - | - | - | (79,377 | ) | - | (79,377 | ) | ||||||||||
Total | 39,850,648 | (326,527 | ) | 4,371,778 | (3,113,340 | ) | (10,643,698 | ) | 30,138,861 | |||||||||
Vesting of RSUs | - | 198,916 | (198,033 | ) | - | - | 883 | |||||||||||
Purchase of shares for RSUs | - | (287,705 | ) | - | - | - | (287,705 | ) | ||||||||||
Share purchase cost | - | (1,107 | ) | - | - | - | (1,107 | ) | ||||||||||
Share-based payments | 8 | - | - | 118,361 | - | - | 118,361 | |||||||||||
As at June 30, 2015 | $ | 39,850,648 | $ | (416,423 | ) | $ | 4,292,106 | $ | (3,113,340 | ) | $ | (10,643,698 | ) | $ | 29,969,293 | |||
Treasury | Contributed | Accumulated other | Total shareholders' | |||||||||||||||
Issued capital | shares | surplus | comprehensive loss | Deficit | equity | |||||||||||||
As at January 1, 2014 | $ | 39,850,648 | $ | (318,255 | ) | $ | 4,278,843 | $ | (1,315,478 | ) | $ | (16,072,249 | ) | $ | 26,423,509 | |||
Net earnings for the period | - | - | - | - | 3,176,643 | 3,176,643 | ||||||||||||
Other comprehensive income | - | - | - | (551,407 | ) | - | (551,407 | ) | ||||||||||
Total | 39,850,648 | (318,255 | ) | 4,278,843 | (1,866,885 | ) | (12,895,606 | ) | 29,048,745 | |||||||||
Vesting of RSUs | - | 75,535 | (143,620 | ) | - | - | (68,085 | ) | ||||||||||
Purchase of shares for RSUs | - | (107,284 | ) | - | - | - | (107,284 | ) | ||||||||||
Share purchase cost | - | (4,501 | ) | - | - | - | (4,501 | ) | ||||||||||
Share-based payments | 8 | - | - | 123,968 | - | - | 123,968 | |||||||||||
As at June 30, 2014 | $ | 39,850,648 | $ | (354,505 | ) | $ | 4,259,191 | $ | (1,866,885 | ) | $ | (12,895,606 | ) | $ | 28,992,843 |
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 June 30 | Six months endedJune 30 | ||||||||||||
Notes | 2015 | 2014 | 2015 | 2014 | |||||||||
Cash and cash equivalents provided by/ (used in) | |||||||||||||
Operating activities: | |||||||||||||
Net earnings for the period | $ | 674,109 | $ | 999,897 | $ | 1,233,796 | $ | 3,176,643 | |||||
Income taxes (paid)/refunded | (43,270 | ) | 208,688 | (43,270 | ) | 128,116 | |||||||
Non-cash adjustments to reconcile net earnings to net cash flows: | |||||||||||||
Depreciation and amortization | 329,742 | 303,407 | 657,791 | 622,839 | |||||||||
Impairment of property and equipment | - | - | 31,139 | - | |||||||||
Realized and unrealized foreign exchange loss/ (gain) | 210,793 | 281,733 | 388,541 | (585,759 | ) | ||||||||
Acquisition loan cost amortization | - | 6,787 | 2,262 | 13,573 | |||||||||
Other income | (198,997 | ) | - | (198,997 | ) | - | |||||||
Current income taxrecovery | - | (213,163 | ) | (66,068 | ) | (213,163 | ) | ||||||
Deferred income taxexpense/(recovery) | 132,710 | (69,792 | ) | 64,585 | (139,584 | ) | |||||||
Share-based payments | 64,410 | 68,936 | 118,361 | 123,968 | |||||||||
Vesting of RSUs | (14,632 | ) | (68,085 | ) | (14,632 | ) | (68,085 | ) | |||||
Government contribution | (312,933 | ) | (182,766 | ) | (643,957 | ) | (569,757 | ) | |||||
Changes in non-cash working capital | 12 | (1,977,058 | ) | (346,925 | ) | (2,888,486 | ) | (1,875,560 | ) | ||||
Net cash flows (used in)/provided by operating activities | (1,135,126 | ) | 988,717 | (1,358,935 | ) | 613,231 | |||||||
Investing activities: | |||||||||||||
Purchase of intangible assets, property and equipment | (43,454 | ) | (99,994 | ) | (99,549 | ) | (210,424 | ) | |||||
Proceeds from government contributions for acquisition of property and equipment | - | - | - | 26,551 | |||||||||
Net cash flows used in investing activities | (43,454 | ) | (99,994 | ) | (99,549 | ) | (183,873 | ) | |||||
Financing activities: | |||||||||||||
Repayment of acquisition loan | 7 | (1,306,762 | ) | (480,000 | ) | (2,286,762 | ) | (960,000 | ) | ||||
Purchase of treasury shares, including purchase costs | (273,298 | ) | (111,785 | ) | (273,298 | ) | (111,785 | ) | |||||
Proceeds from government contributions | 5 | 69,727 | 162,352 | 833,211 | 618,473 | ||||||||
Net cash flows used in financing activities | (1,510,333 | ) | (429,433 | ) | (1,726,849 | ) | (453,312 | ) | |||||
Effect of foreign currency translation on cash and cash equivalents | (73,410 | ) | (92,302 | ) | 266,812 | (15,538 | ) | ||||||
(Decrease)/increase in cash and cash equivalents | (2,762,323 | ) | 366,988 | (2,918,521 | ) | (39,492 | ) | ||||||
Cash and cash equivalents, beginning of period | 5,357,535 | 2,866,115 | 5,513,733 | 3,272,595 | |||||||||
Cash and cash equivalents, end of period | $ | 2,595,212 | $ | 3,233,103 | $ | 2,595,212 | $ | 3,233,103 |
Supplemental cash flow and other disclosures (Note 12)
See accompanying notes to the unaudited condensed interim consolidated financial statements.
5
Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
1. Basis of Preparation
Statement of compliance
These unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2015, 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 2014 annual audited consolidated financial statements which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”).
The unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2015 have been approved and authorized for issue by the board of directors on August 5, 2015.
These unaudited condensed interim consolidated financial statements are presented in United States dollars (‘USD”), except when otherwise indicated.
Seasonal fluctuations
Quarterly results from the Company’s two business segments fluctuate from quarter to quarter due to seasonal influences on sales volumes. In the Company’s Land Mobile Radio (“Sinclair Technologies”) segment, the first and second quarters are historically the strongest, as most of Sinclair Technologies’ customers build inventories as they commence installation in the spring and winter seasons. In the Satellite Communications segment, 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 the Company’s 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, 2014.
3. Significant Management Judgments 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 judgments, 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 judgments, 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, 2014.
6
Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
4. Cost of Sales and Expenses
Three months ended June 30 | Six months ended June 30 | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
Cost of Sales | ||||||||||||
Direct cost of sales | $ | 5,444,214 | $ | 5,523,965 | $ | 10,472,943 | $ | 10,857,848 | ||||
Depreciation and amortization | 22,851 | 20,981 | 46,604 | 41,281 | ||||||||
$ | 5,467,065 | $ | 5,544,946 | $ | 10,519,547 | $ | 10,899,129 | |||||
Selling anddistributing expenses | ||||||||||||
Direct expenses | $ | 1,109,519 | $ | 1,205,642 | $ | 2,214,686 | $ | 2,325,700 | ||||
Depreciation and amortization | 162,276 | 167,376 | 324,102 | 351,035 | ||||||||
$ | 1,271,795 | $ | 1,373,018 | $ | 2,538,788 | $ | 2,676,735 | |||||
General andadministrative expenses | ||||||||||||
Direct expenses | $ | 1,064,822 | $ | 1,068,228 | $ | 2,123,409 | $ | 2,019,392 | ||||
Capitalized to inventory/transfer to cost of sales | (225,226 | ) | (71,851 | ) | (381,288 | ) | (198,208 | ) | ||||
Depreciation and amortization | 94,114 | 48,241 | 184,907 | 82,716 | ||||||||
$ | 933,710 | $ | 1,044,618 | $ | 1,927,028 | $ | 1,903,900 | |||||
Product development expenses, net | ||||||||||||
Direct expenses | $ | 680,431 | $ | 690,343 | $ | 1,387,530 | $ | 1,304,782 | ||||
Depreciation and amortization | 50,501 | 66,809 | 102,178 | 147,807 | ||||||||
730,932 | 757,152 | 1,489,708 | 1,452,589 | |||||||||
Less: Government contributions (Note 5) | (312,933 | ) | (182,766 | ) | (643,957 | ) | (569,757 | ) | ||||
$ | 417,999 | $ | 574,386 | $ | 845,751 | $ | 882,832 | |||||
Supplementary information: | ||||||||||||
Short-term employee benefits | $ | 1,955,333 | $ | 2,680,259 | $ | 3,824,100 | $ | 5,248,566 |
Short-term employee benefits include wages, salaries, bonuses, sales commissions, share-based payments, social security contributions, extended health premiums, Medical Services Plan payments, Registered Retirement Savings Plan contributions and vacation accrual.
5. Government Contributions
a.)Strategic Aerospace & Defense Initiative (“SADI I”)
As at June 30, 2015, the Company has calculated the SADI I repayment amount to be $nil as the 2015 year to date gross business revenue as at June 30, 2015 did not meet the criteria for repayment pursuant to the repayment terms of the SADI I agreement and the Company’s accounting policy relating to SADI repayment.
b.)Strategic Aerospace & Defense Initiative (“SADI II”)
For the three and six months ended June 30, 2015, the Company has recorded $312,933 and $643,957 (for the three and six months ended June 30, 2014 - $182,766 and $569,757) as a reduction to product development expenses related to SADI II in the Condensed Interim Consolidated Statements of Earnings and Comprehensive Income. For the three and six months ended June 30, 2015, the Company recorded $nil (three and six months ended June 30, 2014 - $nil and $26,551) as a reduction to property and equipment costs related to SADI II.
7
Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
As at June 30, 2015, the Company has recorded $3,931,090, or Cdn$4,344,733 of the maximum funding amount of Cdn$13,270,265 under SADI II.
As at June 30, 2015, eligible costs related to SADI II of $394,713 (December 31, 2014 - $593,097) were included in trade and other receivables.
For the three and six months ended June 30, 2015, total cash received under SADI II was $69,727 and $833,211 (three and six months ended June 30, 2014 - $162,352 and $618,473).
As at June 30, 2015, the Company did not accrue any liability for repayment relating to SADI II as the amount to be repaid cannot yet be determined since the repayment amount is contingent on 2018 financial results compared to those achieved in 2017.
6. Operating Line of Credit
During the six months ended June 30, 2015, the Company renewed its existing credit facilities with HSBC Bank Canada (the “Bank”) where the demand operating line of credit available to the Company has been amended to Cdn$3.50 million compared to USD3.25 million previously. All terms of interests and covenants remain unchanged. Together with the Company’s existing facility with HSBC Bank USA of USD0.5 million, the Company has total credit facilities of approximately $3.26 million (December 31, 2014 $3.66 million). As at June 30, 2015, the Company had drawn $0.21 million of the $3.26 million operating line of credit for a standby letter of credit of a significant sales contract.
7. Acquisition Loan
For the three and six months ended June 30, 2015, the Company made principal repayments totaling $1,306,762 and $2,286,762 (three and six months ended June 30, 2014 - $480,000 and $960,000) against the acquisition loan. As at June 30, 2015, the Company has fully repaid its loan balance.
8. Issued Capital
Share Consolidation
On January 16, 2015, the Company consolidated its outstanding common shares on the basis of one new common share for every ten existing common shares. As no fractional common shares were issued in connection with the share consolidation and any fractional shares that resulted from the share consolidation were rounded to the nearest whole number, the 58,316,532 pre-consolidation common shares issued and outstanding as at December 31, 2014 were being reduced to 5,831,658 common shares on a post-consolidated basis.
Total shares issued and outstanding as at June 30, 2015 and December 31, 2014 were 5,831,658 at a book value of $39,850,648.
These condensed interim consolidated financial statements reflect the share capital consolidation and earnings per share on a retroactive basis. The following sections reflect the effects of the share capital consolidation on the number of common shares, options and restricted share units.
Share Purchase Option Plan
During the three months ended June 30, 2015, the Company renewed its Stock Option Plan dated May 9, 2012 (the “Plan”). The policies of the Toronto Stock Exchange require the Company to seek shareholder approval for its option plan every three years. At the Company’s Annual General Meeting on May 6, 2015,
8
Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
the shareholders of the Company approved, by ordinary resolution, the continuation of the Plan. The terms of the Plan remained unchanged. Further information is contained in the Company’s information circular dated March 25, 2015 available on www.sedar.com.
During the three months ended June 30, 2015, 3,000 stock purchase options were granted at an average weighted exercise price of Cdn$5.99 and a fair value of Cdn$1.96, of which $nil were granted to senior management.
During the six months ended June 30, 2015, 29,352 stock purchase options were granted at an exercise price of Cdn$6.75 and a fair value of Cdn$2.20, of which 4,642 stock purchase options were granted to senior management and directors at the same average price and fair value.
Options typically vest in two years and expire five years from the grant date.
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. The weighted average assumptions used to estimate the fair value of options granted during the three and six months ended June 30, 2015 and 2014 were:
Three months ended June 30 | Six months ended June 30 | |||||||
2015 | 2014 | 2015 | 2014 | |||||
Risk free interest rate | 0.80% | 1.44% | 0.56% | 1.36% | ||||
Expected life | 3.1 years | 3.1 years | 3.1 years | 3.1 years | ||||
Vesting period | 2 years | 2 years | 2 years | 2 years | ||||
Expected volatility | 47% | 49% | 47% | 49% | ||||
Expected dividends | Nil | Nil | Nil | Nil | ||||
Average fair value | Cdn$1.96 | Cdn$1.86 | Cdn$2.20 | Cdn$1.86 | ||||
Forfeiture rate | 18% | 18% | 18% | 18% |
The exercise price of all share purchase options granted during the period is 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 above and records related compensation expense as follows for the three and six months ended June 30, 2015 and 2014:
Three months ended June 30 | Six months ended June 30 | ||||||||
2015 | 2014 | 2015 | 2014 | ||||||
Share-based payments - options | $ | 13,386 | $ | 15,998 | $ | 27,014 | $ | 30,990 |
Share purchase options outstanding as at June 30, 2015 are as follows:
Share purchase options outstanding | Number of | Weighted average | |||
options | exercise price Cdn$ | ||||
Balance, December 31, 2014 | 214,162 | $ | 5.80 | ||
Granted | 29,352 | 6.75 | |||
Expired | (11,040 | ) | 6.92 | ||
Forfeited | (1,454 | ) | 5.09 | ||
Balance, June 30, 2015 | 231,020 | $ | 5.98 |
9
Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
The following table summarizes information pertaining to the Company’s share purchase options outstanding at June 30, 2015:
Options outstanding | Options exercisable | |||||||||||||||
Range of | Number of | Weighted average | Weighted | Number of | Weighted | |||||||||||
exercise prices | options | remaining contractual | average | options | average | |||||||||||
Cdn$ | outstanding | life (years) | exercise price | exercisable | exercise price | |||||||||||
Cdn$ | Cdn$ | |||||||||||||||
$0 to $4.99 | 40,700 | 1.62 | 4.80 | 39,200 | 4.80 | |||||||||||
$5.00 to $9.99 | 190,320 | 2.64 | 6.22 | 111,384 | 6.52 | |||||||||||
231,020 | 2.46 | 5.98 | 150,584 | 6.07 |
Restricted Share Unit (“RSU”) Plan
The Company charged the following share-based payments to operating expenses in connection with the Company’s RSU plan, with a corresponding increase in contributed surplus:
Three months ended June 30 | Six months ended June 30 | ||||||||
2015 | 2014 | 2015 | 2014 | ||||||
Share-based payments - RSUs | $ | 51,024 | $ | 52,938 | $ | 91,347 | $ | 92,978 |
RSUs outstanding as at December 31, 2014 and June 30, 2015 are as follows:
No. of units | ||
Balance, December 31, 2014 | 72,554 | |
Granted | 66,491 | |
Vested | (39,887 | ) |
Forfeited | (567 | ) |
Balance, June 30, 2015 | 98,591 |
10
Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
9. Treasury Shares
During the three and six months ended June 30, 2015, the Company recorded a reduction in treasury shares of $198,916 or 39,887 common shares for RSUs that vested on May 8, 2015. These shares were issued to RSU participants to satisfy the delivery of shares upon vesting of RSUs.
In addition, the Company purchased 58,411 common shares in the open market for $287,705 (Cdn$344,254) in order to provide shares to RSU participants at applicable vesting dates for those RSUs that were granted during the six months ended June 30, 2015. The amount was recorded under treasury shares, reducing shareholders’ equity. These shares were held by a third party trustee to be released to participants at future vesting dates of the RSUs. The Company also recorded a related share purchase cost of $1,107.
The following summarizes information pertaining to treasury shares outstanding as at June 30, 2015:
No. of shares | ||
Balance, December 31, 2014 | 65,476 | |
Shares issued upon RSU vesting | (39,887 | ) |
Shares purchased to settle RSUs | 58,411 | |
Balance, June 30, 2015 | 84,000 |
10. Earnings per Share
The reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) calculations was as follows for the three and six months ended June 30, 2015 and 2014:
Three months ended June 30 | Six months ended June 30 | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
Numerator | ||||||||||||
Net earnings | $ | 674,109 | $ | 999,897 | $ | 1,233,796 | $ | 3,176,643 | ||||
Denominator: | ||||||||||||
Weighted average number of shares outstanding used to compute basic EPS | 5,759,439 | 5,766,360 | 5,762,789 | 5,766,360 | ||||||||
Dilution from exercise of stock options | 23,609 | 3,175 | 23,196 | 5,620 | ||||||||
Weighted average number of shares outstanding used to compute diluted EPS | 5,783,048 | 5,769,535 | 5,785,985 | 5,771,980 | ||||||||
Net earnings per share | ||||||||||||
Basic | $ | 0.12 | $ | 0.17 | $ | 0.21 | $ | 0.55 | ||||
Diluted | $ | 0.12 | $ | 0.17 | $ | 0.21 | $ | 0.55 |
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 was not included.
11. Segmented Information
Commencing in 2015, the Company combined its Satellite Communications and Microwave Products segments into one reportable segment, Satellite Communications, after considering how decisions are made about resource allocation and performance assessment.
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Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
The Company’s business operates primarily through two operating segments – Land Mobile Radio (“Sinclair Technologies”) and Satellite Communications.
The two reportable segments are managed and monitored together with operating results reviewed by the Company’s chief operating decision makers on a combined basis. The two reporting segments are strategic business units that offer different products and services. They are managed separately because each business is in a different stage in its life cycle and they require different marketing strategies.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies as described in the annual audited consolidated financial statements for the year ended December 31, 2014.
The following tables set forth sales and gross profit information by operating segments for the three and six months ended June 30, 2015 and 2014:
Three months ended June 30 | Six months ended June 30 | ||||||||
2015 | 2014 | 2015 | 2014 | ||||||
Sales to external customers | |||||||||
Sinclair Technologies | $ | 4,813,636 | $ | 5,555,039 | $ | 9,458,434 | $ | 11,174,223 | |
Satellite Communications | 4,136,455 | 4,028,867 | 7,901,982 | 7,527,388 | |||||
$ | 8,950,091 | $ | 9,583,906 | $ | 17,360,416 | $ | 18,701,611 | ||
Gross profit | |||||||||
Sinclair Technologies | $ | 2,216,724 | $ | 2,312,225 | $ | 4,222,363 | $ | 4,560,041 | |
Satellite Communications | 1,266,302 | 1,726,735 | 2,618,506 | 3,242,441 | |||||
$ | 3,483,026 | $ | 4,038,960 | $ | 6,840,869 | $ | 7,802,482 |
Assets related to Sinclair Technologies and Satellite Communications can be clearly identified and attributed to their operations.
Sinclair | Satellite | Consolidated | |||||
Technologies | Communications | ||||||
As at June 30, 2015 | |||||||
Total assets related to operations | $ | 21,623,117 | $ | 16,488,946 | $ | 38,112,063 | |
Property and equipment, net | 265,847 | 435,716 | 701,563 | ||||
Intangible assets, net | 5,497,856 | 124,272 | 5,622,128 | ||||
As at December 31, 2014 | |||||||
Total assets related to operations | $ | 23,378,479 | $ | 17,113,955 | $ | 40,492,434 | |
Property and equipment, net | 326,688 | 529,290 | 855,978 | ||||
Intangible assets, net | 6,231,942 | 128,394 | 6,360,336 |
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Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
The Company generated revenues from external customers located in the following geographic locations:
Three months ended June 30 | Six months ended June 30 | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
United States | $ | 4,504,083 | $ | 6,392,681 | $ | 9,389,887 | $ | 11,564,680 | ||||
Canada | 728,754 | 1,211,194 | 2,032,081 | 2,872,714 | ||||||||
Europe and other | 3,717,254 | 1,980,031 | 5,938,448 | 4,264,217 | ||||||||
$ | 8,950,091 | $ | 9,583,906 | $ | 17,360,416 | $ | 18,701,611 |
Substantially all of the Company’s property and equipment, intangible assets and goodwill are located in Canada.
Customer Concentration
For the three and six months ended June 30, 2015, three and one customer individually represented 10% or more of total consolidated revenue. The three customers represented a total of 38% of total consolidated revenue for the three months ended June 30, 2015. The one customer represented 11% of total consolidated revenue for the six months ended June 30, 2015.
For the three and six months ended June 30, 2014, two customers individually represented 10% or more of total consolidated revenue. The two customers represented a total of 24% and 21% of total consolidated revenue for the three months and six months ended June 30, 2014, respectively.
12. Supplemental Cash Flow and Other Disclosures
Three months ended June 30 | Six months ended June 30 | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
Changes in non-cash working capital: | ||||||||||||
Trade and other receivables | $ | (1,369,282 | ) | $ | (35,336 | ) | $ | (1,365,579 | ) | $ | (851,783 | ) |
Inventories | (512,031 | ) | 655,384 | (1,017,655 | ) | 366,423 | ||||||
Prepaid expenses and other | (15,189 | ) | 143,961 | (77,585 | ) | 303,009 | ||||||
Accounts payable and accrued liabilities | 1,096,953 | (826,049 | ) | 71,665 | (1,130,832 | ) | ||||||
Provisions | (85,729 | ) | (50,415 | ) | 80,519 | (208,629 | ) | |||||
Deferred revenue | (1,091,780 | ) | (234,470 | ) | (579,851 | ) | (353,748 | ) | ||||
$ | (1,977,058 | ) | $ | (346,925 | ) | $ | (2,888,486 | ) | $ | (1,875,560 | ) | |
Supplementary information: | ||||||||||||
Interest paid | $ | 7,139 | $ | 32,056 | $ | 21,644 | $ | 65,188 |
13. Related Party Transactions
The following table discloses the compensation amount of key management personnel in the ordinary course of their employment recognized as an expense during the reporting periods. Key management personnel include the Company’s President and Chief Executive Officer, Chief Financial Officer and General Manager.
Three months ended June 30 | Six months ended June 30 | |||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
Short-term employee benefits | $ | 265,820 | $ | 270,761 | $ | 527,146 | $ | 552,204 | ||||
Share-based payments | 31,905 | 35,738 | 57,126 | 69,623 | ||||||||
Total | $ | 297,725 | $ | 306,499 | $ | 584,272 | $ | 621,827 |
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Norsat International Inc. |
Notes to the Condensed Interim Consolidated Financial Statements |
Three and six months ended June 30, 2015 and 2014 |
(Expressed in US dollars - Unaudited) |
14. Commitments and Contingencies
Future minimum payments at June 30, 2015 under purchasing commitments and operating lease obligations for each of the next five calendar years are approximately as follows:
Inventory | Operating | ||||||
purchase | lease | ||||||
obligations | obligations | Total | |||||
Remaining 2015 | $ | 5,458,323 | $ | 369,600 | $ | 5,827,923 | |
2016 | 80,000 | 690,715 | 770,715 | ||||
2017 | - | 179,476 | 179,476 | ||||
2018 | - | - | - | ||||
2019 | - | - | - | ||||
$ | 5,538,323 | $ | 1,239,791 | $ | 6,778,114 |
The Company has operating lease commitments extending to June 2017. The Company also enters into purchase commitments, including inventory purchase obligations in the normal course of business as disclosed above. In addition, the Company is required to make contingent repayment of SADI I government contributions pursuant to the repayment term of the agreement. As at June 30, 2015, the Company did not accrue any liability for repayment as the amount cannot yet be determined (Note 5).
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.
15. Comparative Figures
Certain figures in the prior period condensed interim consolidated financial statements have been adjusted to reflect the ten to one share capital consolidation as described in Note 8, notably number of shares, earnings per share, and number of options and RSUs outstanding.
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