Exhibit 99.2
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended March 31, 2017 and 2016
(Expressed in United States dollars)
1
| | | | | | | |
| Norsat International Inc. | | | | | | | |
| Condensed Interim Consolidated Statements of Financial Position | | | | |
| (Expressed in United States dollars) | | | | | | | |
| (Unaudited) | | | | | | | |
| | | | | | | | |
| | Notes | | March 31, 2017 | | December 31, 2016 | |
| ASSETS | | | | | | | |
| Current assets | | | | | | | |
| Cash and cash equivalents | | $ | 15,626,931 | | $ | 15,044,742 | |
| Trade and other receivables | | | 8,074,508 | | | 8,263,447 | |
| Inventories | | | 10,807,251 | | | 10,462,354 | |
| Prepaid expenses and other | | | 393,569 | | | 332,676 | |
| | | | 34,902,259 | | | 34,103,219 | |
| Non-current assets | | | | | | | |
| Property and equipment, net | | | 564,916 | | | 616,495 | |
| Intangible assets, net | | | 4,073,121 | | | 4,176,244 | |
| Goodwill | | | 4,097,751 | | | 4,097,751 | |
| Investment tax credits recoverable | | | 4,875,031 | | | 4,820,185 | |
| Deferred income tax assets | | | 1,081,300 | | | 1,185,907 | |
| | | | 14,692,119 | | | 14,896,582 | |
| Total assets | | $ | 49,594,378 | | $ | 48,999,801 | |
| LIABILITIES | | | | | | | |
| Current liabilities | | | | | | | |
| Trade and other payables | | $ | 1,530,715 | | $ | 2,774,889 | |
| Accrued liabilities | | | 2,950,388 | | | 2,685,970 | |
| Warranty provision | | | 1,030,962 | | | 869,259 | |
| Deferred revenue | | | 2,217,408 | | | 1,217,083 | |
| | | | 7,729,473 | | | 7,547,201 | |
| Non-current liabilities | | | | | | | |
| Long-term provisions | 5 | | 2,051,884 | | | 1,863,542 | |
| Long-term deferred revenue | | | 62,098 | | | 70,014 | |
| Total liabilities | | | 9,843,455 | | | 9,480,757 | |
| SHAREHOLDERS' EQUITY | | | | | | | |
| Issued capital | 6 | | 40,016,360 | | | 40,016,360 | |
| Treasury shares | | | (431,208 | ) | | (431,208 | ) |
| Contributed surplus | | | 4,325,028 | | | 4,276,584 | |
| Accumulated other comprehensive loss | | | (4,419,838 | ) | | (4,395,651 | ) |
| Retained earnings | | | 260,581 | | | 52,959 | |
| Total shareholders' equity | | | 39,750,923 | | | 39,519,044 | |
| Total liabilities and shareholders' equity | | $ | 49,594,378 | | $ | 48,999,801 | |
| Commitments and Contingencies(Note 11) |
| Subsequent Events(Note 12) |
| See accompanying notes to the unaudited condensed interim consolidated financial statements. | |
Approved by the Board and authorized for issue on May 2, 2017
| | | |
| “ Fabio Doninelli” | | “ James Topham” | |
| Board of Directors | | Board of Directors | |
2
| | | | | | | |
| Norsat International Inc. | | | | | | | |
| Condensed Interim Consolidated Statements of Earnings and Comprehensive Income | |
| (Expressed in United States dollars) | | | | | | | |
| (Unaudited) |
| | | | |
| | | Three months ended March 31 | |
| | Notes | | 2017 | | | 2016 | |
| | | | | | | | |
| Revenue | 8 | $ | 8,228,048 | | $ | 9,553,427 | |
| Cost of sales | 4 | | 4,890,436 | | | 5,378,280 | |
| Gross profit | 8 | | 3,337,612 | | | 4,175,147 | |
| | | | | | | | |
| Expenses: | | | | | | | |
| General and administrative | 4 | | 1,238,053 | | | 983,077 | |
| Selling and distributing | 4 | | 1,128,393 | | | 1,302,966 | |
| Product development | 4 | | 875,932 | | | 783,995 | |
Less: Government contributions | 4&5 | | (320,234 | ) | | (379,475 | ) |
Add: Government repayment obligation | 4$5 | | 114,397 | | | - | |
| Gain on foreign exchange | | | (29,952 | ) | | (49,159 | ) |
| Interest and bank charges | 5 | | 72,871 | | | 26,800 | |
| Total expenses | | | 3,079,460 | | | 2,668,204 | |
| | | | | | | | |
| Earnings before income taxes | | | 258,152 | | | 1,506,943 | |
| | | | | | | | |
| Current income tax expense | | | 767 | | | - | |
| Deferred income tax expense | | | 49,763 | | | 344,908 | |
| | | | 50,530 | | | 344,908 | |
| | | | | | | | |
| Net earnings | | $ | 207,622 | | $ | 1,162,035 | |
| | | | | | | | |
| Other comprehensive income/(loss) | | | | | | | |
| Items that may subsequently be reclassified to income: | | | | | | | |
(Loss)/gain on translation of foreign subsidiaries | | | (24,187 | ) | | 16,937 | |
| Total comprehensive income | | $ | 183,435 | | $ | 1,178,972 | |
| | | | | | | | |
| Net earnings per share | | | | | | | |
Basic earnings per share | 7 | $ | 0.04 | | $ | 0.20 | |
Diluted earnings per share | 7 | $ | 0.03 | | $ | 0.20 | |
| | | | | | | |
| Weighted average number of shares outstanding | | | | | | | |
Basic | 6&7 | | 5,769,271 | | | 5,766,952 | |
Diluted | 6&7 | | 5,937,669 | | | 5,789,421 | |
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 United States dollars) |
| (Unaudited) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Total | |
| | | | | | Treasury | | | Contributed | | Accumulated other | | | Retained | | | shareholders' | |
| | Notes | | Issued capital | | shares | | | surplus | | comprehensive loss | | | earnings | | | equity | |
| As at January 1, 2017 | | $ | 40,016,360 | $ | (431,208 | ) | $ | 4,276,584 | $ | (4,395,651 | ) | $ | 52,959 | | $ | 39,519,044 | |
| Net earnings for the period | | | - | | - | | | - | | - | | | 207,622 | | | 207,622 | |
| Other comprehensive loss | | | - | | - | | | - | | (24,187 | ) | | - | | | (24,187 | ) |
| | | | 40,016,360 | | (431,208 | ) | | 4,276,584 | | (4,419,838 | ) | | 260,581 | | | 39,702,479 | |
| | | | | | | | | | | | | | | | | | |
| Share-based payments | 6 | | - | | - | | | 48,444 | | - | | | - | | | 48,444 | |
| As at March 31, 2017 | | $ | 40,016,360 | $ | (431,208 | ) | $ | 4,325,028 | $ | (4,419,838 | ) | $ | 260,581 | | $ | 39,750,923 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Total | |
| | | | | | Treasury | | | Contributed | | Accumulated other | | | | | | shareholders' | |
| | Notes | | Issued capital | | shares | | | surplus | | comprehensive loss | | | Deficit | | | equity | |
| As at January 1, 2016 | | $ | 39,850,648 | $ | (320,750 | ) | $ | 4,318,487 | $ | (4,673,811 | ) | $ | (3,227,263 | ) | $ | 35,947,311 | |
| Net earnings for the period | | | - | | - | | | - | | - | | | 1,162,035 | | | 1,162,035 | |
| Other comprehensive income | | | - | | - | | | - | | 16,937 | | | - | | | 16,937 | |
| | | | 39,850,648 | | (320,750 | ) | | 4,318,487 | | (4,656,874 | ) | | (2,065,228 | ) | | 37,126,283 | |
| | | | | | | | | | | | | | | | | | |
| Share-based payments | 6 | | - | | - | | | 44,876 | | - | | | - | | | 44,876 | |
| As at March 31, 2016 | | $ | 39,850,648 | $ | (320,750 | ) | $ | 4,363,363 | $ | (4,656,874 | ) | $ | (2,065,228 | ) | $ | 37,171,159 | |
See accompanying notes to the unaudited condensed interim consolidated financial statements.
4
| | | | | | | |
| Norsat International Inc. |
| Condensed Interim Consolidated Statements of Cash Flows |
| (Expressed in United States dollars) |
| (Unaudited) |
| | | | Three months ended March 31 | |
| | Notes | | 2017 | | | 2016 | |
| Cash and cash equivalents provided by/(used in) | | | | | | | |
| Operating activities: | | | | | | | |
| Net earnings for the period | | $ | 207,622 | | $ | 1,162,035 | |
| Income taxes paid | | | (572 | ) | | - | |
| Adjustments for items not affecting cash: | | | | | | | |
Depreciation and amortization | 4 | | 209,647 | | | 229,328 | |
Unrealized foreign exchange (gain)/loss | | | (26,682 | ) | | 24,856 | |
Current income tax expense | | | 767 | | | - | |
Deferred income tax expense | | | 49,763 | | | 344,908 | |
Share-based payments | 6 | | 48,444 | | | 44,876 | |
Government contributions | 5 | | (320,234 | ) | | (379,475 | ) |
Government repayment obligation | 5 | | 114,397 | | | - | |
Accretion of long-term provisions | 5 | | 56,820 | | | - | |
| Deferred revenue | | | 992,409 | | | (116,683 | ) |
| Changes in non-cash working capital | 9 | | (1,076,398 | ) | | 350,021 | |
| Net cash flows provided by operating activities | | | 255,983 | | | 1,659,866 | |
| | | | | | | | |
| Investing activities: | | | | | | | |
| Purchase of intangible assets, property and equipment, net of SADI | 5 | | (78,585 | ) | | (23,418 | ) |
| Net cash flows used in investing activities | | | (78,585 | ) | | (23,418 | ) |
| | | | | | | | |
| Financing activities: | | | | | | | |
| Government contributions | 5 | | 404,441 | | | 954,460 | |
| Net cash flows provided by financing activities | | | 404,441 | | | 954,460 | |
| | | | | | | | |
| Effect of foreign currency translation oncash and cash equivalents | | | 350 | | | (4,914 | ) |
| | | | | | | | |
| Increase in cash and cash equivalents | | | 582,189 | | | 2,585,994 | |
| Cash and cash equivalents, beginning of period | | | 15,044,742 | | | 4,585,754 | |
| Cash and cash equivalents, end of period | | $ | 15,626,931 | | $ | 7,171,748 | |
| Supplemental cash flow and other disclosures (Note 9) |
| See accompanying notes to the unaudited condensed interim consolidated financial statements. |
5
|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
Statement of Compliance
These condensed interim consolidated financial statements for the three months ended March 31, 2017 and 2016 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), applicable to the preparation of interim financial statements, including International Accounting Standard (“IAS”) 34Interim Financial Reporting. They do not include all of the information required in annual financial statements in accordance with IFRS as issued by the IASB and should be read in conjunction with the Company’s 2016 annual consolidated financial statements.
The condensed interim consolidated financial statements for the three months ended March 31, 2017 and 2016 have been approved and authorized for issue by the Board of Directors on May 2, 2017.
Seasonal Fluctuations
Quarterly results from the Company’s two operating segments fluctuate from quarter to quarter due to seasonal influences on sales volumes. In the Company’s 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 fall and winter seasons. For 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 can vary and cannot be predicted with historical patterns.
| |
| 2. | Significant Accounting Policies |
The condensed interim consolidated financial statements have been prepared using accounting policies and accounting estimates consistent with those used in the preparation of the annual consolidated financial statements for the year ended December 31, 2016.
| |
| 3. | Significant Management Judgments and Estimation Uncertainty |
The preparation of 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 condensed interim consolidated financial statements and accompanying notes. Actual amounts may ultimately differ from these estimates and assumptions.
The judgments, estimates and assumptions applied in the condensed interim consolidated financial statements, including key sources of estimation uncertainty, were the same as those applied in the Company’s last annual consolidated financial statements for the year ended December 31, 2016.
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
| |
| 4. | Cost of Sales and Expenses |
| | | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | | 2016 | |
| Cost of sales | | | | | | |
| Raw materials and overhead costs | $ | 3,943,167 | | $ | 4,516,773 | |
| Labour costs | | 926,944 | | | 839,553 | |
| Depreciation and amortization | | 20,325 | | | 21,954 | |
| | $ | 4,890,436 | | $ | 5,378,280 | |
| | | | | | | |
| Selling and distributing expenses | | | | | | |
| Direct expenses | $ | 409,250 | | $ | 448,265 | |
| Labour costs | | 649,668 | | | 756,496 | |
| Depreciation and amortization | | 69,475 | | | 98,205 | |
| | $ | 1,128,393 | | $ | 1,302,966 | |
| | | | | | | |
| General and administrative expenses | | | | | | |
| Direct expenses | $ | 777,578 | | $ | 534,197 | |
| Labour costs | | 516,352 | | | 489,050 | |
| Depreciation and amortization | | 61,863 | | | 64,398 | |
| | | 1,355,793 | | | 1,087,645 | |
| Capitalized to inventory/transfer to cost of sales | | (117,740 | ) | | (104,568 | ) |
| | $ | 1,238,053 | | $ | 983,077 | |
| | | | | | | |
| Product development expenses | | | | | | |
| Direct expenses | $ | 367,458 | | $ | 381,502 | |
| Labour costs | | 526,217 | | | 498,355 | |
| Depreciation and amortization | | 57,984 | | | 44,771 | |
| | | 951,659 | | | 924,628 | |
| Capitalized to inventory/transfer to cost of sales | | (75,727 | ) | | (140,633 | ) |
| | | 875,932 | | | 783,995 | |
| Less: Government contributions (Note 5) | | (320,234 | ) | | (379,475 | ) |
| | | 555,698 | | | 404,520 | |
| Government repayment obligation (Note 5) | | 114,397 | | | - | |
| | $ | 670,095 | | $ | 404,520 | |
Direct expenses include rent and utilities, advertising and tradeshows, travel and entertainment, materials and small tools, consulting fees, insurance and licenses, staff recruiting and training, professional fees and office supplies. Additionally, direct expenses for general and administrative expenses include investor relations and regulatory expenses.
Labour costs include wages, salaries, bonuses, sales commissions, share-based payments, social security contributions, extended health premiums, government medical services plan payments, Registered Retirement Savings Plan contributions and vacation accrual.
| |
| 5. | Government Contributions and Repayment Obligation |
For the three months ended March 31, 2017, the Company recognized government contributions of $320,234 (2016 - $379,475) as a reduction to product development expenses in the Condensed Interim
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
Consolidated Statements of Earnings and Comprehensive Income. For the three months ended March 31, 2017, the Company recorded $10,453 (2016 - $nil) as a reduction to property and equipment costs related to SADI II.
Strategic Aerospace & Defense Initiative (“SADI I”)
As at March 31, 2017, the Company calculated the SADI I repayment obligation to be $829,801 (December 31, 2016 - $792,144) which included accrued liabilities of $267,315 (December 31, 2016 - $264,791) and long-term provisions of $562,486 (December 31, 2016 - $527,353). The repayment obligation was estimated pursuant to the repayment terms of the SADI I agreement and the Company’s accounting policy relating to the recognition of the repayment obligation. Based on annual actual sales for 2016 and management’s estimates of forecast revenues between 2017 and 2028, the repayment obligation of $829,801 is the present value of total estimated government repayments of approximately $1,429,990 to be made during the same periods.
For the three months ended March 31, 2017, the Company recorded accretion expense of $17,692 (2016 -$nil) and classified the amount as interest and bank charges in the Condensed Interim Consolidated Statements of Earnings and Comprehensive Income.
Strategic Aerospace & Defense Initiative (“SADI II”)
For the three months ended March 31, 2017, the Company recorded $316,447 (2016 - $344,010) as a reduction to product development expenses related to SADI II in the Condensed Interim Consolidated Statements of Earnings and Comprehensive Income and $10,453 (2016 - $nil) as a reduction to property and equipment costs related to SADI II.
As at March 31, 2017, the Company recorded Cdn$8,498,558 (December 31, 2016 - Cdn$7,937,809) of the maximum funding amount of Cdn$13,270,265 under SADI II.
As at March 31, 2017, the Company recorded $269,335 (December 31, 2016 - $328,814) in trade and other receivables related to reimbursements for eligible costs for SADI II.
For the three months ended March 31, 2017, total cash received under SADI II was $390,633 (2016 -$949,154).
SADI II repayment is contingent on performance benchmarks established at the Company’s fiscal 2017 year-end and is capped at 1.5 times the contribution received (actual amounts disbursed by the Minister). These amounts will be repaid over a period of 15 years, commencing in 2018. The annual repayment amount is 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, 2017, the Company calculated the SADI II repayment obligation to be $1,489,398 (December 31, 2016 - $1,336,189) which was included in long-term provisions. The repayment obligation was estimated pursuant to the repayment terms of the SADI II agreement and the Company’s accounting policy relating to the recognition of the repayment obligation. Based on management’s estimates of forecast revenues between 2018 and 2032, the repayment obligation of $1,489,398 is the present value of total estimated government repayments of approximately $3,450,177 to be made during the same periods.
For the three months ended March 31, 2017, the Company recorded accretion expense of $39,128 (2016 -$nil) and classified the amount as interest and bank charges in the Condensed Interim Consolidated Statements of Earnings and Comprehensive Income.
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
For the three months ended March 31, 2017, the Company recorded government repayment obligations of $114,397 (2016 - $nil) as a result of a change in assumptions.
Industrial Research Assistance Program (“IRAP”)
For the three months ended March 31, 2017, the Company recorded $3,787 (2016 - $35,465) as a reduction to product development expenses related to IRAP in the Condensed Interim Consolidated Statements of Earnings and Comprehensive Income.
As at March 31, 2017, the Company claimed the maximum funding of Cdn$150,000 (December 31, 2016 -Cdn$145,010) under the agreement with IRAP.
As at March 31, 2017, the Company recorded $2,174 (December 31, 2016 - $12,195) in trade and other receivables related to reimbursements for eligible costs for IRAP.
For the three months ended March 31, 2017, total cash received under IRAP was $13,808 (2016 - $5,306).
Shares Issued and Outstanding
Total shares issued and outstanding as at March 31, 2017 and December 31, 2016 were 5,848,808 at a book value of $40,016,360.
Share Purchase Option Plan
During the three months ended March 31, 2017, no share purchase options were granted.
During the three months ended March 31, 2016, a total of 57,642 share purchase options were granted at a weighted average exercise price of Cdn$5.99 and weighted average fair value of Cdn$1.49, which included 31,137 share purchase options granted to a Director and senior management at an average exercise price of Cdn$5.92 and fair value of Cdn$1.47 per option.
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 months ended March 31, 2016 were as follows:
| |
| | Three months ended March 31 |
| | 2016 |
| Risk-free interest rate | 0.43% |
| Expected life | 2.5 years |
| Vesting period | 2 years |
| Expected volatility | 39% |
| Expected dividends | Nil |
| Average fair value | Cdn$1.49 |
| Forfeiture rate | 20% |
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
The exercise price of all share purchase options granted during the period is equal to the closing market price on the grant date. The Company calculated share-based payment from the vesting of share purchase options using the Black-Scholes option pricing model with assumptions noted above and recorded related compensation expense as follows for the three months ended March 31, 2017 and 2016:
| | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | 2016 | |
| Share-based payments - options | $ | 15,333 | $ | 5,673 | |
Share purchase options outstanding as at December 31, 2016 and March 31, 2017 were as follows:
| | | | | |
| | | | | Weighted | |
| | | | | average exercise | |
| Share purchase options outstanding | Number of options | | | price Cdn$ | |
| Balance, December 31, 2016 | 196,571 | | $ | 5.90 | |
| Forfeited | (3,921 | ) | $ | 6.26 | |
| Balance, March 31, 2017 | 192,650 | | $ | 5.90 | |
The following table summarizes information pertaining to the Company’s share purchase options outstanding at March 31, 2017:
| | | | | | | | | | |
| | Options outstanding | | Options exercisable |
| | | | | Weighted | | | | | Weighted | |
| Range of | Number of | Weighted average | | average | | | Number of | | average | |
| exercise prices | options | remaining contractual | | exercise price | | | options | | exercise price | |
| Cdn$ | outstanding | life (years) | | Cdn$ | | | exercisable | | Cdn$ | |
| $0 to $4.99 | 16,600 | 0.41 | $ | 4.81 | | | 16,600 | $ | 4.81 | |
| $5.00 to $9.99 | 173,550 | 2.61 | $ | 5.93 | | | 91,286 | $ | 5.62 | |
| $10.00 to $14.99 | 2,500 | 4.59 | $ | 10.70 | | | - | $ | - | |
| | 192,650 | 2.45 | $ | 5.90 | | | 107,886 | $ | 5.49 | |
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. The compensation expenses for the reporting periods are shown as follows:
| | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | 2016 | |
| Share-based payments - RSUs | $ | 33,111 | $ | 39,203 | |
RSUs outstanding as at December 31, 2016 and March 31, 2017 were as follows:
| | |
| | No. of units | |
| Balance, December 31, 2016 | 95,543 | |
| Forfeited | (605 | ) |
| Balance, March 31, 2017 | 94,938 | |
10
|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
The reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) calculations was as follows for the three months ended March 31, 2017 and 2016:
| | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | 2016 | |
| Numerator | | | | | |
| Net earnings | $ | 207,622 | $ | 1,162,035 | |
| | | | | | |
| Denominator | | | | | |
Weighted average number of shares outstanding used to compute basic EPS | | 5,769,271 | | 5,766,952 | |
Dilution from RSUs and exercise of stock options | | 168,398 | | 22,469 | |
Weighted average number of shares outstanding used to compute diluted EPS | | 5,937,669 | | 5,789,421 | |
| | | | | | |
| Net Earnings per share | | | | | |
| Basic | $ | 0.04 | $ | 0.20 | |
| Diluted | $ | 0.03 | $ | 0.20 | |
The calculation of assumed exercise of share purchase 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 share purchase options was not included.
The Company’s business operates primarily through two operating segments – Sinclair Technologies and Satellite Communications.
These operating segments are monitored by the Company’s chief operating decision makers, and strategic decisions are made on the basis of segment operating results.
The Company’s operating 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 in the annual consolidated financial statements for the year ended December 31, 2016.
The following tables set forth sales and gross profit information by operating segments for the three months ended March 31, 2017 and 2016:
11
|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
| | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | 2016 | |
| Sales to external customers | | | | | |
| Sinclair Technologies | $ | 4,762,334 | $ | 4,460,730 | |
| Satellite Communications | | 3,465,714 | | 5,092,697 | |
| | $ | 8,228,048 | $ | 9,553,427 | |
| | | | | | |
| Gross profit | | | | | |
| Sinclair Technologies | $ | 1,854,769 | $ | 2,189,815 | |
| Satellite Communications | | 1,482,843 | | 1,985,332 | |
| | $ | 3,337,612 | $ | 4,175,147 | |
The following table provides assets information by operating segments as at March 31, 2017 and December 31, 2016:
| | | | | | | |
| | | Sinclair | | Satellite | | | |
| | | Technologies | | Communications | | Consolidated | |
| As at March 31, 2017 | | | | | | | |
| Total assets related to operations | $ | 26,861,930 | $ | 22,732,448 | $ | 49,594,378 | |
| Property and equipment, net | $ | 164,555 | $ | 400,361 | $ | 564,916 | |
| Intangible assets, net | $ | 4,001,042 | $ | 72,079 | $ | 4,073,121 | |
| | | | | | | | |
| As at December 31, 2016 | | | | | | | |
| Total assets related to operations | $ | 26,378,424 | $ | 22,621,377 | $ | 48,999,801 | |
| Property and equipment, net | $ | 174,055 | $ | 442,440 | $ | 616,495 | |
| Intangible assets, net | $ | 4,090,936 | $ | 85,308 | $ | 4,176,244 | |
The Company generated revenues from external customers located in the following geographic locations:
| | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | 2016 | |
| United States | $ | 5,497,112 | $ | 4,230,392 | |
| Europe and other | | 1,744,533 | | 4,263,320 | |
| Canada | | 986,403 | | 1,059,715 | |
| | $ | 8,228,048 | $ | 9,553,427 | |
Substantially all of the Company’s property and equipment, intangible assets and goodwill are located in Canada.
Economic Dependence
For the three months ended March 31, 2017, two customers (2016 - two customers) represented 32% (2016 - 38%) of the Company’s consolidated revenue.
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
| |
| 9. | Supplemental Cash Flow and Other Disclosures |
| | | | | | |
| | | Three months ended March 31 | |
| | | 2017 | | | 2016 | |
| Changes in non-cash working capital: | | | | | | |
| Trade and other receivables | $ | 86,649 | | $ | (158,462 | ) |
| Inventories | | (345,199 | ) | | 265,144 | |
| Prepaid expenses and other | | (60,980 | ) | | 57,714 | |
| Trade and other payables | | (1,202,412 | ) | | 417,249 | |
| Accrued liabilities | | 283,841 | | | (154,831 | ) |
| Warranty provision | | 161,703 | | | (76,793 | ) |
| | $ | (1,076,398 | ) | $ | 350,021 | |
| Supplementary information: | | | | | | |
| Interest paid | $ | (13,294 | ) | $ | (1,558 | ) |
| |
| 10. | Related Party Transactions |
The following table discloses the compensation amount of the Board of Directors and 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 March 31 | |
| | | 2017 | | 2016 | |
| Directors' fees | $ | 23,811 | $ | 22,945 | |
| Short-term employee benefits | | 289,086 | | 245,122 | |
| Share-based payments | | 38,113 | | 36,104 | |
| Total | $ | 351,010 | $ | 304,171 | |
Employment agreements with key management personnel provide for termination and change in control benefits if employment is terminated without cause or key management personnel resign for good reasons as defined in the employment agreements. Generally, key management personnel are entitled to 6 to 24 months of base salary, accrued and unpaid base salary, vacation, car allowance and expenses, annual performance bonus, and an amount calculated in lieu of their continued participation in the Company’s benefit and pension plans. No provision for termination and change in control benefits of key management personnel was made as at March 31, 2017 (December 31, 2016 - $nil).
| |
| 11. | Commitments and Contingencies |
Future minimum payments at March 31, 2017 under purchasing commitments and operating lease obligations are approximately as follows:
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
| | | | | | | |
| | | Inventory purchase | | Operating lease | | | |
| | | obligations | | obligations | | Total | |
| Remaining 2017 | $ | 4,693,794 | $ | 516,971 | $ | 5,210,765 | |
| 2018 | | - | | 659,482 | | 659,482 | |
| 2019 | | - | | 523,836 | | 523,836 | |
| 2020 | | - | | 363,648 | | 363,648 | |
| 2021 and after | | - | | 338,101 | | 338,101 | |
| | $ | 4,693,794 | $ | 2,402,038 | $ | 7,095,832 | |
The Company has operating lease commitments extending to November 2021. The Company also enters into purchase commitments, including inventory purchase obligations, in the normal course of business as disclosed above.
Legal Proceedings
From time to time, the Company may be involved in legal proceedings relating to certain potential claims. Management is of the opinion, based on legal assessment and information available, that it is not probable that any liability would be material in relation to the Company’s Condensed Interim Consolidated Statements of Financial Position.
On March 24, 2017, the Company entered into an arrangement Agreement (the “Arrangement Agreement”) with Hytera Project Corp. (“Hytera”), under which Hytera is proposing to acquire all the issued and outstanding shares of the Company for $10.25 in cash per share, pursuant to a court-approved plan of arrangement (the “Arrangement”). The proposed transaction values the Company at an equity value of approximately $62.0 million. The Arrangement will be subject to a number of customary conditions, including the approval of shareholders of the Company and certain regulatory approvals. The Arrangement Agreement provides for, among other things, customary non-solicitation provisions, with “fiduciary out” provisions that allow the Company to terminate the Arrangement Agreement to accept an unsolicited “Superior Proposal” in certain circumstances, subject to payment of a termination fee of $2.0 million and subject to the right of Hytera to match the “Superior Proposal” in question.
On April 17, 2017, the Company announced that it has recently received an unsolicited, conditional, nonbinding proposal from Privet Fund Management LLC (“Privet”) to acquire the Company for cash consideration of $11.00 per share (the “Privet Proposal”). The Privet Proposal is subject to conditions including due diligence and financing.
Between April 19, 2017 and May 2, 2017, the Company has responded to the due diligence requests of Privet and had direct discussions with Privet and its financial advisors.
As of May 2, 2017, Privet was still working to remove the conditions to the Privet Proposal. If the conditions are removed, and the Company reviews and determines that the Privet Proposal is a “Superior Proposal”, as defined in the Arrangement Agreement, it will notify Hytera of that determination. Hytera will then have a period of five business days to offer to amend the terms of the Arrangement Agreement.
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|
| Norsat International Inc. |
| Notes to the Condensed Interim Consolidated Financial Statements |
| Three months ended March 31, 2017 and 2016 |
| (Expressed in United States dollars, except when otherwise indicated) |
| (Unaudited) |
Certain comparative figures have been reclassified to conform to the current period’s financial statement presentation.
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