SOURCE: Norsat International Inc.

November 14, 2005 17:00 ET

Norsat Announces Third Quarter Results & Restates Q2 Results

VANCOUVER, BC -- (MARKET WIRE) -- November 14, 2005 -- Norsat International Inc. (TSX: NII) (OTC BB: NSATF) today announced third quarter sales of $4.7 million, down 5.7%, or $0.3m, compared to the same period last year. However, the Company's $13.4 million of total sales for the first three quarters represented an increase of 5.1% ($0.7m) the same period a year ago, due largely to a strong second quarter.

"During the third quarter, we invested significant resources into the development, marketing and launch, in September, of GLOBETrekker, a backpackable intelligent satellite system," said Norsat President and CEO William Coyne III. "The initial reaction to GLOBETrekker has been positive and we believe GLOBETrekker sets a new standard for the portable satellite communications industry."

Overall gross margins for the third quarter were up slightly at 55.3% compared to 51.9% for the same period last year. These higher margins are the result of recent product cost reductions in the Microwave business, competitive position on volume contracts for microwave products, a favorable product mix and the sale of higher margin portable satellite systems to a government customer.

The Microwave business, operating in a highly competitive and price sensitive market, witnessed improvements in both sales and margins due to a concerted effort launched earlier in the year to reduce product costs and win back former customers. This has had the resulting effect of enhancing the company's competitive positioning on larger volume contracts. Microwave sales increased by $0.8 million or 40% over third quarter 2004 and were $0.9 million higher than the second quarter 2005. This strong sales growth in the Microwave business helped to offset a weaker quarter in the Satellite Systems business.

Sales of Satellite Systems were $1.9 million, down by $1.1 million, for the same period last year. This is the result of the nature of the timing of purchasing by the Company's military customers. On a year-to-date basis, sales in the Satellite Systems were $0.86 million ahead of last year at this time.

The Satellite Systems business continued to increase its sales and gross profit contribution to the Company despite a slowdown in the third quarter. This business contributed 49.8% of total sales and 60% of gross profit on a year-to-date basis, compared to 46% of sales and 54% of gross profit for the same period last year.

In order to accelerate sales, marketing and product development activities necessary to bring GLOBETrekker to market, the Company incurred sales, general and administrative expenses ($2.8 million) and net product development expenses ($0.74 million) that were almost double those for the same period last year during which little development was undertaken. Net product development spending for the same period last year was $0.37 million, restricted to projects resulting in near-term results and offset, in part, by a grant from Technology Partnerships Canada.

Consequently, the net loss for the quarter widened to $1.4 million and for the nine months ended September 30, 2005, the net loss was $3.8 million as the Company continued to incur some non-recurring expenses such as consulting fees and severance payments. By comparison, last year, net income was $1.0 million for the same quarter and was $1.4 million for the same nine-month period.

Highlights

* On August 30, 2005, the Company announced that it had secured an initial order from the United States Marine Corps for a Norsat OmniLink system and related accessories. The OmniLink system will be used by the Marine Corps to transmit and receive streaming video and data content from around the world.

* On September 29, 2005, the Company announced that it had fulfilled an order to supply portable satellite systems to the 1st Cavalry Division of the U.S. Army. The order was in excess of US$ 0.8 million. Troops from the 1st Cavalry Division are using the portable satellite systems to transmit high fidelity data and video, as part of the current engagement in Joint Task Force Katrina.

* In September 2005, Norsat International Inc. unveiled the new Norsat GLOBETrekker, at the IBC 2005 Exhibition in Amsterdam and in the Canadian Pavilion section of DSEi at the ExCeL Centre in London. The GLOBETrekker is an intelligent, ultra-portable satellite system that enables users to establish a reliable broadband connection on short notice -- anywhere in the world. It is designed to be carried in a backpack, is airline checkable, fits in small vehicles and is helicopter-friendly. This product has generated considerable interest in the market place especially in the military and media sectors.

* In September 2005, the Company announced that it had expanded its portfolio of microwave products to include Block-up Converters in the extended Ku-band, Ka-band and X-band external reference low noise block down-converters, and custom block down-converters.

* On September 19, 2005, the Board of Directors and Audit Committee of the Board announced the retention of Ernst & Young LLP, a leading professional services firm, as its auditing firm for the fiscal year ending December 31, 2005.

* George Dorin joined the Company on September 28, 2005 as Chief Financial Officer. Mr. Dorin brings to Norsat over 25 years of national and international experience in financial management, strategic planning, business development and related disciplines and most recently served as CFO and Corporate Secretary of GPS Industries, a wireless technology company with offices in Canada, the United States and England. Mr. Dorin also currently serves on the Board of Directors and is Chair of the Audit Committee of Cantronic Systems, a technology company in Coquitlam, B.C.

Restatement of Q2 Financials

The Company has filed Restated Financial Statements and Management's Discussion and Analysis for its Second Quarter ended June 30, 2005 due to a correction of an accounting error. The restatement, filed today, accounts for the following:

1. On June 24th, 2005, the Company announced that it had reduced the conversion price of the convertible notes of its US$2 million principal amount of 8% unsecured convertible notes due March 31, 2007, from US$1.70 per common share to US$1.25 per common share. The conversion price was reduced as an early inducement of conversion on the notes. The convertible notes were issued on a private placement basis in March 2002 and are convertible at any time at the option of the holder. No other terms of the notes were changed in the modification. The reduction in the conversion price of the convertible notes is considered an early inducement and requires an adjustment of the carrying value of the notes. The necessary adjustments had not been made in the Financial Statements for the Second Quarter ended June 30, 2005.

2. On May 2nd, 2005, the Company granted two newly appointed directors, Joseph Caprio and Christopher Hoyle, stock options in the amount of 100,000 each. The options were immediately vested. The options had not been recorded in the Financial Statements for the Second Quarter ended June 30, 2005.

The conversion price reduction and the stock option grants were not accounted for in the Financial Statements for the Second Quarter of 2005. The restatement reflects the following changes to the Financial Statements and Management's Discussion and Analysis for the Second Quarter of 2005. This press release should be read in conjunction with the unaudited Restated Financial Statements for the Second Quarter ended June 30, 2005.

* An increase in the principal amount of the Convertible note, reflected as a long term liability on the Balance Sheet. The reduced conversion price was allocated, based on its current fair value, to Liabilities and the Equity Component of Long Term Debt in Shareholders' Equity. Long Term Debt was increased by $374,818 and the Equity Component of Long Term Debt was increased by $281,652.

* The increase in the liability component was reflected and charged to Revaluation of Debt Conversion Expense in the Statement of Operations, in the three months ended June 30, 2005

* Interest Expense was reduced by $17,041 and the Foreign Currency Loss was increased by $20,371 due to the adjustment in the Long Term Debt balance for the same period.

* A charge of $104,981 was recorded to Selling General & Administrative expenses and Contributed Surplus for the Company's Stock Compensation Plan for the second quarter.

* As result of these adjustments, both the Net Loss and the Accumulated Deficit increased by a total of $483,129 to reflect the impact of the equity adjustment. This has translated into a reduction of Earnings per Share by $0.01 from the amount previously reported.

* Working Capital remains unchanged as there is no cash impact of these adjustments.

* * * * * * * * * * * *

The impact of this restatement has already been carried forward to the Financial Statements for the Third Quarter of 2005 filed today and discussed above.

Forward-Looking Statements

Statements in this report relating to matters that are not historical fact are forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, general economic conditions, changes in technology, reliance on third party manufacturing, managing rapid growth, global sales risks, limited intellectual property protection and other risks and uncertainties described in Norsat's public filings with securities regulatory authorities.

The information should be read in conjunction with the Company's unaudited interim consolidated financial statements and related notes included therein for the three months ended September 30, 2005 and June 30, 2005, and the audited consolidated financial statements, related notes included therein and Management Discussion and Analysis for the year ended December 31, 2004 included in the Company's 2004 Annual Report. All the Company's financial statements are prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP). Additional information from the year ended December 31, 2004, and other information related to the Company, may be found on the company's website at www.norsat.com.

About Norsat International, Inc.

Norsat International Inc. designs, engineers and markets intelligent satellite solutions for high-speed data transmission. For more than 25 years, Norsat has built a strong reputation in the field of satellite technology by providing its customers with innovative products and has now sold over 2.5 million products in 87 countries around the world. Norsat's latest innovations include the Norsat OmniLink™ and GLOBETrekker lines of portable satellite terminal products that provide rapidly deployable broadband satellite data and video connectivity in areas where traditional communications infrastructure is insufficient, damaged, or non-existent. Norsat's sectors of concentration include Health Care, Military, Emergency Services and Media. Additional information is available at www.norsat.com. Additional investor information is available through email at communications_investorrelations@Norsat.com or by phone, 1-604-292-9000 or toll-free in Canada and the U.S., 1-888-667-7281.

Contact Information

  • Norsat International Inc. Contact:
    Bill Coyne
    (604) 292-9000
    Email Contact