Norsat International Inc.

Norsat International Inc.

February 24, 2005 10:05 ET

Norsat Revenues Jump 35%; Net Income Reaches $1.2m


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: NORSAT INTERNATIONAL INC.

TSX SYMBOL: NII
OTC Bulletin Board SYMBOL: NSATF

FEBRUARY 24, 2005 - 10:05 ET

Norsat Revenues Jump 35%; Net Income Reaches $1.2m

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Feb. 24, 2005) - Norsat
International Inc. (TSX - NII; OTC BB - NSATF) today announced its
financial results for the fourth quarter and year ended December 31,
2004. Annual revenues were $17.5 million, gross margins were 45%, and
the net income was $1.2 million, compared to revenues of $13.0 million,
gross margins of 28% and a net loss of $8.2 million during 2003. The
Company witnessed a 35% year-over-year revenue growth, with almost half
of the business now coming from the higher margin portable terminal
business.

Financial Results

Revenues

Fourth quarter revenues were $4.8 million, up $1.4 million or 41% from
the $3.4 million earned in the fourth quarter of 2003. The Company has
benefited from healthy interest in the market for portable transmission
equipment, including satellite newsgathering companies and the military.
These portable terminals are being used for a number of applications
including the transmission of time-sensitive field reports, quality
video footage and closed two-way video-based communications. Portable
satellite terminal revenues were $2.2 million, more than doubling the
$1.0 million during the same period last year.

The Microwave business continued to produce strong revenues of $2.6
million, up from the $2.4 million in the same period during the previous
year.

Revenues for fiscal 2004 were $17.5 million, up 35% from the $13.0
million earned in fiscal 2003. The 2004 results reflect the successful
launch of our portable terminal business, now representing 46% of our
total revenues.

Margins

Gross margin dollars for 2004 totaled $7.9 million and were more than
double the $3.7 million from the same period in 2003. Gross margins as a
percentage of revenues were 45% compared to 28% for fiscal 2003, a 61%
improvement reflecting the increased sales of higher margin portable
terminals.

Fourth quarter gross margins of 35% were similar to the same period last
year. The gross margins on the portable terminal sales were considerably
higher (53%) than for the microwave business (20%).

"I am extremely pleased to report another strong quarter. From an annual
perspective we are beginning to see the payoff from two years of
development with a marked 35% increase in revenues and a complete
turnaround from net losses to net earnings. Some of this is attributable
to the product's success but a lot has to do with the change in the
culture we initiated by introducing an employee incentive program," said
Mr. Cameron Hunter.

Operating Expenses

Total operating expenses in the fourth quarter of 2004 remained
consistent with the same quarter in 2003.

Selling, general and administrative (SG&A) expenses in the fourth
quarter were $1.2 million, consistent with the $1.1 million in the same
period last year. On a year-to-date basis SG&A expenses were $5.3
million compared to $5.7 million in the same period last year, an
improvement of 9%, primarily due to a reduction in administrative costs.

Product development activities totaled $0.3 million for the fourth
quarter, 10% lower than the $0.4 million spent in the same period of
last year. On a year-to-date basis product development expenses were
$1.5 million compared to $3.3 million in the same period last year, a
decrease of 55%. The significant reduction is attributable to a more
focused product development road map and the commercial release of the
Norsat NewsLink™ Model 3200 and the Norsat SecureLink™ Model 3210
in 2003. On-going development activities continue to be focused on
projects generating near-term revenue from our line of portable
terminals.

During the year the Company signed an amendment to its Technology
Partnerships Canada (TPC) agreement with the federal government. The
amendment provided for an increase in funding of $620,000 and a revision
to the royalty period to commence January 1, 2004 and expire on December
31, 2011. During the fourth quarter $102,527 in contributions were
recognized, bringing year-to-date funding to $620,000.

During the quarter earnings from continuing operations before other
expenses was $53,000 compared to a loss of $415,000 in the same period
last year. On a year to date basis the Company achieved a profit of $1.2
million compared to a loss of $7.0 million in fiscal 2003.

Other expenses for the quarter were $292,000 up from the same period
last year reflecting both cash and non-cash interest charges and a loss
from foreign currency. On a year-to-date basis the Company incurred
other expenses of $0.8 million compared to $1.1 million during 2003.

The net effect of the above factors was a loss from continuing
operations for the quarter of $233,000 or $0.01 per share basic and
diluted, compared to a loss of $648,000 or $0.02 per share - basic and
diluted in 2003. On a year-to-date basis, net income from continuing
operations is $429,222 or $0.01 per share compared to a loss of $8.2
million or $0.23 in 2003.

On a year to date basis, net earnings were $1.2 million or $0.03 per
share - basic and diluted, a tremendous improvement from the net loss of
$8.2 million or $0.23 per share - basic and diluted for the same period
of 2003. These net earnings include a gain from discontinued operations
of $724,116 that was realized in the first quarter as a result of a
settlement on a liability with a supplier.

Fourth Quarter Highlights

- Norsat's management team is strengthened with the addition of Pervez
Siddiqui as Director of Marketing.

- Norsat NewsLink™ featured in Success Story on the Digital Video and
Imagery Distribution System released by the U.S. Army's Media Service.

Liquidity and Capital Resources

The Company's cash and short-term investments balance at December 31,
2004 was $5.1 million, compared to $2.8 million at December 31, 2003.

The Company had total working capital of $8.0 million at December 31,
2004, an increase of $3.5 million from the $4.5 million at December 31,
2003. This change in the Company's working capital was a result of net
earnings reported of $1.1 million, cash from operations of $1.0 million,
proceeds from financing activities of $1.6 million offset by capital
purchases of $0.2 million.

Tabular Disclosure of Contractual Obligations

As of December 31, 2004, the impact that our contractual obligations are
expected to have on our liquidity and cash flow in future periods is as
follows:



Less than 1 1 to 3 4 - 5 After
($000's) Total year years years 5 years
------------------------------------------------------------------------
Operating Lease $1,787 $ 984 $ 779 $ 24 -
------------------------------------------------------------------------
Inventory Purchases $3,752 $3,752 - - -
------------------------------------------------------------------------
Long-Term Debt $2,404 - $2,404 - -


Outstanding Share Data

During the three months and year ended December 31, 2004, 1,724,000 and
3,051,001 warrants were exercised for proceeds $901,718 and $1,631,569
respectively. As at December 31, 2004, the Company had issued and
outstanding 42,051,832 common shares. As at February 24, 2005, no
additional shares had been issued and a total of 2,266,350 options and
3,146,811share purchase warrants that entitle their holder to purchase
one common share of the Company at various prices were outstanding.

Significant Accounting Policies and Estimates

Significant accounting policies are described in note 2 to the
Consolidated Financial Statements included in Norsat's 2003 Annual
Report. A discussion of the critical accounting policies and the related
estimates are included in Management's Discussion and Analysis in the
2003 Annual Report. There were no significant changes in accounting
policies or estimates since the fiscal year ended December 31, 2003.

Unaudited Interim Financial Statements

In accordance with National Instrument 51-102 released by the Canadian
Securities Administrators, the Company discloses that its auditors have
not reviewed the following unaudited financial statements for the period
ended December 31, 2004.

About Norsat International Inc.

Norsat International Inc. designs, engineers and markets satellite
products 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 millions of products around the world. Norsat's latest
innovation is the Norsat OmniLink™ line 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 is
located in British Columbia, Canada and can be found on the Internet at
www.norsat.com.

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.



Norsat International Inc.
Consolidated Balance Sheets
(Expressed in Canadian Dollars)

------------------------------------------------------------------------
December 31, December 31,
2004 2003
(Unaudited) (Audited)
------------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents $ 4,978,210 $ 2,581,141
Short-term investments 72,000 250,000
Accounts receivable 1,966,298 1,836,726
Inventory 3,433,155 2,656,649
Prepaid expenses and other 228,178 176,269
Current assets from discontinued operations - 41,581
------------------------------------------------------------------------
10,677,841 7,542,366

Property and equipment 1,049,267 1,482,744
Goodwill 440,095 440,095
Deferred finance costs 31,727 49,431
------------------------------------------------------------------------
$ 12,198,930 $ 9,514,636
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 729,661 $ 381,646
Accrued liabilities 1,780,970 1,753,400
Liabilities from discontinued operations 51,648 933,403
Deferred revenue 73,271 -
------------------------------------------------------------------------
2,635,550 3,068,449

Long-term debt 1,467,594 1,271,198

Shareholders' equity:
Share capital (note 2) 40,901,057 39,153,498
Contributed surplus 1,220,009 1,200,109
Equity component of long-term debt 1,909,127 1,909,127
Deficit (35,934,407) (37,087,745)
------------------------------------------------------------------------
8,095,786 5,174,989
------------------------------------------------------------------------
$ 12,198,930 $ 9,514,636
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



Norsat International Inc.
Consolidated Statements of Operations and Deficit
(Expressed in Canadian Dollars)
(Unaudited)

------------------------------------------------------------------------
Three months ended
December 31, Year ended December 31,
2004 2003 2004 2003
------------------------------------------------------------------------

Sales $ 4,787,014 $ 3,400,104 $ 17,520,675 $ 12,980,269
Cost of sales 3,099,562 2,213,645 9,595,855 9,292,628
------------------------------------------------------------------------
1,687,452 1,186,459 7,924,820 3,687,641
Expenses:
Selling,
general and
administrative 1,244,905 1,063,435 5,251,451 5,744,876
Product development 328,709 366,149 1,494,756 3,313,171
Technology
Partnerships
Canada funding (102,527) - (620,000) (667,467)
Amortization 163,357 79,666 621,220 1,101,998
Restructuring
charge - 92,680 - 1,232,680
------------------------------------------------------------------------
1,634,444 1,601,930 6,747,427 10,725,258
Earnings (loss)
from continuing
operations before
other expenses
and income taxes 53,008 (415,471) 1,177,393 (7,037,617)
Other expenses
(note 3) 291,650 179,575 753,515 1,077,871
------------------------------------------------------------------------
Earnings (loss)
from continuing
operations before
income taxes (238,642) (595,046) 423,878 (8,115,488)
Income tax expense
(recovery) (5,344) 53,241 (5,344) 53,241
------------------------------------------------------------------------
Earnings (loss)
from continuing
operations (233,298) (648,287) 429,222 (8,168,729)
Recovery (loss)
from discontinued
operations 1,787 (76,295) 724,116 (76,295)
------------------------------------------------------------------------
Net earnings (loss) (231,511) (724,582) 1,153,338 (8,245,024)
------------------------------------------------------------------------
------------------------------------------------------------------------

Deficit,
beginning of
period (35,702,896) (36,363,163) (37,087,745) (28,842,721)
------------------------------------------------------------------------

Deficit,
end of period $(35,934,407) $(37,087,745) $(35,934,407) $(37,087,745)
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
------------------------------------------------------------------------
Net earnings
(loss) per common
share - basic and
diluted (note 4)
Continuing
operations $ (0.01) $ (0.02) $ 0.01 $ (0.23)
Discontinued
operations $ - $ - $ 0.02 $ -
Net earnings
(loss) $ (0.01) $ (0.02) $ 0.03 $ (0.23)
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.


Norsat International Inc.
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)

------------------------------------------------------------------------
Three months ended
December 31, Year ended December 31,
2004 2003 2004 2003
------------------------------------------------------------------------

Cash provided by
(used in):
Operations:
Earnings (loss)
from continuing
operations $ (233,298) $ (648,287) $ 429,222 $ (8,168,729)
Items not
involving cash:
Amortization 163,357 79,666 621,220 1,101,998
Loss (gain)
on disposal
of property
and equipment 4,885 (8,550) (2,411) 281,450
Interest
accreted on
long-term debt
and deferred
finance cost
amortization 84,782 86,336 330,046 299,785
Foreign
exchange
loss (gain) 51,674 (12,026) (22,213) 141,268
Stock-based
compensation 12,084 11,367 135,890 11,367
Changes in non-cash
working capital
(note 6) 2,653,984 867,262 (509,131) 2,153,422
------------------------------------------------------------------------
Cash provided by
(used in)
continuing
operations 2,737,468 375,768 982,623 (4,179,439)
------------------------------------------------------------------------
Recovery (loss)
from discontinued
operations 1,787 (76,295) 724,116 (76,295)
Changes in
non-cash working
capital 5,486 77,240 (840,174) 158,685
------------------------------------------------------------------------
Cash provided by
(used in)
discontinued
operations 7,273 945 (116,058) 82,390
------------------------------------------------------------------------
2,744,741 376,713 866,565 (4,097,049)
Investments:
Net purchase of
property and
equipment (15,221) (10,205) (185,332) (98,497)
Sale (purchase)
of short-term
investments 178,000 - 178,000 (178,035)
------------------------------------------------------------------------
162,779 (10,205) (7,332) (276,532)

Financing:
Proceeds on
exercise of
warrants 901,718 17,416 1,631,569 17,416
Issue of common
shares and units - 1,508,544 - 4,420,715
------------------------------------------------------------------------
901,718 1,525,960 1,631,569 4,438,131
------------------------------------------------------------------------

Effect of change
in exchange
rates on cash (121,757) (38,541) (93,733) (391,220)
------------------------------------------------------------------------
Increase (decrease)
in cash and
cash equivalents 3,687,481 1,853,927 2,397,069 (326,670)
Cash and cash
equivalents,
beginning of
period 1,290,729 727,214 2,581,141 2,907,811
------------------------------------------------------------------------

Cash and cash
equivalents,
end of period $ 4,978,210 $ 2,581,141 $ 4,978,210 $ 2,581,141
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplemental cash flow and other disclosures (note 6).

See accompanying notes to consolidated financial statements.

Norsat International Inc.
Notes to the Consolidated Financial Statements
(Expressed in Canadian dollars)
(Unaudited)


1 Significant accounting policies:

(a) Basis of presentation:

These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ("GAAP") for interim
financial reporting, and the accounting polices used, except as noted,
are consistent with the most recent annual financial statements. These
financial statements do not contain all disclosures required by Canadian
GAAP for annual financial statements, and accordingly, should be read
together with the audited annual consolidated financial statements,
accompanying notes and management discussion and analysis included in
the Company's 2003 Annual Report.

(b) Stock-based compensation:

The Company accounts for its stock-based compensation using the fair
value method. The Canadian Institute of Chartered Accountants ("CICA")
section 3870, "Stock-Based Compensation and Other Stock-Based Payments"
permitted, and the Company has adopted the fair value method to be
applied to all stock-based compensation awards for fiscal years
beginning on or after January 1, 2003. The Company's cost with the fair
value method for the three months and year ended December 31, 2004 was
$12,085 (2003 - $11,367) and $135,890 (2003 - $11,367) respectively, and
is included in selling, general and administrative expense.

If compensation cost for the Company's employee awards issued on or
after January 1, 2002 had been determined based on the fair value method
at the applicable grant dates, its impact on the periods presented would
be as follows:



------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
------------------------------------------------------------------------
Net earnings (loss) $ (231,511) $(724,582) $1,153,338 $(8,245,024)
Additional stock
compensation recovery
(expense) 28,625 (63,000) (48,875) (531,000)
------------------------------------------------------------------------
Pro-forma net
earnings (loss) $ (202,886) $(787,582) $1,104,463 $(8,776,024)
------------------------------------------------------------------------
------------------------------------------------------------------------

Pro-forma net earnings
(loss) per common share
- basic and diluted $ nil $ (0.02) $ 0.03 $ (0.24)
------------------------------------------------------------------------
------------------------------------------------------------------------


The fair value of options was determined using the Black-Scholes
valuation model assuming an average option life of three years, no
dividends, expected annual volatility of 93%, and risk-free interest
rates of 3%.

2 Share capital:

During the quarter 1,724,000 warrants were exercised for proceeds of
$901,718.

3 Other expenses:



------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
------------------------------------------------------------------------
Net interest and bank
charges $ 96,337 $ 71,308 $ 314,890 $ 264,813
Interest - non-cash 84,782 86,336 330,046 299,785
Foreign currency loss 105,646 30,481 110,990 231,823
Loss (gain) on disposal
of property and equipment 4,885 (8,550) (2,411) 281,450
------------------------------------------------------------------------
$ 291,650 $ 179,575 $ 753,515 $ 1,077,871
------------------------------------------------------------------------
------------------------------------------------------------------------


4 Earnings per common share:

The table below is a reconciliation of the denominator used in the
calculation of the weighted average number of basic and diluted earnings
per common share outstanding from continuing operations. There is no
impact on the numerator.



------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
------------------------------------------------------------------------
Weighted-average number
of common shares
outstanding (denominator)
Weighted-average number
of common shares
outstanding
- basic 41,512,223 37,982,831 40,282,436 36,100,784
Assumed exercise
stock options - - 21,903 -
Assumed exercise of
warrants - - 416,275 -
------------------------------------------------------------------------
Weighted-average number
of common shares
outstanding
- diluted 41,512,223 37,982,831 40,720,614 36,100,784
------------------------------------------------------------------------
------------------------------------------------------------------------


The calculation of assumed exercise of stock options includes the effect
of the average unrecognized future compensation cost of dilutive
options. Where its effect was anti-dilutive, assumed exercise of those
particular stock options were not included. The calculation of assumed
exercise of stock options and warrants exclude all anti-dilutive options
and warrants. These are options and warrants that would not be
recognized because their exercise price is higher than the average
market price of a Norsat common share for each of the periods shown in
the table.

For the three months ended December 31, 2004, the total number of
excluded options and warrants was 2,983,350 and 3,146,811 respectively.
For the year ended December 31, 2004, the total number of excluded
options and warrants was 2,570,300 and 3,146,811 respectively.

The year ending December 31, 2004 calculation does not include assumed
conversion of the long-term debt as its effect would be anti-dilutive.

The three months ending December 31, 2004 and each of 2003 balances do
not include any assumed conversions as net losses were reported for
these periods and therefore their effect would be anti-dilutive.

5 Segmented information:

The following tables set forth information by operating segments from
continuing operations for the three and years ended December 31, 2004
and 2003 respectively.



------------------------------------------------------------------------
Three months ended Satellite
December 31, 2004 Microwave Systems Consolidated
------------------------------------------------------------------------

Sales $ 2,570,015 $ 2,216,999 $ 4,787,014
Gross profit 511,760 1,175,692 1,687,452
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Three months ended Satellite
December 31, 2003 Microwave Systems Consolidated
------------------------------------------------------------------------

Sales $ 2,356,427 $ 1,043,677 $ 3,400,104
Gross profit 750,510 435,949 1,186,459
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Year ended Satellite
December 31, 2004 Microwave Systems Consolidated
------------------------------------------------------------------------
Sales $ 9,492,846 $ 8,027,829 $ 17,520,675
Gross profit 3,378,782 4,546,038 7,924,820
Total assets related to
continuing operations 5,268,524 6,930,406 12,198,930
Property and equipment 207,030 842,237 1,049,267
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Year ended Satellite
December 31, 2003 Microwave Systems Consolidated
------------------------------------------------------------------------
Sales $ 9,541,803 $ 3,438,466 $ 12,980,269
Gross profit 2,342,639 1,345,002 3,687,641
Total assets related to
continuing operations 4,737,202 4,735,853 9,473,055
Property and equipment 392,750 1,089,994 1,482,744
------------------------------------------------------------------------
------------------------------------------------------------------------


6 Supplemental cash flow and other disclosures:

------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
------------------------------------------------------------------------
Changes in non-cash
operating working capital:
Accounts receivable $ 2,879,585 $ 898,248 $ (129,572) $ 2,477,693
Inventories 123,316 816,333 (776,506) 2,832,164
Prepaid expenses
and other 374,137 313,106 (51,909) 243,658
Accounts payable and
accrued liabilities (717,867)(1,146,550) 375,585 (3,066,251)

Deferred revenue (5,187) (13,875) 73,271 (333,842)
------------------------------------------------------------------------
$ 2,653,984 $ 867,262 $ (509,131) $ 2,153,422
------------------------------------------------------------------------
------------------------------------------------------------------------

Supplementary information:
Interest paid $ - $ - $ 206,400 $ 227,200
Income taxes paid $ - $ 1,566 $ 15,124 $ 14,205
------------------------------------------------------------------------
------------------------------------------------------------------------


7 Comparative figures:

Certain comparative figures have also been reclassified to conform with
the financial statement presentation adopted in 2004.

8 Credit facility:

During the quarter the Company finalized a credit facility with a major
Canadian financial institution. The facility includes a line of credit
in the amount of $700,000 available through cash or letters of credit or
letters of guarantee. The facility bears interest at prime plus 1.75%.
The security under this facility consists of a first security interest
over all of the Company's assets. The credit facility may be cancelled
by the lenders at any time. As at December 31, 2004 no amounts have been
drawn under this facility.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Norsat International Inc.
    Cameron Hunter
    President & Chief Executive Officer
    (604) 292-9000
    Email: chunter@norsat.com