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EXCEL - IDEA: XBRL DOCUMENT - API Technologies Corp. | Financial_Report.xls |
EX-31.2 - SECTION 302 CFO CERTIFICATION - API Technologies Corp. | d372461dex312.htm |
EX-32.1 - SECTION 906 CEO CERTIFICATION - API Technologies Corp. | d372461dex321.htm |
EX-32.2 - SECTION 906 CFO CERTIFICATION - API Technologies Corp. | d372461dex322.htm |
EX-31.1 - SECTION 302 CEO CERTIFICATION - API Technologies Corp. | d372461dex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Amendment No. 1)
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 31, 2012
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-35214
API TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
Delaware | 98-0200798 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
4705 S. Apopka Vineland Rd. Suite 210
Orlando, FL 32819
(Address of Principal Executive Offices)
(407) 876-0279
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 and 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined Rule 12b-2 of the Exchange Act).
Large Accelerated Filer | ¨ | Accelerated Filer | x | |||
Non-Accelerated Filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the number of shares outstanding of each of the issuers class of common equity as of the latest practicable date:
54,764,617 shares of common stock with a par value of $0.001 per share at July 3, 2012.
EXPLANATORY NOTE
This Amendment No. 1 to API Technologies Corp.s Quarterly Report on Form 10-Q/A (the Amendment) is being filed to amend our Quarterly Report on 10-Q for the period ended May 31, 2012 (the Original Filing), which was originally filed with the Securities and Exchange Commission on July 10, 2012. The Amendment is being filed solely to (i) revise certain eXtensible Business Reporting Language (XBRL) information in Exhibit 101 with respect to the Commitments and Contingencies and Shareholders Equity sections of the Balance Sheet and the corresponding revisions in the Consolidated Statement of Changes in Preferred Stock and Shareholders Equity and with respect to the Consolidated Statements of Operations, and the Consolidated Statements of Cash Flows and (ii) correct scriveners errors in (A) the Total shareholders equity column in the Consolidated Statement of Changes in Preferred Stock and Shareholders Equity (Consolidated Statement of Shareholders Equity), (B) in the Consolidated Statements of Operations, whereby the Operating Loss and Net Loss for the six months ended May 31, 2011 in the Original Filing were stated as 24,854 and 25,212, respectively, instead of 24,855 and 25,213, respectively, and (C) in the Consolidated Statements of Cash Flows, whereby Net cash provided (used) by investing activities and Net cash provided by financing activities for the six months ended May 31, 2011 in the Original Filing were stated as 31,835 and 80,037 instead of 31,834 and 80,038, respectively, and brackets were removed from Short-term borrowings advances (repayments), net for the six months ended May 31, 2011. The modifications to the XBRL data files conform to the information as set forth in the financial statements. The correction to the Consolidated Statement of Shareholders Equity reflects that the Additional paid-in capital amount for the Amounts related to beneficial conversion features and embedded derivatives on Convertible Notes and Preferred Stock was inadvertently misstated in the Total Shareholders Equity column. No other changes were made to the Consolidated Statement of Shareholders Equity, and the total Balance numbers are not affected.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our Chief Executive Officer and Chief Financial Officer are filed as exhibits to this Amendment.
As provided in Rule 406T of Regulation S-T, the interactive data files included in Exhibit 101 are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
This Amendment speaks as of the date of the Original Filing and does not reflect subsequent events occurring after the date of the Original Filing. Other than as described above, no other changes have been made to the Original Filing.
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
(Unaudited) |
(Dollar Amounts in Thousands) |
API TECHNOLOGIES CORP.
May 31, 2012 |
November 30, 2011 |
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Assets |
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Current |
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Cash and cash equivalents |
$ | 17,324 | $ | 15,690 | ||||
Restricted cash (note 4c) |
700 | 700 | ||||||
Accounts receivable, less allowance for doubtful accounts of $739 and $501 at May 31, 2012 and November 30, 2011, respectively |
50,112 | 52,983 | ||||||
Inventories, net (note 7) |
70,879 | 72,017 | ||||||
Deferred income taxes |
7,637 | 4,797 | ||||||
Prepaid expenses and other current assets |
2,745 | 1,705 | ||||||
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149,397 | 147,892 | |||||||
Fixed assets, net |
44,196 | 44,149 | ||||||
Fixed assets held for sale (note 2) |
2,681 | 3,216 | ||||||
Goodwill (note 8) |
179,165 | 253,170 | ||||||
Intangible assets, net |
54,936 | 50,001 | ||||||
Other non-current assets |
10,100 | 8,019 | ||||||
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Total assets |
$ | 440,475 | $ | 506,447 | ||||
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Liabilities and Shareholders Equity |
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Current |
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Accounts payable and accrued expenses |
$ | 36,940 | $ | 46,002 | ||||
Deferred revenue |
924 | 1,892 | ||||||
Current portion of long-term debt (note 11) |
2,466 | 1,917 | ||||||
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40,330 | 49,811 | |||||||
Deferred income taxes |
12,270 | 9,905 | ||||||
Other long-term liabilities |
1,161 | | ||||||
Long-term debt, net of current portion and discount of $3,408 and $3,830 at May 31, 2012 and November 30, 2011, respectively (note 11) |
183,548 | 165,267 | ||||||
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237,309 | 224,983 | |||||||
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Commitments and contingencies (note 17) |
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Preferred stock, (Series A Mandatorily Redeemable Preferred Stock, $1,000 liquidation preference and 1,000,000 authorized shares, 26,000 and 0 shares issued and outstanding at May 31, 2012 and November 30, 2011, respectively) (note 12) |
26,268 | | ||||||
Shareholders equity |
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Common shares, ($0.001 par value, 250,000,000 and 100,000,000 authorized shares, 54,755,553 and 54,568,384 shares issued and outstanding at May 31, 2012 and November 30, 2011, respectively) |
55 | 55 | ||||||
Special voting stock ($0.01 par value, 1 share authorized, issued and outstanding at May 31, 2012 and November 30, 2011, respectively) |
| | ||||||
Additional paid-in capital |
326,242 | 322,675 | ||||||
Common stock subscribed but not issued |
2,373 | 2,373 | ||||||
Accumulated deficit |
(152,544 | ) | (43,810 | ) | ||||
Accumulated other comprehensive income |
772 | 171 | ||||||
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176,898 | 281,464 | |||||||
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Total Liabilities and Shareholders Equity |
$ | 440,475 | $ | 506,447 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
3
API TECHNOLOGIES CORP.
Consolidated Statements of Operations
(Dollar Amounts in Thousands, Except Per Share Data)
For the Three Months Ended May 31, 2012 (Unaudited) |
For the Three Months Ended May 31, 2011 (Unaudited) |
For the Six Months Ended May 31, 2012 (Unaudited) |
For the Six Months Ended May 31, 2011 (Unaudited) |
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Revenue, net |
$ | 78,906 | $ | 28,702 | $ | 149,623 | $ | 53,256 | ||||||||
Cost of revenues |
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Cost of revenues |
60,919 | 25,320 | 113,690 | 45,141 | ||||||||||||
Restructuring charges (note 19) |
7,588 | 1,216 | 7,893 | 1,309 | ||||||||||||
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Total cost of revenues |
68,507 | 26,536 | 121,583 | 46,450 | ||||||||||||
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Gross profit |
10,399 | 2,166 | 28,040 | 6,806 | ||||||||||||
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Operating expenses |
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General and administrative |
6,425 | 8,079 | 12,925 | 11,303 | ||||||||||||
Selling expenses |
4,138 | 2,261 | 7,904 | 4,103 | ||||||||||||
Research and development |
2,714 | 653 | 5,201 | 1,135 | ||||||||||||
Business acquisition and related charges |
2,378 | 6,719 | 2,669 | 12,798 | ||||||||||||
Restructuring charges |
3,910 | 2,060 | 4,249 | 2,322 | ||||||||||||
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19,565 | 19,772 | 32,948 | 31,661 | |||||||||||||
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Operating loss |
(9,166 | ) | (17,606 | ) | (4,908 | ) | (24,855 | ) | ||||||||
Other expenses (income), net |
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Goodwill impairment (note 8) |
87,000 | | 87,000 | | ||||||||||||
Interest expense, net |
4,534 | 106 | 7,904 | 750 | ||||||||||||
Amortization of note discounts and deferred financing costs |
13,494 | | 14,089 | 2,776 | ||||||||||||
Other expense (income), net |
(1,986 | ) | (373 | ) | (1,960 | ) | (513 | ) | ||||||||
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103,042 | (267 | ) | 107,033 | 3,013 | ||||||||||||
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Loss from continuing operations before income taxes |
(112,208 | ) | (17,339 | ) | (111,941 | ) | (27,868 | ) | ||||||||
Expense (benefit) for income taxes |
(2,701 | ) | (2,691 | ) | (3,207 | ) | (2,691 | ) | ||||||||
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Loss from continuing operations, net of income taxes |
(109,507 | ) | (14,648 | ) | (108,734 | ) | (25,177 | ) | ||||||||
Loss from discontinued operations, net of income taxes |
| (18 | ) | | (36 | ) | ||||||||||
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Net loss |
$ | (109,507 | ) | $ | (14,666 | ) | $ | (108,734 | ) | $ | (25,213 | ) | ||||
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Loss per share from continuing operationsBasic and diluted |
$ | (1.98 | ) | $ | (0.32 | ) | $ | (1.97 | ) | $ | (0.78 | ) | ||||
Loss per share from discontinued operationsBasic and diluted |
$ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
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Net loss per shareBasic and diluted |
$ | (1.98 | ) | $ | (0.32 | ) | $ | (1.97 | ) | $ | (0.78 | ) | ||||
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Weighted average shares outstanding |
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Basic |
55,329,607 | 46,242,492 | 55,261,526 | 32,505,996 | ||||||||||||
Diluted |
55,329,607 | 46,242,492 | 55,261,526 | 32,505,996 |
The accompanying notes are an integral part of these consolidated financial statements.
4
API TECHNOLOGIES CORP.
Consolidated Statement of Changes in Preferred Stock and Shareholders Equity
(Unaudited)
(Dollar Amounts in Thousands)
Preferred Stock- number of shares |
Preferred stock amount |
Common stock- number of shares |
Common stock amount |
Additional paid- in capital |
Common stock subscribed but not issued |
Accumulated deficit |
Accumulated other comprehensive income |
Total shareholders equity |
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Balance at November 30, 2011 |
| $ | | 54,568,384 | $ | 55 | $ | 322,675 | $ | 2,373 | $ | (43,810 | ) | $ | 171 | $ | 281,464 | |||||||||||||||||||
Series A Mandatorily Redeemable Preferred Stock (see Note 12) |
26,000 | 26,268 | | | | | | | | |||||||||||||||||||||||||||
Stock exchanged for subsidiary exchangeable shares and stock subject to issuance in connection with plan of arrangement (see Note 13) |
| | 20,833 | | | | | | | |||||||||||||||||||||||||||
Stock-based compensation expense |
| | | | 819 | | | | 819 | |||||||||||||||||||||||||||
Stock issued as compensation |
| | 218,477 | | 674 | | | | 674 | |||||||||||||||||||||||||||
Stock withheld for taxes |
| | (52,141 | ) | | (198 | ) | | | | (198 | ) | ||||||||||||||||||||||||
Amounts related to beneficial conversion features and embedded derivatives on Convertible Notes and Preferred stock (note 12) |
| | | | 2,272 | | | | 2,272 | |||||||||||||||||||||||||||
Net loss for the period |
| | | | | | (108,734 | ) | | (108,734 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment |
| | | | | | | 601 | 601 | |||||||||||||||||||||||||||
Total comprehensive income |
| | | | | | | | (108,133 | ) | ||||||||||||||||||||||||||
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Balance at May 31, 2012 |
26,000 | $ | 26,268 | 54,755,553 | $ | 55 | $ | 326,242 | $ | 2,373 | $ | (152,544 | ) | $ | 772 | $ | 176,898 | |||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
5
API TECHNOLOGIES CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollar Amounts in Thousands)
Six Months Ended May 31, |
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2012 | 2011 | |||||||
Cash flows from operating activities |
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Net loss |
$ | (108,734 | ) | $ | (25,213 | ) | ||
Less: Loss from discontinued operations |
| 36 | ||||||
Adjustments to reconcile net income to net cash used by operating activities: |
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Depreciation and amortization |
9,096 | 2,117 | ||||||
Amortization of note discounts and deferred financing costs |
1,445 | | ||||||
Amortization of note discounts due to debt extinguishment |
12,644 | 2,776 | ||||||
Impairment of goodwill |
87,000 | | ||||||
Write down of fixed assets |
865 | 10 | ||||||
Stock based compensation |
1,493 | 2,727 | ||||||
Gain on sale of marketable securities |
| (322 | ) | |||||
Loss (gain) on sale of fixed assets |
92 | (155 | ) | |||||
Deferred income taxes |
(3,501 | ) | (2,702 | ) | ||||
Changes in operating asset and liabilities, net of business acquisitions |
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Accounts receivable |
8,907 | 3,213 | ||||||
Inventories |
10,052 | 5,942 | ||||||
Prepaid expenses and other current assets |
(1,138 | ) | 339 | |||||
Accounts payable and accrued expenses |
(13,861 | ) | 2,901 | |||||
Deferred revenue |
(996 | ) | (1,106 | ) | ||||
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Net cash provided (used) by continuing activities |
3,364 | (9,437 | ) | |||||
Net cash provided (used) by discontinued operations |
| (36 | ) | |||||
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Net cash provided (used) by operating activities |
3,364 | (9,473 | ) | |||||
Cash flows from investing activities |
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Purchase of fixed assets |
(387 | ) | (998 | ) | ||||
Purchase of intangible assets |
(839 | ) | | |||||
Proceeds from disposal of fixed assets |
500 | 155 | ||||||
Proceeds from sale of marketable securities |
| 324 | ||||||
Business acquisitions net of cash acquired of $3,045 (note 4a), and $32,353 (note 4e) |
(29,052 | ) | 32,353 | |||||
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Net cash provided (used) by investing activities |
(29,778 | ) | 31,834 | |||||
Cash flows from financing activities |
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Proceeds from issuance of common shares |
| 105,539 | ||||||
Repurchase and retirement of common shares |
| (96 | ) | |||||
Short-term borrowings advances (repayments), net |
| 3,667 | ||||||
Repayment of long-term debt (note 11) |
(1,042 | ) | (29,147 | ) | ||||
Net proceeds from long-term debt (note 11) |
29,160 | 75 | ||||||
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Net cash provided by financing activities |
28,118 | 80,038 | ||||||
Effect of exchange rate on cash and cash equivalents |
(70 | ) | 509 | |||||
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Net change in cash and cash equivalents |
1,634 | 102,908 | ||||||
Cash and cash equivalents, beginning of periodcontinuing operations |
15,690 | 5,509 | ||||||
Cash and cash equivalents, beginning of perioddiscontinued operations |
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Cash and cash equivalents, beginning of period |
15,690 | 5,509 | ||||||
Cash and cash equivalents, end of period |
$ | 17,324 | $ | 108,417 | ||||
Less: cash and cash equivalents of discontinued operations, end of period |
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Cash and cash equivalents of continuing operations, end of period |
$ | 17,324 | $ | 108,417 | ||||
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The accompanying notes are an integral part of these consolidated financial statements.
6
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
API Technologies Corp. (API, and together with its subsidiaries, the Company), designs, develops and manufactures high reliability engineered solutions, RF, sensors and measurement, power systems management technology, systems, secure communications and electronic components for military and aerospace applications, including mission critical information systems and technologies. With its recent acquisition of C-MAC Aerospace Limited, during the quarter ended May 31, 2012, the Company has expanded its RF and microwave filters capabilities.
On March 22, 2012, API completed the acquisition, through its UK-based subsidiary API Technologies (UK) Limited (API UK), of the entire issued share capital of C-MAC Aerospace Limited (C-MAC), for a total purchase price of £20,950 pounds sterling (approximately $33,000 USD), including the assumption of C-MACs loan facility (see Note 4a). C-MAC is a leading provider of high-reliability electronic systems, modules, and components to the defense, aerospace, space, industrial and energy sectors. C-MAC generated revenues of approximately $36,960 for the year ended August 26, 2011.
On March 19, 2012 API completed the acquisition of substantially all of the assets of RTI Electronics (RTI) for a total purchase price of $2,295, with $1,500 payable in cash at closing and the remainder pursuant to a $795 Promissory Note payable in 24 equal monthly installments (see Note 4b). Based in Anaheim, California, RTI is a leading manufacturer of passive electronic components, including thermistors, film capacitors, magnetic transformers and inductors, and audio power conditioning units. RTI had revenues for the year ended December 31, 2011 of approximately $5,300 from a diverse Fortune 500 customer base spanning the audio, defense, aerospace, and industrial markets.
On November 29, 2011, the Company entered into an asset purchase agreement (the CMT Asset Purchase Agreement) with Commercial Microwave Technology, Inc. (CMT), a California corporation, and Randall S. Wilson with respect to certain sections, as a shareholder of CMT, pursuant to which API Sub purchased substantially all of the assets of CMT. CMT designs and manufactures Radio Frequency and Microwave Filters, Multiplexers, and related products for use in space and commercial applications. The Company also assumed certain liabilities of CMT relating to the assets acquired. The Company purchased the assets of CMT for $8,200, subject to certain adjustments (see Note 4c).
On June 1, 2011, the Company completed the acquisition of Spectrum Control Inc. (the Spectrum Merger) provided for in the Agreement and Plan of Merger (the Spectrum Agreement), entered into on March 28, 2011 by the Company, Spectrum Control, Inc. (Spectrum), and Erie Merger Corp. (Merger Sub), a wholly owned subsidiary of the Company. Spectrum is a leading designer and manufacturer of high performance, custom solutions for the defense, aerospace, industrial, and medical industries headquartered in Fairview, Pennsylvania. Pursuant to the terms and conditions of the Spectrum Agreement, Merger Sub was merged with and into Spectrum. Upon effectiveness of the Spectrum Merger, each outstanding share of common stock of Spectrum, other than shares owned by Spectrum or their subsidiaries, was converted into the right to receive twenty dollars in cash, without interest. Also upon the effectiveness of the Spectrum Merger, each outstanding option to purchase shares of common stock of Spectrum was accelerated so that it became fully vested and received in cash the product of the excess, if any, of twenty dollars less the exercise price per option multiplied times the number of shares of Spectrum common stock issuable upon exercise of such option. The total purchase price was approximately $273,264 (see Note 4d).
On January 9, 2011, API entered into an Agreement and Plan of Merger, (the Merger Agreement) with Vintage Albany Acquisition, LLC, a Delaware limited liability company (Vintage), and API Merger Sub, Inc., a New York corporation (Sub), pursuant to which the Company acquired SenDEC Corp., a New York corporation (SenDEC) (the SenDEC Merger). SenDEC is a leading defense electronics manufacturing services company headquartered in Fairport, New York. In the SenDEC Merger, API acquired all of the equity of SenDEC, which included SenDECs electronics manufacturing operations and approximately $30,000 of cash, in exchange for the issuance of 22,000,000 shares of API Common Stock to Vintage (see Note 4e).
The SenDEC Merger closed on January 21, 2011, immediately after the January 21, 2011 closing of the acquisition by Vintage of SenDEC, pursuant to the Agreement and Plan of Merger, entered into on January 9, 2011 and amended on January 19, 2011 (the First Merger Agreement) among Vintage, SenDEC, and South Albany Acquisition Corp., and Kenton W. Fiske, as Stockholder Representative, (the First Merger). API succeeded to the rights, and assumed the obligations, of Vintage under the First Merger Agreement, including without limitation, the obligation to pay former SenDEC shareholders up to $14,000 in earn-out payments, potentially payable in three installments through July 31, 2013, based on achievement of certain financial milestones of SenDEC (the Earn-Out Payment). The first installment is based on financial results for the trailing twelve months ending July 31, 2012. In addition to the Earn-Out Payment, under the First Merger Agreement, the Company has the obligation to pay the former shareholders of SenDEC an amount relating to certain tax benefits realized by SenDEC relating to the payment of certain bonuses and the conversion of SenDECs options in connection with the First Merger. In addition, certain SenDEC employees will be eligible for a
7
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
bonus under a management bonus plan of up to $11,000, potentially payable in three installments through July 31, 2013, based on achievement of certain financial milestones of SenDEC. The first installment is based on financial results for the trailing twelve months ending July 31, 2012.
On June 3, 2011, our Board of Directors approved a change in our fiscal year end from May 31 to November 30, with the change to the reporting cycle beginning December 1, 2011.
The unaudited consolidated financial statements include the accounts of API and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. There are no other entities controlled by the Company, either directly or indirectly. The financial statements have been prepared in accordance with the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the SEC).
Accordingly, certain information and footnote disclosures required in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. In the opinion of the Companys management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the Companys consolidated financial position as of May 31, 2012 and the results of its operations and cash flows for the six month period ended May 31, 2012. Results for the interim period are not necessarily indicative of results that may be expected for the entire year or for any other interim periods. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto as of and for the six-month transition period ended November 30, 2011 included in the Companys Form 10-K filed with the SEC on February 9, 2012.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts in the consolidated financial statements, and the disclosures made in the accompanying notes. Examples of estimates include the provisions made for bad debts and obsolete inventory, estimates associated with annual goodwill impairment tests, and estimates of deferred income tax and liabilities. The Company also uses estimates when assessing fair values of assets and liabilities acquired in business acquisitions as well as any fair value and any related impairment charges related to the carrying value of machinery and equipment, other long-lived assets, fixed assets held for sale and discontinued operations. The Company also uses estimates in determining the remaining economic lives of long-lived assets. In addition, the Company uses assumptions when employing the Black-Scholes valuation model to estimate the fair value of share options. Despite the Companys intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.
Inventories
Inventories, which include materials, labor, and manufacturing overhead, are stated at the lower of cost (on a first-in, first-out basis) or net realizable value. The Company records a provision for both excess and obsolete inventory when write-downs or write-offs are identified. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.
The Company periodically reviews and analyzes its inventory management systems, and conducts inventory impairment testing on an annual basis.
Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation and are depreciated using the following methods over the following periods:
Straight line basis |
||
Buildings and leasehold improvements |
5-40 years | |
Computer equipment |
3-5 years | |
Furniture and fixtures |
5-8 years | |
Machinery and equipment |
5-10 years | |
Vehicles |
3 years |
8
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Betterments are capitalized and amortized by the Company, using the same amortization basis as the underlying assets over the remaining useful life of the original asset. Betterments include renovations, major repairs and upgrades that increase the service of a fixed asset and extend the useful life. Gains and losses on depreciable assets retired or sold are recognized in the consolidated statements of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred.
Fixed Assets Held for Sale
Fixed assets held for sale have been classified as held for sale in the consolidated balance sheets. The Company estimated the fair value of the net assets to be sold at approximately $2,681 at May 31, 2012 compared to $3,216 at November 30, 2011. The decrease is attributed to the sale of land and building in January, 2012 from the Spectrum acquisition previously held for sale as a result of initiatives to consolidate operational activities.
Discontinued Operations
Components of the Company that have been disposed of are reported as discontinued operations. The results of operations relating to API Nanofabrication and Research Corporation (NanoOpto) for prior periods are reported as discontinued operations and not included in the continuing operations figures.
Goodwill and Intangible Assets
Goodwill and intangible assets result primarily from business acquisitions accounted for under the purchase method. Goodwill and intangible assets with indefinite lives are not amortized but are subject to impairment by applying a fair value based test. The Company completes an annual (or more often if circumstances require) impairment assessment of its goodwill on a reporting unit level. Effective September 1, 2011, the Company changed its annual impairment test for goodwill from May 31st to September 1st. This change was made in connection with the change in the Companys fiscal year-end from May 31 to November 30.
The Company has two reporting units: (i) Systems & Subsystems and (ii) Secure Systems & Information Assurance. The goodwill in the consolidated financial statements relates to the acquisition of RTI in March 2012, C-MAC in March 2012, CMT in November 2011, Spectrum in June 2011, the acquisition of SenDEC in January 2011, the acquisition of the assets of Kuchera Defense Systems, Inc. (KDS), KII, Inc. (KII) and Kuchera Industries, LLC (KI Industries and collectively with KDS and KII, the KGC Companies) in January 2010, and the acquisition of the Filtran Group companies, which was completed in 2002. All of the goodwill relates to our Systems & Subsystems reporting unit. Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value assigned to the individual assets acquired and liabilities assumed. The Company does not amortize goodwill but instead tests goodwill for impairment annually (on September 1) or more frequently if impairment indicators arise under the applicable accounting guidance.
A two-step test is performed to assess goodwill impairment. First, the fair value of each reporting unit is compared to its carrying value. The fair value is determined based on a market approach as well as the discounted future cash flows of the subsidiary carrying the goodwill. If the calculated fair value exceeds the carrying value of the assets, goodwill is not impaired and no further testing is performed. The second step is performed if the carrying value exceeds the fair value of the goodwill. If the carrying value of the reporting units goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded.
Following the required accounting guidance, the Company performed the first step of the two-step test method based on discounted future cash flows on September 1, 2011. The respective reporting units future cash flows exceeded the carrying value of the underlying assets and therefore goodwill was not impaired and no further testing was required for the transition period ending November 30, 2011.
As at May 31, 2012, given lower than projected revenues and the Companys current outlook for the EMS portion of the Systems & Subsystems segment, the Company determined that the appropriate triggers had been reached to perform an impairment test beyond the annual goodwill impairment test. The Company has performed the first step of the goodwill impairment assessment and the carrying value of the assets exceeded the fair value. As of the date of filing this report, the Company determined that an impairment of goodwill is probable, determined a reasonable estimate and therefore recorded a write-down of $87,000. During the third quarter of fiscal 2012, the Company will complete its impairment analysis for the second step and determine if any adjustment to the estimated write-down of goodwill will be required.
Intangible assets that have a finite life are amortized using the following basis over the following periods:
Non-compete agreements | Straight line over 5 years | |
Computer software | Straight line over 3-5 years | |
Customer related intangibles | Straight line or the pattern in which the economic benefits are expected to be realized, over an estimated life of 4-15 years | |
Marketing related intangibles | The pattern in which the economic benefits are expected to be realized, over an estimated life of 3-10 years | |
Technology related intangibles | The pattern in which the economic benefits are expected to be realized, over an estimated life of 10 years |
9
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Long-Lived Assets
The Company periodically evaluates the net realizable values of long-lived assets, principally identifiable intangibles and capital assets, for potential impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, as determined based on the estimated future undiscounted cash flows. If such assets were considered to be impaired, the carrying value of the related assets would be reduced to their estimated fair value.
Income Taxes
Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial reporting and tax bases of assets and liabilities and available net operating loss carry forwards. A valuation allowance is established to reduce tax assets if it is more likely than not that all or some portions of such tax assets will not be realized.
The Companys valuation allowance was recorded on the deferred tax assets to provide for a reasonable provision, which in the Companys estimation is more likely than not that all or some portions of such tax assets will not be realized. In determining the adequacy of the valuation allowance, the Company applied the authoritative guidance, and considered such factors as (i) which subsidiaries were producing income and which subsidiaries were producing losses and (ii) temporary differences occurring from depreciation and amortization which the Company expects to increase the taxable income over future periods.
The Company follows the guidance concerning accounting for uncertainty in income taxes, which clarifies the accounting and disclosure for uncertainty in tax positions. The guidance requires that the Company determine whether it is more likely than not that a tax position will not be sustained upon examination by the appropriate taxing authority. If a tax position does not meet the more likely than not recognition criterion, the guidance requires that the tax position be measured at the largest amount of benefit greater than 50 percent not likely of being sustained upon ultimate settlement.
Based on the Companys evaluation, management has concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements or adjustments to deferred tax assets and related valuation allowance. Open tax years include the tax years ended May 31, 2007 through 2011.
The Company from time to time has been assessed interest or penalties by major tax jurisdictions, however such assessments historically have been minimal and immaterial to our financial results. If the Company receives an assessment for interest and/or penalties, it would be classified in the consolidated financial statements as general and administrative expense.
Revenue Recognition
The Company recognizes non-contract revenue when it is realized or realizable and earned. The Company considers non-contract revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured. Delivery is not considered to have occurred until products have been shipped and risk of loss and ownership has transferred to the client. Revenue from contracts, which represents less than one per cent of total revenue, is recognized using the percentage of completion method. The degree of completion is determined based on costs incurred, excluding costs that are not representative of progress to completion, as a percentage of total costs anticipated for each contract. A provision is made for losses on contracts in progress when such losses first become known. Revisions in cost and profit estimates, which can be significant, are reflected in the accounting period in which the relevant facts become known. Revenue from contracts under the percentage of completion method is not significant to the financial statements.
Deferred Revenue
The Company defers revenue when payment is received in advance of the service or product being shipped or delivered. For some of the larger government contracts, the Company will bill upon meeting certain milestones. These milestones are established by the customer and are specific to each contract. Unearned revenue is recorded as deferred revenue. The Company generally recognizes revenue on the contracts when items are shipped.
Research and Development
Research and development costs are expensed when incurred.
Stock-Based Compensation
The Company follows the authoritative guidance for accounting for stock-based compensation. The guidance requires that new, modified and unvested stock-based payment transactions with employees, such as grants of stock options, restricted stock units
10
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
(RSUs) and restricted stock, be recognized in the financial statements based on their fair value at the grant date and recognized as compensation expense over their vesting periods. Stock-based compensation cost for RSUs is measured based on the closing fair market value of the Companys common stock on the date of grant. The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model which takes into account as of the grant date the exercise price and expected life of the option, the current price of the underlying shares and its expected volatility, expected dividends on the shares and the risk-free interest rate for the term of the option.
Foreign Currency Translation and Transactions
The Companys functional currency is United States dollars and the consolidated financial statements are stated in United States dollars, the reporting currency. Integrated operations have been translated from various foreign currencies (Canadian dollars, British Pounds Sterling, Chinese Yuan, Euros, and Mexican Pesos) into United States dollars at the period-end exchange rate for monetary balance sheet items, the historical rate for fixed assets and shareholders equity, and the average exchange rate for the year for revenues, expenses, gains and losses. The gains or losses on translation are included as a component of other comprehensive income (loss) for the period.
Financial Instruments
The fair values of financial instruments including cash and cash equivalents, marketable securities, accounts receivable, accounts payable, and short-term borrowings approximate their carrying values due to the short-term nature of these instruments. Unless otherwise noted, it is managements opinion that the Company is not exposed to significant interest rate, currency or credit risks arising from its financial instruments. Marketable securities are included at fair value based on quoted market prices in active markets. The recorded value of long-term debt approximates the fair value of the debt as the terms and rates approximate market rates.
In the ordinary course of business, the Company carries out transactions in various foreign currencies (Canadian Dollars, British Pounds Sterling, Chinese Yuan, Euros, and Mexican Pesos) included in the Companys cash, accounts receivable, accounts payable, bank indebtedness, as well as a mortgage loan. The translation adjustments related to these accounts have been reflected as a component of comprehensive income. Currently, the Company does not maintain a foreign currency hedging program.
Derivative Liabilities
Fair value accounting requires bifurcation of embedded derivative instruments of convertible debt or equity instruments, and measurement of their fair value for accounting purposes. The Companys embedded derivative instruments such as put and call features, make whole provisions and default interest and dividend rates in the convertible note and convertible preferred stock are measured at fair value using the discounted cash flows model by taking the present value of probability weighted cash flow scenarios. Derivative liabilities are adjusted to reflect fair value at the end of each reporting period, with any change in the fair value being recorded in results of operations as Other income or expense.
Debt Issuance Costs and Long-term Debt Discounts
Fees paid to obtain debt financing or amendments under such debt financing are treated as debt issuance costs and are capitalized and amortized over the life of the debt using the effective interest method. These payments are shown as a financing activity on the consolidated statement of cash flows and are shown as Other non-current assets in the consolidated balance sheets.
In accordance with accounting standards the Company recognized the value of detachable warrants issued in conjunction with the issuance of the secured promissory notes and the modification of the convertible promissory notes. The Company valued the warrants using the Black-Scholes pricing model. The Company recorded the warrant relative fair value as an increase to additional paid-in capital and a discount against the related debt. The discount attributed to the value of the warrants was being amortized over the term of the underlying debt using the effective interest method and was written off when the related debt was extinguished.
The Company may record debt and equity discounts in connection with raising funds through the issuance of convertible notes or equity instruments. These discounts may arise from (i) the receipt of proceeds less than the face value of the convertible notes or equity instruments, (ii) beneficial conversion features and/or (iii) recording derivative liabilities related to embedded features. These costs are amortized over the life of the debt to interest expense utilizing the effective interest method. If a conversion of the underlying debt occurs, a proportionate share of the unamortized discount is immediately expensed.
Concentration of Credit Risk
The Company maintains cash balances, at times, with financial institutions, which are in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC), Canadian Deposit Insurance Corporation (CDIC) and Financial Services Compensation
11
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Scheme (FSCS in the United Kingdom). Management monitors the soundness of these institutions and has not experienced any collection losses with these institutions.
The US, Canadian and United Kingdom Governments Departments of Defense (directly and through subcontractors) account for approximately 46%, 3% and 8% of the Companys revenues for the six months ended May 31, 2012 (70%, 6% and 8% for the six months ended May 31, 2011), respectively. A loss of a significant customer could adversely impact the future operations of the Company.
Earnings per Share of Common Stock
Basic earnings per share of common stock is computed by dividing income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share of common stock gives effect to all dilutive potential shares of common stock outstanding during the period. The computation of diluted earnings per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on earnings per share (Note 16).
Comprehensive Income (Loss)
Comprehensive income (loss), which includes foreign currency translation adjustments and unrealized gains on marketable securities, is shown in the Consolidated Statement of Changes in Shareholders Equity.
3. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements
In June 2011, an Accounting Standard Update ASU was issued, bringing amendments to how other comprehensive income (OCI) is presented in the financial statements. This update outlines that OCI and its components cannot be reported in the Companys consolidated statements of changes in stockholders equity. This guidance is effective from the beginning of the Companys 2013 fiscal year. This update will not have a material impact to the Company and the Company will remove the presentation of OCI from its consolidated statements of stockholders equity.
4. ACQUISITIONS
a) C-MAC
On March 22, 2012, the Company completed the acquisition, through its UK-based subsidiary API UK, of the entire issued share capital of C-MAC, for a total purchase price of £20,950 pounds sterling (approximately $33,000 USD), consisting of i) the payment at closing of £19,250 pounds sterling (approximately $30,300 USD) and ii) the assumption of C-MACs term loan facility of £1,700 pounds sterling (approximately $2,700 USD) (see Note 11c). C-MAC is a leading provider of high-reliability electronic systems, modules, and components to the defense, aerospace, space, industrial and energy sectors. The acquisition expands the Companys RF and Microwave capabilities and the Company believes that its low-cost manufacturing capabilities and established sales channels will provide additional revenue opportunities and improved profitability for C-MAC products. These factors contributed to a purchase price resulting in the recognition of goodwill.
The Company has accounted for the acquisition using the purchase method of accounting in accordance with the guidance on business combinations. The Company also incurred legal costs, reorganization charges and professional fees in connection with the acquisition of approximately $662 as of May 31, 2012. These expenses have been accounted for as operating expenses. The results of operations of C-MAC have been included in the Companys results of operations beginning on March 22, 2012.
Accounting guidance requires that identifiable assets acquired and liabilities assumed be reported at fair value as of the acquisition date of a business combination. Assets and liabilities acquired were as follows:
(in thousands) | ||||
Cash |
$ | 3,045 | ||
Accounts receivable and other current assets |
6,182 | |||
Inventory |
9,635 | |||
Fixed assets |
4,438 | |||
Customer related intangibles |
8,299 | |||
Goodwill |
10,227 | |||
Current liabilities |
(4,614 | ) | ||
Long-term liabilities |
(3,985 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 33,227 | ||
|
|
12
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
The fair value of C-MAC exceeded the underlying fair value of all net assets acquired, giving rise to the goodwill. The resulting goodwill will be non-deductible for tax purposes.
The fair value of the assets acquired and liabilities assumed remain subject to completion. The purchase accounting is preliminary subject to the completion of the fair value assessment of the acquired intangible assets and acquired inventory, and the fair value assessment of certain liabilities. Material adjustments, if any, to provisional amounts in subsequent periods, will be reflected retrospectively as required.
Revenues and net income of C-MAC for the period from the acquisition of March 22, 2012 to May 31, 2012 were approximately $8,209 and $728, respectively.
Fixed assets acquired in this transaction consist of the following:
(in thousands) | ||||
Land |
$ | 155 | ||
Buildings and leasehold improvements |
421 | |||
Computer equipment |
280 | |||
Furniture and fixtures |
70 | |||
Machinery and equipment |
3,504 | |||
Vehicles |
8 | |||
|
|
|||
Total fixed assets acquired |
$ | 4,438 | ||
|
|
b) RTI
On March 19, 2012 the Company completed the acquisition of substantially all of the assets of RTI for a total purchase price of $2,295, with $1,500 payable in cash at closing and the remainder pursuant to a $795 Promissory Note payable in 24 equal monthly installments. Based in Anaheim, California, RTI is a leading manufacturer of passive electronic components, including thermistors, film capacitors, magnetic transformers and inductors, and audio power conditioning units. RTI had revenues for the year ended December 31, 2011 of approximately $5,300 from a diverse Fortune 500 customer base spanning the audio, defense, aerospace, and industrial markets. The acquisition expands the Companys RF and Microwave capabilities and the Company believes that its low-cost manufacturing capabilities and established sales channels will provide additional revenue opportunities and improved profitability for RTI products. These factors contributed to a purchase price resulting in the recognition of goodwill.
The Company has accounted for the acquisition using the purchase method of accounting in accordance with the guidance on business combinations. The Company also incurred legal, travel and relocation costs, reorganization charges and professional fees in connection with the acquisition of approximately $492 as of May 31, 2012. These expenses have been accounted for as operating expenses. The results of operations of RTI have been included in the Companys results of operations beginning on March 19, 2012.
Accounting guidance requires that identifiable assets acquired and liabilities assumed be reported at fair value as of the acquisition date of a business combination. Assets and liabilities acquired were as follows:
(in thousands) | ||||
Inventory |
$ | 275 | ||
Fixed assets |
82 | |||
Goodwill |
2,177 | |||
Current liabilities |
(225 | ) | ||
Deferred revenue |
(14 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 2,295 | ||
|
|
The fair value of RTI exceeded the underlying fair value of all net assets acquired, giving rise to the goodwill. The resulting goodwill will be deductible for tax purposes.
13
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
The fair value of the assets acquired and liabilities assumed remain subject to completion. The purchase accounting is preliminary subject to the completion of the fair value assessment of the acquired intangible assets. Material adjustments, if any, to provisional amounts in subsequent periods, will be reflected retrospectively as required.
Revenues and net income of RTI for the period from March 19, 2012 to May 31, 2012 were approximately $1,083 and $162, respectively.
Fixed assets acquired in this transaction consist entirely of machinery and equipment.
c) Commercial Microwave Technology
On November 29, 2011, the Company entered into the CMT Asset Purchase Agreement with CMT and Randall S. Wilson with respect to certain sections, as a shareholder of CMT, pursuant to which the Company purchased substantially all of the assets of CMT. CMT designs and manufactures Radio Frequency and Microwave Filters, Multiplexers, and related products for use in space and commercial applications. The acquisition expands the Companys RF and Microwave capabilities and the Company believes that its low-cost manufacturing capability and established sales channels will provide additional revenue opportunities and improved profitability for CMT products. These factors contributed to a purchase price resulting in the recognition of goodwill.
The Company also assumed certain liabilities of CMT relating to the assets acquired. The Company purchased the assets of CMT for $8,200, subject to certain adjustments; as a result the Company put $700 of the $8,200 purchase price into escrow for a period of twelve months to secure the indemnification obligations of CMT and Randall S. Wilson.
The Company has accounted for the acquisition using the purchase method of accounting in accordance with the guidance on business combinations. The Company also incurred legal costs, reorganization charges and professional fees in connection with the acquisition of approximately $102 as of November 30, 2011, and an additional $77 as of May 31, 2012. These expenses have been accounted for during the respective periods as operating expenses. The results of operations of CMT have been included in the Companys results of operations beginning on December 1, 2011.
Accounting guidance requires that identifiable assets acquired and liabilities assumed be reported at fair value as of the acquisition date of a business combination. Assets and liabilities acquired were as follows:
(in thousands) | ||||
Accounts receivable and other current assets |
$ | 2,007 | ||
Inventory |
941 | |||
Fixed assets |
371 | |||
Goodwill |
1,893 | |||
Intangible assets |
4,545 | |||
Current liabilities |
(545 | ) | ||
Deferred revenue |
(1,012 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 8,200 | ||
|
|
The fair value of CMT exceeded the underlying fair value of all net assets acquired, giving rise to the goodwill. The resulting goodwill will be deductible for tax purposes.
The fair value of the assets acquired and liabilities assumed remain subject to completion. The purchase accounting is preliminary subject to the completion of the fair value assessment of the acquired intangible assets and acquired inventory, and the fair value assessment of certain liabilities. Material adjustments, if any, to provisional amounts in subsequent periods, will be reflected retrospectively as required.
Revenues and net income of CMT for the six months ended May 31, 2012 were approximately $4,264 and $711, respectively.
Fixed assets acquired in this transaction consist entirely of machinery and equipment.
d) Spectrum Control
On June 1, 2011, the Company completed the acquisition of Spectrum provided for in the Spectrum Agreement, entered into on March 28, 2011 by the Company, Spectrum and Merger Sub. Spectrum is a leading designer and manufacturer of high performance, custom solutions for the defense, aerospace, industrial, and medical industries headquartered in Fairview, Pennsylvania. The acquisition significantly expands the Companys Systems & Subsystems segment to include RF, microwave, power systems and sensors product offerings and capabilities. In addition, the Company believes that its established sales channels will provide additional revenue opportunities and improved profitability for Spectrum products. These factors contributed to a purchase price resulting in the recognition of goodwill.
14
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Pursuant to the terms and conditions of the Spectrum Agreement, Merger Sub was merged with and into Spectrum. Upon effectiveness of the Spectrum Merger, each outstanding share of common stock of Spectrum, other than shares owned by Spectrum or their subsidiaries, was converted into the right to receive $20.00 in cash, without interest. Also upon the effectiveness of the Spectrum Merger, each outstanding option to purchase shares of common stock of Spectrum was accelerated so that it became fully vested and received in cash the product of the excess, if any, of $20.00 less the exercise price per option multiplied times the number of shares of Spectrum common stock issuable upon exercise of such option.
The Company has accounted for the acquisition using the purchase method of accounting in accordance with the guidance on business combinations. The Company also incurred legal costs, reorganization charges and professional fees in connection with the acquisition of approximately $4,865. These expenses have been accounted for as operating expenses, primarily as of May 31, 2011. Also in connection with this acquisition, the Company incurred approximately $7,210 of deferred financing costs (recorded in Other non-current assets on the consolidated balance sheet) and $4,250 of discounts related to the term loans (see Note 13a) that are being amortized to interest expense using the effective interest method. The results of operations of Spectrum have been included in the Companys results of operations beginning on June 1, 2011.
Accounting guidance requires that identifiable assets acquired and liabilities assumed be reported at fair value as of the acquisition date of a business combination. Assets and liabilities acquired were as follows:
(in thousands) | ||||
Cash, net |
$ | 7,141 | ||
Accounts receivable and other current assets |
31,338 | |||
Inventory |
34,813 | |||
Fixed assets |
33,245 | |||
Customer related intangibles |
18,801 | |||
Marketing related intangibles |
4,372 | |||
Technology related intangibles |
18,395 | |||
Goodwill |
161,158 | |||
Current liabilities |
(19,495 | ) | ||
Deferred revenue |
(200 | ) | ||
Long-term liabilities |
(16,304 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 273,264 | ||
|
|
The fair value of Spectrum exceeded the underlying fair value of all net assets acquired, giving rise to the goodwill. The resulting goodwill will be non-deductible for tax purposes. Customer, marketing and technology related intangibles are amortized based on the pattern in which the economic benefits are expected to be realized, over estimated lives of three to ten years.
Revenues and net income of Spectrum for the six months ended May 31, 2012 were approximately $73,538 and $8,017, respectively.
Fixed assets acquired in this transaction consist of the following:
(in thousands) | ||||
Land |
$ | 1,823 | ||
Buildings and leasehold improvements |
17,258 | |||
Computer equipment |
2,345 | |||
Furniture and fixtures |
1,109 | |||
Machinery and equipment |
10,659 | |||
Vehicles |
51 | |||
|
|
|||
Total fixed assets acquired |
$ | 33,245 | ||
|
|
e) SenDEC Corp.
On January 9, 2011, API entered into the Merger Agreement with Vintage and Sub, pursuant to which the Company acquired SenDEC. SenDEC is a leading defense electronics manufacturing services company headquartered in Fairport, New York. In the
15
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
SenDEC Merger, API acquired all of the equity of SenDEC, which included SenDECs electronics manufacturing operations and approximately $30,000 of cash, in exchange for the issuance of 22,000,000 shares of API common stock to Vintage. The acquisition significantly expands the Companys Systems & Subsystems segment to include Electronics Manufacturing Services (EMS), such as New Product Introductions (NPI) and prototypes, turnkey manufacturing and Printed Circuit Board (PCB) assembly. In addition, the Company believes that its established sales channels will provide additional revenue opportunities and improved profitability for SenDEC products. These factors contributed to a purchase price resulting in the recognition of goodwill.
The SenDEC Merger closed on January 21, 2011, immediately after the January 21, 2011 closing of the acquisition by Vintage of SenDEC, pursuant to the First Merger Agreement among Vintage, SenDEC, and South Albany Acquisition Corp., and Kenton W. Fiske, as Stockholder Representative. API succeeded to the rights, and assumed the obligations, of Vintage under the First Merger Agreement among Vintage, including the obligation to pay former SenDEC shareholders up to $14,000 in earnout payments, payable in three installments through July 31, 2013, based on achievement of certain financial milestones. The fair value of this obligation was initially estimated to be $2,200 and was previously recorded in Accounts payable and accrued expenses. During the quarter ended May 31, 2012, given lower than projected revenues and the Companys current outlook for the EMS portion of the Systems & Subsystems segment, the Company has reduced the fair value of this obligation to $nil. In addition, certain SenDEC employees will be eligible for a bonus under a management bonus plan of up to $11,000, potentially payable in three installments through July 31, 2013, based on achievement of certain financial milestones of SenDEC. As of May 31, 2012 no amount has been recorded related to this bonus plan.
The Company has accounted for the acquisition using the purchase method of accounting in accordance with the guidance on business combinations. The Company also incurred legal costs, reorganization charges, professional fees and accelerated share option expense in connection with the acquisition of approximately $6,107. The expenses have been accounted for as operating expenses. The results of operations of SenDEC have been included in the Companys results of operations beginning on January 21, 2011.
Accounting guidance requires that identifiable assets acquired and liabilities assumed be reported at fair value as of the acquisition date of a business combination. Assets and liabilities acquired were as follows:
(in thousands) | ||||
Cash |
$ | 32,353 | ||
Accounts receivable and other current assets |
7,844 | |||
Inventory |
15,900 | |||
Fixed assets |
5,389 | |||
Customer related intangibles |
3,738 | |||
Marketing related intangibles |
2,138 | |||
Goodwill |
82,255 | |||
Current liabilities |
(10,016 | ) | ||
Deferred revenue |
(758 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 138,843 | ||
|
|
The fair value of shares issued to Vintage, options issued to SenDEC management and the earn-out payments exceeded the underlying fair value of all net assets acquired, giving rise to the goodwill. The resulting goodwill will be non-deductible for tax purposes. Customer and marketing related intangibles are amortized based on the pattern in which the economic benefits are expected to be realized, over an estimated life of 4 years.
Revenues and net loss of SenDEC for the six months ending May 31, 2012 were approximately $17,284 and $(2,279), respectively. Revenues and net income from the acquisition date, January 21, 2011, to May 31, 2011 were approximately $19,286 and $28, respectively.
Fixed assets acquired in this transaction consist of the following:
(in thousands) | ||||
Buildings and leasehold improvements |
$ | 515 | ||
Computer equipment |
200 | |||
Furniture and fixtures |
105 | |||
Machinery and equipment |
4,569 | |||
|
|
|||
Total fixed assets acquired |
$ | 5,389 | ||
|
|
16
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
The following unaudited pro forma summary presents the combined results of operations as if the C-MAC and RTI acquisitions described above had occurred at the beginning of the three and six month periods ended May 31, 2012 and that the C-MAC, RTI, CMT, Spectrum and SenDEC acquisitions described above had occurred at the beginning of the three and six month periods ended May 31, 2011.
Three months ended May 31, | Six months ended May 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues |
$ | 79,853 | $ | 83,159 | $ | 161,535 | $ | 167,487 | ||||||||
Net loss from continuing operations |
$ | (110,218 | ) | $ | (23,074 | ) | $ | (108,984 | ) | $ | (28,786 | ) | ||||
Net loss |
$ | (110,218 | ) | $ | (23,092 | ) | $ | (108,984 | ) | $ | (28,822 | ) | ||||
Net loss from continuing operations per share basic and diluted |
$ | (1.99 | ) | $ | (0.50 | ) | $ | (1.97 | ) | $ | (0.62 | ) | ||||
Net loss per share basic and diluted |
$ | (1.99 | ) | $ | (0.50 | ) | $ | (1.97 | ) | $ | (0.63 | ) |
5. DISCONTINUED OPERATIONS
On February 20, 2010 the Company announced that it closed its nanotechnology research and development subsidiary, NanoOpto, which was previously included in the Systems & Subsystems segment. NanoOpto was acquired by API in 2007 and is located in Somerset, New Jersey. During the quarter ended August 31, 2010, the Company sold the assets of NanoOpto for gross cash proceeds of approximately $2,300.
6. FAIR VALUE MEASUREMENTS
The following table summarizes assets and liabilities, which have been accounted for at fair value, along with the basis for the determination of fair value.
May 31, 2012 | November 30, 2011 | |||||||||||||||||||||||
2012 Total |
Unobservable Measurement Criteria (Level 3) |
Impairment | 2011 Total |
Unobservable Measurement Criteria (Level 3) |
Impairment | |||||||||||||||||||
Fixed assets held for sale |
$ | 2,681 | $ | 2,681 | $ | | $ | 3,216 | $ | 3,216 | $ | | ||||||||||||
Derivative liabilities - Preferred Stock (Note 12) |
(267 | ) | (267 | ) | | | | | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 2,414 | $ | 2,414 | $ | | $ | 3,216 | $ | 3,216 | $ | | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
17
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
The following is a summary of activity for the six months ended May 31, 2012 and six month transition period ended November 30, 2011 for assets measured at fair value based on unobservable measure criteria:
Fixed Assets Held for Sale |
Derivative Liabilities Preferred Stock |
|||||||
Balance, May 31, 2011 |
$ | 150 | $ | | ||||
Add: Classified as assets held for sale |
3,066 | | ||||||
|
|
|
|
|||||
Balance, November 30, 2011 |
$ | 3,216 | $ | | ||||
Less: Fixed assets sold |
(535 | ) | | |||||
Add: Embedded features of convertible notes and preferred stock |
| (855 | ) | |||||
Less: Embedded features of convertible notes upon conversion to preferred stock |
| 588 | ||||||
|
|
|
|
|||||
Balance, May 31, 2012 |
$ | 2,681 | $ | (267 | ) | |||
|
|
|
|
The fair value of the fixed assets held for sale was determined using a market approach by using prices and other relevant information generated by market transactions involving comparable assets. The Series A Preferred Stock (Note 12) also contain an embedded feature for a default dividend rate. The Company determined the fair value of the derivative liabilities related to the preferred stock by using the present value of probability weighted cash flow scenarios.
7. INVENTORIES
Inventories consisted of the following:
(in thousands) | ||||||||
May 31, 2012 |
November 30, 2011 |
|||||||
Raw materials |
$ | 32,565 | $ | 35,872 | ||||
Work in progress |
29,809 | 28,955 | ||||||
Finished goods |
8,505 | 7,190 | ||||||
|
|
|
|
|||||
Total |
$ | 70,879 | $ | 72,017 | ||||
|
|
|
|
Inventories are presented net of valuation allowances.
8. GOODWILL AND INTANGIBLE ASSETS
The goodwill in the consolidated financial statements relates to the acquisition of RTI in March 2012, C-MAC in March 2012, CMT in November 2011, Spectrum in June 2011, the acquisition of SenDEC in January 2011, the acquisition of the assets of the KGC Companies in January 2010, and the acquisition of the Filtran Group companies, which was completed in 2002. All of the goodwill relates to our Systems & Subsystems reporting unit.
As at May 31, 2012, given lower than projected revenues and the Companys current outlook for the EMS portion of the Systems & Subsystems segment, the Company determined that the appropriate triggers had been reached to perform an impairment test beyond the annual goodwill impairment test. The Company has performed the first step of the goodwill impairment assessment and the carrying value of the assets exceeded the fair value. As of the date of filing this report, the Company determined that an impairment of goodwill is probable, determined a reasonable estimate and therefore recorded a write-down of $87,000. During the third quarter of fiscal 2012, the Company will complete its impairment analysis for the second step and determine if any adjustment to the estimated write-down of goodwill will be required.
The goodwill impairment was determined by estimating the excess of the fair value of the Systems & Subsystems segment over the fair value of the net assets of the segment and comparing that amount to the carrying value of the goodwill. The Systems & Subsystems segment is not publicly traded on its own, and therefore the units fair value was estimated. The value was estimated using an income approach based on an analysis of discounted forecasted cash flows.
18
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Changes in the carrying amount of Goodwill were as follows:
(in thousands) | ||||
Balance, November 30, 2011 |
$ | 253,170 | ||
Goodwill from C-MAC business acquisition (note 4a) |
10,227 | |||
Goodwill from RTI asset acquisition (note 4b) |
2,177 | |||
Goodwill from CMT asset acquisition (note 4c) |
(500 | ) | ||
Goodwill from Spectrum business acquisition (note 4d) |
958 | |||
Goodwill from SenDEC business acquisition (note 4e) |
133 | |||
Goodwill impairment |
(87,000 | ) | ||
|
|
|||
Balance, May 31, 2012 |
$ | 179,165 | ||
|
|
Changes in the carrying amount of Intangible assets were as follows:
(in thousands) | ||||
Balance, November 30, 2011 |
$ | 50,001 | ||
Intangible assets from C-MAC business acquisition (note 4a) |
8,299 | |||
Intangible assets from CMT asset acquisition (note 4c) |
500 | |||
Computer software purchased |
832 | |||
Less: Amortization |
(4,696 | ) | ||
|
|
|||
Balance, May 31, 2012 |
$ | 54,936 | ||
|
|
9. SHORT-TERM DEBT
In connection with the acquisition of Spectrum, on June 1, 2011, API entered into a Credit Agreement with Morgan Stanley Senior Funding, Inc. as lead arranger, sole book runner and administrative agent, and with other lenders from time to time parties thereto (see Note 11a). In addition to a secured term loan, the Credit Agreement provided for a $15,000 secured revolving credit facility, with an option for the Company to request an increase in the revolving credit facility commitment of up to an aggregate of $5,000. This facility was undrawn as of May 31, 2012.
The Company also has a credit facility in place for its U.K. subsidiaries for approximately $389 (250 GBP), which renews in July 2012. This line of credit is tied to the prime rate in the United Kingdom and is secured by the subsidiaries assets. This facility was undrawn as of May 31, 2012.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
(in thousands) | ||||||||
May 31, 2012 |
November 30, 2011 |
|||||||
Trade accounts payable |
$ | 21,951 | $ | 33,460 | ||||
Accrued expenses |
8,974 | 6,940 | ||||||
Wage and vacation accrual |
6,015 | 5,602 | ||||||
|
|
|
|
|||||
Total |
$ | 36,940 | $ | 46,002 | ||||
|
|
|
|
11. LONG-TERM DEBT
The Company has the following long-term debt obligations:
(in thousands) | ||||||||
May 31, 2012 |
November 30, 2011 |
|||||||
Term loans, due June 1, 2016, base rate plus 6.25% interest or LIBOR plus 7.25%, (a) |
$ | 184,225 | $ | 169,075 | ||||
Mortgage loan, due 2027, 1.35% above Barclays fixed bank rate (b) |
1,447 | 1,509 | ||||||
Lockman loan C-MAC acquisition (c) |
2,648 | |
19
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
(in thousands) | ||||||||
May 31, 2012 |
November 30, 2011 |
|||||||
Note payable RTI acquisition (d) |
733 | | ||||||
Capital leases payable |
369 | 430 | ||||||
|
|
|
|
|||||
$ | 189,422 | $ | 171,014 | |||||
Less: Current portion of long-term debt |
(2,466 | ) | (1,917 | ) | ||||
Discount on term loans |
(3,408 | ) | (3,830 | ) | ||||
|
|
|
|
|||||
Long-term portion |
$ | 183,548 | $ | 165,267 | ||||
|
|
|
|
a) | In connection with the acquisition of Spectrum, on June 1, 2011, API entered into a Credit Agreement with Morgan Stanley Senior Funding, Inc. as lead arranger, sole book runner and administrative agent, and with other lenders from time to time parties thereto. The Credit Agreement provided for a secured term loan in the principal amount of $200,000 and a $15,000 secured revolving credit facility, with an option for the Company to request an increase in the revolving credit facility commitment of up to an aggregate of $5,000. A portion of the proceeds from the secured term loan was used to repay the line of credit facility from RBC Bank, which was then terminated. On June 27, 2011, API entered into an Amended and Restated Credit Agreement, which amends and restates the Credit Agreement (as amended, the Credit Agreement) in its entirety and provides for a secured term loan facility in the principal amount of $170,000 and a $15,000 secured revolving credit facility, with an option for the Company to request an increase in the revolving credit facility commitment of up to an aggregate of $5,000. The borrowings under the senior credit facilities are secured by substantially all of the Companys assets and are guaranteed by the Companys U.S. and Canadian subsidiaries, which guaranty obligations are secured by a security interest on substantially all of the assets of such subsidiaries, including certain material real property. |
On March 22, 2012, in connection with the acquisition of C-MAC, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement (the Second Amendment), which further amends the Credit Agreement.
Pursuant to the Second Amendment, an aggregate principal amount of $16,000 in new term loans (the New Term Loans) were advanced to the Company to finance a portion of the consideration payable in connection with the acquisition of C-MAC.
At the Companys option, the New Term Loans accrue interest at a per annum rate based on either (i) the base rate plus a margin equal to 6.25% or (ii) the LIBOR rate plus a margin equal to 7.25%. The base rate means the highest of (i) the administrative agents prime lending rate; (ii) the federal funds rate plus a margin equal to 0.50%; (iii) the one month LIBOR rate plus a margin equal to 1.00%; and (iv) 2.50%. The LIBOR rate means the higher of (i) a floating per annum rate based upon the LIBOR rate for the applicable interest period and (ii) 1.50%. As of the effective date of the Second Amendment, the outstanding principal amount of all term loans incurred pursuant to the Credit Agreement before March 22, 2012 bear interest at the interest rate applicable to the New Term Loans.
The New Term Loans are otherwise subject to the same terms and conditions as, and are pari passu in right of payment with, all term loans previously incurred under the Credit Agreement.
In addition to the provision of the New Term Loans, the Second Amendment, among other things, (i) specifically permitted the Company and its subsidiaries to consummate the acquisition of CMAC; (ii) establishes an incremental term loan facility enabling the lenders to provide up to $30,000 in additional term loans to be used by the Company and its subsidiaries in connection with future permitted acquisitions; (iii) amends the provisions of the Credit Agreement governing whether the Company and its subsidiaries may make acquisitions; (iv) amends the financial covenants relating to consolidated total leverage and consolidated interest expense coverage; and (v) permitted the Company to enter into the Note Purchase Agreement (as defined below) and to issue the Notes. The Company paid customary closing and arrangement fees to the lenders in connection with the Second Amendment.
Accrued interest on the revolving loans and term loans is due and payable in arrears at the end of each of our fiscal quarters, provided that revolving loans and term loans accruing interest based upon the LIBOR rate are due and payable at the end of each applicable interest period (or at each three month interval in the case of loans with interest periods greater than three months).
20
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Revolving loans may be borrowed, repaid and reborrowed until June 1, 2014, at which time all amounts borrowed pursuant to the revolving credit facility must be repaid. The term loans (including the New Term Loans) are to be repaid quarterly at the end of each of APIs fiscal quarters, with each quarterly installment equaling one quarter of 1% of the aggregate initial principal amount of the term loans, with the remaining balance to be paid on the maturity date of June 1, 2016. The term loans are subject to mandatory prepayment under certain circumstances, including in connection with APIs receipt of net proceeds from certain issuances of indebtedness, sales of assets, casualty events, annual excess cash flow and capital contributions resulting from the exercise of its equity cure rights with respect to financial covenants.
The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to API and its subsidiaries, including covenants that limit the ability of API and its subsidiaries to grant liens, merge or consolidate, dispose of assets, pay dividends or distributions, repurchase shares, incur indebtedness, make loans, make investments or acquisitions, enter into certain transactions with affiliates, make capital expenditures, enter into certain restrictive agreements affecting its subsidiaries, and enter into certain negative pledge arrangements, in each case subject to customary exceptions for a credit agreement of this size and type. The Company is also required to maintain compliance with a consolidated total leverage ratio and a consolidated interest expense coverage ratio. The Credit Agreement also includes customary events of default that include, among other things, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross default to material indebtedness, bankruptcy and insolvency defaults, non-compliance with ERISA laws and regulations, defaults under the security documents or guaranties, material judgment defaults, and a change of control default. Under certain circumstances, the occurrence of an event of default could result in an increased interest rate equal to 2.0% above the applicable interest rate for loans, the acceleration of the Companys obligations pursuant to the Credit Agreement and an obligation of the subsidiary guarantors to repay the full amount of the Companys borrowings under the Credit Agreement.
The aggregate principal amount of term loans (including the $16,000 New Term Loans) outstanding under the Credit Agreement as amended was $184,225 as of May 31, 2012.
The Credit Agreement was previously amended on January 6, 2012, effective November 30, 2011, to provide for certain pro forma adjustments relating to our acquisition of Spectrum and CMT to be made to the calculation of consolidated earnings before interest, taxes, depreciation and amortization set forth in the Credit Agreement for the four quarter period ended November 30, 2011. In addition, such amendment provides that the Company shall apply the net sale proceeds of any sale leaseback transaction involving real property to prepay outstanding terms loans under the Credit Agreement.
b) | A subsidiary of the Company in the United Kingdom entered into a 20 year term mortgage agreement in 2007, under which interest is charged at a margin of 1.35% over Barclays Fixed Base Rate of 0.5% at May 31, 2012. The mortgage is secured by the subsidiarys assets. |
c) | A subsidiary of the Company in the United Kingdom entered into a 5 year term loan facility with Lockman Electronic Holdings Limited on December 16, 2011 (Lockman Loan), under which interest is charged at a margin of 5.0% over LIBOR. The margin increases by 0.5% each year on December 1 for the term of the agreement. The term loan is secured against a debenture over the subsidiarys assets. |
d) | On March 19, 2012 the Company completed the acquisition of substantially all of the assets of RTI (Note 4b) for a total purchase price of $2,295, with $1,500 payable in cash at closing and the remainder pursuant to a $795 Promissory Note payable in 24 equal monthly installments. |
12. PREFERRED STOCK
On March 22, 2012, following the acquisition of C-MAC, the Company entered into a Note Purchase Agreement by and among the Company and the purchaser referred to therein (the Note Purchase Agreement). Pursuant to the Note Purchase Agreement, the Company sold an aggregate initial principal amount of $26,000 of convertible subordinated notes (the Note) to a single purchaser in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The Company received aggregate gross proceeds of $16,000 from the private placement, all of which will be used for working capital purposes. The purchaser of the Note is an affiliate of Senator Investment Group LP. At the time of the issuance of the Note, such affiliate also was the beneficial owner of approximately 10.7% of our outstanding common stock, without giving effect to the transactions contemplated by the Note Purchase Agreement.
Upon the filing of the amendment to the Charter and the Certificate of Designation (as described and defined below), the Note converted into 26,000 shares of Series A Mandatorily Redeemable Preferred Stock of API (Series A Preferred Stock). The purchaser has the option to convert all or any portion of the amount of the liquidation preference (Liquidation Preference) (initially and currently $1,000 per share) of the Series A Preferred Stock into common stock of API at $6.00 per share. The outstanding Series A Preferred Stock, as of the date of this Report, is convertible into approximately 4,333,333 shares of common stock.
21
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
On March 22, 2012, certain stockholders of the Company took action by written consent (the Written Consent), as permitted pursuant to the Companys bylaws and Amended and Restated Certificate of Incorporation, as amended (the Charter), to amend the Charter to (i) increase the number of shares of common stock, par value $0.001 per share, issuable by the Company to 250,000,000 shares from 100,000,000 shares; and (ii) authorize the issuance by the Companys Board of Directors, from time to time, of up to 10,000,000 shares of preferred stock, par value $0.001 per share (the Preferred Stock), in one or more series. The Written Consent also approved the issuance of shares of API common stock in connection with the conversion of the Note and Series A Preferred Stock as contemplated by the Note Purchase Agreement for all purposes, including pursuant to the rules and regulations of The NASDAQ Stock Market.
On March 22, 2012, subject to the effectiveness of the amendments to the Charter described above, the Companys Board of Directors also authorized the creation of a class of Preferred Stock designated as Series A Mandatorily Redeemable Preferred Stock (which we refer to herein as Series A Preferred Stock) pursuant to a Certificate of Designation (the Certificate of Designation).
The Company received aggregate gross proceeds of $16,000 from the issuance of the Note. The Company recorded a debt discount of $10,000 representing the difference between the principal amount of the Note and the proceeds received. The Note contained embedded features for a default interest rate and make whole provisions. Accordingly, the Company evaluated these embedded features and recorded an additional debt discount in the amount of $588. The Company also recorded $2,272 of additional discount resulting from the beneficial conversion feature of the Notes. The total debt discount was amortized over the contracted life of the Notes using the effective interest method. Up to the date of conversion this resulted in interest expense of $218.
On May 16, 2012, the Company filed the amendments to the Charter and the Certificate of Designation with the Secretary of State of the State of Delaware, at which time they became effective. Pursuant to the Certificate of Designation, the Company is authorized to issue 1,000,000 shares of Series A Preferred Stock. As described above, the Note converted into 26,000 shares of Series A Preferred Stock.
Upon conversion of the Note, the remaining unamortized discount of $12,644 was recorded as interest expense and the $26,000 face value of the Note was recorded as Series A Preferred Stock.
The Series A Preferred Stock will rank, with respect to dividend rights, redemption rights and rights upon liquidation, dissolution or wind-up (i) senior to the common stock and each other class of capital stock or series of Preferred Stock established by the Board of Directors, the terms of which expressly provide that such class or series ranks junior to the Series A Preferred Stock; (ii) junior to all capital stock or series of Preferred Stock established by the Board, the terms of which expressly provide that such class or series will rank senior to the Series A Preferred Stock; and (iii) on parity with all other classes of capital stock or series of Preferred Stock established by the Board of Directors, the terms of which expressly provide that such class or series will rank on parity with the Series A Preferred Stock.
The holders of Series A Preferred Stock will be entitled to vote on all matters voted on by holders of the common stock, voting together as a single class with the other shares entitled to vote. The holders of Series A Preferred Stock will have the right to cast the number of votes equal to the total number of votes which could be cast in such vote by a holder of the number of shares of common stock into which the shares of Series A Preferred Stock could be converted.
Commencing on March 22, 2013, holders of Series A Preferred Stock are entitled to receive cumulative dividends on the Liquidation Preference (initially $1,000 per share), computed on the basis of a 360-day year of twelve 30-day months at a rate equal to 6% per annum, compounded quarterly on the last day of each March, June, September and December. Accrued and unpaid dividends also will be paid on the date of any redemption or on any liquidation, dissolution or winding-up of the Company. Dividends will be paid in kind each quarter, by adding the amount of the accrued and unpaid dividend to the Liquidation Preference amount of each share of Series A Preferred Stock (the Accreted Dividend Amount). The Accreted Dividend Amount will constitute part of the Liquidation Preference of each share of Series A Preferred Stock as of each applicable quarterly dividend payment date and dividends will begin to accrue on each Accreted Dividend Amount beginning on the date on which such amount is added to the Liquidation Preference amount of each share of Series A Preferred Stock. However, all dividends due and payable on the date that the Liquidation Preference of a share of Series A Preferred Stock becomes due and payable will be payable in cash on such date. Upon an Early Redemption Event, dividends shall accrue while such event is continuing at the rate equal to the rate for the most recently issued actively traded ten year U.S. Treasury security, plus 10.0%. An Early Redemption Event means if (a) the Company (i) defaults in its obligation to pay the amounts in connection with a redemption of the Series A Preferred Stock and such default continues unremedied for three business days; (ii) breaches in material respect any of its representations or warranties contained in the Note Purchase Agreement, the Note or other document delivered in connection therewith; (iii) breaches certain covenants under the Note Purchase Agreement or other document delivered in connection therewith (subject to applicable grace periods); (iv) defaults (A) in any payment of any indebtedness
22
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
in excess of $5,500 or (B) defaults in the observance of any condition or agreement in respect of any such indebtedness, and as a consequence of such default, such indebtedness becomes due and payable prior to its stated maturity; (v) commences certain bankruptcy or similar proceedings or has a bankruptcy or similar proceeding commenced against it that is not dismissed within the applicable grace period; or (b) a material provision of the Note Purchase Agreement, the Note or other agreement delivered in connection therewith ceases to be effective.
The Series A Preferred Stock will be convertible at any time at the discretion of the holders into that number of shares of common stock equal to the Liquidation Preference being converted (plus any accrued dividends that have not yet been accreted to the Liquidation Preference), divided by the initial conversion price of $6.00 per share, which initial conversion price is subject to adjustments as described below. In addition, upon a Change of Control (as defined in the Note Purchase Agreement), the sale of all or substantially all of the assets of the Company or the occurrence of certain dilution events described below (a Mandatory Redemption Event), then the holders of Series A Preferred Stock will have the right to receive upon conversion, in lieu of the common stock otherwise issuable, such shares of stock, securities or other property as would have been issued or payable upon such Mandatory Redemption Event had the shares of Series A Preferred Stock been converted into common stock immediately prior to such Mandatory Redemption Event.
13. SHAREHOLDERS EQUITY
On June 27, 2011, API entered into a Common Stock Purchase Agreement, by and among API and the purchasers (as defined therein), pursuant to which API issued 4,791,958 shares of its common stock in a private placement for a purchase price of $6.50 per share. API received aggregate gross proceeds of approximately $31,148 from the private placement. In connection with the private placement, API also issued 300,000 shares of common stock to certain purchasers in consideration for a backstop commitment provided by such purchasers.
On March 18, 2011, the Company entered into a Common Stock Purchase Agreement, by and among the Company and the Purchasers (as defined therein), pursuant to which the Company issued 17,095,102 shares of its common stock in a private placement for a purchase price of $6.00 per share.
On March 28, 2011, the Company issued to an officer of the Company as part of his appointment as President and Chief Operating Officer, 300,000 shares of APIs common stock of which 140,019 of these shares were reacquired through the withholding of shares to pay employee tax obligations upon the issuance of the shares.
On January 31, 2011, the Company issued 1,216,667 shares of its common stock to the holders of the $3,650 Convertible Notes for a price equal to $3.00 per share upon conversion of the Convertible Notes.
On January 21, 2011, API acquired all of the equity of SenDEC, which included SenDECs electronics manufacturing operations and approximately $30,000 of cash, in exchange for the issuance of 22,000,000 API common shares to Vintage (see Note 4e).
On December 28, 2010, the Company filed a Certificate of Amendment of Amended and Restated Certificate of Incorporation, which effected a one-for-four reverse share split of the Companys outstanding common shares. A one-for-four reverse share split was also effected for the exchangeable shares. All the references to number of shares, options and warrants presented in these financial statements have been adjusted to reflect the post split number of shares.
On January 20, 2010 the Company agreed to issue 800,000 shares of API common stock payable as part of the compensation to the KGC Companies or their designees. 250,000 shares were issued and delivered at closing, 250,000 shares were to be issued and delivered on the first anniversary of the closing and 300,000 shares are to be issued and delivered on the second anniversary of the closing. The Company has issued 126,250 shares in escrow from the 550,000 shares remaining to be delivered. The API Pennsylvania Subsidiaries have claimed a right of set off against the escrowed shares under the asset purchase agreement with respect to claimed amounts due to the Company under the indemnification provisions of the asset purchase agreement. The unissued shares have been accounted for as common shares subscribed but not issued.
In connection with the Plan of Arrangement that occurred on November 6, 2006, the Company was obligated to issue 2,354,505 shares of either API common stock or exchangeable shares of API Nanotronics Sub, Inc. in exchange for the API Electronics Group Corp. common shares previously outstanding. As of May 31, 2012, API is obligated to issue a remaining approximately 603,469 shares of its common stock under the Plan of Arrangement either directly for API common shares or in exchange for API Nanotronics Sub, Inc. exchangeable shares not held by API or its affiliates. There are 562,200 exchangeable shares outstanding (excluding exchangeable shares held by the Company). Exchangeable shares are substantially equivalent to our common shares.
23
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
On March 9, 2010, the Companys Board of Directors authorized a program to repurchase approximately 10% of its common shares (approximately 831,250 shares) over the next 12 months. As of May 31, 2011, the Company repurchased and retired 137,728 of its common shares under this program for net outlay of approximately $716. In the fiscal year ended May 31, 2011, the Company repurchased approximately 35,544 shares for net outlay of approximately $148. The repurchase program expired on March 9, 2011.
The Company issued 1,340,477 options and RSUs during the six months ended May 31, 2012 (Note 14). The option grants were valued using the Black-Scholes option-pricing model.
14. SHARE-BASED COMPENSATION
On October 26, 2006, the Company adopted its 2006 Equity Incentive Plan (the Equity Incentive Plan), which was approved at the 2007 Annual Meeting of Stockholders of the Company. All the prior options issued by API were carried over to this plan under the provisions of the Plan of Arrangement. On October 22, 2009, the Company amended the Equity Incentive Plan to increase the number of shares of common stock under the plan from 1,250,000 to 2,125,000. On January 21, 2011, the Company amended the Equity Incentive Plan to increase the number of shares of common stock under the plan from 2,125,000 to 5,875,000, and further amended the plan on June 3, 2011 to permit the issuance of RSUs, which amendments were approved by the shareholders of the Company on November 4, 2011. Of the 5,875,000 shares authorized under the Equity Incentive Plan, 2,251,919 shares are available for issuance pursuant to options, RSUs, or stock as of May 31, 2012. Under the Companys Equity Incentive Plan, incentive options and non-statutory options may have a term of up to ten years from the date of grant. The stock option exercise prices are equal to at least 100 percent of the fair market value of the underlying shares on the date the options are granted.
As of May 31, 2012, there was $2,927 of total unrecognized compensation related to non-vested stock options, which are not contingent upon attainment of certain milestones. For options with certain milestones necessary for vesting, the fair value is not calculated until the conditions become probable. The cost is expected to be recognized over the remaining periods of the options, which are expected to vest from 2012 to 2016.
During the six months ended May 31, 2012 and 2011, $1,493 and $2,727, respectively, has been recognized as share-based compensation expense in cost of revenues, selling expense, general and administrative expense and business acquisition and related charges.
The fair value of each option grant is estimated at the grant date using the Black-Scholes option-pricing model based on the assumptions detailed below:
May 31, 2012 | May 31, 2011 | |||||||
Expected volatility |
89.5 | % | 97.4 | % | ||||
Expected dividends |
0 | % | 0 | % | ||||
Expected term |
6 years | 6 years | ||||||
Risk-free rate |
0.91 | % | 1.93 | % |
The summary of the common stock options granted, cancelled, exchanged or exercised under the Plan:
Options | Weighted Average Exercise Price |
|||||||
Stock Options outstandingMay 31, 2011 |
2,285,999 | $ | 5.74 | |||||
Less forfeited |
(178,858 | ) | $ | 5.64 | ||||
Exercised |
(332,550 | ) | $ | 5.53 | ||||
Issued |
145,000 | $ | 6.86 | |||||
|
|
|||||||
Stock Options outstandingNovember 30, 2011 |
1,919,591 | $ | 5.72 | |||||
Less forfeited |
(126,292 | ) | $ | 5.53 | ||||
Exercised |
| $ | | |||||
Issued |
1,025,000 | $ | 3.51 | |||||
|
|
|||||||
Stock Options outstandingMay 31, 2012 |
2,818,299 | $ | 5.02 | |||||
|
|
|||||||
Stock Options exercisableMay 31, 2012 |
1,474,216 | $ | 5.86 | |||||
|
|
24
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Restricted stock unit activity under the 2006 Equity Compensation Plan, for the six month period ended May 31, 2012 is presented below:
Units | Weighted Average Grant Date Fair Value |
|||||||
RSUs outstandingMay 31, 2011 |
| $ | | |||||
Issued |
51,000 | $ | 6.43 | |||||
|
|
|||||||
RSUs outstandingNovember 30, 2011 |
51,000 | $ | 6.43 | |||||
Issued |
315,477 | $ | 3.61 | |||||
ExercisedStock issued |
(218,477 | ) | $ | 3.56 | ||||
|
|
|||||||
RSUs outstandingMay 31, 2012 |
148,000 | $ | 4.43 | |||||
|
|
|||||||
RSUs exercisableMay 31, 2012 |
9,000 | $ | 5.56 |
RSUs and Options Outstanding | RSUs and Options Exercisable | |||||||||||||||||||||||||||
Range of Exercise Price |
Number of Outstanding at May 31, 2012 |
Weighted Average Exercise Price |
Weighted Average Remaining Life (Years) |
Aggregate Intrinsic Value (in thousands) |
Number Exercisable at May 31, 2012 |
Weighted Average Exercise Price |
Aggregate Intrinsic Value (in thousands) |
|||||||||||||||||||||
$0.00 $ 3.55 | 1,168,002 | $ | 3.07 | 9.70 | $ | 471 | 8,999 | $ | 0.00 | $ | 29 | |||||||||||||||||
$3.56 $ 4.99 | 38,834 | $ | 3.56 | 8.40 | $ | | 8,167 | $ | 3.56 | $ | | |||||||||||||||||
$5.00 $ 6.99 | 1,739,877 | $ | 5.87 | 6.45 | $ | | 1,449,878 | $ | 5.81 | $ | | |||||||||||||||||
$7.00 $ 20.00 | 19,587 | $ | 11.78 | 5.49 | $ | | 16,172 | $ | 12.41 | $ | | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
2,966,300 | 7.75 | $ | 471 | 1,483,216 | $ | 29 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
The intrinsic value is calculated as the excess of the market value as of May 31, 2012 over the exercise price of the shares. The market value as of May 31, 2012 was $3.18 as reported by the NASDAQ Stock Market.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the six months ended May 31:
(in thousands) | ||||||||
2012 | 2011 | |||||||
Supplemental Cash Flow Information |
||||||||
Cash paid for income taxes |
$ | 74 | $ | | ||||
Cash paid for interest |
$ | 7,202 | $ | 624 |
16. EARNINGS PER SHARE OF COMMON STOCK
The following table sets forth the computation of weighted-average shares outstanding for calculating basic and diluted earnings per share (EPS):
Three months ended May 31, | Six months ended May 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Weighted average shares-basic |
55,329,607 | 46,242,492 | 55,261,526 | 32,505,996 | ||||||||||||
Effect of dilutive securities |
* | * | * | * | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average sharesdiluted |
55,329,607 | 46,242,492 | 55,261,526 | 32,505,996 | ||||||||||||
|
|
|
|
|
|
|
|
25
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Basic EPS and diluted EPS for the three and six months ended May 31, 2012 and 2011 have been computed by dividing the net income by the weighted average shares outstanding. The weighted average numbers of shares of common stock outstanding includes exchangeable shares and shares to be issued under the Plan of Arrangement. For the three and six months ended May 31, 2012 and 2011, all outstanding options and RSUs (aggregating 2,837,675 and 2,285,999 incremental shares as of May 31, 2012 and May 31, 2011, respectively), warrants (for 955,362 shares of common stock as of May 31, 2012 and May 31, 2011), and shares of Series A Preferred Stock (representing 4,333,333 shares of common stock as of May 31, 2012), have been excluded from the computation of diluted EPS as they are anti-dilutive due to losses generated in 2012 and 2011.
17. COMMITMENTS
On September 15, 2011, Currency, Inc., KII Inc., Kuchera Industries, LLC, William Kuchera and Ronald Kuchera (the Plaintiffs) filed a lawsuit against API and the API Pennsylvania Subsidiaries in the Court of Chancery of the State of Delaware in relation to the Asset Purchase Agreement by and among API, the API Pennsylvania Subsidiaries, the KGC Companies, William Kuchera, and Ronald Kuchera dated January 20, 2010. Plaintiffs complaint alleges claims for breach of contract and unjust enrichment based on their contention that API and the API Pennsylvania Subsidiaries violated the Agreement by failing to issue certain shares of stock to Plaintiffs and by failing to cooperate with Plaintiffs in the filing of a final general and administrative overhead rate with the Defense Contracting Audit Agency. API and the API Pennsylvania Subsidiaries filed an answer to the complaint denying all liability and a counterclaim for breach of contract against Plaintiffs. The final outcome and impact of this matter is subject to many variables, and cannot be predicted. We establish accruals only for those matters where we determine that a loss is probable and the amount of loss can be reasonably estimated. As a result, we have not accrued for any liability with respect to this matter. Of the 550,000 shares that have not been delivered under the Asset Purchase Agreement, 126,250 were placed in escrow and the remaining 423,750 shares have been accounted for as common shares subscribed but not issued with a value of $2,373. The Company expenses legal costs as they are incurred. While it is currently not possible to reasonably estimate the aggregate amount of costs which we may incur in connection with this matter, such costs could have a material adverse effect on our financial position, liquidity, or results of operations.
The Company is also a party to lawsuits in the normal course of its business. Litigation can be unforeseeable, expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on the Companys business, operating results, or financial condition.
18. INCOME TAXES
For the three and six month periods ended May 31, 2012 , the Companys effective income tax rates were 2.4% and 2.9%, respectively, and 15.5% and 9.7% for the three and six month periods ended May 31, 2011, respectively, compared to an applicable U.S. federal and state statutory income tax rate of 40.0%. The difference between the effective tax rate and U.S. statutory tax as of May 31, 2012 is primarily due to the goodwill impairment and amortization and write-off of debt discounts related to the convertible debt, which are not-deductible for income tax purposes.
As of May 31, 2012, the Companys unrecognized tax benefits of $33 (which relate to certain state income tax matters) would affect the Companys effective tax rate if recognized. The Company released certain previously recorded unrecognized benefits as new information effectively settled the tax position.
The Companys practice is to recognize interest and penalties related to income tax matters as income tax expense. For each of the periods presented herein, there were no significant amounts accrued or charged to expense for tax-related interest and penalties.
The Company is subject to possible income tax examinations for its U.S. federal and state income tax returns filed for the tax years 2007 to present. International tax statutes may vary widely regarding the tax years subject to examination, but generally range from 2008 to the present.
19. RESTRUCTURING CHARGES RELATED TO CONSOLIDATION OF OPERATIONS
In accordance with accounting guidance for costs associated with asset exit or disposal activities, restructuring costs are recorded as incurred. Restructuring charges for employee workforce reductions are recorded upon employee notification.
In May 2012, the Company announced the restructuring of its Electronics Manufacturing Service Lines (EMS restructuring) within its Systems & Subsystems business segment in order to improve the profitability of the EMS businesses. The actions taken as part of the EMS restructuring are intended to realize synergies from our combined EMS operations, contain costs, reduce our exposure to low margin and unprofitable revenue streams within the EMS businesses, and streamline our operations. Elements of the EMS restructuring include management re-alignment, workforce reductions and write-downs and charges related to inventory, fixed assets, and long-term leases. The Company anticipates the EMS restructuring will be substantially completed by the end of fiscal 2012. As of May 31, 2012, the Company reduced its EMS workforce by approximately 10%, which represents approximately 2% of its global workforce.
26
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
The Company estimates that approximately $177 relates to cash outlays, primarily due to employee separation expense. The majority of the non-cash charges are primarily related to the write-down of inventory related to the EMS product offerings, leasehold impairments and fixed asset impairments.
The following tables summarize the charges related to EMS restructuring activities by type of cost:
EMS Restructuring (in thousands) |
||||
Salary and related charges |
$ | 177 | ||
Inventory write-down |
7,401 | |||
Fixed asset impairment |
865 | |||
Lease impairment |
1,925 | |||
|
|
|||
Accumulated restructuring charges at May 31, 2012 |
10,368 | |||
Cash payments |
| |||
Non-cash charges |
10,191 | |||
|
|
|||
Balance, May 31, 2012 |
$ | 177 |
The remaining balance at May 31, 2012 is included in accounts payable and accrued liabilities.
In 2010, the Company started a restructuring plan (2010 Restructuring Plan). During the six months ended May 31, 2012 restructuring expenses with respect to the 2010 Restructuring Plan included charges of approximately i) $942 related to workforce reductions and other expenses related to consolidating certain parts of its microwave operations from Palm Bay, Florida to its owned facility in State College, P.A., and consolidating certain parts of its operations in its leased facility in Windber, P.A and ii) $542 related to workforce reductions and other expenses related to consolidating certain parts of its C-MAC operations. Management continues to evaluate whether other related assets have been impaired, and has concluded that there should be no additional impairment charges as of May 31, 2012.
As of May 31, 2012 and November 30, 2011, the following table represents the details of restructuring charges with respect to the 2010 Restructuring Plan:
Workforce Reduction Cost (in thousands) |
||||
Balance, May 31, 2011 |
$ | 460 | ||
Restructuring charges |
2,304 | |||
|
|
|||
Accumulated restructuring charges at May 31, 2011 |
2,764 | |||
Cash payments |
(1,984 | ) | ||
Non-cash charges |
| |||
|
|
|||
Balance, November 30, 2011 |
$ | 780 | ||
Restructuring charges |
1,774 | |||
|
|
|||
Accumulated restructuring charges at May 31, 2012 |
2,554 | |||
Cash payments |
1,746 | |||
Non-cash charges |
| |||
|
|
|||
Balance, May 31, 2012 |
$ | 808 | ||
|
|
The remaining balance at May 31, 2012 is included in accounts payable and accrued liabilities.
20. SEGMENT INFORMATION
The Company follows the authoritative guidance on the required disclosures for segments which establish standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in financial reports. The guidance also establishes standards for related disclosures about products and services, geographic areas and major customers.
27
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
The authoritative accounting guidance uses a management approach for determining segments. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Companys reportable segments. The Companys operations are conducted in two principal business segments: Systems & Subsystems and Secure Systems & Information Assurance. Inter-segment sales are presented at their market value for disclosure purposes.
Six months ended May 31, 2012 (in thousands) |
Systems & Subsystems |
Secure Systems & Information Assurance |
Corporate | Inter Segment Eliminations |
Total | |||||||||||||||
Sales to external customers |
$ | 135,142 | $ | 14,481 | $ | | $ | | $ | 149,623 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
135,142 | 14,481 | | 149,623 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income before expenses below: |
20,260 | 3,314 | | | 23,574 | |||||||||||||||
Corporatehead office expenses |
| | 4,575 | | 4,575 | |||||||||||||||
Corporateacquisition related charges |
454 | | 2,215 | | 2,669 | |||||||||||||||
Restructuring |
11,977 | 58 | 107 | | 12,142 | |||||||||||||||
Depreciation and amortization |
8,829 | 181 | 86 | | 9,096 | |||||||||||||||
Goodwill impairment |
87,000 | | | | 87,000 | |||||||||||||||
Other expense |
387 | 69 | 19,577 | | 20,033 | |||||||||||||||
Income tax expense (recovery) |
(147 | ) | 425 | (3,485 | ) | | (3,207 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (88,240 | ) | $ | 2,581 | $ | (23,075 | ) | $ | | $ | (108,734 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment assetsas at May 31, 2012 |
$ | 413,301 | $ | 15,579 | $ | 11,595 | $ | | $ | 440,475 | ||||||||||
Goodwill included in assetsas at May 31, 2012 |
$ | 179,165 | $ | | $ | | $ | | $ | 179,165 | ||||||||||
Purchase of fixed assets, to May 31, 2012 |
$ | 382 | $ | 5 | $ | | $ | | $ | 387 | ||||||||||
Six months ended May 31, 2011 (in thousands) |
Systems & Subsystems |
Secure Systems & Information Assurance |
Corporate | Inter Segment Eliminations |
Total | |||||||||||||||
Sales to external customers |
$ | 42,420 | $ | 10,836 | $ | | $ | | $ | 53,256 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
42,420 | 10,836 | | | 53,256 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) before expenses below: |
(5,372 | ) | (97 | ) | | | (5,469 | ) | ||||||||||||
Corporatehead office expenses |
| | 4,471 | | 4,471 | |||||||||||||||
Corporateacquisition related charges |
| | 12,798 | | 12,798 | |||||||||||||||
Depreciation and amortization |
1,881 | 213 | 23 | | 2,117 | |||||||||||||||
Other (income) expenses |
67 | 58 | 2,888 | | 3,013 | |||||||||||||||
Income tax expense |
(2,691 | ) | | | | (2,691 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) from continuing operations |
(4,629 | ) | (368 | ) | (20,180 | ) | | (25,177 | ) | |||||||||||
Loss from discontinued operations, net of tax |
(36 | ) | | | | (36 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (4,665 | ) | $ | (368 | ) | $ | (20,180 | ) | $ | | $ | (25,213 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Segment assetsas at November 30, 2011 |
$ | 158,260 | $ | 11,083 | $ | 103,828 | $ | | $ | 273,172 | ||||||||||
Goodwill included in assetsas at November 30, 2011 |
$ | 90,301 | $ | | $ | | $ | | $ | 90,301 | ||||||||||
Purchase of fixed assets, to May 31, 2011 |
$ | 470 | $ | 528 | $ | | $ | | $ | 998 |
28
API Technologies Corp.
Notes to Consolidated Financial Statements
(Unaudited) (Dollar Amounts in Thousands, Except Per Share Data)
Three months ended May 31, 2012 (in thousands) |
Systems & Subsystems |
Secure Systems & Information Assurance |
Corporate | Inter Segment Eliminations |
Total | |||||||||||||||
Sales to external customers |
$ | 70,862 | $ | 8,044 | $ | | $ | | $ | 78,906 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
70,862 | 8,044 | | 78,906 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income before expenses below: |
11,415 | 522 | | | 11,937 | |||||||||||||||
Corporatehead office expenses |
| | 2,327 | | 2,327 | |||||||||||||||
Corporateacquisition related charges |
454 | | 1,924 | | 2,378 | |||||||||||||||
Restructuring |
11,369 | 56 | 73 | | 11,498 | |||||||||||||||
Depreciation and amortization |
4,760 | 90 | 50 | | 4,900 | |||||||||||||||
Goodwill impairment |
87,000 | | | | 87,000 | |||||||||||||||
Other expense |
311 | 43 | 15,688 | | 16,042 | |||||||||||||||
Income tax expense (recovery) |
(290 | ) | 425 | (2,836 | ) | | (2,701 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (92,189 | ) | $ | (92 | ) | $ | (17,226 | ) | $ | | $ | (109,507 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Purchase of fixed assets, to May 31, 2012 |
$ | 127 | $ | | $ | | $ | | $ | 127 | ||||||||||
Three months ended May 31, 2011 (in thousands) |
Systems & Subsystems |
Secure Systems & Information Assurance |
Corporate | Inter Segment Eliminations |
Total | |||||||||||||||
Sales to external customers |
$ | 22,247 | $ | 6,455 | $ | | $ | | $ | 28,702 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total revenue |
22,247 | 6,455 | | | 28,702 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating income (loss) before expenses below: |
(6,462 | ) | 367 | | | (6,095 | ) | |||||||||||||
Corporatehead office expenses |
| | 3,398 | | 3,398 | |||||||||||||||
Corporateacquisition related charges |
| | 6,719 | | 6,719 | |||||||||||||||
Depreciation and amortization |
1,298 | 85 | 11 | | 1,394 | |||||||||||||||
Other (income) expenses |
64 | 20 | (351 | ) | | (267 | ) | |||||||||||||
Income tax expense |
(2,691 | ) | | | | (2,691 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) from continuing operations |
(5,133 | ) | 262 | (9,777 | ) | | (14,648 | ) | ||||||||||||
Loss from discontinued operations, net of tax |
(18 | ) | | | | (18 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (5,151 | ) | $ | 262 | $ | (9,777 | ) | $ | | $ | (14,666 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Purchase of fixed assets, to May 31, 2011 |
$ | 157 | $ | 511 | $ | | $ | | $ | 668 |
21. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through July 10, 2012, the date the financial statements were issued, and up to the time of filing of the financial statements with the Securities and Exchange Commission.
29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit |
Exhibit Title | |
3.1 | Certificate of Amendment of Amended and Restated Certificate of Incorporation of API Technologies Corp. (Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K filed with the SEC on May 18, 2012) | |
3.2 | Certificate of Designation of Series A Mandatorily Redeemable Preferred Stock of API Technologies Corp. (Incorporated by reference to Exhibit 3.2 of our Current Report on Form 8-K filed with the SEC on May 18, 2012) | |
4.1 | Note Purchase Agreement, dated as of March 22, 2012, by and among API Technologies Corp. and each of the Purchasers referred to therein. (Incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K filed with the SEC on March 28, 2012) | |
4.2 | Form of Convertible Subordinated Note. (Incorporated by reference to Exhibit 4.2 of our Current Report on Form 8-K filed with the SEC on March 28, 2012) | |
10.1 | Share Purchase Agreement, dated as of March 22, 2012, between C-MAC Microcircuits UK Opco Limited, Karen Oddey and API Technologies (UK) Limited. (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the SEC on March 28, 2012) | |
10.2 | Second Amendment to Amended and Restated Credit Agreement, dated as of March 22, 2012, among API Technologies Corp., the Lenders (as defined therein) party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent. (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with the SEC on March 28, 2012) | |
10.3* | Letter agreement between Phil Rehkemper and the Company effective April 10, 2012. (1) | |
31.1 | Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer (filed herewith). | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith). | |
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith). | |
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed herewith). | |
101 | The following financial information from API Technologies Corp.s Quarterly Report on Form 10-Q for the quarter ended May 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Changes in Shareholders Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements (furnished herewith). |
* | Management contracts, compensation plans or arrangements. |
(1) | Previously filed with our Quarterly Report on Form 10-Q filed July 10, 2012. |
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
API TECHNOLOGIES CORP. | ||||||
Date: July 11, 2012 | By: | /s/ Phil Rehkemper | ||||
Name: Phil Rehkemper | ||||||
Title: Chief Financial Officer (Duly Authorized Officer) |