Form 8-K/A API Technologies Corp. For: Jun 08

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K/A

Amendment No. 1

 

 

Current Report

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 8, 2015

 

 

API TECHNOLOGIES CORP.

(Exact Name of registrant as specified in its charter)

 

 

Commission File Number: 001-35214

 

DE		98-0200798
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

 

4705 S. Apopka Vineland Rd. Suite 210 Orlando, FL		32819
(Address of principal executive offices)		(zip code)

(855) 294-3800

(Registrant’s telephone number, including area code)

 

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Explanatory Note.

API Technologies Corp. (“API” or the “Company”) filed a report on Form 8-K on June 12, 2015 (the “June 8-K”), to report the completion of its acquisition of all of the issued and outstanding shares of capital stock or other equity interests of Aeroflex/Inmet, Inc. and Aeroflex/Weinschel, Inc. (together, “Inmet and Weinschel”). In response to parts (a) and (b) of Item 9.01 of the June 8-K, API stated that it intended to file the required financial statements and pro forma financial information. By this amendment to the June 8-K, API is providing the required financial statements and pro forma financial information. The information previously reported in the June 8-K is hereby incorporated by reference into this Form 8-K/A.

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this filing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in API’s filings with the Securities and Exchange Commission. API disclaims any obligation to update or revise statements contained in this filing based on new information or otherwise.

Item 9.01 Financial Statements and Exhibits.

 

(a)

Financial Statements of Business Acquired.

The unaudited interim combined financial statements of Inmet and Weinschel for the nine months ended March 31, 2015 and 2014 are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated by reference herein.

The audited combined financial statements of Inmet and Weinschel as of June 30, 2014 and 2013 and for each of the two years in the period ended June 30, 2014, are filed as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated by reference herein.

 

(b)

Pro Forma Financial Information.

The unaudited pro forma financial information, giving effect to the Company’s acquisition of Inmet and Weinschel, is filed as Exhibit 99.3 to this Current Report on Form 8-K/A and is incorporated by reference herein.

 

(d)

Exhibits.

 

Exhibit Number		Exhibit Title
23.1		Consent of Ernst & Young LLP.
99.1		Unaudited combined financial statements of Inmet and Weinschel as of March 31, 2015, and for the nine month periods ended March 31, 2015 and 2014.
99.2		Audited combined financial statements of Inmet and Weinschel as of June 30, 2014 and 2013, and for each of the two years in the period ended June 30, 2014.
99.3		Unaudited pro forma condensed combined consolidated financial information.

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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 hereunto duly authorized.

 

Date: August 24, 2015				API TECHNOLOGIES CORP.
				By:		/s/ Claudio Mannarino
						Claudio Mannarino
						Senior Vice President and Chief Financial Officer

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-140413, 333-136586, 333-174398 and 333-178219) and Forms S-8 (File Nos. 333-147075 and 333-173124) of API Technologies Corp. of our report dated August 24, 2015 with respect to the combined financial statements of Aeroflex/Inmet, Inc. and Aeroflex/Weinschel, Inc. included in this Current Report on Form 8-K/A of API Technologies Corp. dated August 24, 2015.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

August 24, 2015

Exhibit 99.1

Unaudited Combined Financial Statements of

Aeroflex / Inmet, Inc.

And

Aeroflex / Weinschel, Inc.

“Inmet & Weinschel”

For the Nine Month Periods Ended

March 31, 2015 and 2014

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Inmet & Weinschel

Table of Contents

March 31, 2015 and 2014

 

Financial Statements (unaudited)

 

Combined Balance Sheets			3
Combined Statements of Operations			4
Combined Statements of Shareholders’ Equity			5
Combined Statements of Cash Flows			6
Combined Notes to Financial Statements			7-11

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Inmet & Weinschel

Combined Balance Sheets

(unaudited) (Dollar Amounts in Thousands)

 

 

 

		March 31, 2015				June 30, 2014
Assets
Current
Cash and cash equivalents		$	3,793			$	—
Accounts receivable, less allowance for doubtful accounts of $38 and $54 at March 31, 2015 and June 30, 2014, respectively			5,736				7,234
Inventories, net (note 3)			11,695				10,662
Deferred income taxes			2,376				2,240
Prepaid expenses and other current assets			292				161
			23,892				20,297
Fixed assets, net			6,857				7,065
Due from related parties (note 5)			71,224				66,532
Total assets		$	101,973			$	93,894
Liabilities and Shareholders’ Equity
Current
Accounts payable and accrued expenses (note 6)		$	3,645			$	4,349
			3,645				4,349
Deferred income taxes			1,087				1,067
			4,732				5,416
Shareholders’ Equity
Common shares ($1 stated value; 120,000 authorized shares, 47,800 issued and outstanding at March 31, 2015 and June 30, 2014, respectively)			1				1
Retained earnings			97,240				88,477
			97,241				88,478
Total Liabilities and Shareholders’ Equity		$	101,973			$	93,894

The accompanying notes are an integral part of these combined financial statements.

 

3

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Inmet & Weinschel

Combined Statements of Operations (unaudited) (Dollar Amounts in Thousands)

Nine Months Ended March 31, 2015 and 2014

 

 

		For the Nine Months Ended March 31, 2015				For the Nine Months Ended March 31, 2014
Revenue, net		$	34,894			$	34,779
Cost of revenues			19,399				19,616
Gross profit			15,495				15,163
Operating expenses
General and administrative			2,663				2,451
Selling expenses			3,077				3,023
Research and development			2,190				2,427
Total operating expenses			7,930				7,901
Operating income			7,565				7,262
Other expense (income), net
Other expense			—				11
			—				11
Earnings before income taxes			7,565				7,251
Expense for income taxes			2,551				2,450
Net income		$	5,014			$	4,801

The accompanying notes are an integral part of these combined financial statements.

 

4

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Inmet & Weinschel

Combined Statement of Shareholders’ Equity (Dollar Amounts in Thousands)

Nine Months Ended March 31, 2015

 

 

		Common stock-number of shares				Common stock amount				Retained earnings				Total shareholders’ equity
Balance at June 30, 2014			47,800			$	1			$	88,477			$	88,478
Net income for the period			—				—				5,014				5,014
Dividend from parent (Note 2)			—				—				3,749				3,749
Balance at March 31, 2015			47,800			$	1			$	97,240			$	97,241

The accompanying notes are an integral part of these combined financial statements.

 

5

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Inmet & Weinschel

Combined Statements of Cash Flows (Unaudited) (Dollar Amounts in Thousands)

Nine Months Ended March 31, 2015 and 2014

 

 

		For the Nine Months Ended March 31,
		2015				2014
Cash flows from operating activities
Net income		$	5,014			$	4,801
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			607				605
Loss on sale of fixed assets			—				13
Deferred income taxes			(116	)			16
Changes in operating asset and liabilities
Accounts receivable			1,498				(643	)
Inventories			(1,033	)			(734	)
Prepaid expenses and other current assets			(131	)			153
Accounts payable and accrued expenses			(994	)			(1,490	)
Related parties			(654	)			(2,223	)
Net cash provided by operating activities			4,191				498
Cash flows from investing activities
Purchase of fixed assets			(398	)			(498	)
Net cash used by investing activities			(398	)			(498	)
Cash flows from financing activities
Net cash used by financing activities			—				—
Net change in cash and cash equivalents			3,793				—
Cash and cash equivalents beginning of period			—				—
Cash and cash equivalents end of period		$	3,793			$	—

The accompanying notes are an integral part of these combined financial statements.

 

6

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Inmet & Weinschel

Notes to Combined Financial Statements (Unaudited)

Dollar Amounts in Thousands

March 31, 2015 and 2014

 

1. NATURE OF BUSINESS

Aeroflex / Inmet, Inc. (“Inmet”) and Aeroflex / Weinschel, Inc. (“Weinschel” and together with Inmet, the “Company”) have each been in business for more than 40 years, and each manufactures and sells RF and microwave products for defense, space, avionics, wireless, and test and measurement applications. The Company’s customers include both military and commercial organizations located throughout the United States.

Basis of Presentation

The unaudited combined financial statements include the accounts of Inmet and Weinschel. All significant intercompany balances and transactions have been eliminated in the combination. There are no other entities controlled by the Company, either directly or indirectly. The financial statements are presented in conformity with United States generally accepted accounting principles.

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 Company’s management, the accompanying unaudited combined financial statements contain all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair presentation of the Company’s combined financial position as of March 31, 2015 and the results of its operations and cash flows for the nine month periods ended March 31, 2015 and 2014. 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 combined financial statements should be read in conjunction with the audited combined financial statements of the Company and the notes thereto as of and for the years ended June 30, 2014 and 2013 included herein.

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 combined financial statements, and the disclosures made in the accompanying notes. Examples of estimates include the provisions made for bad debts, returns and obsolete inventory, and estimates of deferred income tax and liabilities. The Company also uses estimates in determining the remaining economic lives of long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, bank balances and investments in money market instruments with original maturities of three months or less. The Company is subject to a sweep of cash accounts by its parent, Aeroflex, Inc., providing for a zero cash balance depending on the timing of these cash sweeps.

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. On a quarterly basis, the Company evaluates inventories for potential write-down for identifiable obsolescence and slow moving items. The evaluation includes analysis of future demand, product mix and possible alternative uses. The Company records a provision for both excess and obsolete inventory when write-downs or write-offs are identified. Any write-down of inventory at the close of a fiscal period creates a new cost basis that subsequently would not be marked up based on changes in underlying facts and circumstances.

Fixed Assets

Fixed assets are recorded at cost less accumulated depreciation and are depreciated using the straight-line method 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

 

7

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Inmet & Weinschel

Notes to Combined Financial Statements (Unaudited)

Dollar Amounts in Thousands

March 31, 2015 and 2014

 

 

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 combined statements of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred.

Income Taxes

Income taxes, as presented herein, attribute current and deferred income taxes of Aeroflex Inc. (parent) to the Inmet and Weinschel stand-alone combined financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by the applicable accounting guidance. Accordingly, the Inmet and Weinschel income tax provision was prepared following the “separate return method.” The separate return method applies the guidance to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer and a stand-alone enterprise. As a result, the difference between the separate return method and the tax sharing agreement that was in place with the parent has been recorded within retained earnings within the Statement of Shareholders’ Equity.

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 Company records a valuation allowance on deferred tax assets to provide for a reasonable provision, which in the Company’s estimation is more likely than not that all or some portions of such tax assets will not be realized. In determining the adequacy of a valuation allowance, the Company applies the authoritative guidance, and considers such factors as history of income, reversal of temporary differences, projected future income, and tax planning strategies.

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 Company’s evaluation, management has concluded that there are no significant uncertain tax positions requiring recognition in the combined financial statements or adjustments to deferred tax assets and related valuation allowance. Open tax years include the tax years ended June 30, 2012 through June 30, 2014.

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 combined financial statements as general and administrative expense.

Revenue Recognition

The Company recognizes revenue when it is realized and earned. The Company considers 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 customer.

Certain of the Company’s sales are to distributors, which have a right to return some portion of product within up to eighteen months of sale. The Company recognizes revenue on these sales at the time of shipment to the distributor, as the returns under these arrangements can be reasonably estimated. A provision for such estimated returns is recorded at the time sales are recognized.

 

8

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Inmet & Weinschel

Notes to Combined Financial Statements (Unaudited)

Dollar Amounts in Thousands

March 31, 2015 and 2014

 

 

Warranty

The Company provides up to a one-year product defect warranty on various products from the date of sale. Historically, warranty costs have been nominal and have been within management’s expectations. The Company has accrued approximately $42 and $49, in warranty liability as of March 31, 2015 and June 30, 2014, respectively, which has been included in accounts payable and accrued expenses.

Shipping and Handling

Shipping and handling costs are expensed as incurred and included in cost of revenues.

Sales Taxes

The Company records sales tax on the sale of its products as a liability, and does not include such amounts in revenue.

Research and Development

Research and development costs are expensed when incurred.

Advertising Costs

Advertising costs are expensed as incurred and were $185, and $158 for the nine months ended March 31, 2015, and 2014, respectively.

Receivables and Credit Policies

Accounts receivable are non-interest bearing, uncollateralized customer obligations. Accounts receivable are stated at the amounts billed to the customer. Customer account balances with invoices over 90 days old are considered delinquent. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s estimate of the amounts that will not be collected.

Financial Instruments

The fair values of financial instruments including cash and cash equivalents, accounts receivable, and accounts payable, approximate their carrying values due to the short-term nature of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest rate, currency or credit risks arising from its financial instruments.

Concentration of Risk

The US Departments of Defense (directly and through subcontractors) accounts for approximately 30% of the Company’s revenues for the nine months ended March 31, 2015, and 30% of the Company’s revenues for the nine months ended March 31, 2014.

The Company, at times, maintains cash balances at financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced any collection losses with these institutions.

 

9

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Inmet & Weinschel

Notes to Combined Financial Statements (Unaudited)

Dollar Amounts in Thousands

March 31, 2015 and 2014

 

 

3. INVENTORIES

Inventories consisted of the following:

 

		March 31, 2015				June 30, 2014
Raw materials		$	4,646			$	4,936
Work in progress			4,166				3,299
Finished goods			2,883				2,427
Total		$	11,695			$	10,662

At March 31, 2015 and June 30, 2014, inventories are presented net of inventory reserves of $3,230 and $2,820, respectively.

4. INCOME TAXES

For the nine month periods ended March 31, 2015 and 2014, the Company’s effective income tax rates were 33.7% and 33.8%, respectively, compared to an applicable U.S. federal statutory income tax rate of 35%. The difference between the effective tax rate and U.S. statutory tax as of March 31, 2015 and March 31, 2014 is primarily due to the U.S. domestic manufacturing deduction, partially offset by state income taxes and other permanent adjustments.

As of March 31, 2015, the Company had no significant unrecognized tax benefits.

The Company records interest and penalties related to tax matters within general and administrative expenses on the accompanying Combined Statement of Operations. These amounts are not material to the combined financial statements for the periods presented. The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. Generally, tax years 2012-2014 remain open to examination by the Internal Revenue Service or other tax jurisdictions to which the Company is subject.

5. RELATED PARTY TRANSACTIONS

The Company, in the normal course of business, purchases and sells inventory with companies related by common ownership and enters into certain transactions, including cash sweeps to its parent, Aeroflex Inc.

As of March 31, 2015 and June 30, 2014 these related companies owed the Company $71,224 and $66,532, respectively, which is included in its combined balance sheets as Due from related parties. These balances include various unsecured, short term receivables and payables to related companies which occur in the normal course of business. These receivables and payables have no definitive repayment terms.

The Company incurred sales to related companies of approximately $1,604 and $1,988 for the nine months ended March 31, 2015 and 2014, respectively.

During the nine months ended March 31, 2015 and 2014, the Company was allocated certain operating expenses from its parent, which amounted to approximately $1,477 and $1,643, respectively.

 

10

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Inmet & Weinschel

Notes to Combined Financial Statements (Unaudited)

Dollar Amounts in Thousands

March 31, 2015 and 2014

 

 

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

 

		March 31, 2015				June 30, 2014
Trade accounts payable		$	523			$	580
Accrued expenses			2,314				2,050
Wage and vacation accrual			808				1,719
Total		$	3,645			$	4,349

7. SUBSEQUENT EVENTS

The Company has evaluated subsequent events occurring after the balance sheet date through the date of August 24, 2015, which is the date the financial statements were issued.

On June 8, 2015 API Technologies Corp. (“API”), completed the acquisition of Inmet and Weinschel from Cobham plc for a total purchase price of $80,000. The acquisitions of Inmet and Weinschel add breadth to API’s RF, microwave, and microelectronics product portfolio, extend API’s subsystems offering, and further API’s reach in key end markets, including defense, space, commercial aviation, and wireless. API financed the acquisition with an $85,000 add-on to its existing term loan with Guggenheim Corporate Funding LLC.

 

11

Exhibit 99.2

Combined Financial Statements of

Aeroflex / Inmet, Inc.

And

Aeroflex / Weinschel, Inc.

“Inmet & Weinschel”

For the Years Ended

June 30, 2014 and 2013

With Independent Auditors’ Report

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Inmet & Weinschel

Table of Contents

June 30, 2014 and 2013

 

 

Independent Auditors’ Report			1
Financial Statements
Combined Balance Sheets			2
Combined Statements of Operations			3
Combined Statements of Shareholders’ Equity			4
Combined Statements of Cash Flows			5
Combined Notes to Financial Statements			6-12

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Independent Auditors’ Report

To The Board of Directors of API Technologies Corp.:

We have audited the accompanying combined financial statements of Aeroflex / Inmet, Inc. (“Inmet”) and Aeroflex / Weinschel, Inc. (“Weinschel”), which comprise the combined balance sheets as of June 30, 2014 and 2013, and the related combined statements of operations, changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Inmet and Weinschel at June 30, 2014 and 2013, and the combined results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

August 24, 2015

Pittsburgh, PA

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Inmet & Weinschel

Combined Balance Sheets (Dollar Amounts in Thousands)

June 30, 2014 and 2013

 

 

		June 30, 2014				June 30, 2013
Assets
Current
Accounts receivable, less allowance for doubtful accounts of $54 and $55 at June 30, 2014 and June 30, 2013, respectively		$	7,234			$	5,861
Inventories, net (note 3)			10,662				10,623
Deferred income taxes			2,240				2,106
Prepaid expenses and other current assets			161				341
			20,297				18,931
Fixed assets, net (note 4)			7,065				7,120
Due from related parties (note 6)			66,532				59,936
Total assets		$	93,894			$	85,987
Liabilities and Shareholders’ Equity
Current
Accounts payable and accrued expenses (note 7)		$	4,349			$	5,964
			4,349				5,964
Deferred income taxes			1,067				1,026
			5,416				6,990
Shareholders’ Equity
Common shares ($1 stated value; 120,000 authorized shares, 47,800 issued and outstanding at June 30, 2014 and 2013, respectively)			1				1
Retained earnings			88,477				78,996
			88,478				78,997
Total Liabilities and Shareholders’ Equity		$	93,894			$	85,987

The accompanying notes are an integral part of these combined financial statements.

 

2

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Inmet & Weinschel

Combined Statements of Operations (Dollar Amounts in Thousands)

Years Ended June 30, 2014 and 2013

 

 

		For the Year Ended June 30, 2014				For the Year Ended June 30, 2013
Revenue, net		$	47,346			$	47,961
Cost of revenues			27,021				26,897
Gross profit			20,325				21,064
Operating expenses
General and administrative			3,258				3,325
Selling expenses			4,207				4,429
Research and development			2,757				2,747
Total operating expenses			10,222				10,501
Operating income			10,103				10,563
Other expense (income), net
Other expense (income), net			22				(25	)
			22				(25	)
Earnings before income taxes			10,081				10,588
Expense for income taxes			3,378				3,465
Net income		$	6,703			$	7,123

The accompanying notes are an integral part of these combined financial statements.

 

3

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Inmet & Weinschel

Combined Statements of Shareholders’ Equity (Dollar Amounts in Thousands)

Years Ended June 30, 2014 and 2013

 

 

		Common stock-number of shares				Common stock amount				Retained earnings				Total shareholders’ equity
Balance at June 30, 2012			47,800			$	1			$	69,758			$	69,759
Net income for the period			—				—				7,123				7,123
Dividend from parent (Note 2)			—				—				2,115				2,115
Balance at June 30, 2013			47,800			$	1			$	78,996			$	78,997
Net income for the period			—				—				6,703				6,703
Dividend from parent (Note 2)			—				—				2,778				2,778
Balance at June 30, 2014			47,800			$	1			$	88,477			$	88,478

The accompanying notes are an integral part of these combined financial statements.

 

4

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Inmet & Weinschel

Combined Statements of Cash Flows

Years Ended June 30, 2014 and 2013

 

 

		For the Years Ended June 30,
		2014				2013
Cash flows from operating activities
Net income		$	6,703			$	7,123
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			802				916
Loss on sale of fixed assets			13				2
Deferred income taxes			(93	)			(1,879	)
Changes in operating asset and liabilities
Accounts receivable			(1,373	)			1,098
Inventories			(39	)			679
Prepaid expenses and other current assets			181				126
Accounts payable and accrued expenses			(1,615	)			1,783
Related parties			(3,819	)			(9,200	)
Net cash provided by operating activities			760				648
Cash flows from investing activities
Purchase of fixed assets			(760	)			(648	)
Net cash used by investing activities			(760	)			(648	)
Cash flows from financing activities
Net cash used by financing activities			—				—
Net change in cash and cash equivalents			—				—
Cash and cash equivalents, beginning of year			—				—
Cash and cash equivalents, end of year		$	—			$	—

The accompanying notes are an integral part of these combined financial statements.

 

5

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

1. NATURE OF BUSINESS

Aeroflex / Inmet, Inc. (“Inmet”) and Aeroflex / Weinschel, Inc. (“Weinschel” and together with Inmet, the “Company”) have each been in business for more than 40 years, and each manufactures and sells RF and microwave products for defense, space, avionics, wireless, and test and measurement applications. The Company’s customers include both military and commercial organizations located throughout the United States.

Basis of Presentation

The audited combined financial statements include the accounts of Inmet and Weinschel. All significant intercompany balances and transactions have been eliminated in the combination. There are no other entities controlled by the Company, either directly or indirectly. The financial statements are presented in conformity with United States generally accepted accounting principles.

The accompanying combined financial statements include the assets, liabilities, revenues and expenses specifically related to the Company’s operations. Costs directly related to the Company have been attributed to the Company in the accompanying combined financial statements. The Company received services and support from various functions performed by its parent, Aeroflex Inc., and the Company’s operations have been dependent upon the parent’s ability to perform these services and support functions.

Management believes the assumptions and allocations underlying the combined financial statements are reasonable and appropriate. The expense and cost allocations have been determined on a basis considered by the Company to be a reasonable reflection of the utilization of services provided to or the benefit received by the Company during the periods presented. However, these assumptions and allocations are not necessarily indicative of the costs the Company would have incurred if it had operated on a stand-alone basis or as an entity independent of the parent during the periods presented.

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 combined financial statements, and the disclosures made in the accompanying notes. Examples of estimates include the provisions made for bad debts, returns and obsolete inventory, and estimates of deferred income tax and liabilities. The Company also uses estimates in determining the remaining economic lives of long-lived assets. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, bank balances and investments in money market instruments with original maturities of three months or less. The Company is subject to a sweep of cash accounts by its parent, Aeroflex, Inc. providing for a zero cash balance depending on the timing of these cash sweeps.

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. On a quarterly basis, the Company evaluates inventories for potential write-down for identifiable obsolescence and slow moving items. The evaluation includes analysis of future demand, product mix and possible alternative uses. The Company records a provision for both excess and obsolete inventory when write-downs or write-offs are identified. Any write-down of inventory at the close of a fiscal period creates a new cost basis that subsequently would not be marked up based on changes in underlying facts and circumstances.

 

6

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

 

Fixed Assets

Fixed assets are recorded at cost less accumulated depreciation and are depreciated using the straight-line method 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

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 combined statements of operations in the year of disposal. Repairs and maintenance expenditures are expensed as incurred.

Income Taxes

Income taxes, as presented herein, attribute current and deferred income taxes of Aeroflex Inc. (parent) to the Inmet and Weinschel stand-alone combined financial statements in a manner that is systematic, rational and consistent with the asset and liability method prescribed by the applicable accounting guidance. Accordingly, the Inmet and Weinschel income tax provision was prepared following the “separate return method.” The separate return method applies the guidance to the stand-alone financial statements of each member of the consolidated group as if the group member were a separate taxpayer and a stand-alone enterprise. As a result, the difference between the separate return method and the tax sharing agreement that was in place with the parent has been recorded within retained earnings within the Statement of Shareholders’ Equity.

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 Company records a valuation allowance on deferred tax assets to provide for a reasonable provision, which in the Company’s estimation is more likely than not that all or some portions of such tax assets will not be realized. In determining the adequacy of a valuation allowance, the Company applies the authoritative guidance, and considers such factors as history of income, reversal of temporary differences, projected future income, and tax planning strategies.

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 Company’s evaluation, management has concluded that there are no significant uncertain tax positions requiring recognition in the combined financial statements or adjustments to deferred tax assets and related valuation allowance. Open tax years include the tax years ended June 30, 2012 through June 30, 2014.

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 combined financial statements as general and administrative expense.

 

7

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

 

Revenue Recognition

The Company recognizes revenue when it is realized and earned. The Company considers 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 customer.

Certain of the Company’s sales are to distributors, which have a right to return some portion of product within up to eighteen months of sale. The Company recognizes revenue on these sales at the time of shipment to the distributor, as the returns under these arrangements can be reasonably estimated. A provision for such estimated returns is recorded at the time sales are recognized.

Warranty

The Company provides up to a one-year product defect warranty on various products from the date of sale. Historically, warranty costs have been nominal and have been within management’s expectations. The Company has accrued approximately $49 and $69, in warranty liability as of June 30, 2014 and 2013, respectively, which has been included in accounts payable and accrued expenses.

Shipping and Handling

Shipping and handling costs are expensed as incurred and included in cost of revenues.

Sales Taxes

The Company records sales tax on the sale of its products as a liability, and does not include such amounts in revenue.

Research and Development

Research and development costs are expensed when incurred.

Advertising Costs

Advertising costs are expensed as incurred and were $279, and $271 for the years ended June 30, 2014, and 2013, respectively.

Receivables and Credit Policies

Accounts receivable are non-interest bearing, uncollateralized customer obligations. Accounts receivable are stated at the amounts billed to the customer. Customer account balances with invoices over 90 days old are considered delinquent. Payments of accounts receivable are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s estimate of the amounts that will not be collected.

Financial Instruments

The fair values of financial instruments including cash and cash equivalents, accounts receivable, and accounts payable, approximate their carrying values due to the short-term nature of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest rate, currency or credit risks arising from its financial instruments.

 

8

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

 

Concentration of Risk

The US Departments of Defense (directly and through subcontractors) accounts for approximately 28% of the Company’s revenues for the year ended June 30, 2014, and 30% of the Company’s revenues for the year ended June 30, 2013.

The Company, at times, maintains cash balances at financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation. Management monitors the soundness of these institutions and has not experienced any collection losses with these institutions.

3. INVENTORIES

Inventories consisted of the following at June 30:

 

		2014				2013
Raw materials		$	4,936			$	5,286
Work in progress			3,299				3,232
Finished goods			2,427				2,105
Total		$	10,662			$	10,623

At June 30, 2014 and 2013, inventories are presented net of inventory reserves of $2,820 and $2,859, respectively.

4. FIXED ASSETS

Fixed assets consisted of the following:

 

		As of June 30, 2014
		Cost				Accumulated Depreciation				Net Book Value
Land		$	1,500			$	—			$	1,500
Buildings and leasehold improvements			5,395				(2,007	)			3,388
Computer equipment			1,766				(1,546	)			220
Furniture and fixtures			981				(839	)			142
Machinery and equipment			10,370				(8,555	)			1,815
Fixed assets, net		$	20,012			$	(12,947	)		$	7,065

 

		As of June 30, 2013
		Cost				Accumulated Depreciation				Net Book Value
Land		$	1,500			$	—			$	1,500
Buildings and leasehold improvements			5,370				(1,795	)			3,575
Computer equipment			1,751				(1,492	)			259
Furniture and fixtures			980				(812	)			168
Machinery and equipment			10,020				(8,402	)			1,618
Fixed assets, net		$	19,621			$	(12,501	)		$	7,120

Depreciation expense amounted to $802 for the year ended June 30, 2014, and $916 for the year ended June 30, 2013.

 

9

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

 

5. INCOME TAXES

The earnings before income taxes for the years ended June 30, 2014 and 2013 were $10,081 and $10,588, respectively.

The income tax expense is summarized as follows:

 

		Year ended June 30, 2014				Year ended June 30, 2013
Current		$	3,470			$	3,993
Deferred			(92	)			(528	)
Income tax expense		$	3,378			$	3,465

The combined effective tax expense rate (as a percentage of income before income taxes) for continuing operations is reconciled to the U.S. federal statutory tax rate as follows:

 

		Year ended June 30, 2014				Year ended June 30, 2013
U.S. federal statutory tax rate			35.0	%			35.0	%
State income taxes, net of federal tax effect			1.4				1.1
U.S. domestic manufacturing deduction			(3.2	)			(3.5	)
Other			0.3				0.1
Effective tax rate expense			33.5	%			32.7	%

The components of deferred taxes are as follows as at June 30:

 

		2014				2013
Deferred tax assets
Inventory		$	1,563			$	1,480
Accruals			657				605
Other			20				21
Total deferred tax assets			2,240				2,106
Deferred tax liabilities
Capital assets			(1,067	)			(1,026	)
Total deferred tax liabilities			(1,067	)			(1,026	)
Total deferred taxes, net		$	1,173			$	1,080

 

10

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

 

		2014				2013
Balance sheet presentation
Deferred income tax assets—current		$	2,240			$	2,106
Deferred tax liabilities—long-term			(1,067	)			(1,026	)
Net deferred tax		$	1,173			$	1,080

There was no valuation allowance as of June 30, 2014 and 2013. A valuation allowance is established when it is more likely than not that a portion of the deferred tax assets will not be realized. The valuation allowance is adjusted based on the changing facts and circumstances, such as the expected expiration of an operating loss carryforward.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the combined financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As of June 30, 2014, the Company has no unrecognized tax benefits that would affect the Company’s effective tax rate if recognized.

The Company records interest and penalties related to tax matters within other expense on the accompanying Combined Statement of Operations. These amounts are not material to the combined financial statements for the periods presented. The Company’s U.S. tax returns are subject to examination by federal and state taxing authorities. Generally, tax years 2012-2014 remain open to examination by the Internal Revenue Service or other tax jurisdictions to which the Company is subject.

6. RELATED PARTY TRANSACTIONS

The Company, in the normal course of business, purchases and sells inventory with companies related by common ownership and enters into certain transactions, including cash sweeps to its parent, Aeroflex Inc..

As of June 30, 2014 and 2013 these related companies owed the Company $66,532 and $59,936, respectively, which is included in its combined balance sheets as Due from related parties. These balances include various unsecured, short term receivables and payables to related companies which occur in the normal course of business. These receivables and payables have no definitive repayment terms.

The Company incurred sales to related companies of approximately $2,424 and $2,090 for the years ended June 30, 2014 and 2013, respectively.

During the years ended June 30, 2014 and 2013, the Company was allocated certain operating expenses from its parent, which amounted to approximately $2,202 and $2,212, respectively.

 

11

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Inmet & Weinschel

Notes to Combined Financial Statements

Dollar Amounts in Thousands

June 30, 2014 and 2013

 

 

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at June 30:

 

		2014				2013
Trade accounts payable		$	580			$	1,367
Accrued expenses			2,050				2,892
Wage and vacation accrual			1,719				1,705
Total		$	4,349			$	5,964

8. COMMITMENTS AND CONTINGENCIES

 

(a)

Rent

The following is a schedule by years of approximate future minimum rental payments under operating leases that have remaining non-cancelable lease terms in excess of one year as of June 30, 2014.

 

2015		$	542
2016			553
2017			561
2018			515
2019			431
Thereafter			749
Total		$	3,351

The preceding data reflects existing leases at June 30, 2014, and does not include replacement upon the expiration. In the normal course of business, operating leases are normally renewed or replaced by other leases. Rent expense amounted to $474 and $470 for the years ended June 30, 2014 and 2013, respectively.

 

b)

The Company is 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 Company’s business, operating results, or financial condition.

In accordance with required guidance, the Company accrues for litigation matters when losses become probable and reasonably estimable. The Company has no recorded accrual relating to its outstanding legal matters as of June 30, 2014 or 2013. The Company expenses legal costs as they are incurred.

9. SUBSEQUENT EVENTS

The Company has evaluated subsequent events occurring after the balance sheet date through the date of August 24, 2015, which is the date the financial statements were issued.

On September 15, 2014, Cobham plc announced the completion of its acquisition of Aeroflex Holding Corp. following the receipt of regulatory and shareholder approvals. The transaction had an enterprise value of approximately $1,460,000.

On June 8, 2015 API Technologies Corp. (“API”), completed the acquisition of Inmet and Weinschel from Cobham plc for a total purchase price of $80,000. The acquisitions of Inmet and Weinschel add breadth to API’s RF, microwave, and microelectronics product portfolio, extend API’s subsystems offering, and further API’s reach in key end markets, including defense, space, commercial aviation, and wireless. API financed the acquisition with an $85,000 add-on to its existing term loan with Guggenheim Corporate Funding LLC.

 

12

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED CONSOLIDATED

$ Amounts in Thousands

FINANCIAL INFORMATION

Basis of Pro Forma Presentation

The following unaudited pro forma combined financial data is intended to show how the acquisition of Aeroflex / Inmet, Inc. and Aeroflex / Weinschel, Inc. (collectively, “Inmet and Weinschel”) and the borrowing of new indebtedness described below might have affected the historical financial statements of API Technologies Corp. (the “Company” or “API”) if such acquisition had been completed on the first day of the reporting period and was prepared based on the historical financial results reported by API and “Inmet and Weinschel”. The following should be read in connection with API’s Annual Report on Form 10-K for the year ended November 30, 2014, API’s Quarterly Report on Form 10-Q for the period ended February 28, 2015, API’s Quarterly Report on Form 10-Q for the period ended May 31, 2015 and the historical financial statements of Inmet and Weinschel included as Exhibits 99.1 and 99.2 in this Form 8-K/A.

On June 8, 2015, pursuant to the terms of a Stock Purchase Agreement, dated as of April 23, 2015, between the Company and Aeroflex Microelectronic Solutions, Inc., a wholly-owned subsidiary of Cobham plc, the Company completed its acquisition (the “Acquisition”) of all of the issued and outstanding shares of capital stock or other equity interests of Inmet and Weinschel.

The total transaction value was approximately $80,000.

On June 8, 2015, the Company entered into an Amendment No. 3 to Credit Agreement (the “Amendment”) by and among the Company, as borrower, the lenders party thereto and Guggenheim Corporate Funding, LLC, as administrative agent. The Amendment amends that certain Credit Agreement, dated as of February 6, 2013, by and among the Company, as borrower, the lenders party thereto and Agent (as amended, supplemented or modified from time to time, the “Credit Agreement”). The Amendment amends the Credit Agreement, to among other things, provide for an incremental term loan facility in an aggregate principal amount of $85,000.

The unaudited pro forma combined consolidated financial statements of API have been prepared by management by combining API’s historical statements of operations and its wholly owned subsidiaries, which include pro forma adjustments for the Inmet and Weinschel share acquisition. The unaudited pro forma combined consolidated statement of operations for the fiscal year ended November 30, 2014 and the six months ended May 31, 2015 give pro forma effect as if the transactions had occurred on or before the first day of the reporting period. The unaudited pro forma combined consolidated balance sheet gives pro forma effect as if the transaction had occurred on May 31, 2015.

The historical combined financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the Acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. Pro forma adjustments are based on preliminary estimates and assumptions.

API’s fiscal year ends in November, while Inmet and Weinschel’s fiscal year ends in June. The unaudited combined consolidated balance sheet combines the unaudited consolidated balance sheet of API as of May 31, 2015, and the unaudited combined balance sheet of Inmet and Weinschel as of March 31, 2015. The full-year unaudited pro forma combined consolidated statement of operations for the year ended November 30, 2014, combines the audited consolidated statement of operations for API for the fiscal year ended November 30, 2014 and the unaudited combined statement of operations of Inmet and Weinschel for the twelve months ended September 30, 2014. The unaudited pro forma combined consolidated statement of operations for the six months ended May 31, 2015 combines the unaudited consolidated statement of operations for API for the six months ended May 31, 2015 and Inmet and Weinschel’s unaudited combined statement of operations for the six months ended March 31, 2015. The unaudited combined statement of operations of Inmet and Weinschel for the twelve months ended September 30, 2014 was determined by subtracting Inmet and Weinschel’s unaudited combined statement of operations for the three months ended September 30, 2013 (its first quarter of fiscal 2014) and adding Inmet and Weinschel’s unaudited combined statement of operations for the three months ended September 30, 2014 (its first quarter of fiscal 2015) from and to, respectively, the audited combined statement of operations for the twelve months ended June 30, 2014. The unaudited combined statement of operations of Inmet and Weinschel for the six months ended March 31, 2015 was determined by subtracting Inmet and Weinschel’s unaudited combined statement of operations for the three months ended September 30, 2014 (its first quarter of fiscal 2015) from the unaudited combined statement of operations for the nine months ended March 31, 2015.

The unaudited pro forma combined consolidated financial information is provided for informational purposes only. The pro forma information is not necessarily indicative of what the Company’s results of operations actually would have been had the acquisition been completed by the dates indicated. In addition, the unaudited pro forma combined consolidated financial information does not purport to project the future operating results of the Company. No effect has been given in the unaudited pro forma combined consolidated financial information for the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. The unaudited pro forma combined consolidated financial information was prepared using the purchase method of accounting as required by the accounting guidance for business combinations. The purchase price has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of acquisition. Therefore, the actual amounts recorded as of the completion of their analysis might differ materially from the information presented in the unaudited pro forma combined consolidated financial statements.

---

1.

REPORTING CURRENCY

The unaudited pro forma combined consolidated financial statements are expressed in US dollars, to be consistent with the reporting currency.

 

2.

PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

 

a)

The unaudited pro forma combined consolidated financial statements incorporate the following pro forma assumptions and adjustments: (i) the Acquisition and (ii) the additional $85,000 principal amount of term loans under the Amendment. The balance sheet adjustment reflects net cash remaining from sources of cash upon the Acquisition.

 

b)

API evaluated the asset purchase in accordance with business combination accounting using the purchase method of accounting. The fair value of the assets acquired in the Inmet and Weinschel transaction include intangibles of approximately $31,613 and goodwill of approximately $32,829. The intangibles have been amortized at 10 years on the pro forma income statements. API is continuing to accumulate information and any changes in the fair value of assets acquired will be reflected in subsequent periods. API has accounted for the Inmet and Weinschel acquisition using the purchase method of accounting. In accordance with business combinations accounting, API incurred legal costs, professional fees and financing costs in connection with the Inmet and Weinschel acquisition of approximately $3,500. To the extent the acquisition costs are not reflected in the historic statements they are reflected in the retained earnings. Discounts are reflected net against Long-term debt.

 

c)

Reflects pro forma adjustment for the additional $85,000 term loan under the Amendment used to acquire Inmet and Weinschel.

 

d)

Inmet and Weinschel’s historic retained earnings, common stock and additional paid in capital have been eliminated upon consolidation.

 

e)

On June 8, 2015, API acquired all of the equity of Inmet and Weinschel for a total cash consideration of $80,000.

 

f)

Tax adjustment due to reflect the pro forma combined income (loss) before taxes of the combined companies after pro forma adjustments.

 

3.

EARNINGS PER SHARE

API Technologies Corp. basic pro forma earnings (loss) per share was calculated based on the unaudited pro forma combined net income (loss) and the weighted average number of shares outstanding during the reporting periods. The combined entity’s financial statements are prepared as if the transaction had been completed at the beginning of the period. The net loss and shares used in computing the net loss per share for the year ended November 30, 2014 and six months ended May 31, 2015 are based on API’s historical weighted average common shares outstanding during the respective periods. The effect of any common stock issuable upon the exercise of API’s stock options has been excluded from the historical and pro forma computation of net loss per share as the effect would be anti-dilutive.

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API Technologies Corp.

Pro Forma Combined Consolidated Balance Sheet

As of May 31, 2015

(In thousands except share data)

(Unaudited)

 

		May 31, 2015 API Technologies Corp. Form 10-Q				Mar 31, 2015 Inmet and Weinschel				Adjustments				API Technologies Corp. Pro Forma
						(a)
Assets
Current
Cash and cash equivalents		$	5,420			$	3,793			$	1,864	(a)		$	11,077
Accounts receivable, less allowance for doubtful accounts			35,822				5,736				—				41,558
Inventories, net			61,285				11,695				—				72,980
Deferred income taxes			475				2,376				—				2,851
Prepaid expenses and other current assets			1,814				292				—				2,106
			104,816				23,892				1,864				130,572
Fixed assets, net			28,283				6,857				—				35,140
Goodwill			116,770				—				32,829	(b)			149,599
Intangible assets, net			26,630				—				31,613	(b)			58,243
Other non-current assets			1,945				—								1,945
Total assets		$	278,444			$	30,749			$	66,306			$	375,499
Liabilities and Shareholder’s Equity
Current
Accounts payable and accrued expenses			34,844				3,645				295	(b)		$	38,744
Deferred revenue			2,344				—				—				2,344
Current portion of long-term debt			11,737				—				5,312	(c)			17,049
			48,925				3,645				5,607				58,177
Deferred income taxes			4,893				1,087				10,748	(b)			16,728
Other long-term liabilities			1,551				—				—				1,551
Long-term debt, net of current portion and discount on notes			111,523				—				76,552	(c)(b)			188,075
Deferred gain			7,490				—				—				7,490
			174,382				4,732				92,907				272,021
Shareholders’ Equity
Common shares			55				1				(1	) (d)			55
Additional paid-in capital			328,099				7,661				(7,661	) (d)(c)			328,099
Common stock subscribed but not issued			2,373				—				—				2,373
Accumulated deficit			(226,576	)			18,355				(18,939	) (d)			(226,871	)
Accumulated other comprehensive income			111				—				—				111
		$	104,062			$	26,017			$	(26,312	)		$	103,767
Total Liabilities and Shareholders’ Equity		$	278,444			$	30,749			$	66,595			$	375,499

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API Technologies Corp.

Consolidated Statement of Operations

(In thousands except share data)

(Unaudited)

 

		API Technologies Corp.				Combined Inmet and Weinschel				Inmet and Weinschel Pro-forma Adjustments				Pro-Forma
		Twelve Months Ended				Twelve Months Ended				Twelve Months Ended				Twelve Months Ended
		November 30, 2014				September 30, 2014				September 30, 2014				November 30, 2014
Revenue, net		$	226,857			$	43,460			$	—			$	270,317
Cost of revenues
Cost of revenues			173,697				24,568				—				198,265
Restructuring charges			1,064				—				—				1,064
Total cost of revenues			174,761				24,568				—				199,329
Gross profit			52,096				18,892				—				70,988
Operating expenses
General and administrative			23,069				2,900				3,161	(b)			29,130
Selling expenses			14,541				4,392				—				18,933
Research and development			8,270				2,880				—				11,150
Business acquisition and related charges			479				—				393	(b)			872
Restructuring charges			1,153				—				—				1,153
Total operating expenses			47,512				10,172				3,554				61,238
Operating income (loss)			4,584				8,720				(3,554	)			9,750
Other expenses (income)
Interest expense, net			11,765				—				7,508	(c)			19,273
Other expenses			10,463				—				738				11,201
Total other expenses (income), net			22,228				—				8,246				30,474
Net income (loss) before income taxes			(17,644	)			8,720				(11,800	)			(20,724	)
Expenses for income taxes			1,270				2,965				(2,965	) (f)			1,270
Net income (loss) from continuing operations			(18,914	)			5,755				(8,835	)			(21,994	)
Accretion on preferred stock (dividends)			(393	)			—				—				(393	)
Net Income (loss) attributable to common shareholders		$	(19,307	)		$	5,755			$	(8,835	)		$	(22,387	)
Net loss per share - Basic and diluted		$	(0.35	)										$	(0.40	)
Weighted average shares outstanding
Basic			55,488,862												55,488,862
Diluted			55,488,862												55,488,862
Comprehensive income (loss)
Unrealized foreign currency translation adjustment			(977	)											(977	)
Other comprehensive income (loss)			(977	)											(977	)
Comprehensive loss			(19,891	)											(22,971	)

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API Technologies Corp.

Consolidated Statement of Operations

(In thousands except share data)

(Unaudited)

 

		API Technologies Corp.				Combined Inmet and Weinschel				Inmet and Weinschel Pro-forma Adjustments				Pro-Forma
		Six Months Ended				Six Months Ended				Six Months Ended				Six Months Ended
		May 31, 2015				March 31, 2015				May 31, 2015				May 31, 2015
Revenue, net		$	103,131			$	26,598			$	—			$	129,729
Cost of revenues
Cost of revenues			79,111				14,478				—				93,589
Restructuring charges			109				—				—				109
			79,220				14,478				—				93,698
Gross profit			23,911				12,120				—				36,031
Operating expenses
General and administrative			10,854				1,794				1,581	(b)			14,229
Selling expenses			7,038				2,246				—				9,284
Research and development			4,181				1,601				—				5,781
Business acquisition and related charges			390				—				393	(b)			783
Restructuring charges			1,670				—				—				1,670
Total operating expenses			24,133				5,641				1,973				31,747
Operating income (loss)			(222	)			6,480				(1,973	)			4,285
Other expenses (income)
Interest expense, net			6,219				—				3,753	(c)			9,972
Other expenses (income)			(497	)			—				369				(128	)
Total other expenses (income), net			5,722				—				4,122				9,844
Net income (loss) before income taxes			(5,944	)			6,480				(6,095	)			(5,559	)
Expenses for income taxes			527				2,185				(2,185	) (f)			527
Net income (loss) from continuing operations			(6,471	)			4,295				(3,910	)			(6,086	)
Net Income (loss) attributable to common shareholders		$	(6,471	)		$	4,295			$	(3,910	)		$	(6,086	)
Net loss per share - Basic and diluted		$	(0.12	)										$	(0.11	)
Weighted average shares outstanding
Basic			55,466,944												55,466,944
Diluted			55,466,944												55,466,944
Comprehensive income (loss)
Unrealized foreign currency translation adjustment			(484	)											(484	)
Other comprehensive income (loss)			(484	)											(484	)
Comprehensive loss			(6,955	)											(6,570	)