Investment Analysis ReportPeter Stolarski

Drafted on July 31st, 2015

NASDAQ: ATNY

What is API Technologies Corp?

API Technologies is a dominant technology provider of RF/microwave, microelectronics, and security technologies for critical and high-reliability applications. Markets span defense, aerospace, medical/industrial, and communications/consumer.

Leadership

Robert Tavares is the President and Chief Executive Officer of API Technologies Corp. He possesses over 30 years of experience in microelectronics and semiconductors. This gives him a profound understanding of the company’s functions. He spent a substantial amount of his career at Tyco Electronics, a leader in semiconductor development. He began as an engineer at Tyco Electronics and worked his way into the company management, eventually becoming a vice president and general manager. The structure of Tyco Electronics is very similar to the structure of API Technologies which means that through his progression, he gained valuable experience applicable to his position at API Technologies.

Claudio Mannarino is the Senior Vice President and Chief Financial Officer of API Technologies Corp. He has been with API Technologies for over 15 years and possesses 20 years of total experience in finance and accounting. He has gained an substantial understanding of the company’s financials by working in many high level financial management positions.

Tara Lynn Condon is the Vice President of Corporate and Development Marketing at API Technologies. She has 14 years of work experience in marketing and demonstrates an entrepreneurial spirit in her role. The modern market requires an understanding of online marketing, which she has acquired through her jobs at technology focused marketing firms such as Emerj, Inc. and ION Networks.

Although the highest level leadership of the company possesses substantial experience and management skills, high level management is relatively weak. Understandably, no basic biographies besides those of the top two executives are provided on the company website. Most high level managers only possess a bachelor’s degree and on average, 8 years of experience.

Business Model

Products

API Technologies engages in the production, development and sale of the following products.

• RF/Microwave Solutions (Amplifiers, filers, components, antennas) • Power Solutions (Power supplies, AC/DC power distribution) • Microelectronics (Thin film technology, high reliability electronics, etc.) • Secure Systems and Information Assurance (Encryption products, secure networking solutions)

• Electromagnetic Integrated Solutions (Coaxial filters, advanced ceramics, connectors) • Electronics Manufacturing Services (Defense, medical, industrial)

These products manufactured by API Technologies have been designed in order to function in space products, security systems and military technology. These products must be ordered from API Technologies and are not available on demand. API Technologies does, however, offer two on demand products. These products are the IED detection and disposal product and rugged products, which can be used in harsh environments by military operators.

Demand

The demand for API Technologies products is relatively low. The company has not been able to keep up with competition in the semiconductor sector and relies on supplier contracts with large defense companies. It has been given mediocre ratings by the companies which it supplies with goods, most recently a 3 star rating by Raytheon. The part of API Technologies that stands out is the IED detection and disposal product. With greater insurgency in the middle east, many governments search for IED disposal products. Unfortunately, API Technologies has not demonstrated any unique development of its IED products and has not received a significant amount of contracts.

Performance

Sales by product type

Although API Technologies has made an effort to begin diversification into secure systems and information assurance in 2011, the products still account for only 10% of sales. This means that API Technologies is dependent on good performance in the SSC market (Systems, Subsystems and Components).

Adjusted EBITDA (Net Income)

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As demonstrated in this chart, net income is in a confirmed downtrend. Furthermore, there is direct correlation between the SSC market and API Technologies’ net income. This highlights the exposure of the company to an underperforming market.

Quarterly Revenue by Segment

This chart highlights the exposure and reliance on the SSC sector.

Technical Analysis

This long term chart demonstrates that not only are the fundamentals for ATNY shaky, but it is overbought in the long term. According to short term charts, ATNY may see upside, however, it will reverse and return to its long term bearish pattern.

Verdict

The author of this report rates this stock as a strong sell. This is because of the shaky fundamentals, decreasing revenue and bearish technicals.