Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - ORBIT FR INC | c05132exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - ORBIT FR INC | c05132exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - ORBIT FR INC | c05132exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - ORBIT FR INC | c05132exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2010
OR
o | 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 0-22583
ORBIT/FR, Inc.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE | 23-2874370 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
506 Prudential Road, Horsham, PA | 19044 | |
(Address of principal executive offices) | (Zip Code) |
(215) 674-5100
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ No o
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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer a non-accelerated filer or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and small reporting company in Rule 12b-2 of the Exchange
Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a 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 o No þ
There were 6,084,473 shares of common stock, $.01 par value, outstanding as of August 19,
2010.
ORBIT/FR, Inc.
Index
Page No. | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
10 | ||||||||
14 | ||||||||
15 | ||||||||
16 | ||||||||
16 | ||||||||
16 | ||||||||
17 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
ORBIT/FR, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Unaudited | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,839 | $ | 1,622 | ||||
Accounts receivable, less allowance of $58 and $67 |
6,467 | 9,207 | ||||||
Inventory |
2,826 | 2,681 | ||||||
Costs and estimated earnings in excess of billings
on uncompleted contracts |
4,292 | 1,668 | ||||||
Income tax refunds receivable |
292 | 542 | ||||||
Deferred income taxes |
979 | 835 | ||||||
Other |
545 | 277 | ||||||
Total current assets |
18,240 | 16,832 | ||||||
Property and equipment, net |
2,367 | 2,093 | ||||||
Deferred income taxes |
835 | 887 | ||||||
Cost in excess of net assets acquired |
301 | 301 | ||||||
Total assets |
$ | 21,743 | $ | 20,113 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,708 | $ | 3,946 | ||||
Accounts payableparent company |
1,308 | 1,482 | ||||||
Accrued expenses |
3,422 | 3,355 | ||||||
Short term bank financing |
| 250 | ||||||
Customer advances |
83 | 13 | ||||||
Billings in excess of costs and estimated earnings
on uncompleted contracts |
4,826 | 2,813 | ||||||
Total liabilities, all current |
12,347 | 11,859 | ||||||
Stockholders equity: |
||||||||
Preferred stock: $.01 par value: Authorized shares2,000,000 Issued and outstanding sharesnone |
| | ||||||
Common stock: $.01 par value: Authorized shares10,000,000 Issued shares6,084,473 |
61 | 61 | ||||||
Additional paid-in capital |
16,480 | 16,460 | ||||||
Accumulated deficit |
(6,718 | ) | (8,024 | ) | ||||
Accumulated other comprehensive (loss)
foreign translation adjustment |
(184 | ) | | |||||
Treasury stock82,700 shares |
(243 | ) | (243 | ) | ||||
Total stockholders equity |
9,396 | 8,254 | ||||||
Total liabilities and stockholders equity |
$ | 21,743 | $ | 20,113 | ||||
See accompanying notes.
3
Table of Contents
ORBIT/FR, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Contract revenues |
$ | 9,136 | $ | 6,600 | $ | 16,458 | $ | 12,950 | ||||||||
Cost of revenues |
6,256 | 4,459 | 11,130 | 8,919 | ||||||||||||
Gross profit |
2,880 | 2,141 | 5,328 | 4,031 | ||||||||||||
Operating expenses: |
||||||||||||||||
General and administrative: |
744 | 669 | 1,496 | 1,238 | ||||||||||||
Sales and marketing: |
764 | 911 | 1,497 | 1,824 | ||||||||||||
Sales, marketing,
general and administrative MVG |
283 | 635 | 683 | 635 | ||||||||||||
Research and development |
311 | 377 | 564 | 712 | ||||||||||||
Loss on disposal of assets |
| 154 | | 154 | ||||||||||||
Total operating expenses |
2,102 | 2,746 | 4,240 | 4,563 | ||||||||||||
Operating income (loss) |
778 | (605 | ) | 1,088 | (532 | ) | ||||||||||
Other income (loss), net |
122 | (101 | ) | 126 | (122 | ) | ||||||||||
Income (loss) before income taxes |
900 | (706 | ) | 1,214 | (654 | ) | ||||||||||
Income tax (benefit) |
(92 | ) | | (92 | ) | | ||||||||||
Net income (loss) |
992 | (706 | ) | 1,306 | (654 | ) | ||||||||||
Other
comprehensive (loss) foreign translation adjustment |
(108 | ) | | (184 | ) | | ||||||||||
Total comprehensive income (loss) |
$ | 884 | $ | (706 | ) | $ | 1,122 | $ | (654 | ) | ||||||
Basic income (loss) per share |
$ | 0.17 | $ | (0.12 | ) | $ | 0.22 | $ | (0.11 | ) | ||||||
Diluted income (loss) per share |
$ | 0.16 | $ | (0.12 | ) | $ | 0.22 | $ | (0.11 | ) | ||||||
Weighted average number
basic common shares |
6,001,773 | 6,001,573 | 6,001,773 | 6,001,573 | ||||||||||||
Weighted average number
diluted common shares |
6,042,119 | 6,001,573 | 6,012,852 | 6,001,573 | ||||||||||||
See accompanying notes.
4
Table of Contents
ORBIT/FR, Inc.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 1,306 | $ | (654 | ) | |||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||
Depreciation and amortization |
215 | 167 | ||||||
Loss on disposal of fixed assets |
53 | |||||||
Stock based compensation |
20 | 54 | ||||||
Deferred income taxes |
(92 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
2,626 | 2,504 | ||||||
Inventory |
(160 | ) | (580 | ) | ||||
Costs and estimated earnings in excess of billings
on uncompleted contracts |
(2,671 | ) | (1,290 | ) | ||||
Income tax refunds receivable |
250 | (65 | ) | |||||
Other current assets |
(274 | ) | (284 | ) | ||||
Accounts payable and accrued expenses |
(1,277 | ) | 419 | |||||
Accounts payableparent company |
(216 | ) | 699 | |||||
Customer advances |
73 | (267 | ) | |||||
Billings in excess of costs and estimated earnings
on uncompleted contracts |
2,102 | 1,418 | ||||||
Net cash provided by operating activities |
1,902 | 2,174 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property and equipment |
(552 | ) | (631 | ) | ||||
Net cash (used in) investing activities |
(552 | ) | (631 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from short term notes payable |
| 400 | ||||||
Repayment of short term notes payable |
(250 | ) | (1,681 | ) | ||||
Net cash (used in) financing activities |
(250 | ) | (1,281 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
117 | | ||||||
Net increase in cash and cash equivalents |
1,217 | 262 | ||||||
Cash and cash equivalents at beginning of period |
1,622 | 1,521 | ||||||
Cash and cash equivalents at end of period |
$ | 2,839 | $ | 1,783 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for income taxes |
$ | 178 | $ | 77 | ||||
Cash paid during the period for interest |
$ | | $ | 12 | ||||
See accompanying notes.
5
Table of Contents
ORBIT/FR, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2010
(Amounts in thousands, except share and per share data)
1. Ownership and Basis of Presentation
ORBIT/FR, Inc. (the Company) was incorporated in Delaware on December 9, 1996, as a wholly
owned subsidiary of Orbit-Alchut Technologies, Ltd., an Israeli publicly traded corporation. On
May 13, 2008, Orbit-Alchut Technologies, Ltd. (Alchut) sold all of its 3.7 million shares of
common stock of the Company to Satimo, SA (Satimo). On June 30, 2009, Microwave Vision Group, SA,
(Microwave Vision), acquired all 3.7 million common shares of the Company through a
reorganization involving its wholly owned subsidiary, Satimo. The Company develops markets and
supports sophisticated automated microwave test and measurement systems for the wireless
communications, satellite, automotive, aerospace/defense and electromagnetic compatibility
(EMC) industries, and manufactures anechoic foam, a microwave absorbing material that is an
integral component of microwave test and measurement systems. ORBIT/FR, Inc., a holding company,
supports its world-wide customers through its subsidiaries: ORBIT/FR Engineering, LTD (Israel)
(hereinafter referred to as Engineering); ORBIT/FR Europe GmbH (Germany); Advanced
Electromagnetics, Inc. (AEMI) (San Diego, CA); and Orbit Advanced Technologies, Inc. and Flam and
Russell, Inc, (Horsham, PA). The Company sells its products to customers throughout North America,
Europe and Asia.
2. Summary of Significant Accounting Policies
Interim Financial Information
The accompanying unaudited consolidated financial statements for the six and three months
ended June 30, 2010 and 2009 have been prepared in accordance with generally accepted accounting
principles in the United States for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements have been included. The
results of interim periods are not necessarily indicative of the results that may be expected for
the year ending December 31, 2010. The consolidated financial statements and footnotes should be
read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations contained in this Form 10-Q and the Companys Form 10-K for the year ended December 31,
2009, filed on March 31, 2010 with the Securities and Exchange Commission, which included the
consolidated financial statements and footnotes for the year ended December 31, 2009.
6
Table of Contents
ORBIT/FR, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2010
(Amounts in thousands, except share and per share data)
3. Inventory
Inventory at June 30, 2010 consists of the following:
Parts and components |
$ | 2,592 | ||
Work- in- process |
234 | |||
Total |
$ | 2,826 | ||
4. Property and Equipment
Property and equipment at June 30, 2010 consists of the following:
Lab and computer equipment |
$ | 2,801 | ||
Office equipment |
833 | |||
Transportation equipment |
61 | |||
Furniture and fixtures |
12 | |||
Fixed assets in progress |
93 | |||
Leasehold improvements |
648 | |||
Total |
4,448 | |||
Less accumulated depreciation |
2,081 | |||
Property and equipment, net |
$ | 2,367 | ||
5. Accrued Expenses
Accrued expenses at June 30, 2010 consist of the following:
Contract costs |
$ | 130 | ||
Compensation |
1,584 | |||
Commissions |
525 | |||
Royalties |
65 | |||
Warranty |
532 | |||
Deferred revenue |
180 | |||
Other accruals |
406 | |||
Total |
$ | 3,422 |
7
Table of Contents
ORBIT/FR, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2010
(Amounts in thousands, except share and per share data)
6. Long-Term Contracts
Long-term contracts in process accounted for using the percentage-of-completion method are
summarized as follows at June 30, 2010:
Accumulated expenditures on uncompleted contracts |
$ | 41,006 | ||
Estimated earnings thereon |
13,169 | |||
Total |
54,175 | |||
Less: Applicable progress billings |
(54,709 | ) | ||
Balance |
$ | (534 | ) | |
The long-term contracts are shown in the accompanying balance sheets as follows:
Costs and estimated earnings on uncompleted
contracts in excess of billings |
$ | 4,292 | ||
Billings on uncompleted contracts in excess of
costs and estimated earnings |
(4,826 | ) | ||
Total |
$ | (534 | ) | |
7. Income Taxes
The Company has recorded an income tax benefit of $0.1 million attributable to the elimination
of the deferred tax asset reserve applicable to its net operating loss carryforwards in Israel for
which an income tax benefit had previously not been recognized for financial accounting purposes.
Such action was the result of current and projected future profit from the Companys subsidiary in
Israel.
8. Related Party Transactions
On August 14, 2009, the Company entered into an Assistance and Provision of Services Agreement
(the Services Agreement) with Microwave Vision and several subsidiaries of Microwave Vision,
including Satimo. Microwave Vision owns 3.7 million shares of common stock of the Company, which
it acquired through a reorganization involving its wholly owned subsidiary, Satimo. Pursuant to
the Services Agreement, Microwave Vision agreed to provide management, operational, sales and
marketing, legal, technical and other services to the Company, Satimo, and Microwave Visions other
direct and indirect subsidiaries (collectively, the Subsidiaries). In consideration thereof, the
Company, Satimo and each of the other Subsidiaries agreed to pay Microwave Vision, effective
January 1, 2009, a fee to be determined as of the start of each calendar year based on the
projected gross margins of each Subsidiary for that year, subject to an adjustment at year end
based on the actual gross margins. In addition, the Company agreed to pay Microwave Vision an
additional fee of 1% of its gross sales in consideration of the right to use the name Microwave
Vision in the Companys sales and marketing activities. Although the Service Agreement became
effective retroactive to January 1, 2009, since it was not ratified until August 14, 2009, no
charges in connection with the Services Agreement were recorded in the Companys interim financial
statements for the three months ended March 31, 2009, but the interim financial statement for the
three months ended June 30, 2009 included the cumulative charges from January 1, 2009 through June
30, 2009. The estimated performance fee for the year ending December 31, 2010 has been determined
as of June 30, 2010. The Company has accrued a fee of $0.7 million through this date.
8
Table of Contents
ORBIT/FR, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2010
(Amounts in thousands, except share and per share data)
9. Segment and Geographic Information
The Company operates exclusively in one industry segment, the business of developing,
marketing and supporting sophisticated automated microwave test and measurement systems. In
addition to its principal operations and markets in the United States, the Company conducts sales,
customer support and service operations in other geographic locations in Europe, Asia, and North
America. The following table represents financial information by geographic region for the three
month and six months ended June 30, 2010 and 2009.
Three months ended June 30, 2010 | North America | Europe | Asia | Total | ||||||||||||
Contract revenues to unaffiliated customers |
$ | 3,801 | $ | 3,373 | $ | 1,962 | $ | 9,136 | ||||||||
Cost of revenues to unaffiliated customers |
2,453 | 2,517 | 1,286 | 6,256 | ||||||||||||
Gross profit from unaffiliated customers |
$ | 1,348 | $ | 856 | $ | 676 | $ | 2,880 | ||||||||
Three months ended June 30, 2009 | North America | Europe | Asia | Total | ||||||||||||
Contract revenues to unaffiliated customers |
$ | 3,085 | $ | 2,708 | $ | 807 | $ | 6,600 | ||||||||
Cost of revenues to unaffiliated customers |
2,191 | 1,752 | 516 | 4,459 | ||||||||||||
Gross profit from unaffiliated customers |
$ | 894 | $ | 956 | $ | 291 | $ | 2,141 | ||||||||
Six months ended June 30, 2010 | North America | Europe | Asia | Total | ||||||||||||
Contract revenues to unaffiliated customers |
$ | 6,617 | $ | 6,212 | $ | 3,629 | $ | 16,458 | ||||||||
Cost of revenues to unaffiliated customers |
4,208 | 4,455 | 2,467 | 11,130 | ||||||||||||
Gross profit from unaffiliated customers |
$ | 2,409 | $ | 1,757 | $ | 1,162 | $ | 5,328 | ||||||||
Six months ended June 30, 2009 | North America | Europe | Asia | Total | ||||||||||||
Contract revenues to unaffiliated customers |
$ | 6,235 | $ | 3,395 | $ | 3,320 | $ | 12,950 | ||||||||
Cost of revenues to unaffiliated customers |
4,286 | 2,338 | 2,295 | 8,919 | ||||||||||||
Gross profit from unaffiliated customers |
$ | 1,949 | $ | 1,057 | $ | 1,025 | $ | 4,031 | ||||||||
In the table above North America includes all United States operations, and Europe
includes subsidiaries in Germany and Israel.
9
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
Certain information contained in this Form 10-Q contains forward looking statements (as such
term is defined in the Securities Exchange Act of 1934 and the regulations thereunder), including,
without limitation, statements as to the Companys financial condition, results of operations and
liquidity and capital resources and statements as to managements beliefs, expectations or options.
Such forward looking statements are subject to risks and uncertainties and may be affected by
various factors which may cause actual results to differ materially from those in the forward
looking statements. Certain of these risks, uncertainties and other factors, as and when
applicable, are discussed in the Companys filings with the Securities and Exchange Commission
including in Part I, Item 1A Risk Factors of the Companys Annual Report on Form 10-K for the
year ended December 31, 2009, a copy of which may be obtained from the Company upon request and
without charge (except for the exhibits thereto).
Critical Accounting Policies
Revenue and Cost Recognition
The Companys principal sources of contract revenues are from engineering and design
services and the production of electro-mechanical equipment. Revenues from long-term fixed-price
development contracts performed principally under the Companys control are recognized on the
percentage-of-completion method, measured by the percentage of costs incurred to date to estimated
total costs for each contract when such costs can be reasonably estimated. Contract costs include
all direct material, labor and subcontractor costs and those indirect costs related to contract
performance such as indirect labor, supplies and tool costs. General and administrative costs are
charged to expense as incurred. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and final contract
settlements, may result in revisions to costs and revenue and are recognized in the period in which
the revisions are determined. Any estimated losses on contracts are recorded in the period losses
are first identified. Revenues from electro-mechanical equipment sold to customers that are not
part of a larger contract are recognized when the contract is substantially completed. Revenues
recognized in excess of amounts billed are classified under current assets as costs and estimated
earnings in excess of billings on uncompleted contracts. Amounts received from clients in excess of
revenues recognized to date are classified under current liabilities as billings in excess of costs
and estimated earnings on uncompleted contracts.
Accounts Receivable
The Company accounts for potential losses in accounts receivable utilizing the
allowance method. In reviewing aged receivables, management considers their knowledge of its
customers, historical losses and current economic conditions in establishing the allowance for
doubtful accounts.
10
Table of Contents
Results of Operations
The following table sets forth certain financial data as a percentage of revenues for the
periods indicated:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenues |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Gross profit |
31.5 | 32.4 | 32.4 | 31.1 | ||||||||||||
General and
administrative |
8.1 | 10.1 | 9.1 | 9.6 | ||||||||||||
Sales and marketing |
8.4 | 13.8 | 9.1 | 14.1 | ||||||||||||
Research and development |
3.4 | 5.7 | 3.4 | 5.5 | ||||||||||||
Microwave Vision Group
corporate expenses |
3.1 | 9.6 | 4.2 | 4.9 | ||||||||||||
Loss on disposal of assets |
| 2.3 | | 1.1 | ||||||||||||
Operating income (loss) |
8.5 | (9.1 | ) | 6.6 | (4.1 | ) | ||||||||||
Income (loss) before income taxes |
9.9 | (10.7 | ) | 7.4 | (5.1 | ) | ||||||||||
Net income (loss) |
10.9 | (10.7 | ) | 7.9 | (5.1 | ) |
Three months ended June 30, 2010 compared to three months ended June 30, 2009.
Revenues. Revenues for the three months ended June 30, 2010 were approximately $9.1 million
compared to approximately $6.6 million for the three months ended June 30, 2009, an increase of
approximately $2.5 million or 37.9%. Revenues from the defense, automotive, and satellite markets
increased approximately $2.5 million, $0.2 million and $0.2 million respectively, while revenues
from the wireless and university markets both decreased $0.2 million, respectively. Geographically,
revenues from all three geographic areas increased. Asia increased approximately $1.1 million,
while revenues from North America and Europe each increased approximately $0.7 million. The
increase in revenues recognized during the three months ended June 30, 2010 over prior year levels
reflects the higher beginning backlog at the beginning of 2010 as compared to the beginning of
2009.
Cost of revenues. Cost of revenues for the three months ended June 30, 2010 were approximately
$6.3 million compared to approximately $4.5 million for the three months ended June 30, 2009, an
increase of approximately $1.8 million or 40.0%. Gross margins decreased to 31.5% for the three
months ended June 30, 2010 from 32.4% for the three months ended June 30, 2009. The lower margin
percentage in 2010 reflects losses incurred in connection with performance of a contract with a
European customer. All losses on this contract have been recognized in the current period. This
reduction to gross margin was partially offset by higher margin on North America contracts. In
addition, gross margin was reduced by $0.4 million due to a book to physical inventory adjustment
at one of its subsidiaries.
General and administrative expense. General and administrative expenses, exclusive of the
charges from MVG, were $0.7 million for the three months ended June 30, 2010 and June 30, 2009. As
a percentage of revenues, these general and administrative expenses decreased to 8.1% for the three
months ended June 30, 2010 from 10.1% for the three months ended June 30, 2009 reflecting increased
sales in the current three month period.
11
Table of Contents
Sales and marketing expenses. Sales and marketing expense, exclusive of the charges from MVG,
for the three months ended June 30, 2010 was $0.8 million compared to $0.9 million for the three
months ended June 30, 2009. This reduction reflects reduced agent commissions and marketing
consultant fees. As a percentage of revenues, sales and marketing expenses decreased to 8.4% for
the three months ended June 30, 2010, from 13.8% for the three months ended June 30, 2009.
Sales, marketing general and administrative-Microwave Vision Group. Although the Service
Agreement became effective retroactive to January 1, 2009, since it was not ratified until August
14, 2009, no charges in connection with the Services Agreement were recorded in the Companys
interim financial statements for the three months ended March 31, 2009, but the interim financial
statement for the three months ended June 30, 2009 included the cumulative charges from January 1,
2009 through June 30, 2009. The estimated charges for the year ending December 31, 2010 have been
determined as of June 30, 2010. The Company has accrued a fee of $0.3 million for the three months
ended June 30, 2010 representing the difference in the fee charge for the six months ended June 30,
2010 and the amount recorded at March 31, 2010, which was based on a preliminary estimate. The MVG
fee is subject to adjustment at December 31, 2010 based upon the actual gross margin of each
subsidiary for the year.
Research and development expenses. Research and development expenses for the three months
ended June 30, 2010 and June 30, 2009 were $0.3 million and $0.4 million, respectively. This
decrease is due to the reduced use of consultants and the use of research and development personnel
to meet contract commitments. As a percentage of revenues, research and development decreased to
3.4% for the three months ended June 30, 2010 from 5.7% for the three month period ended June 30,
2009.
Other -income (loss), net. Other income net, for the three months ended June 30, 2010 was
approximately $0.1 million compared to other loss, net of $0.1 million for the three months ended
June 30, 2009. The Companys other income, net in 2010 results primarily from foreign currency
exchange gains attributable to expenses payable in Euros.
Income taxes. The Company has recorded an income tax benefit of $0.1 million attributable to
the elimination of the deferred tax asset reserve applicable to its net operating loss
carryforwards in Israel for which an income tax benefit had previously not been recognized for
financial accounting purposes. Such action was the result of current and projected future profit
from the Companys subsidiary in Israel.
Six months ended June 30, 2010 compared to six months ended June 30, 2009.
Revenues. Revenues for the six months ended June 30, 2010 were approximately $16.5 million,
compared to approximately $13.0 million for the six months ended June 30, 2009, an increase of
approximately $3.5 million or 26.9%. Revenues from the defense, wireless, automotive and satellite
markets increased approximately $2.4 million, $0.8 million, $0.3 million and $.2 million,
respectively. Revenues from the university and EMC markets both decreased approximately $0.1
million, respectively. Geographically, revenues from Europe, North America and Asia increased
approximately $2.8 million, $0.4 million and $0.3 million, respectively. The increase in revenues
recognized during the six months ended June 30, 2010 over prior year levels is primarily the result
of higher beginning backlog levels at the beginning of 2010 as compared to the beginning of 2009.
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Cost of revenues. Cost of revenues for the six months ended June 30, 2009 were approximately
$11.1 million compared to approximately $8.9 million for the six months ended June 30, 2010, an
increase of approximately $2.2 million or 24.7%. Gross margins increased to 32.4% for the six
months ended June 30, 2010 from 31.1% for the six months ended June 30, 2009. The higher gross
margin percentage in 2010
versus 2009 is largely the result of increased North America gross margin partially offset by
lower European gross margin. North America gross margin percentage increased in 2010 relative to
2009 due to the completion in 2009 of a large North America contract with a low gross margin. The
reduction in the Europe gross margin percentage is due to the loss recognized on a European
contract in the three month period ended June 30, 2010. In addition, gross margin was reduced by
$0.4 million due to a book to physical inventory adjustment at one of its subsidiaries in the three
month period ended June 30, 2010.
General and administrative expenses. General and administrative expenses, exclusive of the
charges from MVG, for the six months ended June 30, 2010 were approximately $1.5 million compared
to approximately $1.2 million for the six months ended
June 30, 2009. This increase is due to
increased general and administrative expenses of the Israeli subsidiary which resulted from the
move and separation from the Companys former Israeli parent. As a percentage of revenues, general
and administrative expenses decreased to 9.1% for the six months ended June 30, 2010 from 9.6% for
the six months ended June 30, 2009, reflecting an increase in sales in the current six month
period.
Sales and marketing expenses. Sales and marketing expenses, exclusive of the charges from MVG,
for the six months ended June 30, 2010 were approximately $1.5 million, compared to approximately
$1.8 million for the six months ended June 30, 2009. This decrease is primarily due to reduced
agent commissions. As a percentage of revenues, sales and marketing expenses decreased to 9.1% for
the six months ended June 30, 2010, from 14.1% for the six months ended June 30, 2009.
Sales, marketing general and administrative-Microwave Vision Group. The estimated performance
fee for the year ending December 31, 2010 has been determined as of June 30, 2010. The Company has
accrued a fee of $0.7 million through this date. The MVG fee is subject to adjustment as at
December 31, 2010 based upon the actual gross margin of each subsidiary for the year.
Research and development expenses. Research and development expenses for the six months ended
June 30, 2010 were $0.6 million compared to $0.7 million for the six months ended June 30, 2009.
As a percentage of revenues, research and development expenses decreased to 5.5% for the six months
ended June 30, 2009 from 3.4% for the six months ended June 30, 2009. The decreased research and
development expenses are primarily due to reduced use of consultants and the use of research and
development personnel to meet contract commitments.
Loss on disposal of assets. The Company recorded a loss of $154,000 on the disposal of assets
in the six months ended June 30, 2009. The Company had entered into an executive employment
agreement with the Companys current Chief Executive Officer (CEO) which provided that if he was
unable to independently sell his home in Atlanta by October 10, 2008, the Company would provide a
guaranteed home purchase agreement at fair market value. On December 17, 2008, the Company
reimbursed the CEO for the equity he had accumulated on the home based upon the then fair market
value. On June 23, 2009 the home was sold. However, the Company was unable to fully recover the
equity amount paid which resulted in a loss on disposal of assets of approximately $101,000. In
addition, the move of the Israeli operation to their new location resulted in a loss on disposal of
assets of $53,000. There was no loss on disposal of assets for the six month period ended June 30,
2010.
Other-income (loss),net, Other income net, for the six months ended June 30, 2010 was
approximately $0.1 million compared to other loss, net, of $0.1 million for the six months ended
June 30, 2009. The Companys other income, net in 2010 results primarily from foreign currency
exchange gains attributable to expenses payable in Euros.
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Income taxes. The Company has recorded an income tax benefit of $0.1 million attributable to
the elimination of the deferred tax asset reserve applicable to its net operating loss
carryforwards in Israel for which an income tax benefit had previously not been recognized for
financial accounting purposes. Such action was the result of current and projected future profit
from the Companys subsidiary in Israel.
Liquidity and Capital Resources
The Company has satisfied its working capital requirements through cash flows from operations.
Net cash generated by operating activities during the six months ended June 30, 2010 was
approximately $1.9 million compared to net cash generated by operations of $2.2 million during the
six months ended June 30, 2009. The reduction of accounts receivable of approximately $2.6 million
and the increase in billings in excess of costs and estimated earnings of $2.1 million were the
most significant sources of cash for the six months ended June 30, 2010. The decrease in costs and
estimated earnings in excess of billings on uncompleted contracts of approximately $2.7 million and
the reduction of accounts payable and accrued expenses of approximately $1.3 million was the most
significant use of cash for the six months ended June 30, 2010.
Net cash used in investing activities for the purchase of property and equipment was $0.6
million for both six month periods ended June 30, 2010 and June 30, 2009.
Cash generated by operations for the six months ended June 30, 2010 was used to repay $0.3
million outstanding on the lines of credit. On June 28, 2010 the Company renewed its credit
facility. The amount available under the line of credit has been increased to $2.0 million from the
previous $0.75 million. This credit facility expires on April 30, 2011.
The Company has exposure to currency fluctuations as a result of billing certain of its
contracts in foreign currency, primarily the Euro. When selling to customers in countries with less
stable currencies, the Company bills in U.S. dollars. For the six months ended June 30, 2010,
approximately 83% of the Companys revenues were billed in U.S. dollars. Substantially all of the
costs of the Companys contracts have been, and are expected in the future to continue to be,
U.S. dollar-denominated except for wages for employees of the Companys Israeli and German
subsidiaries, which are denominated in local currency.
Inflation and Seasonality
The Company does not believe that inflation or seasonality has had a significant effect on the
Companys operations to date.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are exposed to market risk from fluctuations in foreign currency exchange rates. We manage
exposure to variability in foreign currency exchange rates primarily through the use of natural
hedges, as both liabilities and assets are denominated in the local currency. However, different
durations in our funding obligations and assets may expose us to the risk of foreign exchange rate
fluctuations. We have not entered into any derivative instrument transactions to manage this risk.
Based on our overall foreign currency rate exposure at June 30, 2010, we do not believe that a
hypothetical 10% change in foreign currency rates would materially adversely affect our financial
position.
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Item 4. | Controls and Procedures |
(a) | Evaluation of disclosure controls and procedures. The Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) are
designed to ensure that information required to be disclosed by us in the reports that are
filed or submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. These disclosure controls and procedures include controls and
procedures designed to ensure that information required to be disclosed under the
Securities Exchange Act of 1934 is accumulated and communicated to our management on a
timely basis to allow decisions regarding required disclosure. The Company evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of
March 31, 2010. Based on this evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that as of June 30, 2010, these controls and procedures were
effective. |
(b) | Change in Internal Control. There have been no changes in internal control over
financial reporting identified in connection with the foregoing evaluation that occurred
during the Companys fiscal quarter ended June 30, 2010 that have materially affected, or
are reasonably likely to materially affect, the Companys internal control over financial
reporting. |
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PART II. OTHER INFORMATION
Item 1. | Legal Proceedings |
The Company is not currently subject to any material legal proceedings and is not aware of any
threatened litigation, unasserted claims or assessments that could have a material adverse effect
on the Companys business, operating results, or financial condition.
Item 1A. | Risk Factors |
In addition to the other information set forth in this Form 10-Q, you should carefully
consider the factors discussed in Part I, Item 1A Risk Factors of our Annual Report on Form 10-K
for the year ended December 31, 2009 which could materially affect our business, financial
condition or future results of operations. The risks described in our Annual Report on Form 10-K
for the year ended December 31, 2009 may not be the only risks that we face. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may also
materially adversely affect our business, financial condition and future results of operations.
Item 6. | Exhibits |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, Per Iversen, President and Chief Executive Officer. |
|||
31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, Relland Winand, Chief Financial Officer. |
|||
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Per Iversen,
President and Chief Executive Officer. |
|||
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Relland Winand, Chief
Financial Officer. |
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ORBIT/FR, Inc.
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.
Orbit/FR, Inc. | ||||
Registrant | ||||
Date: August 19, 2010 | ||||
/s/ Per Iversen | ||||
President and Chief Executive Officer | ||||
Date: August 19, 2010 | ||||
/s/ Relland Winand | ||||
Chief Financial Officer |
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