Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 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
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(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 [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 6,084,473 shares of common stock, $.01 par value, outstanding
as of May 14, 2004.
================================================================================
1
ORBIT/FR, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- March 31, 2004 (Unaudited) and December 31, 2003......... 3
Consolidated Statements of Operations-- Three months ended March 31, 2004 and
2003 (Unaudited)...................................................................... 4
Consolidated Statements of Cash Flows-- Three months ended March 31, 2004 and
2003 (Unaudited)...................................................................... 5
Notes to Consolidated Financial Statements (Unaudited).................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 10
Item 3. Quantitative and Qualitative Disclosure of Market Risk.................................. 12
Item 4 Controls and procedures................................................................. 12
PART II. Other Information
Item 1. Legal Proceedings....................................................................... 13
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities....... 13
Item 3. Defaults upon Senior Securities......................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders..................................... 13
Item 5. Other Information....................................................................... 13
Item 6. Exhibits and Reports on Form 8-K........................................................ 13
Signatures............................................................................................... 14
2
ORBIT/FR, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2004 2003
---------- ------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 2,519 $ 2,413
Accounts receivable, less allowance of $187
in 2004 and 2003 4,037 4,026
Inventory 1,899 1,549
Costs and estimated earnings in excess of billings
on uncompleted contracts 919 605
Deferred income taxes 262 275
Other 528 465
-------- --------
Total current assets 10,164 9,333
Property and equipment, net 1,323 1,401
Deferred income taxes 149 145
Cost in excess of net assets acquired 381 381
-------- --------
Total assets $ 12,017 $ 11,260
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,397 $ 1,578
Accounts payable--Parent 781 197
Accrued expenses 1,961 1,880
Customer advances 731 456
Income taxes payable 41 19
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,820 1,857
Deferred income taxes 125 125
-------- --------
Total liabilities, all current 6,856 6,112
-------- --------
Stockholders' equity:
Preferred stock: $.01 par value:
Authorized shares--2,000,000
Issued and outstanding shares--none -- --
Common stock: $.01 par value:
Authorized shares--10,000,000
Issued shares--6,084,473 61 61
Additional paid-in capital 15,173 15,173
Accumulated deficit (9,830) (9,843)
Treasury stock -- 82,900 shares (243) (243)
-------- --------
Total stockholders' equity 5,161 5,148
-------- --------
Total liabilities and stockholders' equity $ 12,017 $ 11,260
======== ========
See accompanying notes.
3
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
2004 2003
----------- -----------
Contract revenues $ 4,624 $ 4,584
Cost of revenues 3,060 3,131
----------- -----------
Gross profit 1,564 1,453
----------- -----------
Operating expenses:
General and administrative 589 596
Sales and marketing 600 631
Research and development 234 290
----------- -----------
Total operating expenses 1,423 1,517
----------- -----------
Operating income (loss) 141 (64)
Other loss, net (25) (33)
----------- -----------
Income (loss) before income taxes 116 (97)
Income tax expense 103 76
----------- -----------
Net income (loss) $ 13 $ (173)
=========== ===========
Basic and diluted net income (loss) per share $ 0.00 $ (0.03)
=========== ===========
Weighted average number common shares - basic and diluted 6,001,573 6,001,573
=========== ===========
See accompanying notes.
4
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2004 2003
------- -------
Cash flows from operating activities:
Net income (loss) $ 13 $ (173)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 121 106
Deferred income tax benefit (expense) 9 (30)
Changes in operating assets and liabilities:
Accounts receivable (11) 793
Inventory (350) 323
Costs and estimated earnings in excess of
billings on uncompleted contracts (314) (44)
Other assets (63) (125)
Accounts payable and accrued expenses (100) 237
Accounts payable--Parent 584 (122)
Income taxes payable 22 (13)
Customer advances 275 --
Billings in excess of costs and estimated
earnings on uncompleted contracts (37) (900)
------- -------
Net cash provided by operating activities 149 52
------- -------
Cash flows from investing activities:
Purchase of property and equipment (43) (322)
------- -------
Net cash used in investing activities (43) (322)
------- -------
Cash flows from financing activities
Net repayments of note receivable -- 16
------- -------
Net cash provided by financing activities -- 16
------- -------
Net increase (decrease) in cash and cash equivalents 106 (254)
Cash and cash equivalents at beginning of period 2,413 3,030
------- -------
Cash and cash equivalents at end of period $ 2,519 $ 2,776
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 91 $ 87
======= =======
See accompanying notes.
5
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(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 (hereinafter referred to as the
"Parent"). 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 (hereinafter referred to as
"Engineering", Israel), ORBIT/FR Europe, (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 Asia, Europe, Israel, and North and South America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The accompanying unaudited consolidated financial statements for the
three months ended March 31, 2004 and 2003 have been prepared in accordance with
generally accepted accounting principles 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, 2004. The consolidated financial statements and footnotes should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in this Form 10-Q and the
Company's Forms 10-K for the year ended December 31, 2003, filed on March 30,
2004 with the Securities and Exchange Commission, which included the
consolidated financial statements and footnotes for the year ended December 31,
2003.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions of the Company and its wholly-owned subsidiaries have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates.
6
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income
(loss) by the weighted average common shares outstanding for the period. Diluted
income (loss) per share is calculated by dividing net income (loss) by the
weighted average common shares outstanding for the period plus the dilutive
effect of stock options. The dilutive effect of stock options was not assumed
for the three months ended March 31, 2004 and 2003 because the effect of these
securities is antidilutive.
3. INVENTORY
Inventory consists of the following:
MARCH 31, DECEMBER 31,
2004 2003
----------- ------------
(UNAUDITED)
Work-in-process $1,103 $ 991
Parts and components 796 558
------ ------
$1,899 $1,549
====== ======
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MARCH 31, DECEMBER 31,
2004 2003
----------- ------------
(UNAUDITED)
Lab and computer equipment $2,165 $2,536
Office equipment 793 908
Transportation equipment 378 376
Furniture and fixtures 17 38
Leasehold improvements 282 288
------ ------
3,635 4,146
Less accumulated depreciation 2,312 2,745
------ ------
Property and equipment, net $1,323 $1,401
====== ======
7
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consists of the following:
MARCH 31, DECEMBER 31,
2004 2003
----------- -----------
(UNAUDITED)
Accrued contract costs $ 321 $ 338
Accrued compensation 913 797
Accrued commissions 140 65
Accrued royalties 106 117
Accrued warranty 374 411
Other accruals 107 152
------ ------
$1,961 $1,880
====== ======
6. LONG-TERM CONTRACTS
MARCH 31, DECEMBER 31,
2004 2003
----------- ------------
(UNAUDITED)
Accumulated expenditures on uncompleted contracts $ 8,561 $ 7,856
Estimated earnings thereon 915 560
-------- --------
9,476 8,416
Less: applicable progress billings 10,377 9,668
-------- --------
Total $ (901) $ (1,252)
======== ========
The long-term contracts are shown in the accompanying balance sheets as follows:
Costs and estimated earnings on uncompleted
contracts in excess of billings $ 919 $ 605
Billings on uncompleted contracts in excess of
costs and estimated earnings (1,820) (1,857)
------- -------
$ (901) $(1,252)
======= =======
7. RELATED PARTY TRANSACTIONS
Engineering and the Parent have an agreement, whereby Engineering
purchases from the Parent electrical and mechanical production services. In
addition, the Parent provides other administrative services, including, but not
limited to, bookkeeping, computer, legal, accounting, cost management,
information systems, and production support. Engineering pays the Parent for
these services based upon a rate of cost of production services plus 21%.
Engineering is leasing office space from the Parent on an annual basis, for a
rental of $61 per year. These agreements are to be evaluated on an annual basis.
8
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2004
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. 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 out of other geographic locations in Europe, Asia, and North America.
The following table represents financial information by geographic region for
the three months ended March 31, 2004 and 2003.
Three months ended March 31, 2004 North America Europe Asia Total
- --------------------------------- ------------- ------ ---- -----
Sales to unaffiliated customers $2,264 $ 778 $1,582 $4,624
Cost of sales to unaffiliated customers 1,439 508 1,113 3,060
------ ------ ------ ------
Gross profit from unaffiliated customers $ 825 $ 270 $ 469 $1,564
====== ====== ====== ======
Three months ended March 31, 2003 North America Europe Asia Total
- --------------------------------- ------------- ------ ---- -----
Sales to unaffiliated customers $2,648 $ 559 $1,377 $4,584
Cost of sales to unaffiliated customers 1,892 477 762 3,131
------ ------ ------ ------
Gross profit from unaffiliated customers $ 756 $ 82 $ 615 $1,453
====== ====== ====== ======
In table above "North America" includes all United States operations,
and "Europe" includes subsidiaries in Germany and Israel.
9
ITEM 2. MANAGEMENT'S 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 Company's financial condition, results of operations and liquidity and
capital resources and statements as to management's 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
Company's filings with the Securities and Exchange Commission including its most
recent Registration Statement on Form S-1, and in its most recent Annual Report
on Form 10-K, as amended, a copy of which may be obtained from the Company upon
request and without charge (except for the exhibits thereto).
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage
of revenues for the periods indicated:
THREE-MONTHS ENDED MARCH 31,
----------------------------
2004 2003
---- ----
Revenues 100.0% 100.0%
Gross profit 33.8 31.7
General and administrative 12.7 13.0
Sales and marketing 13.0 13.8
Research and development 5.1 6.3
Operating income (loss) 3.0 (1.4)
Income (loss) before income tax expense 2.5 (2.1)
Net income (loss) 0.3 (3.8)
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003.
Revenues. Revenues for the three months ended March 31, 2004 and 2003
were approximately $4.6 million. Revenues from the satellite and EMC markets
increased approximately $190,000, and $165,000 respectively. Revenues from the
defense and wireless markets decreased approximately $218,000 and $87,000,
respectively. Revenues from the Automotive and University markets remained
stable. Geographically, revenues from Europe and Asia increased approximately
$219,000 and 205,000, respectively while revenues from North America decreased
approximately $384,000 from prior year levels.
Cost of revenues. Cost of revenues for the three months ended March 31,
2004 were approximately $3.0 million compared to approximately $3.1 million for
the three months ended March 31, 2003. Gross margins increased to 34% for the
three months ended March 31, 2004 from 32% for the three months ended March 31,
2003. The increased margins are a result of a more favorable mix of increased
software contracts and improved program management and bid processes.
10
General and administrative expenses. General and administrative expenses
for the three months ended March 31, 2004 were $589,000 compared to $596,000 for
the three months ended March 31, 2003, a decrease of approximately $7,000. As a
percentage of revenues, general and administrative expenses decreased to 12.7%
for the three months ended March 31, 2004 from 13.0% for the three months ended
March 31, 2003.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended March 31, 2004 were $600,000 compared to $631,000 for the three
months ended March 31, 2003, a decrease of approximately $31,000 or 5%. As a
percentage of revenues, sales and marketing expenses decreased to 13.0% for the
three months ended March 31, 2004, from 13.8% for the three months ended March
31, 2003.
Research and development expenses. Research and development expenses for
the three months ended March 31, 2004 were $234,000 compared to $290,000 for the
three months ended March 31, 2003, a decrease of approximately $56,000 or 19%,
due to significant research and development efforts expended during the three
months ended March 31, 2003 on the Company's 959 Spectrum software product. As a
percentage of revenues, research and development expenses decreased to 5.1% for
the three months ended March 31, 2004, from 6.3% for the three months ended
March 31, 2003.
Other loss, net. Other loss, net for the three months ended March 31, 2004
was approximately $25,000 compared to $33,000 for the three months ended March
31, 2003, a decrease of approximately $8,000. The Company recognizes interest
income and expense and foreign currency translation gains and losses as other
income (loss).
Income taxes. Income tax expense for the three months ended March 31, 2004
was $103,000 compared to $76,000 of income tax expense for the three months
ended March 31, 2003, a decrease in expense of $27,000. The Company's income tax
expense for the three months ended March 31, 2004 reflects income taxes recorded
by its profitable foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the three months ended
March 31, 2004 was $149,000 compared to $52,000 provided during the three months
ended March 31, 2003. The Company's net income, adjusted for non cash items,
provided $143,000 of operating cash, compared to $97,000 used in operating
activities during the three months ended March 31, 2003. Changes in the
Company's operating assets and liabilities during the three months ended March
31, 2004 provided an additional $6,000 in operating cash compared to $149,000
provided in the three months ended March 31, 2003.
Net cash used in investing activities during the three months ended March
31, 2004 for the purchase of property and equipment was $43,000. During the
three months ended March 31, 2003 the Company purchased $322,000 in property and
equipment. Approximately $225,000 of the 2003 equipment purchases was invested
in the Company's new absorber manufacturing facility in Santee, California.
The Company has exposure to currency fluctuations as a result of billing
certain of its contracts in foreign currency. When selling to customers in
countries with less stable currencies, the Company bills in U.S. dollars. For
the three months ended March 31, 2004, approximately 80% of the Company's
revenues were billed in U.S. dollars. Substantially all of the costs of the
Company's contracts, including costs subcontracted to the Parent, have been, and
will continue to be, U.S. dollar-denominated except for wages for employees of
the Company's Israeli and German subsidiaries, which are denominated in local
currency. The Company intends to continue to enter into U.S. dollar-denominated
contracts.
11
INFLATION AND SEASONALITY
The Company does not believe that inflation or seasonality has had a
significant effect on the Company's 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 March 31, 2004, we do not believe that a hypothetical 10% change in
foreign currency rates would materially adversely affect our financial position.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date within
45 days of filing date of this quarterly report (the "Evaluation Date"), have
concluded that as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company would be made known to them by others within the
Company, particularly during the period in which this quarterly report was being
prepared. There were no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company's internal
controls and procedures subsequent to the Evaluation Date, nor any significant
deficiencies or material weaknesses in such internal controls and procedures
requiring corrective actions.
12
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 Company's business, operating
results, or financial condition.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NOT APPLICABLE
ITEM 5. OTHER INFORMATION--NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Israel Adan, President and Chief Executive Officer.
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Dave Lubbe, 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,
Israel Adan, 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,
Dave Lubbe, Chief Financial Officer.
b. REPORTS ON FORM 8-K
None.
13
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: May 14, 2004
/s/ Israel Adan
--------------------------------------
President and Chief Executive Officer
Date: May 14, 2004
/s/ Dave Lubbe
--------------------------------------
Chief Financial Officer
14