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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 JUNE 30, 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 August 13, 2004.
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1
ORBIT/FR, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets--June 30, 2004
(Unaudited) and December 31, 2003.................................................... 3
Consolidated Statements of Operations-- Three and six months
ended June 30, 2004 and 2003(Unaudited).............................................. 4
Consolidated Statements of Cash Flows-- Six months
ended June 30, 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................................. 13
Item 4. Controls and procedures................................................................ 13
PART II. Other Information
Item 1. Legal Proceedings...................................................................... 14
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..... 14
Item 3. Defaults upon Senior Securities........................................................ 14
Item 4. Submission of Matters to a Vote of Security Holders.................................... 14
Item 5. Other Information...................................................................... 14
Item 6. Exhibits and Reports on Form 8-K....................................................... 14
Signatures................................................................................................... 15
2
ORBIT/FR, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2004 2003
--------- ------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 1,598 $ 2,413
Accounts receivable, less allowance of $181 and $187
in 2004 and 2003, respectively 3,096 4,026
Inventory 2,348 1,549
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,380 605
Deferred income taxes 274 275
Other 703 465
------- -------
Total current assets 10,399 9,333
Property and equipment, net 1,275 1,401
Deferred income taxes 147 145
Cost in excess of net assets acquired 381 381
------- -------
Total assets $12,202 $11,260
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,627 $ 1,578
Accounts payable--Parent 931 197
Accrued expenses 2,133 1,880
Customer advances 505 456
Income taxes payable 34 19
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,279 1,857
Deferred income taxes 125 125
------- -------
Total liabilities, all current 6,634 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 (9,423) (9,843)
Treasury stock--82,900 shares (243) (243)
------- -------
Total stockholders' equity 5,568 5,148
------- -------
Total liabilities and stockholders' equity $12,202 $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 JUNE 30, SIX MONTHS ENDED JUNE 30,
2004 2003 2004 2003
--------------------------- --------------------------
Contract revenues $ 5,468 $ 3,281 $ 10,092 $ 7,865
Cost of revenues 3,429 2,417 6,489 5,549
----------- ----------- ----------- -----------
Gross profit 2,039 864 3,603 2,316
----------- ----------- ----------- -----------
Operating expenses:
General and administrative 740 609 1,329 1,204
Sales and marketing 611 550 1,211 1,181
Research and development 255 303 489 593
----------- ----------- ----------- -----------
Total operating expenses 1,606 1,462 3,029 2,978
----------- ----------- ----------- -----------
Operating income (loss) 433 (598) 574 (662)
Other expense, net (5) (36) (30) (69)
----------- ----------- ----------- -----------
Income (loss) before income taxes 428 (634) 544 (731)
Income tax expense 21 49 124 125
----------- ----------- ----------- -----------
Net income (loss) $ 407 $ (683) $ 420 $ (856)
=========== =========== =========== ===========
Basic and diluted income (loss) per share $ .07 $ (.11) $ .07 $ (.14)
=========== =========== =========== ===========
Weighted average number
common shares - basic and diluted 6,001,573 6,001,573 6,001,573 6,001,573
=========== =========== =========== ===========
See accompanying notes.
4
ORBIT/FR, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
----------------
2004 2003
------- -------
Cash flows from operating activities:
Net income (loss) $ 420 $ (856)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 206 211
Deferred income tax provision (1) (70)
Changes in operating assets and liabilities:
Accounts receivable 930 1,824
Inventory (799) 225
Costs and estimated earnings in excess of billings
on uncompleted contracts (1,775) (283)
Other current assets (238) (216)
Accounts payable and accrued expenses 302 (55)
Accounts payable--Parent 734 (346)
Customer advances 49 191
Income taxes payable 15 (26)
Billings in excess of costs and estimated earnings
on uncompleted contracts (578) (983)
------- -------
Net cash used in operating activities (735) (384)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (80) (382)
------- -------
Net cash used in investing activities (80) (382)
------- -------
Cash flows from financing activities:
Repayment of note receivable -- 28
------- -------
Net cash provided by financing activities -- 28
------- -------
Net decrease in cash and cash equivalents (815) (738)
Cash and cash equivalents at beginning of period 2,413 3,030
------- -------
Cash and cash equivalents at end of period $ 1,598 $ 2,292
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 80 $ 71
======= =======
See accompanying notes.
5
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 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 its
wholly-owned subsidiary, 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
and six months ended June 30, 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 Rule 10-01 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 in the
Company's Form 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)
JUNE 30, 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 and six months ended June 30, 2004 and 2003 because the effect of these
securities is antidilutive.
3. INVENTORY
Inventory consists of the following:
JUNE 30, DECEMBER 31,
2004 2003
----------- ------------
(UNAUDITED)
Work-in-process $1,599 $ 991
Parts and components 749 558
------ --------
$2,348 $ 1,549
====== ========
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JUNE 30, DECEMBER 31,
2004 2003
----------- ------------
(UNAUDITED)
Lab and computer equipment $2,168 $2,536
Office equipment 823 908
Transportation equipment 395 376
Furniture and fixtures 17 38
Leasehold improvements 281 288
------ -----
3,684 4,146
Less accumulated depreciation 2,409 2,745
------ ------
Property and equipment, net $1,275 $1,401
====== ======
7
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2004
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
JUNE 30, DECEMBER 31,
2004 2003
----------- -----------
(UNAUDITED)
Accrued contract costs $ 384 $ 338
Accrued compensation 982 797
Accrued commissions 116 65
Accrued royalties 118 117
Accrued warranty 331 411
Other accruals 202 152
------ ------
$2,133 $1,880
====== ======
6. LONG-TERM CONTRACTS
JUNE 30, DECEMBER 31,
2004 2003
---------- ------------
(UNAUDITED)
Accumulated expenditures on uncompleted contracts $ 10,110 $ 7,856
Estimated earnings thereon 1,809 560
-------- -------
11,919 8,416
Less: applicable progress billings 10,818 9,668
-------- -------
Total $ 1,101 $(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 $ 2,380 $ 605
Billings on uncompleted contracts in excess of
costs and estimated earnings (1,279) (1,857)
-------- -------
$ 1,101 $(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)
JUNE 30, 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 and six months ended June 30, 2004 and 2003.
Three months ended June 30, 2004 North America Europe Asia Total
- ----------------------------------------- ------------- ------- ---- -----
Sales to unaffiliated customers $ 3,439 $ 1,246 $ 783 $ 5,468
Cost of sales to unaffiliated customers 2,504 565 360 3,429
------- ------- ------- -------
Gross profit unaffiliated customers $ 935 $ 681 $ 423 $ 2,039
======= ======= ======= =======
Three months ended June 30, 2003 North America Europe Asia Total
-------------------------------- ------------- ------- ---- -----
Sales to unaffiliated customers $ 1,736 $ 338 $ 1,207 $ 3,281
Cost of sales to unaffiliated customers 1,273 401 743 2,417
------- ------- ------- -------
Gross profit unaffiliated customers $ 463 $ (63) $ 464 $ 864
======= ======= ======= =======
Six months ended June 30, 2004 North America Europe Asia Total
------------------------------ ------------- ------- ---- -----
Sales to unaffiliated customers $ 5,703 $ 2,024 $ 2,365 $10,092
Cost of sales to unaffiliated customers 3,943 1,073 1,473 6,489
------- ------- ------- -------
Gross profit unaffiliated customers $ 1,760 $ 951 $ 892 $ 3,603
======= ======= ======= =======
Six months ended June 30, 2003 North America Europe Asia Total
------------------------------ ------------- ------- ---- -----
Sales to unaffiliated customers $ 4,384 $ 897 $ 2,584 $ 7,865
Cost of sales to unaffiliated customers 3,166 878 1,505 5,549
------- ------- ------- -------
Gross profit unaffiliated customers $ 1,218 $ 19 $ 1,079 $ 2,316
======= ======= ======= =======
In the table above, "North America" includes all United States operations,
and "Europe" includes subsidiaries in Germany and Israel.
9. INCOME TAXES
Income tax expense was not recorded during the three and six months ended
June 30, 2004 on the Company's profitable domestic operations as previous income
tax benefits on losses were reserved for in prior periods. The Company has
reflected income tax expense on profitable foreign operations during the three
and six months ended June 30, 2004 and 2003.
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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 37.3 26.3 35.7 29.4
General and
administrative 13.5 18.6 13.2 15.3
Sales and marketing 11.2 16.8 12.0 15.0
Research and development 4.7 9.2 4.8 7.5
Operating income (loss) 7.9 (18.2) 5.7 (8.4)
Income (loss) before
income taxes 7.8 (19.3) 5.4 (9.3)
Net income (loss) 7.4 (20.8) 4.2 (10.9)
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003.
Revenues. Revenues for the three months ended June 30, 2004 were
approximately $5.5 million compared to $3.3 million for the three months ended
June 30, 2003, an increase of approximately $2.2 million or 67%. Revenues from
the defense, satellite, automotive, EMC and University markets increased
approximately $1.9 million, $210,000, $204,000, $63,000, and $44,000,
respectively, while revenues from the wireless market decreased approximately
$234,000. Geographically, revenues from North America and Europe increased
approximately $1.7 million and 908,000, respectively, while revenues from Asia
decreased approximately $424,000 from prior year levels. The increased sales are
largely a result of significant completion of large U.S. defense contracts.
Cost of revenues. Cost of revenues for the three months ended June 30,
2004 were approximately $3.4 million compared to approximately $2.4 million for
the three months ended June 30, 2003, an increase
10
of approximately $1.0 million or 42%. Gross margins increased to 37% for the
three months ended June 30, 2004 from 26% for the three months ended June 30,
2003. The increase in gross margins in the quarter is primarily a result of
improvements in the contract bid and program management processes, and increased
revenues resulting in a greater utilization of existing resources.
General and administrative expenses. General and administrative expenses
for the three months ended June 30, 2004 were $740,000 compared to $609,000 for
the three months ended June 30, 2003, an increase of approximately $131,000 or
21%. As a percentage of revenues, general and administrative expenses decreased
to 13.5% for the three months ended June 30, 2004 from 18.6% for the three
months ended June 30, 2003. The increased costs were mostly the result of
investments made in the Company's compliance programs.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended June 30, 2004 were $611,000 compared to $550,000 for the three
months ended June 30, 2003, an increase of approximately $61,000 or 11%. As a
percentage of revenues, sales and marketing expenses decreased to 11.2% for the
three months ended June 30, 2004, from 16.8% for the three months ended June 30,
2003.
Research and development expenses. Research and development expenses for
the three months ended June 30, 2004 were $255,000 compared to $303,000 for the
three months ended June 30, 2003, a decrease of approximately $48,000 or 16%,
The decrease is largely due both to significant research and development efforts
expended during the three months ended June 30, 2003 on the Company's 959
Spectrum software product, and to the Company's ability to utilize its existing
resources to meet contract deadlines in 2004. As a percentage of revenues,
research and development expenses decreased to 4.7% for the three months ended
June 30, 2004, from 9.2% for the three months ended June 30, 2003.
Other expense, net. Other expense, net for the three months ended June 30,
2004 was approximately $5,000 compared to $36,000 for the three months ended
June 30, 2003, a decrease of approximately $31,000. The Company recognizes
interest income and expense and foreign currency translation gains and losses as
other income (expense). Favorable foreign currency translation rates reduced the
Company's other loss in 2004.
Income taxes. Income tax expense for the three months ended June 30, 2004
was $21,000 compared to $49,000 for the three months ended June 30, 2003, a
decrease in expense of $28,000. Income tax expense was not recorded during the
three months ended June 30, 2004 on the Company's profitable domestic operations
as previously recorded income tax benefits on losses were reserved for. The
Company has reflected income tax expense on its profitable foreign operations
during the three months ended June 30, 2004 and 2003.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003.
Revenues. Revenues for the six months ended June 30, 2004 were
approximately $10.1 million, compared to approximately $7.9 million for the six
months ended June 30, 2003, an increase of approximately $2.2 million or 28%.
Revenues from the defense, satellite, automotive, EMC and University markets
increased approximately $1.7 million, $394,000, $214,000, $208,000, and $53,000,
respectively, while revenues from the wireless market decreased approximately
$322,000. Geographically, revenues from North America and Europe increased
approximately $1.7 million and $908,000, respectively while revenues from Asia
decreased approximately $424,000 from prior year levels. The increased sales are
largely a result of significant completion of large U.S. defense contracts.
Cost of revenues. Cost of revenues for the six months ended June 30, 2004
were approximately $6.5 million compared to approximately $5.5 million for the
six months ended June 30, 2003, an increase of approximately $1.0 million or
18%. Gross margins increased to 36% for the six months ended June 30,
11
2004 from 29% for the six months ended June 30, 2003. The increase in gross
margins in the period are largely the result of improvements in contract bid and
program management processes, and i a greater utilization of existing resources.
General and administrative expenses. General and administrative expenses
for the six months ended June 30, 2004 were $1.3 million compared to $1.2
million for the six months ended June 30, 2003,an increase of approximately
$100,000 or 8%. As a percentage of revenues, general and administrative expenses
decreased to 13.2% for the six months ended June 30, 2004 from 15.3 % for the
six months ended June 30, 2003. The increased costs are largely a result of
investments made in the Company's compliance program.
Sales and marketing expenses. Sales and marketing expenses for the six
months ended June 30, 2004 and 2003 were approximately $1.2 million. As a
percentage of revenues, sales and marketing expenses decreased to 12.0% for the
six months ended June 30, 2004, from 15.0% for the six months ended June 30,
2003.
Research and development expenses. Research and development expenses for
the six months ended June 30, 2004 were $489,000 compared to $593,000 for the
six months ended June 30, 2003, a decrease of approximately $104,000 or 18%. The
decrease is due both to significant research and development efforts expended
during the six months ended June 30, 2003 on the Company's 959 Spectrum software
product, and to the Company utilization of its resources to meet contract
deadlines in 2004. As a percentage of revenues, research and development
expenses decreased to 4.8% for the six months ended June 30, 2004, from 7.5% for
the six months ended June 30, 2003.
Other expense, net. Other expense, net for the six months ended June 30,
2004 was approximately $30,000 compared to $69,000 for the six months ended June
30, 2003, a decrease of approximately $39,000. The Company recognizes interest
income and expense and foreign currency translation gains and losses as other
income (expense). Favorable foreign currency translation rates reduced the
Company's other loss in 2004.
Income taxes. Income tax expense for the six months ended June 30, 2004
was $124,000 compared to $125,000 of income tax expense for the six months ended
June 30, 2003. Income tax expense was not recorded during the six months ended
June 30, 2004 on the Company's profitable domestic operations as previously
recorded income tax benefits on losses were reserved for. The Company has
reflected income tax expense on its profitable foreign operations during the six
months ended June 30, 2004 and 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the six months ended June 30,
2004 was $735,000 compared to $384,000 used during the six months ended June 30,
2003. The Company's net income, adjusted for non cash items, provided $625,000
of operating cash during the six months ended June 30, 2004, compared to
$715,000 used in operating activities during the six months ended June 30, 2003.
Changes in the Company's operating assets and liabilities during the six months
ended June 30, 2004 used an additional $1.4 million in operating cash compared
to $331,000 provided during the six months ended June 30, 2003.
Net cash used in investing activities during the six months ended June 30,
2004 for the purchase of property and equipment was $80,000. During the six
months ended June 30, 2003, the Company purchased $382,000 in property and
equipment.
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
12
U.S. dollars. For the six months ended June 30, 2004, approximately 23% 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.
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 June 30, 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 the end of the
period covered by 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 over financial
reporting 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.
13
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.
14
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 13, 2004
/s/ Israel Adan
-------------------------------------
President and Chief Executive Officer
Date: August 13, 2004
/s/ Dave Lubbe
------------------------------------
Chief Financial Officer
15