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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 SEPTEMBER 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 November 15, 2004.
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1
ORBIT/FR, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- September 30, 2004
(Unaudited) and December 31, 2003.....................................................3
Consolidated Statements of Operations -- Three and nine months
ended September 30, 2004 and 2003 (Unaudited).........................................4
Consolidated Statements of Cash Flows -- Nine months
ended September 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...............................................................................14
Signatures...........................................................................................................15
2
ORBIT/FR, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 2,909 $ 2,413
Accounts receivable, less allowance of $147
and $187 in 2004 and 2003, respectively 4,116 4,026
Inventory 2,321 1,549
Costs and estimated earnings in excess of billings
on uncompleted contracts 861 605
Deferred income taxes 266 275
Other 614 465
------- -------
Total current assets 11,087 9,333
Property and equipment, net 1,434 1,401
Deferred income taxes 150 145
Cost in excess of net assets acquired 381 381
------- -------
Total assets $13,052 $11,260
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts
payable $ 1,043 $ 1,578
Accounts payable--Parent 1,227 197
Short-term bank loan 498 --
Accrued expenses 2,247 1,880
Customer advances 412 456
Income taxes payable 17 19
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,488 1,857
Deferred income taxes 125 125
------- -------
Total liabilities, all current 7,057 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 (8,996) (9,843)
Treasury stock -- 82,900 shares (243) (243)
------- -------
Total stockholders' equity 5,995 5,148
------- -------
Total liabilities and stockholders' equity $13,052 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Contract revenues $ 4,977 $ 4,236 $ 15,069 $ 12,101
Cost of revenues 3,113 2,652 9,602 8,201
----------- ----------- ----------- -----------
Gross profit 1,864 1,584 5,467 3,900
----------- ----------- ----------- -----------
Operating expenses:
General and administrative 559 623 1,888 1,828
Sales and marketing 731 765 1,942 1,946
Research and development 228 279 717 872
----------- ----------- ----------- -----------
Total operating expenses 1,518 1,667 4,547 4,646
----------- ----------- ----------- -----------
Operating income (loss) 346 (83) 920 (746)
Other expense, net (9) (16) (39) (85)
----------- ----------- ----------- -----------
Income (loss) before income tax
expense (benefit) 337 (99) 881 (831)
Income tax expense (benefit) (90) 101 34 226
----------- ----------- ----------- -----------
Net income (loss) $ 427 $ (200) $ 847 $ (1,057)
=========== =========== =========== ===========
Basic and diluted income (loss) per share $ 0.07 $ (0.03) $ 0.14 $ (0.18)
=========== =========== =========== ===========
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)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2004 2003
------- -------
Cash flows from operating activities:
Net income (loss) $ 847 $(1,057)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation 304 312
Deferred income tax benefit 5 (52)
Changes in operating assets and liabilities
Accounts receivable (90) 1,751
Inventory (772) 243
Costs and estimated earnings in excess of billings
on uncompleted contracts (256) (424)
Other assets (149) (247)
Accounts payable and accrued expenses (168) 110
Accounts payable--Parent 1,030 (292)
Income taxes payable (2) 6
Customer advances (44) (91)
Billings in excess of costs and estimated earnings
on uncompleted contracts (370) (1,086)
------- -------
Net cash provided by (used in) operating activities 335 (827)
Cash flows from investing activities:
Purchase of equipment (337) (443)
------- -------
Net cash used in investing activities (337) (443)
------- -------
Cash flows from financing activities:
Short-term bank loan 498 --
Repayment of note receivable -- 36
------- -------
Net cash provided by financing activities 498 36
------- -------
Net increase (decrease) in cash and cash equivalents 496 (1,234)
Cash and cash equivalents at beginning of period 2,413 3,030
------- -------
Cash and cash equivalents at end of period $ 2,909 $ 1,796
======= =======
Supplemental disclosures of cash flow information:
Net cash paid during the period for income taxes $ 126 $ 213
======= =======
See accompanying notes
5
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 nine months ended September 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)
SEPTEMBER 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 presented
for the three and nine months ended September 30, 2004 and 2003 because the
effect of these securities is antidilutive.
3. INVENTORY
Inventory consists of the following:
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
(UNAUDITED)
Work-in-process $1,575 $ 991
Parts and components 746 558
------ ------
$2,321 $1,549
====== ======
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
(UNAUDITED)
Lab and computer equipment $2,272 $2,536
Office equipment 933 908
Transportation equipment 397 376
Furniture and fixtures 16 38
Leasehold improvements 294 288
------ ------
3,912 4,146
Less accumulated depreciation 2,478 2,745
------ ------
Property and equipment, net $1,434 $1,401
====== ======
7
ORBIT/FR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2004
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
(UNAUDITED)
Accrued contract costs $ 368 $ 338
Accrued compensation 1,007 797
Accrued commissions 195 65
Accrued royalties 80 117
Accrued warranty 351 411
Other accruals 246 152
------ ------
$2,247 $1,880
====== ======
6. LONG-TERM CONTRACTS
SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------
(UNAUDITED)
Accumulated expenditures on uncompleted contracts $ 10,984 $ 7,856
Estimated earnings thereon 1,404 560
-------- --------
12,388 8,416
Less: applicable progress billings 13,015 9,668
-------- --------
Total $ (627) $ (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 $ 861 $ 605
Billings on uncompleted contracts in excess of
costs and estimated earnings (1,488) (1,857)
-------- --------
$ (627) $ (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)
SEPTEMBER 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 nine months ended September 30, 2004 and 2003.
Three months ended September 30, 2004 North America Europe Asia Total
- ------------------------------------- ------------- ------ ------ ------
Sales to unaffiliated customers $2,888 $1,064 $1,025 $4,977
Cost of sales to unaffiliated customers 1,644 822 647 3,113
------ ------ ------ ------
Gross profit unaffiliated customers $1,244 $ 242 $ 378 $1,864
====== ====== ====== ======
Three months ended September 30, 2003 North America Europe Asia Total
- ------------------------------------- ------------- ------ ------ ------
Sales to unaffiliated customers $1,667 $ 715 $1,854 $4,236
Cost of sales to unaffiliated customers 1,008 486 1,158 2,652
------ ------ ------ ------
Gross profit unaffiliated customers $ 659 $ 229 $ 696 $1,584
====== ====== ====== ======
Nine months ended September 30, 2004 North America Europe Asia Total
- ------------------------------------ ------------- ------- ------- -------
Sales to unaffiliated customers $ 8,591 $ 3,088 $ 3,390 $15,069
Cost of sales to unaffiliated customers 5,587 1,896 2,119 9,602
------- ------- ------- -------
Gross profit unaffiliated customers $ 3,004 $1,192 $ 1,271 $ 5,467
======= ======= ======= =======
Nine months ended September 30, 2003 North America Europe Asia Total
- ------------------------------------ ------------- ------- ------- -------
Sales to unaffiliated customers $ 6,051 $ 1,612 $ 4,438 $12,101
Cost of sales to unaffiliated customers 4,173 1,364 2,664 8,201
------- ------- ------- -------
Gross profit unaffiliated customers $ 1,878 $ 248 $ 1,774 $ 3,900
======= ======= ======= =======
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 nine months ended
September 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 nine months ended September 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
----- ----- ----- -----
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 37.5 37.4 36.3 32.2
General and administrative 11.2 14.7 12.5 15.1
Sales and marketing 14.7 18.1 12.9 16.1
Research and development 4.6 6.6 4.8 7.2
Operating income (loss) 7.0 (2.0) 6.1 (6.2)
Income (loss) before
income tax expense (benefit) 6.8 (2.3) 5.9 (6.9)
Net income (loss) 8.6 (4.7) 5.6 (8.7)
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003.
Revenues. Revenues for the three months ended September 30, 2004 were
approximately $5.0 million compared to $4.2 million for the three months ended
September 30, 2003, an increase of approximately $741,000 or 17.5%. Revenues
from the defense, satellite, automotive and university markets increased
approximately $697,000, $399,000, $148,000, and $38,000 respectively, while
revenues from the wireless and EMC market decreased approximately $510,000 and
$31,000. Geographically, revenues from North America and Europe increased
approximately $1.2 million and 349,000, respectively, while revenues from Asia
decreased approximately $829,000 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 September
30, 2004 were approximately $3.1 million compared to approximately $2.7 million
for the three months ended September
10
30, 2003, an increase of approximately $461,000 or 17.4%. Gross margins remained
stable at approximately 37% for both periods.
General and administrative expenses. General and administrative
expenses for the three months ended September 30, 2004 were $559,000 compared to
$623,000 for the three months ended September 30, 2003, a decrease of
approximately $64,000 or 10%. As a percentage of revenues, general and
administrative expenses decreased to 11.2% for the three months ended September
30, 2004 from 14.7% for the three months ended September 30, 2003. The decreased
costs were mostly the result of investments made in the Company's compliance
programs during 2003.
Sales and marketing expenses. Sales and marketing expenses for the
three months ended September 30, 2004 were $731,000 compared to $765,000 for the
three months ended September 30, 2003, a decrease of approximately $34,000 or
4%. As a percentage of revenues, sales and marketing expenses decreased to 14.7%
for the three months ended September 30, 2004 from 18.1% for the three months
ended September 30, 2003.
Research and development expenses. Research and development expenses
for the three months ended September 30, 2004 were $228,000 compared to $279,000
for the three months ended September 30, 2003, a decrease of approximately
$51,000 or 18%. The decrease is largely due both to significant research and
development efforts expended during the three months ended September 30, 2003 on
the Company's 959 Spectrum software product, and to the Company's utilization of
its existing resources to meet contract deadlines in 2004. As a percentage of
revenues, research and development expenses decreased to 4.6% for the three
months ended September 30, 2004 from 6.6% for the three months ended September
30, 2003.
Other expense, net. Other expense, net for the three months ended
September 30, 2004 was approximately $9,000 compared to $16,000 for the three
months ended September 30, 2003, a decrease of approximately $7,000. The Company
recognizes interest income and expense and foreign currency translation gains
and losses as other expense. Favorable foreign currency translation rates
reduced the Company's other expense in 2004.
Income taxes. Income tax benefit for the three months ended September
30, 2004 was $90,000 compared to an expense of $101,000 for the three months
ended September 30, 2003, a decrease in expense of $191,000. Income tax expense
was not recorded during the three months ended September 30, 2004 on the
Company's profitable domestic operations as previously recorded income tax
benefits on losses were reserved for. The Company has reflected an income tax
benefit on its foreign operations during the three months ended September 30,
2004 and an income tax expense during the three months ended September 30, 2003.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2003.
Revenues. Revenues for the nine months ended September 30, 2004 were
approximately $15.1 million, compared to approximately $12.1 million for the
nine months ended September 30, 2003, an increase of approximately $3.0 million
or 25%. Revenues from the defense, satellite, automotive, EMC and University
markets increased approximately $2.4 million, $793,000, $361,000, $178,000 and
$91,000, respectively, while revenues from the wireless market decreased
$832,000. Geographically, revenues from North America and Europe increased
approximately $2.5 million and $1.5 million, respectively while revenues from
Asia decreased approximately $1.0 million 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 nine months ended September
30, 2004 were approximately $9.6 million compared to approximately $8.2 million
for the nine months ended September 30, 2003, an increase of approximately $1.4
million or 17%. Gross margins increased to 36.3% for the nine
11
months ended September 30, 2004 from 32.3% for the nine months ended September
30, 2003. The increase in gross margins in the period are largely the result of
improvements in contract bid and program management processes, and a greater
utilization of existing resources.
General and administrative expenses. General and administrative
expenses for the nine months ended September 30, 2004 were approximately $1.9
million compared to approximately $1.8 million for the nine months ended
September 30, 2003, an increase of approximately $60,000 or 3%. As a percentage
of revenues, general and administrative expenses decreased to 12.5% for the nine
months ended September 30, 2004 from 15.1% for the nine months ended September
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 nine
months ended September 30, 2004 and 2003 were approximately $1.9 million. As a
percentage of revenues, sales and marketing expenses decreased to 12.9% for the
nine months ended September 30, 2004 from 16.1% for the nine months ended
September 30, 2003.
Research and development expenses. Research and development expenses
for the nine months ended September 30, 2004 were $717,000 compared to $872,000
for the nine months ended September 30, 2003, a decrease of approximately
$155,000 or 18%. The decrease is due both to significant research and
development efforts expended during the nine months ended September 30, 2003 on
the Company's 959 Spectrum software product, and to the Company's 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 nine months ended
September 30, 2004 from 7.2% for the nine months ended September 30, 2003.
Other expense, net. Other expense, net for the nine months ended
September 30, 2004 was approximately $39,000 compared to $85,000 for the nine
months ended September 30, 2003, a decrease of approximately $46,000. The
Company recognizes interest income and expense and foreign currency translation
gains and losses as other expense. Favorable foreign currency translation rates
reduced the Company's other expense in 2004.
Income taxes. Income tax expense for the nine months ended September
30, 2004 was $34,000 compared to $226,000 of income tax expense for the nine
months ended September 30, 2003. Income tax expense was not recorded during the
nine months ended September 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 nine months ended September 30, 2004 and 2003.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the nine months ended
September 30, 2004 was $335,000 compared to $827,000 used in operating
activities during the nine months ended September 30, 2003. The Company's net
income, adjusted for non cash items, provided $1.2 million of operating cash
during the nine months ended September 30, 2004, compared to $797,000 used in
operating activities during the nine months ended September 30, 2003. Changes in
the Company's operating assets and liabilities during the nine months ended
September 30, 2004 used $821,000 in operating cash compared to $30,000 used
during the nine months ended September 30, 2003.
Net cash used in investing activities during the nine months ended
September 30, 2004 for the purchase of property and equipment was $337,000.
During the nine months ended September 30, 2003, the Company purchased $443,000
in property and equipment.
The Company obtained $498,000 of short-term bank financing during the
nine months ended September 30, 2004.
12
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 nine months ended September 30, 2004, approximately 81% 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 September 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
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.
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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.
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Registrant
Date: November 15, 2004
/s/ Israel Adan
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President and Chief Executive Officer
Date: November 15, 2004
/s/ Dave Lubbe
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Chief Financial Officer
15