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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 MARCH 31, 2005
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 [X] No [ ]
There were 6,084,473 shares of common stock, $.01 par value, outstanding
as of May 16, 2005.
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1
ORBIT/FR, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- March 31, 2005
(Unaudited) and December 31, 2004.................................................... 3
Consolidated Statements of Operations-- Three months
ended March 31, 2005 and 2004 (Unaudited)............................................ 4
Consolidated Statements of Cash Flows-- Three months
ended March 31, 2005 and 2004 (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,
2005 2004
--------- ------------
UNAUDITED
ASSETS
Current assets:
Cash and cash equivalents $ 2,009 $ 2,814
Accounts receivable, less allowance of $166 and $164
in 2005 and 2004, respectively 4,725 4,482
Inventory 2,518 2,265
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,449 659
Income tax refunds receivable 260 241
Deferred income taxes 293 293
Other 215 447
--------- ------------
Total current assets 11,469 11,201
Property and equipment, net 1,317 1,376
Deferred income taxes 159 158
Cost in excess of net assets acquired 381 381
--------- ------------
Total assets $ 13,326 $ 13,116
========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,513 $ 1,167
Accounts payable--Parent 471 521
Accrued expenses 2,819 2,674
Customer advances 840 764
Income taxes payable 20
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,316 1,745
Deferred income taxes 125 125
--------- ------------
Total liabilities, all current 7,084 7,016
--------- ------------
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 (8,749) (8,891)
Treasury stock -- 82,900 shares (243) (243)
--------- ------------
Total stockholders' equity 6,242 6,100
--------- ------------
Total liabilities and stockholders' equity $ 13,326 $ 13,116
========= ============
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,
2005 2004
------------ ------------
Contract revenues $ 6,213 $ 4,624
Cost of revenues 4,289 3,060
------------ ------------
Gross profit 1,924 1,564
------------ ------------
Operating expenses:
General and administrative 617 589
Sales and marketing 916 600
Research and development 239 234
------------ ------------
Total operating expenses 1,772 1,423
------------ ------------
Operating income 152 141
Other income (loss), net 9 (25)
------------ ------------
Income before income taxes 161 116
Income tax expense 19 103
------------ ------------
Net income $ 142 $ 13
============ ============
Basic and diluted net income per share $ 0.02 $ 0.00
============ ============
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,
-------------------------
2005 2004
-------- --------
Cash flows from operating activities:
Net income $ 142 $ 13
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 120 121
Deferred income tax benefit (expense) (1) 9
Changes in operating assets and liabilities:
Accounts receivable (243) (11)
Inventory (253) (350)
Costs and estimated earnings in excess of
billings on uncompleted contracts (790) (314)
Income tax refunds receivable (19) --
Other assets 232 (63)
Accounts payable and accrued expenses 491 (100)
Accounts payable--Parent (50) 584
Income taxes payable (20) 22
Customer advances 76 275
Billings in excess of costs and estimated
earnings on uncompleted contracts (429) (37)
-------- --------
Net cash (used in) provided by operating activities (744) 149
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (61) (43)
-------- --------
Net cash used in investing activities (61) (43)
-------- --------
Net increase (decrease) in cash and cash equivalents (805) 106
Cash and cash equivalents at beginning of year 2,814 2,413
-------- --------
Cash and cash equivalents at end of period $ 2,009 $ 2,519
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes $ 81 $ 91
======== ========
See accompanying notes.
5
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2005
(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, 2005 and 2004 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, 2005. 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 Form 10-K for the year ended December 31, 2004, filed on March 31,
2005 with the Securities and Exchange Commission, which included the
consolidated financial statements and footnotes for the year ended December 31,
2004.
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, 2005
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income Per Share
Basic income per share is calculated by dividing net income by the
weighted average common shares outstanding for the period. Diluted income per
share is calculated by dividing net income 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, 2005 and 2004 because the effect of these securities is antidilutive.
3. INVENTORY
Inventory consists of the following:
MARCH 31, DECEMBER 31,
2005 2004
----------- ------------
(UNAUDITED)
Work-in-process $ 1,149 $ 1,460
Parts and components 1,369 805
----------- ------------
$ 2,518 $ 2,265
=========== ============
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
MARCH 31, DECEMBER 31,
2005 2004
----------- ------------
(UNAUDITED)
Lab and computer equipment $ 2,275 $ 2,292
Office equipment 899 963
Transportation equipment 401 396
Furniture and fixtures 13 15
Leasehold improvements 291 290
----------- ------------
3,879 3,956
Less accumulated depreciation 2,562 2,580
----------- ------------
Property and equipment, net $ 1,317 $ 1,376
=========== ============
7
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2005
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consists of the following:
MARCH 31, DECEMBER 31,
2005 2004
----------- ------------
(UNAUDITED)
Accrued contract costs $ 456 $ 602
Accrued compensation 1,376 1,038
Accrued commissions 234 206
Accrued royalties 55 87
Accrued warranty 412 413
Accrued DTC settlement costs 100 100
Other accruals 186 228
----------- ------------
$ 2,819 $ 2,674
=========== ============
6. LONG-TERM CONTRACTS
MARCH 31, DECEMBER 31,
2005 2004
----------- ------------
(UNAUDITED)
Accumulated expenditures on uncompleted contracts $ 10,488 $ 9,578
Estimated earnings thereon 2,358 2,477
----------- ------------
12,846 12,055
Less: applicable progress billings 12,713 13,141
----------- ------------
Total $ 133 $ (1,086)
=========== ============
The long-term contracts are shown in the accompanying balance sheets as follows:
Costs and estimated earnings on uncompleted
contracts in excess of billings $ 1,449 $ 659
Billings on uncompleted contracts in excess of
costs and estimated earnings (1,316) (1,745)
----------- ------------
$ 133 $ (1,086)
=========== ============
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 evaluated on an annual basis.
8
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2005
(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, 2005 and 2004.
Three months ended March 31, 2005 North America Europe Asia Total
- --------------------------------- ------------- ------ ------- -------
Sales to unaffiliated customers $ 3,918 $ 626 $ 1,669 $ 6,213
Cost of sales to unaffiliated customers 2,666 390 1,233 4,289
-------- ------ ------- -------
Gross profit from unaffiliated customers $ 1,252 $ 236 $ 436 $ 1,924
======== ====== ======= =======
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
======== ====== ======= =======
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
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,
----------------------------
2005 2004
-------- --------
Revenues 100.0% 100.0%
Gross profit 31.0 33.8
General and administrative 9.9 12.7
Sales and marketing 14.7 13.0
Research and development 3.8 5.1
Operating income 2.4 3.0
Income before income
tax expense 2.6 2.5
Net income 2.3 0.3
THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004.
Revenues. Revenues for the three months ended March 31, 2005 were
approximately $6.2 million compared to approximately $4.6 million for the three
months ended March 31, 2004, an increase of approximately $1.6 million. Revenues
from the defense, wireless, satellite and university markets increased
approximately $1.1 million, $495,000, $207,000 and $77,000, respectively, while
revenues from the EMC and automotive markets decreased approximately $172,000
and $79,000, respectively. Geographically, revenues from the North america and
Asia increased approximately $1.7 million and $87,000, respectively, while
European revenues decreased approximately $153,000.
Cost of revenues. Cost of revenues for the three months ended March 31,
2005 were approximately $4.3 million compared to approximately $3.1 million for
the three months ended March 31, 2004. Gross margins decreased from 34% to 31%
largely due to an increase in inventory reserves related to certain Asian
contracts.
10
General and administrative expenses. General and administrative expenses
for the three months ended March 31, 2005 were $617,000 compared to $589,000 for
the three months ended March 31, 2004, an increase of approximately $28,000. As
a percentage of revenues, general and administrative expenses decreased to 9.9%
for the three months ended March 31, 2005 from 12.7 % for the three months ended
March 31, 2004.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended March 31, 2005 were $916,000 compared to $600,000 for the three
months ended March 31, 2004, an increase of approximately $316,000 or 53%. The
increased sales and marketing expenses were largely due to sales commissions on
increased revenues and increased marketing efforts in Europe and Asia. As a
percentage of revenues, sales and marketing expenses increased to 14.7% for the
three months ended March 31, 2005, from 13.0% for the three months ended March
31, 2004.
Research and development expenses. Research and development expenses for
the three months ended March 31, 2005 were $239,000 compared to $234,000 for the
three months ended March 31, 2004, an increase of approximately $5,000 or 2%. As
a percentage of revenues, research and development expenses decreased to 3.8%
for the three months ended March 31, 2005 from 5.1% for the three months ended
March 31, 2004.
Other income (loss), net. Other income, net for the three months ended
March 31, 2005 was approximately $9,000 compared to a $25,000 loss for the three
months ended March 31, 2004, a difference of approximately $34,000. 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, 2005
was $19,000 compared to $103,000 for the three months ended March 31, 2004, a
decrease of $84,000. The Company records income tax expense on profitable
operations and income tax benefits on losses recorded by its foreign
subsidiaries where applicable. Income tax expense was not recorded during the
three months ended March 31, 2005 on the Company's profitable domestic
operations as previously recorded deferred income tax benefits on losses were
reserved for.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three months ended March
31, 2005 was $744,000 used in operating activities compared to $149,000 provided
by operating activities during the three months ended March 31, 2004. The
Company's net income, adjusted for non-cash items, provided $261,000 of
operating cash, compared to $143,000 used in operating activities during the
three months ended March 31, 2004. Changes in the Company's operating assets and
liabilities during the three months ended March 31, 2005 used $1.0 million in
operating cash compared to $6,000 provided in the three months ended March 31,
2004.
Net cash used in investing activities during the three months ended March
31, 2005 for the purchase of property and equipment was $61,000 compared to
$43,000 invested during the three months ended March 31, 2004.
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, 2005, approximately 92% 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
11
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 March 31, 2005, 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 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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.
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 16, 2005
/s/ Israel Adan
--------------------------------------------
President and Chief Executive Officer
Date: May 16, 2005
/s/ Dave Lubbe
--------------------------------------------
Chief Financial Officer
14