United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
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o |
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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 001-33118
ORBCOMM INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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41-2118289 |
(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
2115 Linwood Avenue, Fort Lee, New Jersey 07024
(Address of principal executive offices)
(201) 363-4900
(Registrants telephone number)
N/A
(Former name, former address and formal fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock as of August 3, 2011 is
45,668,525.
TABLE OF CONTENTS
ORBCOMM Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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June 30, |
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December 31, |
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2011 |
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2010 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
24,718 |
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$ |
17,026 |
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Restricted cash |
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1,000 |
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1,000 |
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Marketable securities |
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54,788 |
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67,902 |
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Accounts receivable, net of allowances for doubtful accounts of $511 and
$557 |
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8,350 |
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4,536 |
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Inventories |
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2,139 |
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172 |
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Prepaid expenses and other current assets |
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1,721 |
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1,377 |
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Deferred income taxes |
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90 |
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117 |
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Total current assets |
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92,806 |
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92,130 |
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Satellite network and other equipment, net |
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73,486 |
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71,684 |
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Goodwill |
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9,099 |
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Intangible assets, net |
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7,876 |
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1,114 |
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Restricted cash |
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2,220 |
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3,030 |
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Deferrred income taxes |
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105 |
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141 |
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Other assets |
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1,383 |
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1,092 |
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Other investment |
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2,278 |
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Total assets |
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$ |
186,975 |
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$ |
171,469 |
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LIABILITIES AND EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
3,272 |
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$ |
2,143 |
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Accrued liabilities |
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6,861 |
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6,043 |
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Current portion of note payable |
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125 |
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Current portion of deferred revenue |
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2,286 |
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2,134 |
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Total current liabilities |
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12,544 |
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10,320 |
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Note payable related party |
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1,606 |
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1,416 |
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Note payable, net of current portion |
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3,490 |
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Deferred revenue, net of current portion |
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1,400 |
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1,239 |
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Other liabilities |
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258 |
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375 |
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Total liabilities |
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19,298 |
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13,350 |
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Commitments and contingencies |
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Equity: |
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ORBCOMM Inc. stockholders equity |
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Series A
convertible preferred stock, par value $0.001; 1,000,000 shares authorized;
183,550 and 0 shares issued and outstanding |
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1,834 |
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Common stock, par value $0.001; 250,000,000 shares authorized;
45,630,194 and 42,616,950 shares issued and outstanding |
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46 |
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43 |
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Additional paid-in capital |
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243,260 |
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234,125 |
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Accumulated other comprehensive income |
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1,206 |
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1,126 |
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Accumulated deficit |
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(77,856 |
) |
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(76,584 |
) |
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Total ORBCOMM Inc. stockholders equity |
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168,490 |
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158,710 |
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Noncontrolling interests |
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(813 |
) |
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(591 |
) |
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Total equity |
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167,677 |
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158,119 |
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Total liabilities and equity |
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$ |
186,975 |
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$ |
171,469 |
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See notes to condensed consolidated financial statements.
1
ORBCOMM Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2011 |
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2010 |
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2011 |
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2010 |
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Revenues: |
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Service revenues |
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$ |
8,980 |
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$ |
7,277 |
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$ |
16,377 |
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$ |
14,159 |
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Product sales |
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1,829 |
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|
560 |
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2,315 |
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1,095 |
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Total revenues |
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10,809 |
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7,837 |
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18,692 |
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15,254 |
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Costs and expenses (1): |
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Costs of services |
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3,775 |
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3,060 |
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7,238 |
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6,196 |
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Costs of product sales |
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1,366 |
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349 |
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1,656 |
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|
672 |
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Selling, general and administrative |
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4,649 |
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|
4,020 |
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9,070 |
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|
8,182 |
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Product development |
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|
281 |
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159 |
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|
455 |
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|
323 |
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Acquisition-related costs |
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|
778 |
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1,035 |
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Total costs and expenses |
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10,849 |
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7,588 |
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19,454 |
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|
15,373 |
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Income (loss) from operations |
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|
(40 |
) |
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|
249 |
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|
(762 |
) |
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(119 |
) |
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Other income (expense): |
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Interest income |
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44 |
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|
55 |
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|
98 |
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|
92 |
|
Other income (expense) |
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|
(307 |
) |
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|
39 |
|
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|
(206 |
) |
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|
(81 |
) |
Interest expense |
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|
(78 |
) |
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(48 |
) |
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(126 |
) |
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(96 |
) |
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Total other income (expense) |
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(341 |
) |
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|
46 |
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|
(234 |
) |
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|
(85 |
) |
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Income (loss) from continuing operations before income taxes |
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|
(381 |
) |
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|
295 |
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|
(996 |
) |
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(204 |
) |
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Income taxes |
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|
195 |
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|
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|
306 |
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Income (loss) from continuing operations |
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|
(576 |
) |
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|
295 |
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|
(1,302 |
) |
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(204 |
) |
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Loss from discontinued operations |
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(3,479 |
) |
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|
|
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|
(3,570 |
) |
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Net loss |
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(576 |
) |
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|
(3,184 |
) |
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(1,302 |
) |
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(3,774 |
) |
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Less: Net income (loss) attributable to the noncontrolling interests |
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(35 |
) |
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|
112 |
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(30 |
) |
|
|
257 |
|
|
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Net loss attributable to ORBCOMM Inc. |
|
$ |
(541 |
) |
|
$ |
(3,296 |
) |
|
$ |
(1,272 |
) |
|
$ |
(4,031 |
) |
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Net loss attributable to ORBCOMM Inc.: |
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|
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Income (loss) from continuing operations |
|
$ |
(541 |
) |
|
$ |
183 |
|
|
$ |
(1,272 |
) |
|
$ |
(461 |
) |
Loss from discontinued operations |
|
|
|
|
|
|
(3,479 |
) |
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|
|
|
|
|
(3,570 |
) |
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Net loss attributable to ORBCOMM Inc. |
|
$ |
(541 |
) |
|
$ |
(3,296 |
) |
|
$ |
(1,272 |
) |
|
$ |
(4,031 |
) |
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Per share information-basic: |
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Income (loss) from continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
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|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
Loss from discontinued operations |
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|
|
|
|
(0.08 |
) |
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|
|
(0.08 |
) |
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Net loss attributable to ORBCOMM Inc. |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.09 |
) |
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Per share information-diluted: |
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Income (loss) from continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.00 |
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|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
Loss from discontinued operations |
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|
(0.08 |
) |
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(0.08 |
) |
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|
Net loss attributable to ORBCOMM Inc. |
|
$ |
(0.01 |
) |
|
$ |
(0.08 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.09 |
) |
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Weighted average common shares outstanding: |
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Basic |
|
|
44,211 |
|
|
|
42,563 |
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|
|
43,472 |
|
|
|
42,561 |
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Diluted |
|
|
44,211 |
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|
|
42,613 |
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|
|
43,472 |
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|
|
42,561 |
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(1) Stock-based compensation included in costs and expenses: |
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|
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|
|
|
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|
|
|
Costs of services |
|
$ |
25 |
|
|
$ |
29 |
|
|
$ |
60 |
|
|
$ |
43 |
|
Selling, general and administrative |
|
|
364 |
|
|
|
557 |
|
|
|
589 |
|
|
|
973 |
|
Product development |
|
|
7 |
|
|
|
6 |
|
|
|
10 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
396 |
|
|
$ |
592 |
|
|
$ |
659 |
|
|
$ |
1,024 |
|
|
|
|
|
|
|
|
|
|
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|
|
See notes to condensed consolidated financial statements.
2
ORBCOMM Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
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|
|
Six months ended |
|
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|
June 30, |
|
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|
2011 |
|
|
2010 |
|
Cash flows from operating activities: |
|
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|
|
|
|
|
|
Net loss |
|
$ |
(1,302 |
) |
|
$ |
(3,774 |
) |
Adjustments to reconcile net loss to net cash provided by |
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|
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|
|
|
|
operating activities: |
|
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|
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|
|
|
Change in allowance for doubtful accounts |
|
|
(46 |
) |
|
|
(232 |
) |
Depreciation and amortization |
|
|
2,550 |
|
|
|
2,301 |
|
Accretion on note payable related party |
|
|
66 |
|
|
|
66 |
|
Amortization
of debt discount for the 6% secured promissory note issued in
connection with the acquisition of StarTrak
|
|
|
3 |
|
|
|
|
|
Loss on disposition of other investment in Alanco
|
|
|
305 |
|
|
|
|
|
Stock-based compensation |
|
|
659 |
|
|
|
1,024 |
|
Foreign exchange (gains) losses |
|
|
(10 |
) |
|
|
83 |
|
Amortization of premium on marketable securities |
|
|
801 |
|
|
|
384 |
|
Deferred income taxes |
|
|
65 |
|
|
|
|
|
Gain on settlement of vendor liabilities |
|
|
|
|
|
|
(220 |
) |
Dividend
received in common stock from other investment |
|
|
(84 |
) |
|
|
|
|
Impairment charge-net assets held for sale |
|
|
|
|
|
|
3,261 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,223 |
) |
|
|
(621 |
) |
Inventories |
|
|
119 |
|
|
|
11 |
|
Prepaid expenses and other assets |
|
|
(24 |
) |
|
|
(50 |
) |
Accounts payable and accrued liabilities |
|
|
(315 |
) |
|
|
(803 |
) |
Deferred revenue |
|
|
(85 |
) |
|
|
(359 |
) |
Other liabilities |
|
|
(61 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing operations |
|
|
418 |
|
|
|
1,071 |
|
Net cash provided by operating activities of discontinued operations |
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
418 |
|
|
|
1,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(3,844 |
) |
|
|
(2,655 |
) |
Purchases of marketable securities |
|
|
(47,497 |
) |
|
|
(91,800 |
) |
Proceeds from maturities of marketable securities |
|
|
59,810 |
|
|
|
45,070 |
|
Purchase of other investment |
|
|
|
|
|
|
(1,356 |
) |
Acquisition of net assets of StarTrak, net of cash acquired of $321 |
|
|
(1,876 |
) |
|
|
|
|
Change in restricted cash |
|
|
810 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities of continuing operations |
|
|
7,403 |
|
|
|
(50,791 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Principal payment of note payable |
|
|
(200 |
) |
|
|
|
|
Payment upon exercise of SARs |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
95 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
7,692 |
|
|
|
(49,663 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
17,026 |
|
|
|
65,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
24,718 |
|
|
$ |
15,629 |
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Capital expenditures incurred not yet paid |
|
$ |
806 |
|
|
$ |
1,260 |
|
|
|
|
|
|
|
|
Stock-based compensation included in capital expenditures |
|
$ |
29 |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
Accounts receivable exchanged and deferred credit issued as part of
consideration for other investment |
|
$ |
|
|
|
$ |
894 |
|
|
|
|
|
|
|
|
Gateway and components recorded in inventory in prior years and
used for construction under satellite network and other equipment |
|
$ |
53 |
|
|
$ |
129 |
|
|
|
|
|
|
|
|
Common stock issued as a form of payment for bonus |
|
$ |
125 |
|
|
$ |
|
|
|
|
|
|
|
|
|
6% secured
promissory note issued in connection with the acquisition of
StarTrak |
|
$ |
3,812 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Series A
convertible preferred stock issued in connection with the acquisition of
StarTrak |
|
$ |
1,834 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Common stock issued in connection with the acquisition of StarTrak |
|
$ |
8,349 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Cost method investment
in Alanco delivered back to Alanco in connection with the acquisition
of StarTrak |
|
$ |
2,050 |
|
|
$ |
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
3
ORBCOMM Inc.
Condensed Consolidated Statements of Changes in Equity
Six months ended June 30, 2011 and 2010
(in thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A convertible preferred stock |
|
|
Common stock |
|
|
Additional
paid-in |
|
|
Accumulated
other
comprehensive |
|
|
Accumulated |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
income |
|
|
deficit |
|
|
interests |
|
|
equity |
|
Balances, January 1, 2011 |
|
|
|
|
|
$ |
|
|
|
|
42,616,950 |
|
|
$ |
43 |
|
|
$ |
234,125 |
|
|
$ |
1,126 |
|
|
$ |
(76,584 |
) |
|
$ |
(591 |
) |
|
$ |
158,119 |
|
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
109,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
688 |
|
Common stock issued for payment of bonus |
|
|
|
|
|
|
|
|
|
|
34,115 |
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
Issuance of
Series A convertible preferred stock in connection with the
acquisition of StarTrak |
|
|
183,550 |
|
|
|
1,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,834 |
|
Issuance of
common stock in connection with the acquisition of StarTrak |
|
|
|
|
|
|
|
|
|
|
2,869,172 |
|
|
|
3 |
|
|
|
8,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,349 |
|
Payment for exercise of SARs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,272 |
) |
|
|
(30 |
) |
|
|
(1,302 |
) |
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80 |
|
|
|
|
|
|
|
(192 |
) |
|
|
(112 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2011 |
|
|
183,550 |
|
|
$ |
1,834 |
|
|
|
45,630,194 |
|
|
$ |
46 |
|
|
$ |
243,260 |
|
|
$ |
1,206 |
|
|
$ |
(77,856 |
) |
|
$ |
(813 |
) |
|
$ |
167,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, January 1, 2010 |
|
|
|
|
|
$ |
|
|
|
|
42,455,531 |
|
|
$ |
42 |
|
|
$ |
230,512 |
|
|
$ |
76 |
|
|
$ |
(71,415 |
) |
|
$ |
1,703 |
|
|
$ |
160,918 |
|
Vesting of restricted stock units |
|
|
|
|
|
|
|
|
|
|
108,086 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,038 |
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,031 |
) |
|
|
257 |
|
|
|
(3,774 |
) |
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
372 |
|
|
|
|
|
|
|
75 |
|
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2010 |
|
|
|
|
|
$ |
|
|
|
|
42,563,617 |
|
|
$ |
43 |
|
|
$ |
231,550 |
|
|
$ |
448 |
|
|
$ |
(75,446 |
) |
|
$ |
2,035 |
|
|
$ |
158,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
1. Overview
ORBCOMM Inc. (ORBCOMM or the Company), a Delaware corporation, is a global
wireless data communications company focused on machine-to-machine (M2M)
communications. The Companys services are designed to enable businesses and
government agencies to track, monitor, control and communicate with fixed and
mobile assets. The Company operates a two-way global wireless data messaging
system optimized for narrowband data communication. The Company also provides
customers with technology to proactively monitor, manage and remotely control
refrigerated transportation assets. This recently acquired technology enables
the Company to expand its global technology platform by transferring capabilities
across new and existing vertical markets and deliver complementary products to
our channel partners and resellers worldwide. The Company provides these services
through a constellation of 27 owned and operated low-Earth orbit satellites and
accompanying ground infrastructure, and also provides terrestrial-based cellular
communication services through reseller agreements with major cellular wireless
providers. The Companys satellite-based system uses small, low power, fixed or
mobile satellite subscriber communicators (Communicators) for connectivity,
and cellular wireless subscriber identity modules, or SIMS, are connected to the
cellular wireless providers networks, with data gathered over these systems is
capable of being connected to other public or private networks, including the
Internet (collectively, the ORBCOMM System).
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared
pursuant to the rules of the Securities and Exchange Commission (the SEC). Certain information
and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) have been condensed or
omitted pursuant to SEC rules. These financial statements should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended December 31, 2010.
In the opinion of management, the financial statements as of
June 30, 2011 and for the three and
six-month periods ended June 30, 2011 and 2010 include all adjustments (including normal
recurring accruals) necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows for the periods presented. The results of operations for
the interim periods are not necessarily indicative of the results to be expected for the full
year.
The financial statements include the accounts of the Company, its wholly-owned and
majority-owned subsidiaries, and investments in variable interest entities in which the Company
is determined to be the primary beneficiary. All significant intercompany accounts and
transactions have been eliminated in consolidation. The portions of majority-owned subsidiaries
that the Company does not own are reflected as noncontrolling interests in the condensed
consolidated balance sheets.
Investments in entities over which the Company has the ability to exercise significant influence
but does not have a controlling interest are accounted for under the equity method of
accounting. The Company considers several factors in determining whether it has the ability to
exercise significant influence with respect to investments, including, but not limited to,
direct and indirect ownership level in the voting securities, active participation on the board
of directors, approval of operating and budgeting decisions and other participatory and
protective rights. Under the equity method, the Companys proportionate share of the net income
or loss of such investee is reflected in the Companys consolidated results of operations.
Although the Company owns interests in companies that it accounts for pursuant to the equity
method, the investments in those entities had no carrying value as of June 30, 2011 and December
31, 2010. The Company has no guarantees or other funding obligations to those entities. The
Company had no equity or losses of those investees for the three and six months ended June 30,
2011 and 2010.
Noncontrolling interests in companies are accounted for by the cost method where the Company
does not exercise significant influence over the investee.
5
The Company has incurred losses from inception
including a net loss of $1,272 for the six months
ended June 30, 2011 and as of June 30, 2011 the Company has
an accumulated deficit of $77,856.
As of June 30, 2011, the Companys primary source of liquidity consisted of cash, cash
equivalents, restricted cash and marketable securities totaling $82,726, which the Company
believes will be sufficient to provide working capital and milestone payments for its
next-generation satellites for the next twelve months.
Acquisition costs and loss on other investment
Acquisition-related costs directly relate to the acquisition of
substantially all of the assets of StarTrak Systems, LLC from Alanco
Technologies, Inc.,(Alanco). These costs include
professional services expenses. For the three and six months ended June 30, 2011
acquisition-related costs were $778 and $1,035, respectively.
In connection with the acquisition of StarTrak, the Company recognized a loss of $305
on the disposition of its investment in Alanco for the difference
between the fair value and the carrying value. The
amount of the loss was recorded in other income (expense) in the
statement of operations for the three and six months ended June 30,
2011.
Fair Value of Financial instruments
The Company has no financial assets or liabilities that are measured at fair value on a
recurring basis. However, if certain triggering events occur the Company is required to evaluate
the non-financial assets for impairment and any resulting asset impairment would require that a
non-financial asset be recorded at the fair value. FASB Topic ASC 820 Fair Value Measurement
Disclosures , prioritizes inputs used in measuring fair value into a hierarchy of three
levels: Level 1- unadjusted quoted prices for identical assets or liabilities traded in active
markets, Level 2- inputs other than quoted prices included within Level 1 that are either
directly or indirectly observable; and Level 3- unobservable inputs in which little or no market
activity exists, therefore requiring an entity to develop its own assumptions that market
participants would use in pricing.
The carrying value of the Companys financial instruments, including cash, accounts receivable,
note receivable, accounts payable and accrued expenses approximated their fair value due to the
short-term nature of these items. The fair value of the Note payable-related party is de
minimis. The carrying value of the 6% secured promissory note
approximates the fair value (See Note 3).
Marketable securities
Marketable securities consist of debt securities including U.S. government and agency
obligations, corporate obligations and FDIC-insured certificates of deposit, which have stated
maturities ranging from three months to less than one year. The Company classifies these
securities as held-to-maturity since it has the positive intent and ability to hold until
maturity. These securities are carried at amortized cost. The changes in the value of these
marketable securities, other than impairment charges, are not reported in the condensed
consolidated financial statements. The fair value of the Companys marketable securities
approximate their carrying value (See Note 8).
Concentration of credit risk
The Companys customers are primarily commercial organizations. Accounts receivable are
generally unsecured.
Accounts receivable are due in accordance with payment terms included in contracts negotiated
with customers. Amounts due from customers are stated net of an allowance for doubtful accounts.
Accounts that are outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance for doubtful accounts by considering a number of factors,
including the length of time accounts are past due, the customers current ability to pay its
obligations to the Company, and the condition of the general economy and the industry as a
whole. The Company writes-off accounts receivable when they are deemed uncollectible.
6
The following table presents customers with revenues greater than 10% of the Companys
consolidated total revenues for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended |
|
|
Six Months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Caterpillar Inc. |
|
|
22.9 |
% |
|
|
13.8 |
% |
|
|
23.6 |
% |
|
|
13.5 |
% |
Komatsu Ltd. |
|
|
15.5 |
% |
|
|
15.4 |
% |
|
|
16.8 |
% |
|
|
13.7 |
% |
Hitachi Construction
Machinery Co., Ltd. |
|
|
|
|
|
|
11.8 |
% |
|
|
10.1 |
% |
|
|
12.8 |
% |
Asset Intelligence |
|
|
|
|
|
|
11.5 |
% |
|
|
|
|
|
|
11.5 |
% |
7
The following table presents customers with accounts receivable greater than 10% of the
Companys consolidated accounts receivable for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Caterpillar Inc. |
|
|
30.4 |
% |
|
|
19.9 |
% |
Asset Intelligence |
|
|
12.7 |
% |
|
|
20.3 |
% |
The Company does not currently maintain in-orbit insurance coverage for its satellites to
address the risk of potential systemic anomalies, failures or catastrophic events affecting its
satellite constellation. If the Company experiences significant uninsured losses, such events
could have a material adverse impact on the Companys business.
Inventories
Inventories
are stated at the lower of cost or market, determined on a first-in, first-out
basis. Inventory consists primarily of raw materials and purchased parts to be utilized by its
contract manufacturer. The Company reviews inventory quantities on hand and evaluates the
realizability of inventories and adjusts the carrying value as necessary based on forecasted
product demand. Provision is made for potential losses on slow moving and obsolete inventories
when identified.
Warranty
Costs and deferred revenues
The Company accrues for StarTraks
one-year warranty coverage on product sales estimated at the time of sale based on historical
costs to repair or replace products for customers compared to historical product revenues of
StarTrak. As the Company continues to gather additional information these accrual estimates may
differ from actual results and adjustments to the estimated warranty liability would be required.
The warranty accrual is included in accrued liabilities.
The
Company also offers to its StarTrak customers extended warranty
service agreements beyond the initial warranty for a fee. These fees
are recorded as deferred revenue and recognized ratably into income
over the life of the extended warranty contract.
Income taxes
As part of the Companys accounting for the acquisition
of StarTrak, a portion of the purchase price was allocated to goodwill. The acquired goodwill is deductible for tax purposes
and amortized over fifteen years for income tax purposes.
Under GAAP, the acquired goodwill is not amortized in the Companys financial statements, as such, a deferred income tax expense and a deferred tax liability arise as
a result of the tax deductibility for this amount for tax purposes but not for financial statement purposes. The resulting deferred tax liability, which is expected to continue to increase over
time will remain on the Companys balance sheet indefinitely unless there is an impairment of the asset (See Note 3).
For the three and six months ended June 30, 2011, the Company recorded an income tax provision
of $195 and $306, respectively, consisting of income generated by ORBCOMM Japan and
a deferred income tax expense related to the acquired goodwill from
the acquisition of StarTrak. As of June 30, 2011, the Company maintained a valuation allowance against all of its
net deferred tax assets, excluding goodwill, attributable to operations in the United States and all other foreign
jurisdictions, except for Japan, as the realization of such assets was not considered more
likely than not.
As of June 30, 2010, the Company maintained a valuation allowance against all net deferred tax
assets attributable to all operations in the United States and all foreign jurisdictions as the
realization of such assets was not considered more likely than not.
As of June 30, 2011, the Company had unrecognized tax benefits of $775. There were no changes to
the Companys unrecognized tax benefits during the six months ended June 30, 2011. The Company
is subject to U.S. federal and state examinations by tax authorities from 2007. The Company does
not expect any significant changes to its unrecognized tax positions during the next twelve
months.
8
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. No interest and penalties related to uncertain tax positions were recognized during the
three and six months ended June 30, 2011.
3. Acquisition of StarTrak
Effective on the close of business on May 16, 2011, the Company completed the acquisition of
substantially all of the assets of StarTrak including but not limited to cash, accounts receivable, inventory, equipment,
intellectual property, all of StarTraks rights to customer contracts, supplier lists and assumed
certain liabilities pursuant to an Asset Purchase Agreement dated as of February 23, 2011. The
results of operations of StarTrak have been included in the condensed consolidated results for the
period subsequent to the acquisition date of May 16, 2011.
The consideration paid to acquire StarTrak was valued at $18,242 consisting of: (i) cash subject
to a final working capital adjustment, (ii) forgiveness of the 6% secured promissory note advanced by the Company to Alanco on
February 23, 2011, (iii) note payable issued to a lender and stockholder of Alanco, (iv) common stock, (v) Series A
convertible preferred stock and (vi) delivery of the Companys investment in preferred stock and common stock of Alanco back to Alanco.
In addition to the consideration paid, up to an additional gross amount of $1,500 (subject to certain
reductions) in contingent payments is payable by the Company if certain revenue milestones of
StarTrak are achieved for the 2011 calendar year. Any potential earn-out amount can be paid in
common stock, cash or a combination at the Companys option. Any shares of common stock issued will
be based on the 20-day average closing price of the common stock ending March 31, 2012 subject to
certain reductions set forth in the Asset Purchase Agreement. The potential earn-out amount will be
paid to Alanco stockholders and to two selling stockholders of Alanco. The earn-out amount is based
on StarTrak achieving certain revenue milestones for calendar year ending December 31, 2011 payable
on or before April 30, 2012. If StarTrak does not achieve the revenue milestone of at least
$20,000 neither Alanco stockholders nor the two selling stockholders are entitled to an
earn-out amount. The potential earn-out is calculated as follows:
|
|
|
$250 if StarTrak achieves at least $20,000 in total revenues; |
|
|
|
|
plus an additional $750 such additional amount to be pro-rated on a straight line
basis, if StarTrak achieves between $20,000 and $22,000 in total revenues; |
|
|
|
|
plus an additional $250 if StarTrak achieves at least $23,000 in total revenues;
and |
|
|
|
|
plus an additional $250 if StarTrak achieves at least $24,000 in total revenues. |
The Company accounted for the acquisition pursuant to FASB Topic ASC 805, Business Combinations.
In accordance with ASC 805, the estimated purchase price was allocated to intangible assets and
identifiable assets acquired and liabilities assumed based on their relative fair values. The
excess of the purchase price over the net assets and liabilities assumed
was recorded as goodwill.
9
The preliminary estimated fair values of the purchase price are as follows:
|
|
|
|
|
Cash consideration |
|
$ |
1,893 |
|
Forgiveness of 6% secured promissory note advanced to Alanco on February 23, 2011 including interest of $4 |
|
|
304 |
|
Contingent earn-out consideration |
|
|
|
|
The Companys investment in preferred stock and common stock of Alanco delivered back to Alanco |
|
|
2,050 |
|
$3,900 6%
secured promissory note payable issued to a
lender and stockholder of Alanco |
|
|
3,812 |
|
Issuance of 183,550 shares of Series A convertible preferred stock |
|
|
1,834 |
|
|
|
Issuance of 2,869,172 shares of common stock (valued at $2.91 per
share, which reflects the Companys common stock closing price
on May 16, 2011) |
|
|
8,349 |
|
|
|
|
|
Total |
|
$ |
18,242 |
|
|
|
|
|
Contingent earn-out consideration
As of the acquisition date, the fair value of the contingent earn-out amount was estimated to be
nil. The estimated fair value of the earn-out was determined using
weighted probabilities to achieve the revenue milestones. The Company estimated the fair value of the contingent consideration using
a probability-weighted discounted cash flow model discounted at 19.0%. The fair value measurement is based on significant inputs not
observed in the market and thus represents a Level 3 measurement. Any change in the
fair value of the contingent earn-out subsequent to the acquisition date, including changes from
events after the acquisition date, will be recognized in earnings in the period the estimated fair
value changes.
Investment in Alanco
The Company accounted for the investment in Alanco at cost, or $2,356. The investment consisted of
an initial purchase of 500,000 shares of Alancos Series E convertible preferred stock for $2,250,
and 73,737 shares of common stock received as payment of dividends on the Series E convertible
preferred stock totaling $106. The fair value of the Series E convertible preferred stock was
estimated using a combination of an income approach for the debt component and the Black-Scholes
option pricing model for the option component. The rate utilized to discount the net cash flows to
the present value for the debt component was 20.0% based on a private-equity rate of return for
this security. The fair value of the option component was de minimis. The fair value of the common
stock dividends was based on Alancos closing stock price as of May 16, 2011. The Company recorded a
loss of $305 on the revaluation of its investment in Alanco, triggered by the acquisition, for the difference
between the fair value and the carrying value at the date of acquisition. Such loss was recorded prior to tendering the shares to Alanco.
The loss is recorded in other income (expense) in the statement of
operations for the three and six months ended June 30, 2011.
$3,900
6% secured promissory note payable issued to a lender and stockholder of Alanco
The fair value of the note payable was estimated using an income approach-yield analysis based on
the contractual interest and principal payments. The rate utilized to discount the net cash flows
to the present value was 6.85%, which was based on: (i) comparable loan indices with similar
structure and credit and (ii) comparable companies. As a result, the Company recognized a fair
value adjustment of $88, which reduced the carrying value of the note. This amount will be
amortized to interest expense using the effective interest method which will increase the carrying
value of the note through the maturity date (See Note 15).
Series A convertible preferred stock
The face value of the Series A convertible preferred stock is $1,836 and the estimated fair value is $1,834.
As a result, the face value will be accreted up to the fair value using the effective interest method through the date of redemption (See Note 16).
10
Preliminary Estimated Purchase Price Allocation
The total preliminary estimated purchase price was allocated to the net assets based upon their preliminary estimated fair values as of the close of business on May 16,
2011 as set forth below. The excess of the preliminary purchase price over the preliminary net
assets was recorded as goodwill. The preliminary allocation of the
purchase price was based upon a preliminary valuation and the estimates and assumptions are subject
to change, and the revisions may materially affect the presentation
in the Companys consolidated balance sheet. Any change to the
initial estimates of the assets and liabilities acquired will be
recorded as adjustments to goodwill throughout the measurement
period. The areas of the preliminary purchase price allocation that are not yet finalized relate
to the fair values of certain net assets and liabilities, including
deferred warranty revenues and warranty liabilities, in tangible assets, goodwill and the final
working capital adjustment. The Company anticipates finalizing the
purchase price allocation by the end of 2011. The
preliminary estimated purchase price allocation is as follows:
|
|
|
|
|
Cash and cash equivalents |
|
$ |
322 |
|
Accounts receivable |
|
|
1,535 |
|
Inventory |
|
|
2,085 |
|
Other current and noncurrent assets |
|
|
279 |
|
Indemnification
assets |
|
|
379 |
|
Property, plant and equipment |
|
|
303 |
|
Intangible assets |
|
|
7,600 |
|
|
|
|
|
Total identifiable assets acquired |
|
|
12,503 |
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
(1,755 |
) |
Deferred warranty revenues |
|
|
(400 |
) |
Warranty liabilities |
|
|
(1,050 |
) |
Patent infringement claim |
|
|
(155 |
) |
|
|
|
|
Total liabilities assumed |
|
|
(3,360 |
) |
|
|
|
|
Net identifiable assets acquired |
|
|
9,143 |
|
Goodwill |
|
|
9,099 |
|
|
|
|
|
Total preliminary purchase price |
|
$ |
18,242 |
|
|
|
|
|
Intangible Assets
The fair values of the trademarks and the technology, and patents were estimated using a relief
from royalty method under the income approach based on discounted cash flows. The fair value of customer relationships were estimated based on
an income approach using the excess earnings method. A discount rate of 19% was selected to reflect
risk characteristics of these tangible assets. The discount rate was applied to the projected cash flows
associated with the assets in order to value these intangible assets. The remaining useful lives of
the technology and patents and trademarks were based on historical product development cycles, the
projected rate of technology migration and the pattern of projected
economic benefit of these intangible assets.
The remaining useful lives of customer relationships were based on customer attrition and the
future economic benefit (See Note 11).
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
useful life (in |
|
|
|
|
|
|
years) |
|
|
Amount |
|
Technology and patents |
|
|
10 |
|
|
$ |
3,900 |
|
Customer relationships |
|
|
10 |
|
|
|
2,900 |
|
Trademarks |
|
|
10 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,600 |
|
|
|
|
|
|
|
|
|
Goodwill
Goodwill represents the excess of the preliminary estimated purchase consideration over the
preliminary estimated fair values of the underlying net tangible and intangible assets. In
accordance FASB Topic 350, Intangibles-Goodwill and Other, goodwill will not be amortized, but
instead will be tested for impairment at least annually and whenever events or circumstances have
occurred, that may indicate a possible impairment. In the event the Company determines the fair
value of goodwill has become impaired, the Company will incur an accounting charge for the amount
of impairment during the fiscal period in which the determination is
made (See Note 11).
The acquisition of StarTrak enables the Company to create a global technology platform to transfer
capabilities across new and existing vertical markets and deliver complementary products to the
Companys channel partners and resellers worldwide. In addition, the acquisition provides an
opportunity to drive new subscribers to the Companys global communications network while accelerating the
growth of StarTraks suite of products by adding scale and providing subscriber management tools.
These factors contributed to a preliminary purchase price resulting in the recognition of goodwill.
The acquired goodwill is deductible for income tax purposes over fifteen years.
11
Deferred
warranty revenues
In connection with the preliminary estimated purchase price allocation, the Company estimated the
fair value of the service obligations assumed from StarTrak. The estimated fair value of the
service obligations was determined using a version of the income approach, known as the build-up
method to estimate the cost necessary to fulfill the obligations plus a normal profit margin on the
fulfillment effort. The estimated costs to fulfill the service obligations were based on StarTraks
historical direct costs and indirect costs related to StarTraks service agreements with its
customers. Direct costs include personnel directly engaged in providing service and support
activities, while indirect costs consist of estimated general and administrative expenses based on
an overall margin of StarTraks business (See Note 13).
Warranty liabilities and Escrow Agreement
As a result of the acquisition of StarTrak on May 16, 2011, the
Company acquired warranty
obligations on StarTraks product sales, which provide for costs to replace or fix the product.
One-year warranty coverage is accrued on product sales which provide for costs to replace or fix
the product. The Companys analysis of the warranty liabilities associated with the one-year warranty coverage are estimated
based on the historical costs of StarTrak to replace or fix products for
customers, and additional liability for warranty coverage for
other specific claims that are expected to be incurred within the next twelve months, for which it
is estimated that customers may have a warranty claim. As the Company continues to gather additional information, these
accrual estimates may differ from actual results and adjustments to the estimated warranty
liability would be required. The Company will continue to evaluate warranty liabilities relating
to the acquisition of StarTrak throughout the measurement period. If the Company determines that
adjustments to these amounts are required during the remainder of the measurement period such
amounts will be recorded as an adjustment to goodwill.
The Company is estimating additional warranty obligations
of $1,050 related to warranty claims the Company is investigating. These claims vary in nature, and the range of additional warranty
obligations is estimated between $1,050 and $1,700. This amount has not
yet been fair valued. The Company is currently in the process of determining the extent of the additional
warranty obligations and any changes during the remainder of the measurement period to the estimate will be an adjustment to goodwill.
In
connection with the acquisition, the Company entered into an escrow agreement with Alanco. Under the terms of the escrow agreement, 166,611 shares of common stock were issued to Alanco and
placed in an escrow account to cover 50% of certain costs relating to fuel sensor warranty
obligations incurred by the Company. In the event that the sum of (i) aggregate warranty expenses
(other than for fuel sensors) and (ii) any fuel sensor damages directly expended or accrued on the
StarTrak balance sheet from March 1, 2011 through March 1, 2012 exceeds $600, the Company shall
have the right to provide written notice to the escrow agent and Alanco setting forth a description
of the fuel sensor distribution event and the number of shares of the Companys common stock to be
distributed to the Company from the escrow account. The number of shares of common stock that the
Company will direct the escrow agent to release to the Company from the escrow account will equal
50% of the fuel sensor damages (excluding the amount of damages that when added to the non-fuel
sensor damages equals $600) incurred or suffered from June 1, 2011 through March 1, 2012, valued at
$3.001 per share. As of June 30, 2011, the Company has recorded
$304 relating to the escrow agreement as an indemnification asset,
which is included in other assets.
Patent infringement liability and Escrow Agreement
StarTrak is a named defendant in a patent infringement action filed by Innovative Global Systems
LLC (Innovative Global Systems) in the United States District Court for the Eastern District of
Texas. In July 2011, a settlement agreement was reached under which Innovative Global Systems will
dismiss the patent infringement action and grant StarTrak and StarTrak Information Technologies,
LLC, a wholly owned subsidiary of ORBCOMM holding the acquired StarTrak assets, a license in the
patents-in-suit and certain other patents. Under the settlement agreement Innovative Global Systems will receive
the amount of $155, which amount was agreed in principle in May 2011. Accordingly, the Company recognized a liability relating to
the patent infringement action for $155 on the date of acquisition.
In
connection with the acquisition, the Company entered
into an escrow agreement with Alanco. Under the terms of the escrow agreement, 249,917 shares of common stock were issued to Alanco and placed
in an escrow account to cover 50% of any damages relating to the Innovative Global Systems patent
infringement action incurred or suffered by the Company. Upon a final disposition of the action by
the courts, the Company will direct the escrow agent to release to the Company from the escrow
account shares of common stock valued at $3.001 per share equal to 50% of the damages incurred or
suffered by the Company. As a result of the settlement agreement, the Company has recorded $75 relating to this escrow
agreement as an indemnification asset, which is included in prepaid
expenses and other current assets.
Pre-Acquisition Contingencies
The Company has evaluated and continues to evaluate
pre-acquisition contingencies related to StarTrak that existed as of the acquisition date. If these pre-acquisition contingencies that
existed as of the acquisition date become probable of occurring and can be estimated during the remainder of the measurement period,
amounts recorded for such matters will be made in the measurement period and, subsequent to the measurement period, in the Companys
results of operations.
Pro
Forma Results for StarTrak Acquisition
The following table presents the unaudited pro forma results (including StarTrak) for the three
and six months ended June 30, 2011 and 2010 as though the companies had been combined as of the
beginning of each of the periods presented. The pro forma information is presented for informational
purposes only and is not indicative of the results of operations that would have been achieved
if the acquisition had taken place at the beginning of each period
presented.
The
amount of StarTraks revenues and net loss included in the Companys condensed
consolidated statements of operations from the acquisition date to
June 30, 2011 and the revenues, net income (loss) attributable to ORBCOMM Inc.
and the net income (loss)
available to common stockholders of the combined entity had the acquisition date been January 1, 2010, are as follows:
12
The supplemental
pro forma revenues, net income (loss) attributable to ORBCOMM Inc. and the net income (loss) available to common
stockholders for the periods presented in the table below were adjusted to include the amortization
of the intangible assets, interest expense on the 6% secured promissory note, income tax
expense and record dividends on the Series A convertible preferred stock calculated from
January 1, 2010 to the acquisition date. Also the supplemental pro forma information
was adjusted to exclude acquisition costs and elimination of intercompany transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (loss) Attributable |
|
|
Net Income (loss) Available |
|
|
Revenues |
|
|
ORBCOMM Inc. |
|
|
to Common Stockholders |
Actual from May 17, 2011 to June 30, 2011 |
|
$ |
2,181 |
|
|
$ |
(253 |
) |
|
$ |
(253 |
) |
|
|
|
|
|
|
|
|
|
Supplemental pro forma for the three months ended June 30, 2011 |
|
$ |
12,619 |
|
|
$ |
183 |
|
|
$ |
165 |
|
|
|
|
|
|
|
|
|
|
Supplemental pro forma for the three months ended June 30, 2010 |
|
$ |
11,802 |
|
|
$ |
(3,989 |
) |
|
$ |
(4,007 |
) |
|
|
|
|
|
|
|
|
|
Supplemental pro forma for the six months ended June 30, 2011 |
|
$ |
24,232 |
|
|
$ |
(639 |
) |
|
$ |
(675 |
) |
|
|
|
|
|
|
|
|
|
Supplemental pro forma for the six months ended June 30, 2010 |
|
$ |
22,840 |
|
|
$ |
(4,831 |
) |
|
$ |
(4,867 |
) |
|
|
|
|
|
|
|
|
|
4. Discontinued Operations
On August 5, 2010, Stellar Satellite Communications, Ltd. (Stellar) entered into an Asset
Purchase Agreement with Quake Global, Inc., a manufacturer of satellite communicators to
purchase Stellar. Under the terms of the Asset Purchase Agreement, the Company will receive
royalty payments contingent on future product sales of inventory as defined in the Asset
Purchase Agreement. The Company will recognize the future royalty payments when they are
received and the contingency is resolved in accordance with FASB Topic ASC 450 Contingencies.
For the three and six months ended June 30, 2011, the Company received royalty payments
totaling $29 and $99, respectively, which are included in continuing operations in its condensed
consolidated statements of operations. For the three-month and six-month periods ended June 30,
2011, the Company had no discontinued operations.
13
A summary of discontinued operations for the three and six months ended June 30, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, 2010 |
|
|
June 30, 2010 |
|
Revenues- Product sales |
|
$ |
184 |
|
|
$ |
429 |
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(3,479 |
) |
|
$ |
(3,570 |
) |
|
|
|
|
|
|
|
5. Comprehensive Loss
The components of comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net loss |
|
$ |
(576 |
) |
|
$ |
(3,184 |
) |
|
$ |
(1,302 |
) |
|
$ |
(3,774 |
) |
Foreign currency translation adjustment |
|
|
89 |
|
|
|
280 |
|
|
|
(112 |
) |
|
|
447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
(487 |
) |
|
|
(2,904 |
) |
|
|
(1,414 |
) |
|
|
(3,327 |
) |
Comprehensive income (loss) attributable to noncontrolling interests |
|
|
(77 |
) |
|
|
200 |
|
|
|
(222 |
) |
|
|
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to ORBCOMM Inc. |
|
$ |
(410 |
) |
|
$ |
(3,104 |
) |
|
$ |
(1,192 |
) |
|
$ |
(3,659 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Stock-based Compensation
The Companys share-based compensation plans consist of its 2006 Long-Term Incentives Plan (the
2006 LTIP) and its 2004 Stock Option Plan. On April 28, 2011, the Companys stockholders
approved an amendment to the 2006 LTIP to increase the maximum number of shares available for
grant by 5,000,000 shares to 9,641,374. As of June 30, 2011, there were 5,362,902 shares
available for grant under the 2006 LTIP and no shares available for grant under the 2004 Stock
Option Plan.
For the three months ended June 30, 2011 and 2010, the Company recorded stock-based compensation
expense in continuing operations of $396 and $592, respectively. For the three months ended June 30, 2011 and 2010, the Company capitalized stock-based
compensation of $15 and $11, respectively. For the six months ended June 30, 2011 and 2010, the Company recorded stock-based compensation expense in continuing
operations of $659 and $1,024, respectively. For the six months ended June 30, 2011 and 2010, the
Company capitalized stock-based compensation of $29 and $14,
respectively. The components of the Companys stock-based compensation expense are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
Stock
appreciation rights |
|
$ |
276 |
|
|
$ |
454 |
|
|
$ |
485 |
|
|
$ |
766 |
|
Restricted stock units |
|
|
120 |
|
|
|
138 |
|
|
|
174 |
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
396 |
|
|
$ |
592 |
|
|
$ |
659 |
|
|
$ |
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
As of June 30, 2011, the Company had unrecognized compensation costs for all share-based payment
arrangements totaling $1,770.
Time-Based Stock Appreciation Rights
During the six months ended June 30, 2011, the Company granted 178,000
time-based SARs, which
vest through May 2014. The weighted-average grant date fair value of
these SARs was $1.89 per share.
A summary of the Companys time-based SARs for the six months ended June 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(In thousands) |
|
Outstanding at
January 1, 2011 |
|
|
2,000,667 |
|
|
$ |
4.07 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
178,000 |
|
|
|
2.91 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4,000 |
) |
|
|
2.46 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011 |
|
|
2,174,667 |
|
|
$ |
3.98 |
|
|
|
7.70 |
|
|
$ |
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2011 |
|
|
1,426,334 |
|
|
$ |
4.73 |
|
|
|
7.05 |
|
|
$ |
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
at June 30, 2011 |
|
|
2,174,667 |
|
|
$ |
3.98 |
|
|
|
7.70 |
|
|
$ |
635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011 and 2010, the Company recorded stock-based compensation
expense in continuing operations of $130 and $360 relating to these SARs, respectively. For the
six months ended June 30, 2011 and 2010, the Company recorded stock-based compensation expense
in continuing operations of $247 and $627 relating to these SARs, respectively. As of June 30,
2011, $1,049 of total unrecognized compensation cost related to these SARs is expected to be
recognized
through May 2014.
The intrinsic value of the SARs exercised was $4 for the six months ended June 30, 2011.
Performance-Based Stock Appreciation Rights
During the six months ended June 30, 2011, the Company granted 291,333 performance-based SARs
for 2011 financial and operational targets, which are expected to vest in the first quarter of
2012. As of June 30, 2011, the Company estimates that 100% of the performance targets will be
achieved. The weighted-average grant date fair value of these SARs was $2.14 per share.
15
A summary of the Companys performance-based SARs for the six months ended June 30, 2011 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(In thousands) |
|
Outstanding at
January 1, 2011 |
|
|
567,146 |
|
|
$ |
6.00 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
291,333 |
|
|
|
3.39 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(19,500 |
) |
|
|
2.30 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(89,013 |
) |
|
|
2.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011 |
|
|
749,966 |
|
|
$ |
5.50 |
|
|
|
8.17 |
|
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2011 |
|
|
458,634 |
|
|
$ |
6.85 |
|
|
|
7.18 |
|
|
$ |
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
at June 30, 2011 |
|
|
749,966 |
|
|
$ |
5.50 |
|
|
|
8.17 |
|
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011 and 2010, the Company recorded stock-based compensation
expense in continuing operations of $146 and $94 relating to these SARs, respectively. For the
six months ended June 30, 2011 and 2010, the Company recorded stock-based compensation expense
in continuing operations of $238 and $139 relating to these SARs, respectively. As of June 30,
2011, $441 of total unrecognized compensation cost related to these SARs is expected to be
recognized through the first quarter of 2012.
The intrinsic value of the SARs exercised was $20 for the six months ended June 30, 2011.
The fair value of each time and performance SAR award is estimated on the date of grant using
the Black-Scholes option pricing model with the assumptions described below for the periods
indicated. The expected volatility was based on an average of the Companys historical
volatility over the expected terms of the SAR awards and the comparable publicly traded
companies historical volatility. The Company uses the simplified method to determine the
expected terms of SARs due to no history of exercises. Estimated forfeitures were based on
voluntary and involuntary termination behavior as well as analysis of actual forfeitures. The
risk-free interest rate was based on the U.S. Treasury yield curve at the time of the grant over
the expected term of the SAR grants.
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2011 |
|
2010 |
Risk-free interest rate
|
|
2.14% to 2.34%
|
|
2.27% and 2.65% |
Expected life (years)
|
|
5.50 and 6.0
|
|
5.50 and 6.0 |
Estimated volatility
|
|
71.48% to 74.34%
|
|
85.95% and 83.67% |
Expected dividends
|
|
None
|
|
None |
16
Time-based Restricted Stock Units
During the six months ended June 30, 2011, the Company granted 120,000 time-based RSUs, which vest
in January 2012.
A summary of the Companys time-based RSUs for the six months ended June 30, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
Balance at January 1, 2011 |
|
|
156,624 |
|
|
$ |
2.90 |
|
Granted |
|
|
120,000 |
|
|
|
2.97 |
|
Vested |
|
|
(79,957 |
) |
|
|
2.30 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2011 |
|
|
196,667 |
|
|
$ |
3.19 |
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2011 and 2010, the Company recorded stock-based compensation
expense in continuing operations of $120 and $138 related to these RSUs, respectively. For the
six months ended June 30, 2011 and 2010, the Company recorded stock-based compensation expense
in continuing operations of $174 and $258 related to these RSUs, respectively. As of June 30,
2011, $280 of total unrecognized compensation cost related to these RSUs is expected to be
recognized through July 2012. |
|
|
The fair value of the time-based RSU awards is based upon the closing stock price of the
Companys common stock on the date of grant. |
17
2004 Stock Option Plan
|
|
A summary of the status of the Companys stock options as of June 30, 2011 is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(In thousands) |
|
Outstanding at
January 1, 2011 |
|
|
757,828 |
|
|
$ |
2.97 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2011 |
|
|
757,828 |
|
|
$ |
2.97 |
|
|
|
2.71 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2011 |
|
|
757,828 |
|
|
$ |
2.97 |
|
|
|
2.71 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
at June 30, 2011 |
|
|
757,828 |
|
|
$ |
2.97 |
|
|
|
2.71 |
|
|
$ |
357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
7. Net Loss per Common Share
|
|
Basic net loss per common share is calculated by dividing net loss attributable to ORBCOMM Inc.
by the weighted-average number of common shares outstanding for the period. Diluted net loss per
common share is the same as basic net loss per common share, because potentially dilutive
securities such as Series A convertible preferred stock, SARs, RSUs and stock options would have an antidilutive effect as the Company
incurred a net loss for the three and six months ended June 30, 2011 and 2010. |
|
|
The potentially dilutive securities excluded from the determination of diluted loss per share,
as their effect is antidilutive, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
Series A convertible preferred stock |
|
|
305,814 |
|
|
|
|
|
SARs |
|
|
2,924,633 |
|
|
|
2,559,813 |
|
RSUs |
|
|
196,667 |
|
|
|
239,957 |
|
Stock options |
|
|
757,828 |
|
|
|
782,079 |
|
|
|
|
4,184,942 |
|
|
|
3,581,849 |
|
8. Marketable Securities
|
|
As of June 30, 2011 and December 31, 2010, the marketable securities are recorded at amortized
cost which approximates fair market value which was based on Level 1 inputs. All investments
mature in one year or less. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Gains |
|
|
Value |
|
|
Losses |
|
|
Gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
obligations |
|
$ |
28,147 |
|
|
$ |
20 |
|
|
$ |
8 |
|
|
$ |
39,926 |
|
|
$ |
18 |
|
|
$ |
5 |
|
Corporate obligations |
|
|
16,739 |
|
|
|
5 |
|
|
|
|
|
|
|
24,108 |
|
|
|
18 |
|
|
|
3 |
|
FDIC-insured certificates of deposit |
|
|
9,880 |
|
|
|
5 |
|
|
|
|
|
|
|
3,837 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
54,766 |
|
|
$ |
30 |
|
|
$ |
8 |
|
|
$ |
67,871 |
|
|
$ |
39 |
|
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company would recognize an impairment loss when the decline in the estimated fair value
of a marketable security below the amortized cost is determined to be other-than-temporary. The
Company considers various factors in determining whether to recognize an impairment charge,
including the duration of time and the severity to which the fair value has been less than the
amortized cost, any adverse changes in the issuers financial conditions and the Companys
intent to sell or whether it is more likely than not that it would be required to sell the
marketable security before its anticipated recovery. Investments with unrealized losses have
been in an unrealized loss position for less than a year. |
|
|
As of June 30, 2011 and December 31, 2010, the gross unrealized
losses of $30 and $39, respectively, were primarily due to changes in interest rates and not credit quality of the
issuer. Accordingly, the Company has determined that the gross unrealized losses are not
other-than-temporary at June 30, 2011 and there has been no recognition of impairment losses in
its condensed consolidated statements of operations for the three and six months ended June 30, 2011 and 2010.
|
19
9. Satellite Network and Other Equipment
|
|
Satellite network and other equipment consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life |
|
|
June 30, |
|
|
December 31, |
|
|
|
(years) |
|
|
2011 |
|
|
2010 |
|
Land |
|
|
|
|
|
$ |
381 |
|
|
$ |
381 |
|
Satellite network |
|
|
1-10 |
|
|
|
33,505 |
|
|
|
32,560 |
|
Capitalized software |
|
|
3-5 |
|
|
|
1,725 |
|
|
|
1,646 |
|
Computer hardware |
|
|
5 |
|
|
|
1,339 |
|
|
|
1,247 |
|
Other |
|
|
5-7 |
|
|
|
1,517 |
|
|
|
1,311 |
|
Assets under construction |
|
|
|
|
|
|
64,445 |
|
|
|
62,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,912 |
|
|
|
99,519 |
|
Less: accumulated depreciation and amortization |
|
|
|
|
|
|
(29,426 |
) |
|
|
(27,835 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73,486
|
|
|
$ |
71,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2011 and 2010, the Company capitalized costs
attributable to the design and development of internal-use software in the amount of $149 and
$107, respectively. Depreciation and amortization expense for the three months ended June 30,
2011 and 2010 was $925 and $533, respectively. This includes amortization of internal-use
software of $85 and $72 for the three months ended June 30, 2011 and 2010, respectively.
Depreciation and amortization expense for the six months ended June 30, 2011 and 2010 was $1,712
and $1,558, respectively. This includes amortization of internal-use software of $176 and $183
for the six months ended June 30, 2011 and 2010, respectively. |
|
|
Assets under construction primarily consist of milestone payments pursuant to procurement
agreements which includes, the design, development, launch and other direct costs relating to
the construction of the next-generation satellites (See Note 18) and upgrades to its
infrastructure and ground segment. |
20
10. Restricted Cash
|
|
Restricted cash consists of the remaining cash collateral of $3,000 for a performance bond
required by the FCC in connection with the construction, launch and operation of the 18
next-generation satellites that was authorized in the March 21, 2008 FCC Space Segment License
modification. Under the terms of the performance bond, the cash collateral will be reduced in
increments of $1,000 upon completion of specified milestones. The Company certified completion
of a third milestone. The FCC has not yet issued a ruling on the certification of the third
milestone. The Company has classified $1,000 of restricted cash for the third milestone as a
current asset and the remaining $2,000 as a non-current asset at June 30, 2011 and December 31,
2010. |
|
|
At December 31, 2010, restricted cash also included $680 deposited into an escrow account under
the terms of a procurement agreement for the quick-launch satellites. During the six months
ended June 30, 2011, $500 was paid to the supplier and the balance of $180 was returned to the
Company. |
|
|
At December 31, 2010, restricted cash also included $350 placed into certificates of deposit to
collateralize a letter of credit with a cellular wireless provider to secure terrestrial
communications services and to secure a credit card facility. During the six months ended June
30, 2011, the cellular wireless provider reduced the amount of the letter of credit by $130
which was refunded to the Company. |
|
|
The interest income earned on the restricted cash balances is unrestricted and included in
interest income in the consolidated statements of operations. |
11. Goodwill and Intangible Assets
|
|
The Companys intangible assets consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Useful life |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
(years) |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
Acquired licenses |
|
|
6 |
|
|
$ |
8,115 |
|
|
$ |
(7,744 |
) |
|
$ |
371 |
|
|
$ |
8,115 |
|
|
$ |
(7,001 |
) |
|
$ |
1,114 |
|
Patents and
technology |
|
|
10 |
|
|
|
3,900 |
|
|
|
(49 |
) |
|
|
3,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
10 |
|
|
|
800 |
|
|
|
(10 |
) |
|
|
790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer lists |
|
|
10 |
|
|
|
2,900 |
|
|
|
(36 |
) |
|
|
2,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
15,715 |
|
|
$ |
(7,839 |
) |
|
$ |
7,876 |
|
|
$ |
8,115 |
|
|
$ |
(7,001 |
) |
|
$ |
1,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $467 and $372 for the three months ended June 30, 2011 and 2010,
respectively. Amortization expense was $838 and $743 for the six months ended June 30, 2011 and 2010,
respectively. |
Goodwill
Goodwill allocated to the Companys one business segment relates to the acquisition of StarTrak
(See Note 3).
Intangible Assets
The
acquired licenses have a remaining useful lives of three months. The
patents and the technology, trademarks and customer lists relate to the
acquisition of StarTrak (See Note 3).
Estimated amortization expense for intangible assets subsequent to June 30, 2011 is as follows:
|
|
|
|
|
Years ending December 31, |
|
|
|
|
Remainder of 2011 |
|
$ |
751 |
|
2012 |
|
|
760 |
|
2013 |
|
|
760 |
|
2014 |
|
|
760 |
|
2015 |
|
|
760 |
|
Thereafter |
|
|
4,085 |
|
|
|
|
|
|
|
$ |
7,876 |
|
|
|
|
|
21
12. Accrued Liabilities
|
|
The Companys accrued liabilities consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Accrued compensation and benefits |
|
$ |
1,661 |
|
|
$ |
2,151 |
|
Accrued interest |
|
|
915 |
|
|
|
857 |
|
Deferred rent payable |
|
|
126 |
|
|
|
112 |
|
Warranty |
|
|
1,066 |
|
|
|
|
|
Other accrued expenses |
|
|
3,093 |
|
|
|
2,923 |
|
|
|
|
|
|
|
|
|
|
$ |
6,861 |
|
|
$ |
6,043 |
|
|
|
|
|
|
|
|
22
|
|
As of June 30, 2011, accrued
warranty obligations consisted of the following: |
|
|
|
|
|
Balance at January 1, 2011 |
|
|
|
|
Warranty
liabilities assumed from the acquisition of StarTrak (See Note 3) |
|
|
1,050 |
|
Warranty expense |
|
|
40 |
|
Warranty charges |
|
|
(24 |
) |
|
|
|
|
Balance at June 30, 2011 |
|
$ |
1,066 |
|
|
|
|
|
13. Deferred Revenues
|
|
Deferred revenues consisted of the following: |
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
Service activation fees |
|
$ |
2,223 |
|
|
$ |
2,277 |
|
Prepaid services |
|
|
1,134 |
|
|
|
1,067 |
|
Warranty revenues |
|
|
307 |
|
|
|
|
|
Manufacturing license fees |
|
|
22 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
3,686 |
|
|
|
3,373 |
|
Less current portion |
|
|
(2,286 |
) |
|
|
(2,134 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
1,400 |
|
|
$ |
1,239 |
|
|
|
|
|
|
|
|
14. Note Payable-Related Party
|
|
In connection with the acquisition of a majority interest in Satcom in 2005, the Company
recorded an indebtedness to OHB Technology A.G. (formerly known as OHB Teledata A.G.), a
stockholder of the Company. At June 30, 2011, the principal balance of the note payable was
1,138 ($1,639) and it had a carrying value of $1,606. At December 31, 2010, the principal
balance of the note payable was 1,138 ($1,514) and it had a carrying value of $1,416. The
carrying value was based on the notes estimated fair value at the time of acquisition. The
difference between the carrying value and principal balance is being amortized to interest
expense over the estimated life of the note of six years. The amortization to interest expense
related to the note for the three months and six months ended June 30, 2011 and 2010 was $33 and
$66, respectively. This note does not bear interest and has no fixed repayment term. Repayment
will be made from the distribution profits (as defined in the note agreement) of ORBCOMM Europe
LLC. The note has been classified as long-term and the Company does not expect any repayments to
be required prior to June 30, 2012. |
23
15. Note Payable
|
|
On May 16, 2011, the
Company issued a $3,900 6% secured promissory note to a existing
lender and stockholder of Alanco. The note bears interest at 6.00% per annum. The note is
secured by substantially all of the assets of StarTrak and guaranteed by ORBCOMM Inc. The
Company made a $200 principal payment on May 16, 2011 in accordance with the terms of note
agreement. As of June 30, 2011, the note payable balance is presented
net of the unamortized debt discount of $85 (See Note 3).
For the three and six months ended June 30, 2011, the Company recognized
debt discount of $3, which is included in interest expense. The remaining principal payments are due in quarterly installments beginning on
March 31, 2012 with a balloon payment due on December 31, 2015 is as follows: |
|
|
|
|
|
Years ending December 31, |
|
|
|
|
Remainder of 2011 |
|
$ |
|
|
2012 |
|
|
250 |
|
2013 |
|
|
300 |
|
2014 |
|
|
400 |
|
2015 |
|
|
2,750 |
|
|
|
|
|
|
|
$ |
3,700 |
|
|
|
|
|
16. Stockholders Equity
Series A convertible preferred stock
|
|
As part of the purchase price to acquire StarTrak, the Company issued 183,550 shares of
Series A convertible preferred stock. |
Key terms of the Series A convertible preferred stock are as follows:
Dividends
|
|
Holders of the Series A convertible preferred stock are entitled to receive a cumulative 4%
dividend annually (calculated on the basis of the redemption price of $10.00 per share) payable quarterly
in additional shares of the Series A convertible preferred stock.
As of June 30, 2011, dividends in arrears was $9. |
Conversion
|
|
Shares of the Series A convertible preferred stock are convertible into 1.66611 shares of
common stock: (i) at the option of the holder at any time up to two years from the issuance date
or (ii) at the option of the Company beginning six months from the issuance date and if the
average closing market price for the Companys common stock for the preceding twenty
consecutive trading days equals or exceeds $11.20 per share. |
Voting
|
|
Each share of the Series A convertible preferred stock is entitled to one vote for each share
of common stock into which the preferred stock is convertible. |
Liquidation
|
|
In the event of any liquidation, sale or merger of the Company the holders of the Series A
convertible preferred stock are entitled to receive prior to and in preference over the common
stock, an amount equal to $10.00 per share plus unpaid dividends. |
Redemption
|
|
The Series A convertible preferred stock may be redeemed by the Company for an amount
equal to the issuance price of $10.00 per share plus all unpaid dividends at any time after
two years from the issuance date. |
Common Stock
|
|
During the six months ended June 30, 2011, the Company issued 34,115 shares of its common stock
as a form of payment for bonuses. |
|
|
As of June 30, 2011, the Company has reserved 9,242,030 shares of common stock for future
issuances related to employee stock compensation plans. |
24
17. Geographic Information
|
|
The Company operates in one reportable segment, M2M data communications. Other than satellites
in orbit, long-lived assets outside of the United States are not significant. The following
table summarizes revenues on a percentage basis by geographic regions, based on the country in
which the customer is located. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
United States |
|
|
85 |
% |
|
|
79 |
% |
|
|
84 |
% |
|
|
79 |
% |
Japan |
|
|
14 |
% |
|
|
15 |
% |
|
|
15 |
% |
|
|
16 |
% |
Other |
|
|
1 |
% |
|
|
6 |
% |
|
|
1 |
% |
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
25
18. Commitments and Contingencies
Procurement agreements in connection with next-generation satellites
|
|
On May 5, 2008, the Company entered into a procurement agreement with Sierra Nevada Corporation
(SNC) pursuant to which SNC will construct eighteen low-earth-orbit satellites in three sets
of six satellites (shipsets) for the Companys next-generation satellites (the Initial
Satellites). Under the agreement, SNC will also provide launch support services, a test
satellite (excluding the mechanical structure), a satellite software simulator and the
associated ground support equipment. Under the agreement, the Company had the option, which
expired on May 5, 2011, to order up to thirty additional satellites substantially identical to
the Initial Satellites (the Optional Satellites) at
specified firm fixed prices. The Company and SNC are in discussions
regarding extending the date by which the Optional Satellites are exercisable, as well as the
price for the Optional Satellites. |
|
|
The total contract price for the Initial Satellites is $117,000, subject to reduction upon
failure to achieve certain in-orbit operational milestones with respect to the Initial
Satellites or if the pre-ship reviews of each shipset are delayed more than 60 days after the
specified time periods described below. The Company has agreed to pay SNC up to $1,500 in
incentive payments for the successful operation of the Initial Satellites five years following
the successful completion of in-orbit testing for the third shipset of six satellites. |
|
|
The agreement also requires SNC to complete the pre-ship review of the Initial Satellites (i) no
later than 24 months after the execution of the agreement for the first shipset of six
satellites, (ii) no later than 31 months after the execution of the agreement for the second
shipset of six satellites and (iii) no later than 36 months after the execution of the agreement
for the third shipset of six satellites. SNC has not completed any of the pre-ship reviews of
the Initial Satellites within the original required periods. The Company and SNC are in
discussions regarding the impact of such delay, which may lead to a delay in commencing the SpaceX Launch
Services schedule as described below. Payments under the agreement began upon the execution of
the agreement and continue upon SNCs successful completion of each payment milestone. |
|
|
On August 31, 2010, the Company entered into two additional task order agreements with SNC in
connection with the procurement agreement discussed above. Under the terms of the launch vehicle
changes task order agreement, SNC will perform the activities to launch eighteen of the
Companys next-generation satellites on a SpaceX Falcon 1E or Falcon 9 launch vehicle. The total
price for the launch activities is cost reimbursable up to $4,110 that is cancelable by the
Company, less a credit of $1,528. Any unused credit can be applied to other activities under the
task order agreement, or the original procurement agreement if application to the task order
agreement becomes impossible or impracticable. Under the terms of the engineering change
requests and enhancements task order agreement, SNC will design and make changes to each of the
next-generation satellites in order to accommodate an additional payload-to-bus interface. The
total price for the engineering changes requests is cost reimbursable up to $317. Both task
order agreements are payable monthly as the services are performed, provided that with respect
to the launch vehicle changes task order agreement, the credit in the amount of $1,528 will
first be deducted against amounts accrued thereunder until the entire balance is expended. |
26
|
|
As of June 30, 2011, the Company has made milestone payments of $42,120 under the
agreement. The Company anticipates making payments under the agreement of $15,000 during the
remainder of 2011. Under the agreement, SNC has agreed to provide the Company with an optional
secured credit facility for up to $20,000 commencing 24 months after the execution of the
agreement and maturing 44 months after the effective date. If the Company elects to establish
and use the credit facility it and SNC will enter into a formal credit facility on terms
established in the agreement. |
|
|
On August 28, 2009, the Company and Space Exploration Technologies Corp. (SpaceX) entered into
a Commercial Launch Services Agreement (the Agreement) pursuant to which SpaceX will provide
launch services (the Launch Services) using multiple SpaceX Falcon 1e launch vehicles for the
carriage into low-Earth-orbit for the Companys 18 next-generation commercial communications
satellites currently being constructed by SNC. Under the Agreement, SpaceX will also provide to
the Company launch vehicle integration and support services, as well as certain related optional
services. The Company and SpaceX are in discussions to provide launch
services on Falcon 9 launch vehicles instead of the Falcon 1e launch
vehicle. |
|
|
The Company anticipates that
the Launch Services will be performed between the end of
2011 and 2014, subject to certain rights of the Company and SpaceX to reschedule any of the
particular Launch Services as needed. The Agreement also provides the Company the option to
procure, prior to each Launch Service, reflight launch services whereby in the event the
applicable Launch Service results in a failure due to the SpaceX launch vehicle, SpaceX will
provide comparable reflight launch services at no additional cost to the Company beyond the
initial option price for such reflight launch services. |
|
|
The total price under the Agreement (excluding any options or additional launch services) is
$46,600, subject to certain adjustments. The amounts due under the Agreement are payable in
periodic installments from the date of execution of the Agreement through the performance of
each Launch Service. The Company may postpone and reschedule the Launch Services for any reason
at its sole discretion, following 12 months of delay for any particular Launch Services. The
Company also has the right to terminate any of the Launch Services subject to the payment of a
termination fee in an amount that would be based on the date the Company exercises its
termination right. |
|
|
As of June 30, 2011, the Company has made milestone payments of $10,080 under the SpaceX
Agreement. The Company does not anticipate making payments under the agreement during the
remainder of 2011. |
AIS Satellite Deployment and License Agreement
|
|
On September 28, 2010, the Company and OHB entered into an AIS Satellite Deployment and License
Agreement (the AIS Satellite Agreement) pursuant to which OHB, through its affiliate Luxspace
Sarl (LXS), will (1) design, construct, launch and in-orbit test two AIS microsatellites and
(2) design and construct the required ground support equipment. Under the AIS Satellite
Agreement, the Company will receive exclusive licenses for all data (with certain exceptions as
defined in the AIS Satellite Agreement) collected or transmitted by the two AIS microsatellites
(including all AIS data) during the term of the AIS Satellite Agreement and nonexclusive
licenses for all AIS data collected or transmitted by another microsatellite expected to be
launched by LXS. |
27
|
|
The AIS Satellite Agreement provides for milestone payments totaling $2,000 (inclusive of
in-orbit testing) subject to certain adjustments. Payments under the AIS Satellite Agreement
began upon the execution of the agreement and successful completion of each milestone through to
the launch of the two AIS microsatellites, with the first scheduled for third quarter of 2011
and the second anticipated in early 2012. In addition, to the extent that both AIS
microsatellites are successfully operating after launch, the Company will pay OHB lease payments
of up to $546, subject to certain adjustments, over thirty-six months. At the Companys option
after thirty-six months it can continue the exclusive licenses for the data with a continuing
payment of up to $6 per month. In addition, OHB will also be entitled to credits of up to $500
to be used solely for the microsatellites AIS data license fees payable to the Company under a
separate AIS data resale agreement. |
|
|
As of June 30, 2011, the Company has made milestone payments of $1,000 under the AIS Satellite
Agreement. The Company anticipates making the remaining milestone payments under the agreement
of $1,000 during the remainder of 2011. |
Airtime credits
|
|
In 2001, in connection with the organization of ORBCOMM Europe LLC and the reorganization of the
ORBCOMM business in Europe, the Company agreed to grant certain country representatives in
Europe approximately $3,736 in airtime credits. The Company has not recorded the airtime credits
as a liability for the following reasons: (i) the Company has no obligation to pay the unused
airtime credits if they are not utilized; and (ii) the airtime credits are earned by the country
representatives only when the Company generates revenue from the country representatives. The
airtime credits have no expiration date. Accordingly, the Company is recording airtime credits
as services are rendered and these airtime credits are recorded net of revenues from the country
representatives. For the three months ended June 30, 2011 and 2010, airtime credits used totaled
approximately $8 and $11, respectively. For the six months ended June 30, 2011 and 2010,
airtime credits used totaled approximately $16 and $23, respectively. As of June 30, 2011 and
December 31, 2010, unused credits granted by the Company were approximately $2,175 and $2,191,
respectively |
Litigation
|
|
From time to time, the Company is involved in various litigation matters involving ordinary and
routine claims incidental to its business. Management currently believes that the outcome of
these proceedings, either individually or in the aggregate, will not have a material adverse
effect on the Companys business, results of operations or financial condition. |
28
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Safe Harbor Statement Under the Private Securities Litigation Reform of Act 1995.
Certain statements discussed in Part I, Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements generally relate to our plans, objectives and expectations
for future events and include statements about our expectations, beliefs, plans, objectives,
intentions, assumptions and other statements that are not historical facts. Such forward-looking
statements, including those concerning the Companys expectations, are subject to known and unknown
risks and uncertainties, which could cause actual results to differ materially from the results,
projected, expected or implied by the forward-looking statements, some of which are beyond the
Companys control, that may cause the Companys actual results, performance or achievements, or
industry results, to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks and uncertainties include but
are not limited to: the impact of global recession and continued worldwide credit and capital
constraints; substantial losses we have incurred and expect to continue to incur; demand for and
market acceptance of our products and services and the applications developed by our resellers;
loss or decline or slowdown in the growth in business from Asset Intelligence, a subsidiary of I.D.
Systems, Inc. (AI), other value-added resellers or VARs and international value-added resellers
or IVARs; loss or decline or slowdown in growth in business of any of the specific industry sectors
the Company serves, such as transportation, heavy equipment, fixed assets and maritime; our
acquisition of the StarTrak Systems, LLC (StarTrak) business may expose us to additional risks;
litigation proceedings; technological changes, pricing pressures and other competitive factors; the
inability of our international resellers to develop markets outside the United States; market
acceptance and success of our Automatic Identification System (AIS) business; the ability to
restore commercial-level AIS service in the near term; satellite launch and construction delays and
cost overruns of our next-generation satellites; in-orbit satellite failures or reduced performance
of our existing satellites; the failure of our system or reductions in levels of service due to
technological malfunctions or deficiencies or other events; our inability to renew or expand our
satellite constellation; political, legal regulatory, government administrative and economic
conditions and developments in the United States and other countries and territories in which we
operate; and changes in our business strategy. In addition, specific consideration should be given
to various factors described in more detail in Part I, Item 1A. Risk Factors in our Annual Report
on Form 10-K for the year ended December 31, 2010. The Company undertakes no obligation to publicly
revise any forward-looking statements or cautionary factors, except as required by law.
Overview
We operate a global commercial wireless messaging system optimized for narrowband communications.
Our system consists of a global network of 27 low-Earth orbit, or LEO, satellites and accompanying
ground infrastructure. Our two-way communications system enables our customers and end-users, which
include large and established multinational businesses and government agencies, to track, monitor,
control and communicate cost-effectively with fixed and mobile assets located anywhere in the
world. We also provide terrestrial-based cellular communication services through reseller
agreements with major cellular wireless providers. Currently, our agreements with major cellular
providers include GSM and CDMA offerings in the United States and GSM services with significant
coverage worldwide. These terrestrial-based communication services enable our customers who have
higher bandwidth requirements to receive and send messages from communication devices based on
terrestrial-based technologies using the cellular providers wireless networks as well as from
dual-mode devices combining our satellite subscriber communicators with devices for
terrestrial-based technologies. As a result, our customers are now able to integrate into their
applications a terrestrial communications device that will allow them to send and receive messages,
including data intensive messaging using the cellular providers wireless networks.
Our products and services enable our customers and end-users to enhance productivity, reduce costs
and improve security through a variety of commercial, government, and emerging homeland security
applications. We enable our customers and end-users to achieve these benefits using a single global
satellite technology standard for machine-to-machine and telematic, or M2M, data communications.
Our customers have made significant investments in developing ORBCOMM-based applications. Examples
of assets that are connected through our M2M data communications system include trucks, trailers,
railcars, containers, heavy equipment, fluid tanks, utility meters, pipeline monitoring equipment,
marine vessels, and oil wells. Our customers include original equipment manufacturers, or OEMs,
such as Caterpillar Inc., (Caterpillar), Doosan Infracore America, Hitachi Construction Machinery
Co., Ltd., (Hitachi), Hyundai Heavy Industries, Komatsu Ltd., (Komatsu), The Manitowoc Company
and Volvo Construction Equipment. In addition, we market our services through a distribution
network of vertical market technology integrators known as VARs and IVARs, such as AI, XATA
Corporation and American Innovations, Ltd., and U.S. government agencies.
As a
result of our acquisition of StarTrak on May 16, 2011, we now provide customers with the ability to proactively monitor, manage and remotely
control their refrigerated transport assets. StarTrak is an innovator and leading provider of
tracking, monitoring and control services for the refrigerated transport market. Their information
services also help industry leaders realize better fleet efficiency and utilization while reducing
risk by adding safety monitoring of perishable cargo. In addition to relationships with leading
refrigerated unit manufacturers such as Carrier and Thermo King, StarTraks customers include
well-known brands such as Tropicana, Maersk Line, Prime Inc, CR England, FFE Transport, Inc. and
Exel Transportation. The acquisition of StarTrak enables us to create a global technology platform
to transfer capabilities across new and existing vertical markets and deliver complementary
products to our channel partners and resellers worldwide. In addition, the
acquisition provides an opportunity to drive new subscribers to our global communications network
while accelerating the growth of StarTraks suite of products by adding scale and providing
subscriber management tools.
29
Through our M2M data communications system, our customers and end-users can send and receive
information to and from any place in the world using low-cost subscriber communicators and paying
airtime costs that we believe are the lowest in the industry for global connectivity. Our customers
can also use cellular terrestrial units, or wireless subscriber identity modules (SIMS), for use
with devices or equipment that enable the use of a cellular providers wireless network, singularly
or in conjunction with satellite services, to send and receive information from these devices. We
believe that there is no other satellite or terrestrial network currently in operation that can
offer global two-way wireless narrowband data service including coverage at comparable cost using a
single technology standard worldwide, that also provides a parallel terrestrial network for data
intensive applications.
Global economic conditions, including a global economic recession, along with unprecedented credit
and capital constraints in the capital markets have created a challenging economic environment
leading to a lack of customer confidence. Our worldwide operations and performance depend
significantly on global economic conditions and their impact on our customers decisions to
purchase our services and products. Economic conditions in many parts of the world remain weak or
may even deteriorate further in the foreseeable future. The worldwide economic turmoil may have a
material adverse effect on our operations and financial results, and we may be unable to predict
the scope and magnitude of its effects on our business. VARs and end users in any of our target
markets, including in commercial transportation and heavy equipment, have and may experience
unexpected fluctuations in demand for their products, as our end users alter purchasing activities
in response to this economic volatility. Our customers may change or scale back product development
efforts, the roll-out of service applications, product purchases or other sales activities that
affect purchases of our products and services, and this could adversely affect the amount and
timing of revenue for the long-term future, leaving us with limited visibility in the revenue we
can anticipate in any given period. These economic conditions also affect our third party
manufacturers, and if they are unable to obtain the necessary capital to operate their business,
this may also impact their ability to provide the subscriber communicators that our end-users need,
or may adversely affect their ability to provide timely services or to make timely deliveries of
products or services to our end-users. It is currently unclear as to what overall effect these
economic conditions and uncertainties will have on our existing customers and core markets, and
future business with existing and new customers in our current and future markets.
Acquisition of StarTrak
Effective on the close of business on May 16, 2011, we completed the acquisition of substantially
all of the assets of StarTrak, a wholly-owned subsidiary of Alanco
Technologies, Inc., (Alanco) including but not limited to cash, accounts receivable, inventory,
equipment, intellectual property, all of StarTraks rights to customer contracts, supplier lists
and assumed certain liabilities pursuant to an Asset Purchase Agreement dated as of February 23,
2011. The consideration paid to acquire StarTrak was valued at $18.2 million consisting of: (i)
cash subject to a final working capital adjustment, (ii)
forgiveness of the 6% secured promissory note advanced by us to Alanco on February 23, 2011,
(iii) note payable issued to a lender and stockholder of Alanco, (iv) common stock, (v) Series A convertible preferred stock
and (vi) delivery of our investment in preferred stock and common stock of Alanco back to Alanco.
In addition to the consideration paid, up to an additional gross amount of $1.5 million (subject to
certain reductions) in contingent payments is payable by us if certain revenue milestones of
StarTrak are achieved for the 2011 calendar year. The initial estimate of the fair value of the contingent consideration is nil. The
estimated fair value of the earn-out was determined using weighted
probabilities to achieve the revenue milestones discounted at 19.0%. Any change in the fair value of
the contingent earn-out subsequent to the acquisition date, including changes from events after the
acquisition date, will be recognized in earnings in the period the estimated fair value changes.
As a result of the acquisition of StarTrak, we recognized $9.1 million of goodwill and $7.6
million of intangible assets. The acquired goodwill will not be amortized for financial reporting
purposes. However the acquired goodwill is tax deductible, and therefore amortized over fifteen
years for income tax purposes. As such, deferred income tax expense and a deferred tax liability arise as
a result of the difference in tax deductibility of this amount for
tax and financial reporting purposes. The resulting deferred tax liability, which is
expected to continue to increase over time will remain on our balance sheet indefinitely unless
there is an impairment of the asset.
The acquired intangible assets consist of technology and patents, customer relationships and
trademarks which will be amortized over 10 years.
The results of operations of StarTrak are included in our condensed consolidated results for the
period subsequent to the acquisition date of May 16, 2011. See Note 3 to the condensed consolidated
financial statements for further discussion.
30
Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations, liquidity and capital resources are based
on our consolidated financial statements which have been prepared in conformity with accounting
principles generally accepted in the United States of America.
The preparation of these consolidated financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates
and judgments, including those related to revenue recognition, costs
of services, warranty costs, accounts receivable, inventory, accounting for business combinations, satellite network
and other equipment, long-lived assets, capitalized development costs, valuation of deferred tax
assets, uncertain tax positions, provision for income taxes, loss
contingencies, pre-acquisition contingencies and the value of
securities underlying stock-based compensation. We base our estimates on historical and anticipated
results and trends and on various other assumptions that we believe are reasonable under the
circumstances, including assumptions as to future events. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual
results may differ from our estimates and could have a significant adverse effect on our results of
operations and financial position. For a discussion of our critical accounting policies and
estimates see Part II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010.
There have been no material changes to our critical accounting policies during 2011 except as
discussed below:
Accounting for Business Combinations
We accounted for the acquisition of StarTrak pursuant to FASB Topic ASC 805, Business
Combinations. In accordance with ASC 805, the estimated purchase price was allocated to intangible
assets and identifiable assets acquired and liabilities assumed based on their relative fair
values. The excess of the purchase price over the net tangible and intangible assets and
liabilities assumed was recorded as goodwill. We have made significant assumptions and estimates in determining the preliminary
estimated purchase price and the preliminary allocation of the estimated purchase in the condensed consolidated financial statements.
These preliminary estimates and assumptions are subject to change as we finalize the valuations of certain assets and liabilities,
including deferred revenues and warranty liabilities, intangible assets, goodwill and the final working capital adjustment. The final
valuations may change significantly from the preliminary estimates. Although we believe the assumptions and estimates we have made have
been reasonable and appropriate, they are based, in part, on historical experience, information obtained from the management of the acquired
company and future expectations. We anticipate finalizing the purchase price allocation by the end of 2011. Examples of critical estimates
in accounting for the acquisition of StarTrak include but are not limited to:
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We estimated the fair value
of the contingent earn-out consideration using a
probability-weighted discounted cash flow model based upon the expected achievement of the revenue milestones; |
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|
the future expected cash
flows from revenues and acquired technology and the patents and trademarks; |
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|
the estimated useful lives of the intangible assets acquired; and |
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|
the discount rates. |
Warranty Costs
As a result of our acquisition of
StarTrak on May 16, 2011, we acquired warranty obligations on
StarTrak’s product sales, which provide for costs to replace or fix the
product. One-year warranty coverage is accrued on product sales which provide
for costs to replace or fix the product. Our analysis of the warranty liabilities associated
with the one-year warranty coverage are estimated based on historical costs of StarTrak to replace or fix products for customers,
and additional liability for warranty coverage for other specific claims that are expected to be incurred within the next twelve
months, for which it is estimated that customers may have a warranty claim. These
warranty liabilities have not yet been fair valued. As we continue to gather
additional information, these accrual estimates may differ from actual results
and adjustments to the estimated warranty liability would be required. We will
continue to evaluate warranty liabilities relating to the acquisition of
StarTrak throughout the measurement period. If we determine that adjustments to
these amounts are required during the remainder of the measurement period such
amounts will be recorded as an adjustment to goodwill.
For the warranty costs subsequent to
the acquisition date, we accrue for StarTrak’s one-year warranty coverage
on product sales estimated at the time of sale based on historical costs to
repair or replace products for customers compared to historical product
revenues of StarTrak. As we continue to gather additional information these
accrual estimates may differ from actual results and adjustments to the
estimated warranty liability would be required.
Pre-Acquisition Contingencies
We have evaluated and continue to evaluate pre-acquisition contingencies
related to StarTrak that existed as of the acquisition date. If these pre-acquisition contingencies that existed as of the acquisition date
become probable of occurring and can be estimated during the remainder of the measurement period, amounts recorded for such matters will be
made in the measurement period and, subsequent to the measurement period, in our results of operations.
EBITDA
EBITDA is defined as earnings attributable to ORBCOMM Inc., before interest income (expense),
provision for income taxes and depreciation and amortization. We believe EBITDA is useful to our
management and investors in evaluating our operating performance because it is one of the primary
measures we use to evaluate the economic productivity of our operations, including our ability to
obtain and maintain our customers, our ability to operate our business effectively, the efficiency
of our employees and the profitability associated with their performance. It also helps our
management and investors to meaningfully evaluate and compare the results of our operations from
period to period on a consistent basis by removing the impact of our financing transactions and the
depreciation and amortization impact of capital investments from our operating results. In
addition, our management uses EBITDA in presentations to our board of directors to enable it to
have the same measurement of operating performance used by management and for planning purposes,
including the preparation of our annual operating budget.
EBITDA is not a performance measure calculated in accordance with accounting principles
generally accepted in the United States, or GAAP. While we consider EBITDA to be an important
measure of operating performance, it should be considered in addition to, and not as a substitute
for, or superior to, net loss or other measures of financial performance prepared in accordance
with GAAP and may be different than EBITDA measures presented by other companies.
The following table reconciles our net loss to EBITDA for the periods shown:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net loss attributable to ORBCOMM Inc. |
|
$ |
(541 |
) |
|
$ |
(3,296 |
) |
|
$ |
(1,272 |
) |
|
$ |
(4,031 |
) |
Income tax expense |
|
|
195 |
|
|
|
|
|
|
|
306 |
|
|
|
|
|
Interest income |
|
|
(44 |
) |
|
|
(55 |
) |
|
|
(98 |
) |
|
|
(92 |
) |
Interest expense |
|
|
78 |
|
|
|
48 |
|
|
|
126 |
|
|
|
96 |
|
Depreciation and
amortization |
|
|
1,393 |
|
|
|
904 |
|
|
|
2,550 |
|
|
|
2,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,081 |
|
|
$ |
(2,399 |
) |
|
$ |
1,612 |
|
|
$ |
(1,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Three Months: EBITDA during the three months ended June 30, 2011 improved by $3.5 million over
2010. This improvement was primarily due to higher net service revenues of $1.7 million, including
$1.1 million of service revenues from StarTrak and an impairment charge of $3.3 million in
discontinued operations to write down net assets held for sale in 2010, which did not occur in
2011. These increases were offset by an increase in part in expenses, excluding depreciation and costs of product sales,
of $1.8 million due to $0.8 million of acquisition costs and losses and $1.3 million of
expenses, excluding depreciation and costs of product sales, from StarTrak.
Six Months: EBITDA during the six months ended June 30, 2011 improved by $3.3 million over 2010
including $1.1 million of service revenues of StarTrak and an impairment charge of $3.3 million in
discontinued operations to write down net assets held for sale in 2010, which did not occur in
2011. These increases were offset by an increase in
expenses, excluding depreciation and costs of product sales, of $2.9 million due to $1.0 million of acquisition costs and losses and $1.3 million of expenses, excluding depreciation and costs of product sales, from StarTrak.
Revenues
We derive service revenues from our resellers and direct customers from utilization of satellite
subscriber communicators on our communications system and the reselling of airtime from the
utilization of terrestrial-based subscriber communicators using SIMS on the cellular providers
wireless networks. These service revenues generally consist of a one-time activation fee for each
subscriber communicator and SIMS activated for use on our communications system and monthly usage
fees. Usage fees that we charge our customers are based upon the number, size and frequency of data
transmitted by the customer and the overall number of subscriber communicators and SIMS activated
by each customer. Revenues for usage fees from currently billing subscriber communicators and SIMS
are recognized on an accrual basis, as services are rendered, or on a cash basis, if collection
from the customer is not reasonably assured at the time the service is provided. Usage fees charged
to our resellers and direct customers are charged primarily at wholesale rates based on the overall
number of subscriber communicators activated by them and the total amount of data transmitted.
Service revenues also include extended warranty service agreements extending beyond the initial
warranty period of one year, royalty fees from third parties for the use of our proprietary
communications protocol charged on a one-time basis for each satellite subscriber communicator
connected to our M2M data communications system and fees from providing engineering, technical and
management support services to customers.
We derive product revenues primarily from sales of subscriber communicators to our resellers
(i.e., our VARs, IVARs, international licensees and country representatives) and direct customers
and other equipment such as gateway earth stations and related products to customers. We also sell
cellular wireless subscriber identity modules, or SIMS, (for our terrestrial-communication
services) to our resellers and direct customers.
The table below presents our revenues for the three and six months ended June 30, 2011 and 2010,
together with the percentage of total revenue represented by each revenue category in (in
thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
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|
|
|
|
|
% of |
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|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
Service revenues |
|
$ |
8,980 |
|
|
|
83.1 |
% |
|
$ |
7,277 |
|
|
|
92.9 |
% |
|
$ |
16,377 |
|
|
|
87.6 |
% |
|
$ |
14,159 |
|
|
|
92.8 |
% |
Product sales |
|
|
1,829 |
|
|
|
16.9 |
% |
|
|
560 |
|
|
|
7.1 |
% |
|
|
2,315 |
|
|
|
12.4 |
% |
|
|
1,095 |
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,809 |
|
|
|
100.0 |
% |
|
$ |
7,837 |
|
|
|
100.0 |
% |
|
$ |
18,692 |
|
|
|
100.0 |
% |
|
$ |
15,254 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months: Total revenues for the three months ended June 30, 2011 increased $3.0 million,
or 37.9%, to $10.8 million from $7.8 million for the three months ended June 30, 2010.
Six months: Total revenues for the six months ended June 30, 2011 increased $3.4 million, or 22.5%,
to $18.7 million from $15.3 million for the six months ended June 30, 2010.
The increase in total revenues for the three and six months ended June 30, 2011 included $2.2 million of revenues from StarTrak.
Service revenues
Three months: Service revenues increased $1.7 million for the three months ended June 30, 2011, or
23.4%, to $9.0 million, or approximately 83.1% of total revenues, from $7.3 million, or approximately 92.9% of total revenues
for the three months ended June 30, 2011. The increase in service revenues were primarily due to an
increase in satellite and terrestrial revenue of $2.4 million from an increase in the number of
billable subscriber communicators activated on our communications system which included $1.1 million of service revenues of StarTrak from the acquisition date offset by a decrease in AIS
revenue of $0.8 million as our AIS service has been interrupted.
32
Six
months: Service revenues increased $2.2 million for the six months ended June 30, 2011, or
15.7%, to $16.4 million, or approximately 87.6% of total revenues, from $14.2 million, or
approximately 92.8% of total revenues for the six months ended June 30, 2010. The increase in
service revenues were primarily due to an increase in satellite and
terrestrial revenue of $3.5
million from an increase in the number of billable subscriber communicators activated on our
communications system which included $1.1 million of service revenues of StarTrak offset by a
decrease in AIS revenue of $1.5 million as our AIS service has been interrupted.
As of June 30, 2011, we had
approximately 606,000 billable subscriber communicators on the ORBCOMM
System compared to approximately 539,000 billable subscriber communicators as of June 30, 2010, an
increase of approximately 12.3%.
Service revenue growth can be impacted by the customary lag between subscriber communicator
activations and recognition of service revenue from these units.
Product sales
Three months: Revenue from product sales increased $1.3 million for the three months ended June 30,
2011, or 226.9% to $1.8 million from $0.6 million for the three months ended June 30, 2010.
Six months: Revenue from product sales increased $1.2 million for the six months ended June 30,
2011, or 111.5% to $2.3 million from $1.1 million for the six months ended June 30, 2010.
The increase in product revenues for the three and six months ended June 30, 2011 over the
corresponding periods were primarily due to an increase in sales to the heavy equipment sector by
our Japanese subsidiary and $1.1 million of revenues from StarTrak.
Costs of services
Costs of services is comprised of expenses to provide services, such as payroll and related costs,
including stock-based compensation, materials and supplies, depreciation and amortization of assets
and usage fees to cellular wireless providers for the data transmitted by the resellers on our
network and other third-party networks.
Three months: Costs of services increased by $0.7 million, or 23.4%, to $3.8 million for the six
months ended June 30, 2011 from $3.1 million for the three months ended June 30, 2010. As a
percentage of service revenues, cost of services were 41.6% for the three months ended June 30,
2011 compared to 42.1% for the three months ended June 30, 2010.
Six months: Costs of services increased by $1.0 million, or 16.8%, to $7.2 million for the six
months ended June 30, 2011 from $6.2 million for the six months ended June 30, 2010. As a
percentage of service revenues, cost of services were 44.0% for the six months ended June 30, 2011
compared to 43.8% for the six months ended June 30, 2010.
The increase in costs of services for the three and six months ended June 30, 2011 over the
corresponding periods are primarily due to $0.6 in costs from StarTrak.
Costs of product sales
Costs of products includes the purchase price of subscriber communicators and SIMS sold, shipping
charges as well as operational costs to fulfill customer orders, including costs for employees.
Three months: Costs of product sales increased by $1.0 million, or 284.7%, to $1.3 million for the
three months ended June 30, 2011 from $0.3 million for the three months ended June 30, 2010. The
increase is primarily due to $1.0 million in costs from StarTrak. We had a gross profit from
product sales (revenues from product sales minus costs of product sales including distribution
costs) of $0.5 million for the three months ended June 30, 2011 compared to a gross profit from
product sales of $0.2 million for the three months ended June 30, 2010.
Six months: Costs of product sales increased by $1.0 million, or 143.0%, to $1.6 million for the
six months ended June 30, 2011 from $0.7 million for the three months ended June 30, 2010. The
increase is primarily due to $1.0 million in costs from StarTrak. We had a gross profit from
product sales (revenues from product sales minus costs of product sales including distribution
costs) of $0.7 million for the six months ended June 30, 2011 compared to a gross profit from
product sales of $0.4 million for the six months ended June 30, 2010.
Selling, general and administrative expenses
Selling, general and administrative expenses relate primarily to expenses for general management,
sales and marketing, and finance, professional fees and general operating expenses.
Three months: Selling, general and administrative expenses increased by $0.6 million, or 15.7%, to
$4.6 million for the three months ended June 30, 2011 from $4.0 million for the three months ended
June 30, 2010.
Six months: Selling, general and administrative expenses
increased by $0.9 million, or 10.9%, to
$9.1 million for the six months ended June 30, 2011 from $8.2 million for the six months ended June
30, 2010.
The increase in selling, general and administrative expenses for the three and six months ended
June 30, 2011 over the corresponding periods are primarily due to $0.6 in costs from StarTrak.
33
Product development expenses
Product development expenses consist primarily of the expenses associated with our engineering
team, along with the cost of third parties that are contracted to support our current applications.
Product development expenses for the three months ended June 30, 2011 and June 30, 2010 were $0.3
million and $0.2 million, respectively.
Product development expenses for the six months ended June 30, 2011 and June 30, 2010 were $0.5
million and $0.3 million, respectively.
The increase in product development expenses for the three and six months ended June 30, 2011 over
the corresponding periods are primarily due to $0.1 in costs from StarTrak.
Acquisition
costs
Acquisition-related costs directly
relate to the acquisition of StarTrak include professional services
expenses. For the three and six months ended June 30, 2011
acquisition-related costs were $0.8 million and $1.0 million, respectively.
Other income (expense)
Other income is comprised primarily of interest income from our cash and cash equivalents, which
consists of U.S. Treasuries, interest bearing instruments, and our investments in marketable
securities consisting of U.S. government and agency obligations, corporate obligations and
FDIC-insured certificates of deposit classified as held to maturity, foreign exchange gains and
losses and interest expense.
Three
months: For the three months ended June 30, 2011 other expense was $0.3 million
compared to other income of less than $0.1 million for the three
months ended June 30, 2010. The increase is primarily due to a
loss of $0.3 million on the disposition of our investment in Alanco, incurred in connection with the acquisition of StarTrak, for the difference between
the fair value and the carrying value.
Six
months: For the six months ended June 30, 2011 other expense
was $0.2 million compared to other expense of $0.1 million
for the six months ended June 30, 2010. The increase is primarily due to a
loss of $0.3 million on the disposition of our investment in Alanco, incurred in connection with the acquisition of StarTrak, for the difference between
the fair value and the carrying value.
Loss from continuing operations before income taxes
Three months: We have a loss from continuing operations before income taxes of $0.4 million for the
three months ended June 30, 2011 compared to income from continuing operations before income taxes
of $0.3 million for the three months ended June 30, 2010. The acquisition-related costs and the loss on disposition
of our investment in Alanco of $1.1 million was the significant factor in contributing to the loss for the three months ended June 30, 2011.
Six months: We have a loss from continuing operations before income taxes of $1.0 million for the
six months ended June 30, 2011 compared to a loss from continuing operations before income taxes of
$0.2 million for the six months ended June 30, 2010. The acquisition-related costs and the loss on disposition
of our investment in Alanco of $1.3 million was the significant factor in contributing to the loss for the six months
ended June 30, 2011.
Provision for Income taxes
The provision for income taxes for the three months ended June 30, 2011 was $0.2 million consisting
of a foreign tax expense incurred as result of income generated by ORBCOMM Japan and the goodwill
generated from the acquisition of StarTrak which is tax deductible.
The provision for income taxes for the six months ended June 30, 2011 was $0.3 million consisting
of a foreign tax expense incurred as result of income generated by ORBCOMM Japan and goodwill
generated from the acquisition of StarTrak. As of June 30, 2011, we maintained a valuation
allowance against all net deferred tax assets, other than goodwill, attributable to all operations in the United States
and all other foreign jurisdictions as the realization of such assets was not considered more
likely than not.
For the three and six months ended June 30, 2010, we did not record a provision for taxes as
we maintained a valuation allowance against all net deferred tax assets attributable to all
operations in the United States and all foreign jurisdictions as the realization of such assets was
not considered more likely than not.
34
Loss from continuing operations
Three months: We have a loss from continuing operations of $0.6 million for the three months ended
June 30, 2011 compared to income from continuing operations of $0.3 million for the three months
ended June 30, 2010. The acquisition-related costs and the loss on disposition of our investment in Alanco
of $1.1 million was the significant factor in
contributing to the loss for the three months ended June 30, 2011.
Six months: We have a loss from continuing operations of $1.3 million for the six months ended June
30, 2011 compared to a loss from continuing operations of $0.2 million for the six months ended
June 30, 2010. The acquisition-related costs and loss on disposition of our investment in Alanco of $1.3 million was the significant factor in
contributing to the loss for the six months ended June 30, 2011.
Loss from discontinued operations
Loss from discontinued operations
was $3.5 million and $3.6 million for the three months and six months ended June
30, 2010, respectively.
Noncontrolling interests
Noncontrolling interests relate to earnings and losses attributable to noncontrolling shareholders.
Net loss attributable to ORBCOMM Inc.
Three
months: We have a net loss attributable to our company of $0.5 million for the three months
ended June 30, 2011 compared to a net loss of $3.3 million for the three months ended June 30,
2010. The acquisition-related costs and the loss on disposition of
our investment in Alanco of $1.1 million was the significant factor in contributing to the
loss for the three months ended June 30, 2011.
Six
months: We have a net loss attributable to our company of $1.3 million for the six months ended
June 30, 2011 compared to a net loss of $4.0 million for the six months ended June 30, 2010. The
acquisition-related costs and the loss on disposition of our investment in Alanco of $1.3 million was the significant factor in contributing to the loss for the
six months ended June 30, 2011.
Liquidity and Capital Resources
Overview
Our liquidity requirements arise from our working capital needs and to fund capital expenditures to
support our current operations, and facilitate growth and expansion. Since our inception, we have
financed our operations and expansion from sales of our common stock through public offerings and
private placements of debt, convertible redeemable preferred stock, membership interests and common
stock. We have incurred losses from inception and through June 30, 2011 we have an accumulated
deficit of $77.9 million. As of June 30, 2011, our primary source of liquidity consisted of cash,
cash equivalents, restricted cash and marketable securities totaling $82.7 million, which we
believe will be sufficient to provide working capital and milestone payments for our
next-generation satellites for the next twelve months.
Operating activities
Cash
provided by our operating activities for the six months ended June 30, 2011, was $0.4 million
resulting from a net loss of $1.3 million, offset by non-cash
items including $2.6 million for
depreciation and amortization, $0.7 million for stock-based
compensation, $0.3 million loss on the disposition of our investment in Alanco and amortization of premium on marketable securities of $0.8 million.
Working capital activities primarily consisted of a net use of cash of $2.2 million for an increase
in accounts receivable primarily due to the increase in revenues.
Cash provided by our operating activities for the six months ended June 30, 2010 was $1.1 million
resulting from a net loss of $3.8 million, offset by non-cash items including a $3.3 million
impairment charge to write down the net assets held for sale to their estimated fair values, $2.3
million for depreciation and amortization and $1.0 million for stock-based compensation. Working
capital activities consisted of net uses of cash of $0.6 million for an increase in accounts
receivable primarily due to the increase in revenues and $0.8 million from a decrease in accounts
payable and accrued expenses primarily related to timing of payments.
Cash provided by our operating activities of discontinued operations for the six months ended June
30, 2010 was less than $0.1 million.
Investing activities
Cash provided by our investing activities for the six months ended June 30, 2011 was $7.4 million,
resulting from proceeds received from the maturities of marketable securities totaling $59.8
million, offset primarily by $1.9 million in consideration paid to acquire
StarTrak, capital expenditures of $3.8 million and purchases of marketable securities of $47.5
million.
Cash used in our investing activities for the six months ended June 30, 2010 was $50.8 million,
resulting from capital expenditures of $2.7 million, purchases of marketable securities of $91.8
million and the purchase of a cost method investment of $1.4 million. These uses were offset by
proceeds received from the maturities of marketable securities totaling $45.1 million.
35
Financing activities
Cash used in our financing activities for the six months ended June 30, 2011 was $0.2 million,
resulting primarily from the principal payment on the 6% secured promissory note payable.
For the six months ended June 30, 2010, we did not have any cash flows from financing activities.
Future Liquidity and Capital Resource Requirements
We expect cash flows from operating activities, along with our existing cash, cash equivalents,
restricted cash and marketable securities will be sufficient to provide working capital to fund
long-term debt payments and capital expenditures, which primarily includes milestone payments under the
procurement agreements for the next-generation satellites for the next twelve months. For the
remainder of 2011, we expect to incur approximately $15.0 million of capital expenditures
primarily for our next-generation satellites.
Contractual Obligations
There have been no material changes in our contractual obligations as of June 30, 2011, as
previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010 except
as discussed below:
On May 16, 2011, we issued a $3.9 million 6% secured promissory note payable as part of the
purchase price to acquire StarTrak. We made a $200 principal payment on May 16, 2011. The remaining principal
payments are due in quarterly installments beginning on March 31, 2012 with a balloon payment of
$2.4 million due on December 31, 2015.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
Recent accounting pronouncements
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risks |
There
has been no material changes in our assessment of our sensitivity to
market risk as of June 30, 2011, as previously disclosed in Part II, Item 7A Quantitative and Qualitative Disclosures
about Market Risks in our Annual Report on Form 10-K for the year ended December 31, 2010.
Concentration of credit risk
The following table presents customers with revenues greater than 10% of our consolidated total
revenues for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Caterpillar Inc. |
|
|
22.9 |
% |
|
|
13.8 |
% |
|
|
23.6 |
% |
|
|
13.5 |
% |
Komatsu Ltd. |
|
|
15.5 |
% |
|
|
15.4 |
% |
|
|
16.8 |
% |
|
|
13.7 |
% |
Hitachi
Construction
Machinery Co., Ltd. |
|
|
|
|
|
|
11.8 |
% |
|
|
10.1 |
% |
|
|
12.8 |
% |
Asset Intelligence |
|
|
|
|
|
|
11.5 |
% |
|
|
|
|
|
|
11.5 |
% |
|
|
|
Item 4. |
|
Disclosure Controls and Procedures |
Evaluation of the Companys disclosure controls and procedures.
The Companys management evaluated,
with the participation of the Companys President and Chief Executive Officer and Executive Vice
President and Chief Financial Officer, the effectiveness of the design and operation of the
Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)), as of June 30, 2011. Based on
their evaluation, the Companys President and Chief Executive Officer and Executive Vice President
and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective as of June 30, 2011.
Changes in Internal Control over Financial Reporting.
We reviewed our internal control over financial reporting at June 30, 2011. As a result, of the Transaction, we have begun to
integrate certain business processes and systems of the Acquired Business. Accordingly, certain changes have been made and will continue to
be made to our internal controls over financial reporting until such time as this integration is complete. In reliance on interpretive
guidance issued by the SEC staff, management has chosen to exclude disclosure of changes in internal control over financial reporting
related to the Acquired Business.
There have been no other changes in our internal control over financial reporting identified in an evaluation thereof that occurred during
the second fiscal quarter of 2011 that materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
36
PART II OTHER INFORMATION
|
|
|
Item 1. |
|
Legal Proceedings |
From time to time, we are involved in various litigation matters involving ordinary and routine
claims incidental to our business. Management currently believes that the outcome of these
proceedings, either individually or in the aggregate, will not have a material adverse effect on
our business, results of operations or financial condition.
Except as discussed under Overview in Part 1, Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations, there have been no material changes in the risk
factors as of June 30, 2011, as previously disclosed in Part I, Item 1A Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2010.
|
|
|
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
None.
|
|
|
Item 5. |
|
Other Information |
The following information updates Item 5.07 of the Current Report on Form 8-K filed on May 3,
2011 by the Company regarding the results of the Companys 2011 Annual Meeting of
Shareholders held on April 28, 2011, to disclose the decision of the Companys Board of
Directors regarding how frequently it will hold an advisory shareholder vote on executive compensation.
At the 2011 Annual Meeting of Shareholders, as recommended by the Companys Board of
Directors, the Companys shareholders approved, on an advisory basis, holding the advisory
shareholder vote on the compensation of the Companys named executive officers on an annual
basis by a vote representing more than 50% of the votes cast on the proposal.
In light of these voting results and other factors considered by the Board of Directors in making
its recommendation to the shareholders, at a meeting held on July 27, 2011, the Board of
Directors determined that the Company will include an advisory shareholder vote on the
compensation of its named executive officers in its proxy materials every year until the next
advisory vote on the frequency of shareholder votes on executive compensation, which will
occur no later than the Companys Annual Meeting of Shareholders in 2017.
|
|
|
|
|
|
3.1 |
|
|
Certificate of Designation of Series A convertible preferred stock of the Company, filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K filed on May 20, 2011, is incorporated herein by reference.
|
|
|
|
|
|
|
10. |
|
|
ORBCOMM Inc. 2006 Long-Term Incentives Plan, as amended, filed as Exhibit 99 to the Companys
Current Report on Form 8-K filed on May 3, 2011, is incorporated herein by reference.
|
|
|
|
|
|
|
31.1 |
|
|
Certification of President and Chief Executive Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
31.2 |
|
|
Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
32.1 |
|
|
Certification of President and Chief Executive Officer required by Rule 13a-14(b) and 18 U.S.C.
Section 1350. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b)
and 18 U.S.C. Section 1350. |
|
|
|
|
|
|
101. INS*
|
|
XBRL Instance Document |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
* |
|
This exhibit with this Quarterly Report on Form 10-Q, is deemed filed with the Securities
and Exchange Commission, and is not incorporated by reference into any filing of ORBCOMM Inc. under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date hereof and irrespective of any general incorporation language
contained in such filing. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
ORBCOMM Inc.
(Registrant)
|
|
Date: August 9, 2011 |
/s/ Marc J. Eisenberg
|
|
|
Marc J. Eisenberg, |
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
Date: August 9, 2011 |
/s/ Robert G. Costantini
|
|
|
Robert G. Costantini, |
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
37
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
3.1 |
|
|
Certificate of Designation of Series A convertible preferred stock of the Company, filed as Exhibit 3.1 to the Companys
Current Report on Form 8-K Filed on May 20, 2011, is incorporated herein by reference.
|
|
|
|
|
|
|
10. |
|
|
ORBCOMM Inc. 2006 Long-Term Incentives Plan, as amended, filed as Exhibit 99 to the Companys
Current Report on Form 8-k filed on May 3, 2011, is incorporated herein by reference.
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer and President required by Rule 13a-14(a). |
|
|
|
|
|
|
31.2 |
|
|
Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer and President required by Rule 13a-14(b) and 18 U.S.C.
Section 1350. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Executive Vice President and Chief Financial Officer required by Rule 13a-14(b)
and 18 U.S.C. Section 1350. |
|
|
|
101. INS*
|
|
XBRL Instance Document |
|
|
|
101.SCH*
|
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL*
|
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF*
|
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB*
|
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE*
|
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
* |
|
This exhibit with this Quarterly Report on Form 10-Q, is deemed filed with the Securities
and Exchange Commission, and is not incorporated by reference into any filing of ORBCOMM Inc. under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date hereof and irrespective of any general incorporation language
contained in such filing. |
38