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EX-31.1 - EXHIBIT 31.1 - ORBIT FR INC | c23661exv31w1.htm |
EX-23.2 - EXHIBIT 23.2 - ORBIT FR INC | c23661exv23w2.htm |
EX-32.2 - EXHIBIT 32.2 - ORBIT FR INC | c23661exv32w2.htm |
EX-23.1 - EXHIBIT 23.1 - ORBIT FR INC | c23661exv23w1.htm |
EX-32.1 - EXHIBIT 32.1 - ORBIT FR INC | c23661exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - ORBIT FR INC | c23661exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment
No. 1 to
FORM 10-K
(Mark One)
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number 0-22583
ORBIT/FR, Inc.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE | 23-2874370 | |
(State or Other Jurisdiction | (IRS Employer | |
of Incorporation or Organization) | Identification No.) | |
506 Prudential Road, Horsham, PA | 19044 | |
(Address of Principal Executive Offices) | (Zip Code) |
(215) 674-5100
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark in the registrant is a well-known seasoned issuer, as defined in rule
405 of the Securities Act. Yes o No þ
Indicate by check mark in the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K 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 has submitted electronically and posted on its
corporate website, 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):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12-b-2 of
the Act) Yes o No þ
As of June 30, 2010, the last business day of the Registrants most recently completed second
fiscal quarter, the aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant was $4,741,652 (based on the closing price of the Common Stock on
June 30, 2010 of $2.06 per share). The information provided shall in no way be construed as an
admission that any officer, director, or 10% shareholder in the Company may or may not be deemed an
affiliate of the Company or that he/it is the beneficial owner of the shares reported as being held
by him/it, and any such inference is hereby disclaimed. The information provided herein is included
solely for record keeping purposes of the Securities and Exchange Commission. As of March 30, 2010,
6,001,773 shares of Common Stock were outstanding.
ORBIT/FR, Inc.
Index
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Exhibit 23.1 | ||||||||
Exhibit 23.2 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
Table of Contents
Explanatory Note
This Amendment No. 1 to the Annual Report on Form 10-K/A (the Amendment) of Orbit/FR, Inc.
(the Company or we) is being filed solely for the purpose of (i) amending the notes to our
audited consolidated financial statements for the fiscal year ended December 31, 2010 (the
Financial Statements) to expand the disclosure set forth under the headings Principles of
Consolidation and Foreign Currency Transactions in Note 1; and (ii) correcting a typographical
error. Except as described above, no other changes are being made to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 (the Form 10-K). This Amendment does not
reflect events occurring after the March 31, 2011 filing of our Form 10-K and does not modify or
update the disclosure contained in the Form 10-K in any way other than as described in this
Explanatory Note.
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, and documents incorporated herein, contain forward-looking
statements that involve risks and uncertainties. Actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors, including, but not
limited to those set forth in Item 1A Risk Factors below and elsewhere in this Annual Report on
Form 10-K. The following discussion should be read in conjunction with Item 1A Risk Factors below
and the Consolidated Financial Statements and notes to the Consolidated Financial Statements
beginning on page F-1. As used in this Annual Report on Form 10-K, unless the context otherwise
requires, we, us, our, Company, or ORBIT/FR refers to ORBIT/FR, Inc. and its
subsidiaries.
ITEM 1. | BUSINESS |
General
ORBIT/FR, Inc. develops markets and supports sophisticated automated microwave test and
measurement systems for the aerospace/defense, wireless communications, satellite and automotive
industries and manufactures anechoic foam, a microwave absorbing material that is an external
component of microwave test and measurement systems. Military antennas, cellular phones,
satellites, radars, radio transmitters, and global positioning system receivers all depend upon the
reliable and efficient transmission and reception of microwave signals in order to communicate. By
utilizing the Companys systems to test and measure the critical performance characteristics of
antennas, microwave signals, wireless manufacturers and service providers within these industries
can improve quality and time-to-market, lower the risk of failure and underperformance and reduce
costs.
Since its founding, the Company has expanded from distributing individual microwave test and
measurement components to providing a wide range of fully integrated microwave test and measurement
solutions. Components of an ORBIT/FR automated microwave test and measurement system include
proprietary software and hardware products, which can be combined into standard or customized
configurations to meet a customers specific needs.
The Company markets and sells its systems to customers in the United States and throughout the
world. Within its targeted industries, the Companys customers include aerospace/defense systems
integrators and product manufacturers that incorporate microwave technology, such as Lockheed
Martin, Raytheon, Northrop Grumman, BAE, L3 Communications, Alenia, Astrium, Lufthansa and Boeing;
manufacturers of wireless systems and products, such as Motorola, Nokia, Ericsson, Samsung, Sony
and Qualcomm; telecommunications service providers that rely on microwave technology, such as AT&T,
NTT and British Telecom; and automobile and automotive subassembly manufacturers such as Daimler,
Ford, BMW and Hyundai. The Companys customers also include the United States government and
several foreign governments.
The Companys primary objective is to strengthen its position in automated microwave test and
measurement systems while developing products and systems for a broader range of microwave
applications. The principal elements of the Companys strategy to reach its objectives are: (i)
offering comprehensive high quality solutions to customers; (ii) maintaining its technological
leadership; (iii) focusing on standard systems and proprietary off-the-shelf products: (iv)
pursuing growth in international markets; and (v) leveraging its technological expertise to expand
into complementary markets.
The Companys principal offices are located at 506 Prudential Road, Horsham, Pennsylvania
19044. Its telephone number is (215) 674-5100, its e-mail address is mail@orbitfr.com and its World
Wide Web home page is located at www.orbitfr.com.
3
Table of Contents
History
The Company was incorporated in Delaware in December 1996. The Company is the holding company
for Orbit Advanced Technologies, Inc., a Delaware corporation (Technologies), and its wholly
owned subsidiaries, Flam & Russell, Inc., a Delaware corporation (Flam & Russell), Orbit FR
Engineering, Ltd., an Israeli corporation (Engineering), Orbit FR Europe, GmbH, a German
corporation (GmbH), and Advanced ElectroMagnetics, Inc. (AEMI), a California corporation. The
Companys former majority shareholder was Orbit-Alchut Technologies, Ltd., a publicly traded
company in Israel which was founded in 1950 (Alchut). On May 13, 2008, Alchut sold all of its 3.7
million shares of common stock of the Company to Satimo, SA (Satimo) a publicly traded company on
the ALTERNEXT stock exchange. On June 30, 2009, Microwave Vision Group, SA, (Microwave Vision),
acquired the 3.7 million common shares of the Company through a reorganization involving its wholly
owned subsidiary, Satimo.
Technologies was incorporated in 1985 as a wholly-owned subsidiary of Alchut to provide sales
and customer support for Alchuts products in the United States, including positioning subsystems.
In 1991, Technologies began to focus on the development and design of its own proprietary microwave
test and measurement products and systems. In 1994, Technologies recognized the potential for
providing customers with fully integrated microwave test and measurement solutions and began
incorporating its software technology with hardware from third-party manufacturers.
Engineering was incorporated in Israel in December 1996 as a wholly-owned subsidiary of Alchut
at which time Alchut transferred all of the assets relating to its microwave test and measurement
business to Engineering. Engineering is principally responsible for overseeing the development,
design and production of ORBIT/FRs electro-mechanical products. Along with providing
electro-mechanical products internally, Engineering is responsible for sales, marketing and
customer support to the Asian market.
In October 1997, Orbit FR Europe, GmbH was incorporated in Germany. GmbH develops compact
range measurement systems and components, and is responsible for sales, marketing and customer
support to the European market.
On June 28, 1996, Technologies purchased all of the issued and outstanding shares of Flam &
Russell for approximately $1,043,000. The acquisition of Flam & Russell augmented the Companys
product mix, staff of microwave and software engineers and customer base. Flam & Russell has been
active in the microwave test and measurement field since 1981.
On June 17, 1997, contemporaneously with the completion of its initial public offering, the
Company purchased all of the issued and outstanding shares of AEMI for approximately $1.2 million.
One-half of the purchase price was payable in cash and the other half was payable by issuance of
shares of the Companys Common Stock at the initial offering price of $8.25 per share. AEMI
manufactures anechoic foam, a microwave absorbing material that is an integral component of
microwave test and measurement systems.
On May 13, 2008, Alchut sold all of its 3.7 million shares of common stock of the Company to
Satimo, SA (Satimo) a publicly traded company on the ALTERNEXT stock exchange. On June 30, 2009,
Microwave Vision Group, SA, (Microwave Vision), acquired the 3.7 million common shares of the
Company through a reorganization involving its wholly owned subsidiary, Satimo.
4
Table of Contents
Industry Overview
The need for microwave and antenna test and measurement systems and products expanded rapidly
during the 1960s and 1970s in conjunction with the growth and increased sophistication of the
aerospace/defense industry in the United States and Western Europe. In the last 30 years, this need
for test and measurement products and systems has expanded beyond aerospace/defense applications to
all aspects of modern telecommunications, including personal wireless communications devices,
satellite-based communications systems and smart automobiles. This expansion has occurred in
conjunction with a growing desire among companies to focus on their core competencies and outsource
many non-core functions such as the development and manufacture of microwave test and measurement
systems.
Within the wireless communications, satellite, automotive and aerospace/defense industries,
test and measurement products and systems are used during all stages of a products life cycle,
including product development, pre-production qualification, production testing and product
maintenance. Given the broad scope of testing procedures, it is not uncommon for a manufacturer or
service provider to own and operate more than one microwave test and measurement system.
Aerospace/Defense. The need within the aerospace/defense community for accurate and secure
communications and tracking systems led to the emergence of microwave test and measurement
companies in the 1960s. Recent growth in Department of Homeland Security and Department of Defense
budgets have provided additional opportunities for the Company.
The industrys tracking requirements, such as air traffic control, precision guided weapons,
and data links and stealth aircraft, led to the development of Radar Cross Section (RCS) and the
test and measurement of radomes. RCS involves the transmission of microwave signals towards a
passive target, such as an aircraft or missile, and then the creation of an image of the target
by measuring the energy reflected back towards the transmit source. Radome testing evaluates the
impact of a radome (the dome-shaped casing that is placed on the leading edge of an aircraft or
missile to protect the radar and direction-finding equipment) on the microwave signals that pass
through it.
Wireless Communications. The wireless communications industry has grown in recent years as a
result of the development of cost-effective digital technologies and the gradual global
deregulation of the telecommunications industry. Wireless communications products include
cellular/PCS handsets and base stations, pagers, wireless PDAs, and Bluetooth, Wi-Fi and Wi-Max
products, and RFIDs (RF tags). The Company expects continued growth within the wireless
communications industry in the future due to an increase in available spectrum, new generations of
cellular systems, the adoption of efficient new digital technologies and the development of smart
antennas.
Growing worldwide demand for wireless communications products and services has generated a
need among wireless manufacturers and service providers for systems and products that address their
specific microwave test and measurement needs. These companies operate in highly-competitive,
rapidly changing markets in which the performance and reliability of their systems and products are
essential to achieve and maintain competitive advantage. The accurate transmission and reception of
microwave signals are fundamental to the performance of wireless systems and products. To ensure
the successful transfer of voice or data from one point to another and to minimize poor reception,
cross talk and dropped calls, manufacturers and service providers conduct extensive testing of both
cellular handsets and wireless base stations for signal quality, direction, strength and
interference.
Satellite. Satellite-related markets have grown over the past several years, driven by the
emergence of advanced communication technologies offering cost-effective global voice, video and
data transmission, GPS, internet access and tracking capabilities. Satellites provide several
advantages over terrestrial communications networks, including rapid installation and deployment,
no incremental cost as distances increase and higher rates of data transmission.
To ensure that satellite-based communications systems are effective and reliable, it is
essential that both satellites and earth stations transmit and receive microwave signals
accurately. The accuracy requirements for these satellite systems are critical, and failure to
detect a design error could result in a satellites footprint not covering its intended
geographic area. Satellite manufacturers cannot afford to make this kind of error since the cost to
manufacture, launch and insure a satellite can exceed approximately $200 million. Accordingly,
sophisticated microwave test and measurement systems are critical to satellite and earth station
manufacturers, as well as their subcontractors and sub-assembly manufacturers, to ensure that their
products work properly.
Automotive. The worlds major manufacturers of automobiles and automotive sub-assemblies,
driven by competitive pressures, are designing new generations of smart cars and trucks. These
vehicles incorporate the latest communications and safety devices including cellular, GPS-based,
navigation and anti-theft systems, satellite radios (e.g. XM, Sirius), data transfer, digital TV
and
collision-avoidance systems. Each of these features requires a specialized, highly-accurate
microwave transmission and reception system. To ensure the performance of these various systems and
to assess how they are impacted by the electromagnetic properties of the car itself, automotive
manufacturers must test the car and these devices as a unit using a microwave test and measurement
system designed for automotive applications.
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Table of Contents
The ORBIT/FR Solution
ORBIT/FR provides its customers with flexible and reliable solutions for their complex
microwave test and measurement needs. The Company focuses its efforts and resources on developing
state-of-the-art microwave test and measurement systems and products that incorporate specialized
technologies and expertise. The Companys customers have a need for microwave test and measurement
systems and products but often do not have the in-house capabilities to develop, or the desire to
develop, such systems and products themselves. ORBIT/FRs systems and products provide customers
with cost- effective and user-friendly solutions to their microwave test and measurement needs,
thus allowing them to remain focused on their core competencies. The Companys systems and products
incorporate technological expertise developed and acquired by the Company over many years.
The Company offers a wide range of standard and custom microwave test and measurement
solutions for specialized aerospace/defense-related testing, cellular/PCS handset testing, cellular
base station testing, satellite testing and automotive testing. The Companys products include test
and measurement software, microwave receivers, positioner subsystems and controllers, as well as
other microwave products, and a full line of RF absorbing materials, all of which are typically
incorporated into the Companys systems. The Companys proprietary software supports the Companys
own test and measurement products as well as those manufactured by third parties. The Companys
engineers and other technical staff use their broad expertise to assess and understand their
customers specific microwave test and measurement needs, process orders quickly, keep delivery
time to a minimum, provide comprehensive customer support and release new software on a regular
basis.
The ORBIT/FR Strategy
The Companys objective is to strengthen its leadership position in automated microwave test
and measurement systems while developing products and systems for a broader range of microwave
applications. The principal elements of the Companys strategy to reach its objective are:
Offering Comprehensive Turnkey Solutions to Customers. Within the microwave test and
measurement market, new and existing customers increasingly desire to purchase comprehensive,
turnkey test and measurement systems from a single provider. The Company addresses this desire by
providing engineering and project management services, by offering an increasingly broad product
line and by maintaining close relationships with outside component suppliers. Additionally, the
Company may periodically acquire companies with complementary products and services that can be
integrated with the Companys existing or proposed products and systems, as it did with its
acquisitions of Flam & Russell and AEMI. By acquiring suppliers of key components of microwave test
and measurement systems that the Company does not already provide, the Company believes, but cannot
assure, that it will be able to increase gross margins.
Maintaining Technological Leadership. The Company believes that it has sophisticated and
diversified technological capabilities and intends to strengthen its technologies by continuously
designing and developing new software releases and hardware upgrades which offer greater
performance and higher precision.
Focusing on Standard Products and Proprietary Off-the Shelf Products. Given the diversified
needs of the Companys customers, no two microwave test and measurement systems are identical.
However, the Company seeks to keep the costs of customization to a minimum by designing and
delivering specific types of systems that maximize the use of the Companys proprietary
off-the-shelf products. This approach enables the Company to optimize its margins while offering
its customers tailor-made solutions built around proven high-quality and reliable products.
Continued focus on Expanding U.S. Aerospace/Defense Market. As a result of its reputation and
diverse product line, the Company maintains relationships with the U.S. government and several of
the leading defense contractors. With expected increases in Department of Homeland Security and
Department of Defense budgets, the Company expects to expand this relationship.
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Table of Contents
Pursuing Growth in International Markets. Approximately 53% and 48% of the Companys revenues
during 2010 and 2009, respectively, were derived from international customers (i.e. customers
outside of North America). The Company believes that in addition to domestic growth as a result of
increases in Department of Defense and Homeland Security budgets, the international
microwave test and measurement marketplace will also grow over the next several years, due in
large part to worldwide economic development, governmental policies aimed at improving the
communications infrastructure in developing countries and the increasing globalization of commerce.
The Company has devoted and intends to continue to devote significant efforts to increasing its
share of the international market for microwave test and measurement systems by strengthening and
expanding its sales network through the establishment of foreign sales and customer service centers
and the appointment of additional international sales representatives. In addition, the Company
believes it has a competitive advantage due to the duty-free status of its products manufactured in
Israel and sold into the European Union.
Leveraging Technological Expertise to Expand into Complimentary Markets. The Company intends
to leverage its technological expertise in microwave test and measurement systems to expand into
complementary markets that the Company believes offer high growth potential and where the Companys
technology provides competitive advantages.
Microwave Products. The Company believes that opportunities exist to apply the Companys core
technologies to the design, manufacture and marketing of products that incorporate microwave
technology. The Company intends to continue marketing its radial power combiners, amplifiers,
antennas and mixers, and plans to develop and sell additional microwave-based products in the
future. The Company believes its large customer base will give it a competitive advantage in
marketing these products.
Systems and Products
Since its founding, the Company has expanded from distributing individual microwave test and
measurement components to providing turnkey solutions, which can include chamber design, RF
absorbing materials, antenna measurement and/or RCS subsystems, RF test equipment and software
suites, and a wide range of microwave test and measurement solutions. Components of an ORBIT/FR
automated microwave test and measurement system include proprietary software and hardware products
which can be combined into standard or customized configurations to meet customers specific needs.
The Company believes that one of its principal strengths is its experienced design team that solves
complex technical and practical problems.
Microwave Test and Measurement Systems. The Company designs, manufactures and markets
automated microwave test and measurement systems. In addition to providing most of these systems
component parts, the Company also integrates the systems and trains its customers in use of the
systems. Although most customers purchase fully integrated turnkey microwave test and measurement
systems, the Company also sells its hardware and software products individually as replacement
parts or components of custom-designed systems. The Company offers seven types of microwave test
and measurement systems. The first, antenna measurement systems, are generic systems that can be
adapted for many uses, and the other types are designed and sold in response to well-defined
microwave test and measurement needs within specific industries. Prices for a typical ORBIT/FR
system ranges from $50,000 to $1,000,000, but large systems have been sold for over $3 million.
Antenna Measurement Systems. All products and systems that receive or transmit microwave
signals rely on antennas. Accordingly, items such as microwave radios, GPS receivers, cellular
handsets and base-stations, field service/delivery equipment, satellite earth stations and radios,
precision guided missiles, radar and commercial and military aircraft need to have their antennas
tested to ensure satisfactory performance characteristics. The Companys antenna measurement
systems offer both manufacturers and service providers user-friendly and cost-effective solutions
for their antenna measurement needs. The systems test for signal quality, direction, strength and
interference and can be adapted to perform testing in each of the stages of a products life:
development; qualification; production; and maintenance. Although antenna measurement systems
differ significantly from one application to another, all of the Companys systems incorporate a
personal computer running specialized proprietary software, a microwave receiver, a positioning
subsystem and at least one additional antenna or probe. The systems can be designed for use in a
wide variety of different test environments, ranging from a small anechoic chamber to an outdoor
range covering several acres. The Company offers three types of antenna measurement methods:
Far-field:
|
Traditional method generally used outdoors | |
Near-field:
|
Cost-effective indoor method using mathematical conversion tools | |
Compact Range:
|
High-end indoor method using a microwave reflector |
The Company also has developed advanced systems that combine these measurement methods, such
as far-field and near-field, in a single chamber.
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Table of Contents
Cellular/PCS Base Station Systems. The Company develops and sells test and measurement systems
used to assess the microwave performance characteristics of cellular/PCS base stations and smart
antennas. These systems enable cellular/PCS base station antenna manufacturers to design and build
efficient and reliable products, and allow wireless communications service providers to monitor
more efficiently the performance of their base stations. The existing system design is based on the
Companys cylindrical near-field technology and is designed for indoor use.
Satellite Systems. The Company develops and sells microwave test and measurement systems for
satellite communication and broadcast systems which test the satellite performance of the
satellites antennas. These systems also test the transmit and receive characteristics of the
active array antennas used on most modern satellites and can have the ability to identify and
diagnose malfunctions within these complex antennas. The Companys satellite test systems utilize
either near-field or compact range technology. Both technologies are equally effective from a test
and measurement viewpoint, but each offers certain benefits. A near-field system offers diagnostic
capabilities and is generally less expensive than a comparably equipped compact range system, but a
compact range system is faster and easier to use.
Automotive Systems. ORBIT/FR believes it is a leader in the design and delivery of
high-performance test and measurement systems for automobile manufacturers and manufacturers of
automotive sub-assemblies. The Companys systems incorporate both near-field and far-field
technologies and are thus capable of microwave sampling over a wide range of frequencies. A typical
system includes a large mechanical arm that sweeps over a large turntable. The car being tested
rests on the turntable, and both the turntable and the mechanical arm are set in motion based upon
instructions received from the Companys measurement software. The systems broad capabilities are
essential given a growing trend by automobile manufacturers to integrate advanced microwave
technologies such as cellular/PCS, GPS-based navigation system, satellite radios, digital TV and
collision-avoidance systems into their advanced next generation cars.
RCS Systems. The Companys Radar Cross Section measurement systems transmit microwave signals
towards a passive target and then measure the energy reflected back towards the transmit source. In
an RCS system, the passive target is typically a model or full scale aircraft or missile that is
mounted on a special low-RCS testing pylon capable of rotating the target. Data collected at
various rotation angles and frequencies can be processed to form an electromagnetic image of the
target. This type of information enables the design engineer to assess more accurately the detailed
radar signature of the target. The Company believes that it is a market leader in this field.
Radome Systems. A radome is a dome-shaped casing that is placed on the leading edge of a
commercial aircraft, military aircraft or missile to protect the radar and direction-finding
equipment. A radome is typically manufactured using fiberglass or other materials that are designed
to be transparent to microwave signals. Testing is performed periodically to ensure that
microwave signals are not degraded or deflected as they pass through the radome. The Companys
systems are designed to measure radome performance by analyzing the path of microwave signals as
they pass through the radome and then comparing it to the propagation path when the radome is not
present. Radome systems use far-field measurement methods but rely on high positioning accuracy
normally required by near-field systems.
Custom Systems. From time to time, the Company designs and manufactures custom microwave test
and measurement systems for a wide variety of uses and applications worldwide. The Companys broad
microwave and antenna expertise has enabled it to obtain these contracts, and the Company intends
to bid for similar jobs in the future if the expertise gained in designing such systems is deemed
to be of strategic value to the Company.
Multi-probe Measurement Systems. Through Microwave Vision, the Company has access to a new
multi-probe measurement technology. This technology allows for a substantial increase in
measurement speed. We believe that the combination of this technology with the Companys systems
provides the Company with a competitive advantage.
Microwave
Test and Measurement Software Products. Through its 959 Spectrum and MiDAS software
packages, ORBIT/FR offers automatic measurement software for microwave test and measurement
systems. The Companys software products are Windows-based programs that provide the customer with
a consistent user-friendly interface with the test and measurement system. The software products
have a robust and modular structure that enables the Company to easily add features for current and
future customers. The software uses far-field and/or near-field algorithms to generate accurate
results, and the computational methodologies used have gained acceptance throughout the microwave
test and measurement community. The software supports the Companys own measurement equipment as
well as equipment manufactured by third parties. The Companys software products are designed to be
off-the-shelf, but are versatile and can be customized by the Companys or the customers
technical personnel to suit specific needs.
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Table of Contents
Although software can vary between systems, it always consists of three primary modules: data
acquisition, data analysis and report writing. The softwares data acquisition module records
actual measurements as it controls the microwave measurement equipment, the positioning subsystem,
and often the source antenna and/or the antenna being measured. Variables such as frequency, power
level, amplitude, phase, rotary and/or linear motion, polarization, transmit/receive switching,
electrical beam pointing and polarization switching are all controlled by the Companys measurement
software. The multidimensional results obtained are stored in a computer file for subsequent
analysis. The softwares data analysis module processes the acquired data using sophisticated
microwave and signal processing algorithms developed by the Company and the National Institute of
Standards and Technology. The data analysis module transforms the acquired data into
easily-understood numerical information and graphic representations, thus providing the customer
with the data required to satisfy its internal requirements and those of its own customers. The
softwares report writing module can be customized to meet each customers needs.
Positioner Subsystems. The positioner subsystem is the collection of equipment that holds the
device under test and causes it to be moved according to the needs of the test. A typical
positioner subsystem may include the following components:
Positioners. A positioner is the item upon which the device under test is placed while it is
being tested. The Companys positioners are rugged, yet highly precise, devices that adjust
themselves in accordance with the positioning instructions received from the measurement software.
Special circuitry and mechanical design features built into the positioner enable the data acquired
from the antenna under test to travel efficiently through the positioner to the computer to be
analyzed. The Companys simple positioners rotate around a single axis, while the Companys more
elaborate positioners incorporate up to three axes. An automated microwave test and measurement
system requires one or more positioners. The Company offers over 200 different positioner models
and believes that its positioners are among the most accurate.
Positioner Controllers and Power Control Units. The Company manufactures positioner
controllers and power control units (PCUs) as well as models that combine these two products into
one component. Working together, the positioner controller and the PCU act as the translators
between the measurement software and the positioner. The positioner controller receives digital
instructions from the microwave software and translates them into analog signals understood by the
PCU. These analog signals are then amplified by the PCU to provide precisely calibrated DC power to
the positioners electric motors, which then operate at a user-defined speed to move the antenna or
device under test through the desired positions. The Company offers four positioner controller
models, two PCU models and four models that combine both positioner controller and PCU.
Planar Scanners. A planar scanner is a rectangular device that enables a probe antenna to be
moved along an x- and y-axis so that its position at any time is known and can be exactly
replicated. Planar scanners are mounted to enable the probe to be moved throughout the height and
width dimensions of the scanner. Scanners enable test engineers to accurately and reliably analyze
many aspects of the microwave signals radiating from the antenna or device under test. The Company
offers 24 standard scanners ranging in size from 3 feet by 3 feet to over 100 feet by 100 feet.
Pylons and Model Towers. Pylons and model towers are used in many microwave test and
measurement applications and range in size from very large to very small. Large pylons can carry
substantial loads in indoor or outdoor environments, and certain models can even support a
full-sized aircraft. Pylons designed to minimize measurement interference are almost always used in
RCS systems.
Other Microwave Products. The Company has developed several microwave products used in the
larger microwave industry.
Radial Power Combiners. The Companys radial power combiners offer a highly efficient
electromagnetic mechanism to combine several identical low-energy signals together to make a single
high-energy signal. Radial power combiners have many uses, but their most common application is in
high-power microwave transmitters.
Antennas, Probes and Other Microwave Accessories. The Company designs and manufactures
antennas, probes and other microwave accessories. These products are used in the Companys
microwave test and measurement systems, and they are also sold to customers as stand-alone items.
Sales and Marketing
The Company markets and sells its products in the United States through direct regional sales
managers including Microwave Visions world-wide direct sales force and through independent sales
representatives that target specific geographic and strategic markets. Internationally, the Company
has established sales and customer service centers in Israel and Germany and has a network of
distributors, agents and representatives for sales, marketing and customer support throughout
Europe and Asia.
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The Companys engineers and other technical staff support the efforts of the sales force.
Since a customers engineers typically play an important role in the procurement decision, the
Companys engineers work closely with them to help them understand the advantages of the Companys
products and systems. Additional business from existing customers is pursued through the joint
efforts of both the sales force and the engineers and other technical staff who has worked closely
with the customers engineers and who understand the customers needs. If a customer has already
purchased a microwave test and measurement system from ORBIT/FR, the Company believes it has an
advantage over competitors in obtaining orders for system upgrades as well as any additional
systems that the customer may wish to purchase at a later date. Typically, a substantial portion of
the Companys revenues in a given year is generated by customers for whom the Company has
previously provided products or systems.
The Company generates sales leads for new customers through referrals from existing customers
and other industry suppliers, its reputation in the industry, its on-line catalog (found at
www.orbitfr.com), in coordination with Microwave Vision advertising in trade publications,
in conferences and trade shows, and on the World Wide Web.
Customer Support
The Company is committed to providing customer satisfaction through the service and support of
its products. Through its Customer Service Response Center, the Company handles warranty support,
field service, technical support, training, service contracts, spare parts and user documentation
issues. Through a trained customer service representative and direct phone support, the Company
believes it is positioned to provide rapid solutions upon request. ORBIT/FRs customer service
capabilities are achieved by providing comprehensive training through offices located in the U.S.,
Europe and Israel.
Customers
The Company has performed several hundred world-wide installations for customers in the
aerospace/defense, wireless communications, satellite and automotive industries. Representative
customers that have purchased systems from the Company include:
Aerospace/Defense
|
Aerospatiale, Alenia Aeronautica, Allgon, Ball Aerospace, Boeing, Chelton, BAE Systems, Dassault, Elta, Ericsson Microwave, General Electric, Israel Aircraft Industry, ITT Avionics, JPL, L3 Communications, Lockheed Martin/Loral, Lufthansa, Mitsubishi Heavy Industries, NASA, Northrop-Grumman, Nurad, Pratt & Whitney, Racal Avionics, Raphael, Raytheon, Rockwell International, SAAB Missiles, SPAR Aerospace, Texas Instruments, and the United States Air Force, Army and Navy. | |
Wireless Communications
|
Alcatel, Andrew, AT&T, Bell Atlantic, BAE, Bosch, Celwave, Chelton, Daewoo, Ericsson, GTE, IBM, Intel, ITT, Korea Mobile Telecom, Lucent Technologies, Motorola, NEC, Nokia, Northern Telecom, NTT, Probrand, Qualcomm, RCA, Samsung, SiemensPlessey, Thales Antennas, Telebras and Tenovis. | |
Satellite
|
Astrium, DASA, EADS, Elenia Spazio, Harris, Lockheed Martin, Space Systems/Loral, Raytheon and TRW. | |
Automotive
|
Blaupunkt, Honda, BMW, Daimler-Chrysler, Ford, Fuba, Hyundai, Mitsubishi, SAAB and Toyota. | |
University
|
Georgia Tech, University of Hawaii, University of Hong Kong, University of Utah, UCLA, University of Illinois, Texas A&M University and Villanova University. |
The Companys customers are located in the Americas (the United States, Canada, Brazil and
Argentina), Europe (the United Kingdom, France, Germany, Israel, Italy, Holland, Spain, Austria,
Denmark, Belgium, Poland, Russia, Finland, Norway, Sweden, Switzerland, Turkey and Portugal) and
throughout the rest of the world (India, Japan, Korea, Thailand, Taiwan, Singapore, Indonesia,
Australia, China, and South Africa). See Note 8 of the Notes to Consolidated Financial Statements
for a discussion of the geographic concentration of the Companys revenues. One customer accounted
for more than 10% of the Companys consolidated revenues for the year ended 2010.
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Production and Suppliers
The Companys engineers, based in the United States, Germany and Israel, are responsible for
product design and development and for overseeing the production of the Companys products.
Although the Company maintains a production facility in Horsham, PA, most of the production of the
Companys products is performed by subcontractors. Through its wholly owned subsidiary, Advanced
ElectroMagnetics, Inc., the Company manufactures anechoic foam absorbing material, an integral
component of the microwave test and measurement system environment.
Although the Company produces many of the component parts for its microwave test and
measurement systems, it purchases certain components from outside vendors for turnkey microwave
test and measurement systems, including personal computers, shielded enclosures and microwave
absorbers.
Backlog
At December 31, 2010 and 2009, the Companys backlog was approximately $21.4 million and $25.2
million, respectively. The Company includes in backlog only those orders for which it has received
and accepted a completed purchase order. Such orders are generally subject to cancellation by the
customer with payment of a specified charge. The delivery lead time on the Companys products and
systems is generally three to six months, but can be as short as a few days and as long as 18
months or more. Because of the possibility of customer changes in delivery schedules, cancellation
of orders and potential shipment delays, the Companys backlog as of any particular date may not be
representative of actual sales for any succeeding period.
Research and Development
The Company believes that its future success depends on its ability to adapt to rapidly
changing technological circumstances within the industries it serves and to continue to meet the
needs of its customers. Accordingly, the timely development and introduction of new products is
essential to maintain the Companys competitive position. Using its internal research and
development staff, augmented by external consultants, the Company develops most of its products
in-house. On occasion, the Companys research and development efforts have been conducted in direct
response to the specific requirements of customers orders, and, accordingly, such amounts are
included in cost of revenues when incurred and the related funding is included in net revenues at
such time. Included in cost of revenues are customer-funded research and development costs of
approximately $7,000 and $147,000 for the years ended December 31, 2010 and 2009, respectively.
Other research and development expenses of the Company for fiscal years ended December 31,
2010 and 2009 were approximately $1,253,000 and $1,308,000, respectively.
Competition
The Company believes that its current systems and products compete effectively with the
systems and products offered by its competitors on the basis of product functionality, speed and
accuracy, reliability, price, ease of use and technical support. The market for automated microwave
test and measurement products, systems and services, however, is highly competitive and is
characterized by continuing advances in products and technologies. Some of the Companys
competitors have established relationships with current and potential customers of the Company. The
Company also competes, on a limited basis, with the internal development groups of its existing and
potential customers, many of whom design and develop parts of their own microwave test and
measurement systems. The Companys business, operating results and financial condition could be
materially adversely affected by such competition. The Companys primary competitors in the
microwave test and measurement market are MI Technology, Nearfield Systems, Inc., EMC Test Systems,
March Microwave.
Proprietary Rights
The Company is heavily dependent on its proprietary technology. The Company relies on a
combination of confidentiality agreements with its employees, license agreements, copyrights,
trademarks and trade secret laws to establish and protect rights to its proprietary technology. The
Company does not hold any material patents. All of the Companys software is shipped with a
security lock which limits software access to authorized users. Generally, the Company does not
license or release its source code. Effective copyright and trade secret protection of the
Companys proprietary technology may be unavailable or limited in certain foreign countries.
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Employees
As of December 31, 2010, the Company had a total of 138 employees of which 79 are in North
America and 59 are in Europe. The Company considers its relations with its employees to be good.
ITEM 1A. | RISK FACTORS |
Rapid Technological Change. The microwave test and measurement industry is characterized by
rapid technological change. The Companys future success will depend upon its ability to
continually enhance its current products and to develop and introduce new products that keep pace
with the increasingly sophisticated needs of its customers and the technological advancements of
its competitors. There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products that will adequately meet the requirements of the
marketplace.
Dependence on Proprietary Technology. The Companys success is heavily dependent upon its
proprietary technology. The Company does not currently have any material patents and relies
principally on trade secret and copyright laws to protect its technology. However, there can be no
assurance that these steps will prevent misappropriation of its technology. Moreover, third parties
could independently develop technologies that compete with the Companys technologies. Although the
Company believes that its products and proprietary rights do not infringe patents and proprietary
rights of third parties, there can be no assurance that infringement claims, regardless of merit,
will not be asserted against the Company. In addition, effective copyright and trade secret
protection of the Companys proprietary technology may be unavailable or limited in certain foreign
countries.
Operations in Israel. The Company maintains part of its engineering operation in Israel. The
Companys Israeli subsidiary has moved its operations to a new location and all general and
administrative services formerly provided by Alchut are now handled by internal functions. As a
result, our business may be directly and adversely impacted by the political, economic and military
conditions affecting Israel.
Risks of Fixed-Price Contracts. Virtually all of the Companys contracts for its systems and
products are on a fixed-price basis. The profitability of such contracts is subject to inherent
uncertainties as to the cost of completion. In addition to possible errors or omissions in making
initial estimates, cost overruns may be incurred as a result of unforeseen obstacles, including
both physical conditions and unexpected problems in engineering, design or testing. Since the
Companys business may at certain times be concentrated in a limited number of large contracts, a
significant cost overrun on any one contract could have a material adverse effect on the Companys
business, operating results and financial condition.
Risks Associated with Entering New Markets. The Company has identified and is evaluating
whether to enter into certain complementary markets. The Companys success in these markets will
depend on, among other factors, the Companys ability to identify markets and develop technologies
for such markets on a timely basis, hire and retain skilled management, financial, marketing and
engineering personnel, successfully manage growth and obtain capital sufficient to finance such
expansion. There can be no assurance that the Company will successfully enter these markets.
Management of Growth. The Company believes that growth will be required to maintain the
Companys competitive position. Future growth, coupled with the rapid evolution of the Companys
markets, has placed, and is likely to continue to place, significant strains on its management,
administrative, operating and financial resources, as well as increased demands on its internal
systems, procedures and controls. The Companys ability to manage future growth will require the
Company to continue to improve its financial and management controls, reporting systems and
procedures on a timely basis, to implement new systems as necessary and to expand, train, motivate
and manage its sales, technical personnel and administrative personnel. There can be no assurance
that the Company will be able to manage its growth successfully. Failure to do so could have a
material adverse effect on the Companys business, operating results and financial condition.
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Risks Associated with International Sales. In 2010 and 2009, international sales (sales to
customers outside of North America) comprised approximately 53% and 48%, respectively, of the
Companys total sales, and the Company expects its international business to continue to account
for a material part of its revenues. International sales are subject to numerous risks, including
political and economic instability in foreign markets, restrictive trade and export policies of
foreign governments, inconsistent product regulation by foreign agencies or governments, imposition
of product tariffs and burdens and costs of complying with a wide variety of international and U.S.
export laws and regulatory requirements. Approximately 79% of the Companys sales in 2010 were
denominated in U.S. dollars. Accordingly, the Company believes that it does not have significant
exposure to fluctuations in currency. However, fluctuations in currency could adversely affect the
Companys foreign customers.
Potential Fluctuations in Quarterly Results. The Companys operating results have varied from
quarter to quarter in the past and may vary significantly in the future depending on factors such
as the size and timing of significant contracts, the mix of third party products and the Companys
proprietary products included in a particular contract, customers budgetary constraints, increased
competition, the timing of new product announcements and changes in pricing policies by the Company
or its competitors, market acceptance of new and enhanced versions of the Companys products,
changes in operating expenses and changes in general economic factors and export license delays and
denials. The Companys expense levels are based, in part, on its expectations as to future revenue
levels. If the Companys revenue levels were to be below expectations, the Companys operating
results would likely be materially adversely affected.
Dependence on Qualified Technical Personnel. The Companys operating results depend in large
part upon the efforts of its microwave, software and systems engineers. The success of the
Companys business therefore depends on its ability to attract and retain engineers and other
technical personnel. There are a limited number of microwave engineers, and such individuals are
sought both by microwave test and measurement companies such as the Company and by manufacturers of
wireless products and telecommunications service providers. Competition for such personnel is
intense. The Company has at times experienced difficulty in recruiting and retaining technical
personnel, and there can be no assurance that the Company will not experience difficulties in the
future in attracting and in retaining technical personnel.
Dependence on Key Personnel. The success of the Company depends to a significant degree upon
the contribution of its executive officers and other key personnel. There can be no assurance that
the Company will be able to retain its managerial and other key personnel or to attract additional
managerial and other key personnel if required.
Product Liability; Risk of Product Defects. The sale of products and systems by the Company
may entail the risk of product liability and related claims. A product liability claim brought
against the Company could have a material adverse effect upon the Companys business, operating
results and financial condition. Complex software and system products, such as those offered by the
Company, may contain defects or failures when introduced or when new versions are released. There
can be no assurance that, despite testing by the Company, errors will not be found in new products
after commencement of commercial shipments, resulting in loss of market share or failure to achieve
market acceptance. The Company maintains product liability insurance in the amount of $2.0 million
and errors and omissions insurance in the amount of $7.0 million, although there can be no
assurance that such coverage will be applicable to a particular claim or that the amounts of such
insurance will be adequate if the Company experiences a significant claim. Although the Company has
not experienced any significant claims to date related to its systems or products, the occurrence
of such a claim could have a material adverse effect upon the Companys business, operating results
and financial condition.
Competition. The market for automated microwave test and measurement products, systems and
services is highly competitive and is characterized by continuing advances in products and
technologies.
In general, competition in this market comes from major microwave test and measurement vendors,
some of which have a longer operating history, significantly greater financial, technical and
marketing resources, greater name recognition and a larger installed customer base than the
Company. These companies also have established relationships with current and potential customers
of the Company. The Company also competes, on a limited basis, with the internal development groups
of its existing and potential customers, who may design and develop parts of their own microwave
test and measurement systems. The Companys business, operating results and financial condition
could be materially adversely affected by such competition.
Fluctuations in Capital Spending. The Company is dependent upon the wireless communications,
satellite, automotive and aerospace/defense industries. Because these industries are characterized
by technological change, pricing and gross margin pressure and, particularly in the
aerospace/defense industry, government budget constraints, they have from time to time experienced
sudden economic downturns. During these periods, capital spending is frequently curtailed and the
number of design projects often decreases. Since the Companys revenues are dependent upon capital
spending trends and new design projects, negative factors affecting these industries could have a
material adverse effect on the Companys business, operating results and financial condition.
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No Dividends. The Company has never paid cash dividends on its Common Stock and does not
anticipate that any cash dividends will be declared or paid in the foreseeable future.
Issuance of Preferred Stock and Common Stock; Anti-Takeover Provisions. Pursuant to its
Amended and Restated Certificate of Incorporation, the Company has an authorized class of 2,000,000
shares of Preferred Stock which may be issued by the Board of Directors with such terms and such
rights, preferences and designations as the Board may determine and without any vote of the
stockholders, unless otherwise required by law. Issuance of such Preferred Stock, depending upon
the rights, preferences and designations thereof, may have the effect of delaying, deterring or
preventing a change in control of the Company. Issuance of additional shares of Common Stock could
result in dilution of the voting power of the Common Stock. In addition, certain anti-takeover
provisions of the Delaware General Corporation Law among other things, may restrict the ability of
the stockholders to approve a merger or business combination or obtain control of the Company.
Market for Common Stock. The Companys Common Stock is traded on the OTCBB, which limits
exposure to market analysts and, in turn, may limit volume of trading. Investors may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value of, the Companys
common stock than would otherwise be the case were the Companys Common Stock listed on a more
recognized stock exchange or quotation service. In addition, trading in the Companys Common Stock
is currently subject to certain rules under the Exchange Act, which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as a penny stock. Penny
stocks are generally non-Nasdaq equity securities with a market price less than $5.00 per share.
The penny stock rules require broker-dealers selling penny stocks to make certain disclosures about
such stocks to purchasers thereof, and impose sales practice restrictions on broker-dealers in
certain penny stock transactions. The additional burdens imposed upon broker-dealers by these rules
may discourage them from effecting transactions in the Companys Common Stock, which could limit
the liquidity of the common stock and the ability of the Companys stockholders to sell their stock
in the secondary market.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
The Company occupies approximately 18,000 square feet of space at its headquarters in Horsham,
Pennsylvania under a lease expiring in October 2015. The current annual base rent is approximately
$157,000. The Company also maintains sales, engineering, technical support and program management
facilities in Israel and Germany, and at its manufacturing facilities in Santee, California. The
Companys current aggregate annual rental expenses for these additional facilities are
approximately $365,000.
ITEM 3. | LEGAL PROCEEDINGS |
None.
ITEM 4. | (Removed and Reserved) |
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PART II
ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITES |
On April 11, 2003, the Companys Common Stock was delisted from the Nasdaq Stock Market and
began trading on the electronic over-the-counter quotation system of the Financial Industry
Regulatory Authority (FINRA), the Over-the-Counter Bulletin Board (the OTCBB) under the symbol
ORFR. The OTCBB is a regulated quotation service for subscribing members of FINRA that displays
the real-time quotes, last-sale prices and volume information in over-the-counter securities. The
OTCBBs market quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
The following table sets forth the high and low bid prices per share for the Common Stock for
the periods indicated below as reported to the OTCBB by the FINRAs member firms.
Year ended December 31, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter |
$ | 2.50 | $ | 1.05 | $ | 1.01 | $ | 0.51 | ||||||||
Second Quarter |
$ | 3.50 | $ | 1.93 | $ | 1.50 | $ | 0.38 | ||||||||
Third Quarter |
$ | 3.10 | $ | 1.80 | $ | 1.24 | $ | 0.57 | ||||||||
Fourth Quarter |
$ | 3.70 | $ | 2.66 | $ | 1.19 | $ | 0.61 |
On March 5, 2011, there were 31 holders of record of the Companys Common Stock based on
information received by the Company from its stock transfer agent.
The Company has never paid any cash dividends on its Common Stock and does not intend to pay
cash dividends on its Common Stock in the foreseeable future. The Company currently intends to
reinvest its earnings, if any, in the development and expansion of the Companys business. Any
future declaration of cash dividends will be at the discretion of the Companys Board of Directors
and will depend upon the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information, as of the end of the fiscal year ended December
31, 2010, with respect to compensation plans under which the Company is authorized to issue shares
of Common Stock.
Number of Shares | ||||||||||||
Remaining | ||||||||||||
Available for Future | ||||||||||||
Issuance | ||||||||||||
Number of Shares to | under Equity | |||||||||||
be Issued Upon | Compensation | |||||||||||
Exercise of | Weighted-Average | Plans (excluding | ||||||||||
Outstanding | Exercise Price of | securities | ||||||||||
Options, | Outstanding Options, | reflected in 1st | ||||||||||
Plan Category | Warrants and Rights | Warrants and Rights | column) | |||||||||
Equity compensation plan(s) approved by security holders (1) |
279,250 | $ | 2.41 | 920,750 | ||||||||
Equity compensation plan(s) not approved by security holders |
| | | |||||||||
Total |
279,250 | $ | 2.41 | 920,750 |
(1) | This plan consists of the Orbit/FR, Inc. 1997 Stock Option Plan. |
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ITEM 6. | SELECTED FINANCIAL DATA |
Consolidated Statement of Operations Data: | Year Ended December 31, | |||||||||||||||||||
(amounts in thousands, except per share data) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Contract revenues |
$ | 36,245 | $ | 31,246 | $ | 23,118 | $ | 29,292 | $ | 29,441 | ||||||||||
Cost of revenues |
25,514 | 20,483 | 17,103 | 20,044 | 20,750 | |||||||||||||||
Gross profit |
10,731 | 10,763 | 6,015 | 9,248 | 8,691 | |||||||||||||||
General and administrative |
3,113 | 3,005 | 2,768 | 3,119 | 2,996 | |||||||||||||||
Sales and marketing |
2,920 | 3,565 | 3,655 | 3,569 | 3,248 | |||||||||||||||
Sales, marketing, general and administrative-MVG |
1,681 | 1,539 | ||||||||||||||||||
Research and development |
1,253 | 1,308 | 2,080 | 1,607 | 1,443 | |||||||||||||||
(Gain) loss on disposal of assets |
(109 | ) | 167 | | | | ||||||||||||||
Total operating expenses |
8,858 | 9,584 | 8,503 | 8,295 | 7,687 | |||||||||||||||
Operating income (loss), net |
1,873 | 1,179 | (2,488 | ) | 953 | 1,004 | ||||||||||||||
Impairment of cost in excess of net assets acquired |
| | | (80 | ) | | ||||||||||||||
Compensation charge coincident to change in control |
| | (969 | ) | | | ||||||||||||||
Other income (loss), net |
(73 | ) | (217 | ) | (5 | ) | 223 | 96 | ||||||||||||
Income (loss) before income tax (benefit) expense |
1,800 | 962 | (3,462 | ) | 1,096 | 1,100 | ||||||||||||||
Income tax (benefit) expense |
(497 | ) | (508 | ) | 12 | 4 | (61 | ) | ||||||||||||
Net income (loss) |
$ | 2,297 | $ | 1,470 | $ | (3,474 | ) | $ | 1,092 | $ | 1,161 | |||||||||
Other
comprehensive (loss)- foreign currency translation adjustment net of $32, tax benefit |
$ | (57 | ) | $ | | $ | | $ | | $ | | |||||||||
Total comprehensive (loss) |
$ | 2,240 | $ | 1,470 | $ | (3,474 | ) | $ | 1,092 | $ | 1,161 | |||||||||
Basic and diluted income (loss) per share |
$ | 0.38 | $ | 0.24 | $ | (0.58 | ) | $ | 0.18 | $ | 0.19 | |||||||||
Consolidated Balance Sheet Data: | December 31, | |||||||||||||||||||
(amounts in thousands) | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Working capital |
$ | 7,249 | $ | 4,973 | $ | 4,760 | $ | 6,444 | $ | 5,866 | ||||||||||
Total assets |
$ | 21,932 | $ | 20,113 | $ | 16,552 | $ | 17,370 | $ | 17,527 | ||||||||||
Stockholders equity |
$ | 10,534 | $ | 8,254 | $ | 6,707 | $ | 9,073 | $ | 7,879 |
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Critical Accounting Policies
Managements Discussion and Analysis of Financial Condition and Results of Operations
discusses the Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates that affect the amounts reported in the
financial statements and accompanying notes. On an on-going basis, management evaluates its
estimates and judgments, including those related to bad debts, intangible assets, income taxes,
financing operations, warranty obligations, contingencies and litigation. Management bases its
estimates and judgments on historical experience and on various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different assumptions or conditions.
The following accounting policies are the most critical and could impact our results of operations.
Revenue Recognition. The Company recognizes revenue and profit as work progresses on
long-term, fixed price contracts using the percentage-of-completion method, which measures the
percentage of costs incurred to date to the estimated total costs for each contract when such costs
can be reasonably estimated. The Company follows this method since reasonably dependable estimates
of the costs applicable to various stages of a contract can be made. Recognized revenues and profit
are subject to revisions as the contract progresses to completion. Revisions in profit estimates
are charged to income in the period in which the facts that give rise to the revision become known.
Bad Debts. The Company maintains an allowance for estimated losses resulting from the
non-payment of accounts receivable. If the estimate is not sufficient to cover actual losses, the
Company is required to take additional charges to its earnings.
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Deferred Income Taxes. The Company has recorded a deferred tax asset valuation allowance due
to uncertainty with regard to the Companys ability to generate sufficient taxable income in the
future to realize a portion of its net deferred tax assets. Due to the Companys net income in 2010
and 2009 the Company has reduced its deferred tax asset valuation allowance.
On May 13, 2008, Orbit-Alchut Technologies, Ltd., (Alchut) sold all of its 3.7 million
shares of common stock of the Company to Satimo. On June 30, 2009, Microwave Vision SA, (Microwave
Vision), acquired the 3.7 million common shares of the Company through a reorganization involving
its wholly owned subsidiary, Satimo. As part of that transaction, Alchut agreed to continue to
provide administrative services pursuant to a service agreement with our Israeli subsidiary in
Israel for one year after the closing of the transaction. As of May 2009, our Israeli subsidiary
had moved its operations to a new location and maintains an internal administrative services
function.
On August 14, 2009, the Company entered into an Assistance and Provision of Services Agreement
(the Services Agreement) with Microwave Vision and several subsidiaries of Microwave Vision,
including Satimo. Pursuant to the Services Agreement, Microwave Vision agreed to provide
management, operational, sales and marketing, legal, technical and other services to the Company,
Satimo, and Microwave Visions other direct and indirect subsidiaries (collectively, the
Subsidiaries). In consideration thereof, the Company, Satimo and each of the other Subsidiaries
agreed to pay Microwave Vision a fee to be determined as of the start of each calendar year,
commencing on January 1, 2009, based on the projected gross margins of each Subsidiary for that
year. In addition, the Company agreed to pay Microwave Vision an additional fee of 1% of its gross
sales in consideration of the right to use the name Microwave Vision in the Companys sales and
marketing activities. As a result of the application of the Services Agreement effective as of
January 1, 2009, the Company has recorded approximately $1.5 million in additional expenses for the
year ended December 31, 2009 over the expenses reported in 2008. As provided by the agreement, at
the end of the year an adjustment is calculated based upon the realized gross margins and the
expenses incurred by the Subsidiaries. As a result of the implementation of the Services Agreement
effective as of January 1, 2009, the Company recorded approximately $1.7 million and $1.5 million
respectively in expenses related to the Sales Agreement for the years ended December 31, 2010 and
2009. Due to the gross margin results of the Company relative to the other Subsidiaries, the amount
of expense charged for the quarters ended December 31, 2010 and 2009 were approximately $657,000
and $588,000, respectively, or $315,000 and $271,000 greater than the quarterly charges accrued by
the Company based upon budget.
On November 3, 2010, the Companys AEMI subsidiary in California had an oven fire that
resulted in the oven being destroyed. In December 2010, a portion of the oven was operational on a
limited basis. The Company had sufficient inventory to fulfill its orders in the quarter ended
December 31, 2010. A new oven has been ordered and we anticipate that it will be operational by
the end of the quarter ending March 31, 2010. Insurance proceeds of $134,450 were sufficient to
reimburse the Company for the new oven and resulted in a gain on the disposal of assets of
approximately $109,000. Insurance recoveries for other costs and business interruption coverage
are still pending at December 31, 2010 and will be reported as revenue upon settlement with the
insurance carrier. We anticipate that the amount will be determined no later than the quarter ended
June 30, 2011. No provision for this reimbursement has been reflected in the December 31, 2010
financial statements. The Company anticipates that AEMIs sales for the quarter ended March 31,
2011 will be negatively impacted by the fire.
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Results of Operations
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Revenues. Revenues for the year ended December 31, 2010 were approximately $36.2 million as
compared to approximately $31.2 million for the year ended December 31, 2009 an increase of
approximately $5.0 million. The increase was due to increased revenues from all the Companys
markets except the EMC market. Revenues from the wireless, defense, satellite, university and the
automotive markets increased approximately $1.7 million, $1.6 million, $0.9 million, $0.6 million
and $0.2 million, respectively. The revenues from the EMC market were unchanged. Geographically,
revenues from Europe, North America and Asia increased approximately $3.7 million, $0.9 million and
$0.4 million, respectively. The increases in revenues reflect work performed on the increased
contract backlog of $25.2 million at the beginning of the year 2010 versus a backlog of $18.4 at
the beginning of the year 2009.
Cost of revenues. Cost of revenues for the year ended December 31, 2010 were approximately
$25.5 million compared to approximately $20.5 million for the year ended December 31, 2009, an
increase of approximately $5.0 million reflecting increased business. Gross margin percentage for
the year ended December 31, 2010 decreased to 29.6% from 34.4% for the year ended December 31,
2009. This decrease was primarily due to a large contract which incurred non-recurrent additional costs
which resulted in a reduction of the gross margin of 4.2%.
General and administrative expense-others. General and administrative expenses for the year
ended December 31, 2010 were approximately $3.1 million, compared to approximately $3.0 million for
the year ended December 31, 2009. As a percentage of revenues, general and administrative expenses
for the year ended December 31, 2010 decreased to 8.6% from 9.6% for the year ended December 31,
2009.
Sales and marketing expenses. Sales and marketing expenses for the year ended December 31,
2010 were approximately $2.9 million compared to approximately $3.6 million for the year ended
December 31, 2009, a decrease of approximately $0.7 million. This decrease reflects reduced sales
rep fees, reduced labor costs and reduced travel.
Sales, marketing, general and administrative expenses-Microwave Vision Group. The Company has
recorded approximately $1.7 million in sales, marketing, general and administrative expenses for
the year ended December 31, 2010 under the Service Agreement with MVG. The Company recorded
approximately $1.5 million in sales, marketing, general and administrative expenses for the year
ended December 31, 2009.
Research and development expenses. Research and development expenses for the years ended
December 31, 2010 and December 31, 2009 were both approximately $1.3 million.
Gain on Disposal of Assets. The Companys wholly owned subsidiary AEMI had a fire on November
3, 2010 that destroyed the oven used to dry the anechoic foam they produce. Through December 31,
2010 the Company has received $134,000 representing the replacement cost of certain machinery with
a depreciated book basis of $25,000 resulting in a gain of $109,000. Insurance recoveries for
other costs and business interruption coverage are still pending at December 31, 2010 and will be
reported as revenue upon settlement with the insurance carrier.
Other (loss),net. Other (loss), net, for the year ended December 31, 2010 was approximately
$73,000 as compared to $217,000 for the year ended December 31, 2009, a decrease of approximately
$144,000. This decrease is primarily due to decreased foreign exchange losses due to the strength
of the dollar versus the Euro and reduced bank guarantee fees.
Income taxes. Income tax benefit for the year ended December 31, 2010 was approximately
$497,000 compared to an income tax benefit of $508,000 for the year ended December 31, 2009. The
Company records income tax expense on profitable operations and generally records income tax
benefits on losses where applicable except where it is not considered more likely than not that the
future benefit of such losses will be realized for income tax purposes in which case a valuation
allowance is recorded equal to such tax benefit. Such allowances were recorded in 2008 and certain
prior years. As a result of its profitability in 2010 and its estimate of the ability to generate
sufficient future taxable income in the U.S., Israel and Germany to realize the benefit of a
portion of its previously unrecognized deferred tax assets, the Company decreased its valuation
allowance by approximately $0.7 million at December 31, 2010. In addition, the Company recorded a
$0.2 million benefit attributable to the reversal of accrued taxes for prior years by the
Israeli subsidiary that are no longer required as those years have been settled with the
Israeli taxing authorities. The foregoing were offset by approximately $0.4 million of net tax
charges primarily resulting from taxes currently payable and foreign tax rate changes.
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Other comprehensive (loss)-foreign currency translation adjustment. The Company recorded other
comprehensive (loss)-foreign translation adjustment of $0.1 million form the year ended December
31, 2010. This comprehensive (loss) is the result of the Euro exchange rate to the dollar declining
from December 31, 2009 levels. Prior to January 1, 2010 the Company did not reflect foreign
translation gains or losses separately as they were not material.
Liquidity and Capital Resources
The Company has historically satisfied its working capital requirements through cash flows
from operations, and through short term bank financing.
Net cash generated by operating activities during the year ended December 31, 2010 was
approximately $1.7 million versus net cash generated by operations of $2.6 million for the year
ended December 31, 2009. In addition to net income of $2.3 million the most significant sources of
cash for the year ended December 31, 2010 were the decrease of accounts receivable. The most
significant uses of cash for the year ended December 31, 2010 were the increase in costs and
estimated earnings in excess of billings on uncompleted contracts of $3.3 million and the reduction
of billings in excess of costs and estimated earnings on uncompleted contracts of $603,000.
Net cash used in investing activities for the year ended December 31, 2010 was $630,000
resulting primarily from the purchase of assets partially offset by the insurance proceeds received
by the Company for the oven destroyed in the fire.
During the year ended December 31, 2010, the Company eliminated its outstanding borrowings
under the lines of credit. On December 13, 2010 the Company signed a new domestic demand revolving line of
credit facility agreement with Citizens Bank (theBank). The facility provides for loans to a maximum of $2.25 million. The line can also be used for the issuance of
letters of credit. The interest rate on outstanding loans is at LIBOR rate plus 2.25%. The new
facility does not contain any covenants regarding maintenance of financial amounts or ratios. The
agreement prohibits the payment of dividends on any distribution on account of any class of
capital stock in cash or property without prior written consent of the Bank. The line of credit is
collateralized by the assets of Orbit Advanced Technologies, Inc. and Advanced ElectroMagnetics,
Inc. subsidiaries of Orbit/FR, Inc. In addition, the Company also signed a $250,000 asset term note non-revolving line of credit with the Bank. This facility has an interest rate of prime plus two and one-half
percent and allows up to a five year amortization of any advances under the facility.
Orbit/FR Engineering, LTD has established lines of credit with the two Israeli banks and one
Indian Bank (Israeli Branch). The line of credit from one Israeli bank has a NIS denominated limit
of 378,000 and USD 1.9 million for the issuances of bank guarantees of letters of credit in favor
of customers and one Israeli bank has a dollar denominated limit of $250,000 and $2.4 million for
the issuances of bank guarantees of letters of credit in favor of customers. The Indian bank line
of credit is $500,000 and $3.1 million for the issuances of bank guarantees of letters of credit in
favor of customers. The interest rate charged by all the banks is at LIBOR plus 2.25%. The bank
agreements with all three banks do not have expiration dates but are subject to termination on a
quarterly basis. As of December 31, 2010 there were no amounts outstanding under these lines of
credit.
The Company has exposure to currency fluctuations as a result of billing certain of its
contracts in foreign currency. When selling to customers in countries with less stable currencies,
the Company bills in U.S. dollars. For the year ended December 31, 2010, approximately 79% of the
Companys revenues were billed in U.S. dollars. Most of the costs of the Companys contracts have
been, and are expected to continue to be, U.S. dollar-denominated except for wages for employees
of the Companys Israeli and German subsidiaries, which are denominated in local currency. The
Company intends to continue to enter into U.S. dollar-denominated contracts.
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Inflation and Seasonality
The Company does not believe that inflation or seasonality has had a significant effect on the
Companys operations to date.
Impact of Recent Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements
of various authorities, including the Financial Accounting Standards Board (FASB) and the
Securities and Exchange Commission (SEC). These authorities issue numerous pronouncements, most
of which are not applicable to the Companys current or reasonably foreseeable operating structure.
Below are the new authoritative pronouncements that management believes are relevant to the
Companys current operations.
In April 2009, the FASB issued FSP No. FAS-107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. This amends previous guidance, to require disclosures about fair
value of financial instruments for interim reporting periods as well as in annual financial
statements. This guidance was effective for interim reporting periods ending after June 15, 2009.
This guidance did not have any impact on our consolidated financial statements.
In October 2009, the FASB issued revised guidance related to multiple-element arrangements
which requires an entity to allocate arrangement consideration at the inception of an arrangement
to all deliverables based on relative-selling-price. This update eliminates the use of the residual
method of allocation and requires the relative-selling-price method in all circumstances. This
guidance is effective for fiscal years beginning on or after September 15, 2010. Companies may use
either prospective application for revenue arrangements entered into, or materially modified, after
the effective date or through retrospective application to all revenue arrangements for all periods
presented. The Company does not believe this amended guidance will have a material impact on its
consolidated financial statements.
In October 2009, the FASB issued amended guidance that affects how entities account for
revenue arrangements that contain both hardware and software elements. Products that rely on
software will be accounted for under the revised multiple-element arrangement revenue recognition
guidance mentioned above rather than software revenue recognition guidance. The revised guidance
must be adopted no later than fiscal years beginning on or after September 15, 2010. The transition
method and period for the adoption of this guidance and the revisions to the multiple-elements
arrangements guidance noted above must be the same. The Company does not believe that this guidance
will have a material impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effected, accounting
standards if currently adopted would have a material effect on the Companys consolidated financial
statements.
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ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
As a smaller reporting company, we have elected not to provide the information required by
this item.
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The reports of independent registered public accounting firms and consolidated financial
statements and schedule are set forth in this report beginning on page F-1.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
ITEM 9A(T). | CONTROLS AND PROCEDURES |
(a) Evaluation of disclosure controls and procedures. The Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) are designed to
ensure that information required to be disclosed by us in the reports that are filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms. These
disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed under the Exchange Act is accumulated and communicated to our
management on a timely basis to allow decisions regarding required disclosure. The Company
evaluated the effectiveness of the design and operation of our disclosure controls and procedures
as of December 31, 2010. Based on this evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2010, these controls and procedures were
effective.
(b) Managements Annual Report on Internal Control Over Financial Reporting. The management of
Orbit/FR, Inc. (the Company) is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The
Companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the financial
statements for external purposes in accordance with generally accepted accounting principles. The
Companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Companys assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. All internal control systems, no matter how well designed, have inherent
limitations, including the possibility of human error and the circumvention of overriding controls.
Accordingly, even an effective system of internal control over financial reporting can provide only
reasonable assurance with respect to financial statement preparation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that degree of compliance with the policies or
procedures may deteriorate.
Management has assessed the effectiveness of the Companys internal control over financial
reporting as of December 31, 2010, based on the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework. Based on
that assessment, management concludes that, as of December 31, 2010, the Companys internal control
over financial reporting is effective.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to provide only managements report in
this Annual Report on Form 10-K.
(c) Changes in Internal Control Over Financial Reporting. There have been no changes in
internal control over financial reporting identified in connection with the foregoing evaluation
that occurred during the Companys fiscal quarter ended December 31, 2010 that have materially
affected, or are reasonably likely to materially affect, the Companys internal control over
financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
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PART III
Item 10. | Directors, Executive Officers and Corporate Governance. |
Board of Directors
The following table sets forth the name, age and principal occupation of each director.
DIRECTOR | ||||||
NAME | AGE | SINCE | PRINCIPAL OCCUPATION | |||
Dr. Philippe Garreau |
49 | 2008 | Chairman of the Board of the Company, President and CEO of Microwave Vision, S.A. | |||
Per Iversen |
47 | 2008 | President and CEO of Orbit/FR, Inc. | |||
Raymond Boch |
46 | 2008 | Global Account Director for ORACLE Corporation | |||
Douglas Merrill |
43 | 2008 | President of Manufacturing and Supply Chain Strategies | |||
Eric Anderson |
51 | 2008 | President of SEAKR Engineering, Inc. |
Dr. Philippe Garreau has served as Chairman of the Board of the Company since May 2008. Dr.
Garreau has held the position of President and CEO of Microwave Vision, S.A. (formerly Satimo,
S.A.) since 1996. Prior to joining Microwave Vision, Dr. Garreau worked for the European Space
Agencys technology center in the Netherlands. Dr. Garreau provides the board of directors with
significant knowledge of our industry.
Per Iversen was named a director of the Company and President and its CEO in May 2008. Prior
to joining the Company, Mr. Iversen had been employed by Satimo, S.A. since 1998. Most recently, Mr. Iversen was Chief Technology Officer and Director of U.S.
Operations of Satimo, S.A. Prior to joining Satimo, Mr. Iversen spent seven years with the European
Space Agency where he managed antenna development programs for both terrestrial and space- borne
applications. Mr. Iversen has significant experience in our industry and, additionally, his
position as the Companys president and chief executive officer provides the board of directors
with unique insight into the operations of the Company.
Raymond Boch was named a director of the Company in May 2008 and is a Global Account Director
for ORACLE Corporation where he has been since May, 2004. Prior to ORACLE, Mr. Boch spent several years
dealing with international development and account management for French Telecom at Hewlett
Packard. Mr. Boch provides the board of directors with significant experience in international
business matters. Mr. Boch also is an independent director who is unaffiliated with Microwave
Vision, the Companys majority stockholder.
Douglas Merrill was named a director of the Company in June 2008 and since August, 2008 has served as the President of
Manufacturing and Supply Chain Strategies, an operations management consulting firm. Prior to
Manufacturing and Supply Chain Strategies, Mr. Merrill served as Operations Manager for Husky
Injection Molding from May 2005 to June 2008. Between 1991 and 2005 Mr. Merrill held various positions with
General Electric Corporation, most recently serving as its Manufacturing Integration Leader for its
GE Energy Global Supply Chain Management division. Mr. Merrill provides the board of directors with
significant management experience in global supply chain and has expertise in accounting and
financial matters. Mr. Merrill also is an independent director who is unaffiliated with Microwave
Vision, the Companys majority stockholder.
Eric Anderson was named a director of the Company in June 2008 and is the President of SEAKR
Engineering, Inc. where he has been employed since 1985 and currently is responsible for operations
and software development. Mr. Anderson provides the board of directors with significant experience
in technical and engineering matters. Mr. Anderson also is an independent director who is
unaffiliated with Microwave Vision, the Companys majority stockholder.
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Executive Officers and Key Employees of the Company
The following table sets forth certain information regarding the Companys executive officers
and certain key employees.
The biographical information for Mr. Iversen is set forth above under Board of Directors.
NAME | AGE | POSITION | ||
Per Iversen |
47 | President and Chief Executive Officer | ||
Relland Winand |
56 | Chief Financial Officer | ||
John Aubin |
57 | Vice President, Business Development and CTO | ||
Moshe Pinkasy |
60 | Managing Director, Engineering | ||
Marcel Boumans |
52 | Managing Director, GmbH | ||
William Campbell |
55 | Vice President, Engineering and Program Management |
Relland Winand was named Chief Financial Officer in March 2008. From 2003 to June 2007, Mr.
Winand served in several capacities at Traffic.com, Inc. including Controller, Vice President
Finance and Vice President Administration.
John Aubin was named Vice President Business Development and Chief Technology Officer in 2002,
and served as Vice President of Measurement Systems since 1996 to 2001. From 1991 to 1996, Mr.
Aubin was Vice President in charge of the Antenna Measurement Business Area for Flam & Russell.
Moshe Pinkasy has served as the Managing Director of Engineering since January 1997. From
February 1996 to December 1996, Mr. Pinkasy was Alchuts Manager of the Microwave Test and
Measurement Business in Israel. From 1992 to 1996, Mr. Pinkasy served, in various capacities, as
the Mechanical Engineering Department Manager for Alchut.
Marcel Boumans has served as the Managing Director of GmbH since March 1997. Since January 1,
2000, Mr. Boumans has been responsible for sales and customer support for Europe. From June 1995 to
March 1997, Mr. Boumans was a Systems Design Engineer for Dornier Satelliten Systeme GmbH, the
satellite systems subsidiary of Daimler-Benz Aerospace. From 1990 to 1995, Mr. Boumans was a
Systems Design Engineer for Dornier GmbH, the communications and defense subsidiary of Daimler-Benz
Aerospace.
William Campbell joined the Company as Vice President, Engineering and Program Management in
December 2002. Mr. Campbell managed Optical Transponder development and production activities at
JDS Uniphase Transmission Systems Division from 2000 to 2002. Prior to that, Mr. Campbell worked
for BAE systems where he served as Business Area Director of High Power Transmission Systems, and
other various program management activities during his 13 years at the company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Companys
directors and executive officers, and persons who own more than ten percent of a registered class
of the Companys equity securities, to file with the United States Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the Companys knowledge, based solely on a review of the copies of such reports furnished
to the Company and written representations that no other reports were required, during fiscal year
ended December 31, 2010, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent stockholders were complied with.
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Code of Ethics
The Company has adopted the ORBIT/FR, Inc. Employee Ethics Policy that applies to all of its
officers and employees. If the Company makes any amendment to a provision of the Employee Ethics
Policy that applies to the Companys principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, or grants any
waiver from a provision of the Employee Ethics Policy that applies to any such persons, any such
amendment or waiver will be publicly disclosed as required by applicable law.
A copy of the ORBIT/FR, Inc. Employee Ethics Policy was filed with the Securities and Exchange
Commission on March 30, 2004 as an exhibit to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2003, and a copy of the Employee Ethics Policy will be provided to
any person without charge, upon request, by contacting the Company by mail at ORBIT/FR, Inc., 506
Prudential Road, Horsham, Pennsylvania 19044, or by phone at (215) 674-5100.
Director Independence
Our Board of Directors affirmatively determines the independence of each director and nominee
for election as a director using the standards set forth in rules promulgated by The NASDAQ Stock
Market LLC(NASDAQ) for determining the independence of a director, including the consideration of
any relationship which, in the opinion of the Board, would interfere with the exercise of
independent judgment in carrying out the directors responsibilities as a member of the Board.
During the Boards annual review of director independence, the Board determined that each of Mr.
Boch, Mr. Merrill and Mr. Anderson is an independent director.
Information Regarding Corporate Governance
Committees of the Board of Directors
The Board of Directors maintains a standing Compensation Committee and Audit Committee. The
Board of Directors does not maintain a standing committee regarding the nominations of individuals
to serve on the Board of Directors; rather the full Board of Directors fulfills this function. The
Company does not currently have a separately designated nominating committee, or a committee
performing similar functions. Applying the NASDAQ committee independence standards with respect to
all of the directors of the Company, Dr. Garreau and Mr. Iversen are not independent directors for
purposes of their membership in a nominating committee, or a committee performing similar
functions, were such a committee to be separately designated and created.
The Compensation Committee of the Board of Directors, subject to the approval of the Board of
Directors, determines the compensation of the Companys executive officers and oversees the
administration of executive compensation programs. The Compensation Committee is comprised of Mr.
Garreau, Mr. Merrill, Mr. Boch and Mr. Anderson. Mr. Merrill, Mr. Boch and Mr. Anderson each of
whom the Board of Directors has determined to be independent.
The Audit Committee recommends outside accountants, reviews the results and scope of the
annual audit, the services provided by the Companys independent auditors and the recommendations
of the auditors with respect to the Companys accounting systems and controls. During 201009, the
Audit Committee conducted four meetings. The Audit Committee is comprised of Mr. Merrill, Mr. Boch
and Mr. Anderson, each of whom the Board of Directors has determined to be independent.
Audit Committee Financial Expert
The Board of Directors has determined that Mr. Merrill is an audit committee financial
expert within the meaning of the rules of the Securities and Exchange Commission.
Stockholder Nominations
The Company has not adopted any procedures by which the holders of the Companys securities may
recommend nominees to the Companys Board of Directors.
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Item 11. | Executive Compensation. |
Overview
Compensation Philosophy
The Companys compensation program generally is designed to motivate and reward our executive
officers and other personnel responsible for attaining financial objectives that will contribute to
the overall goal of enhancing stockholder value. In administering the program, the Compensation
Committee assesses the performance of our business and our employees relative to those objectives.
The Companys compensation program generally provides incentives to achieve annual and longer term
objectives. The principal elements of the compensation plan include base salary, cash bonus awards
and stock awards in the form of grants of stock options. These elements generally are blended in
order to provide compensation packages which provide competitive pay, reward the achievement of
financial objectives and align the interests of our executive officers and other high level
personnel with those of our stockholders.
Compensation Program
Base Salary. Base salary levels for executive officers are determined annually. In setting
base salaries for officers and employees, the Compensation Committee considers the experience of
the individual, the scope and complexity of the position, our size and growth rate, profitability,
and the compensation paid by our competitors. The Compensation Committee generally approves, based
upon in appropriate circumstances the recommendations of the Companys Chief Executive Officer, the
base salaries that are paid to the Companys executive officers other than its Chief Executive
Officer whose base salary is approved by the Compensation Committee. Overall, the Compensation
Committee believes that the base salaries of its executive officers are approximately competitive
with median base salary levels for similar positions with our peer companies. The Compensation
Committee approved salary adjustments in March 2010, effective April 1, 2011, for Messrs. Iversen,
Aubin and Campbell of $45,500, $2,971 and $4,088 respectively.
Bonuses. The Companys executive officers are eligible to receive bonus awards designed to
motivate them to attain short-term and longer-term corporate and individual management goals.
Bonuses are based on the attainment of specific Company performance measures established by the
Compensation Committee early in the fiscal year, and by the achievement of specified individual
performance objectives and the degree to which each executive officer contributes to the overall
success of the Company and the management team. The annual bonus is paid in cash in an amount
reviewed and approved, in appropriate circumstances on the recommendation of Mr. Iversen, by the
Compensation Committee and is ordinarily paid in the first quarter following the completion of each
fiscal year. For the year ended December 31, 2010, bonuses were awarded to Messrs. Iversen Aubin and
Campbell of $24,536, $23,067 and $21,469, respectively. Mr. Aubins bonus is calculated at 0.2% of
North America bookings for the year and one-third of that amount discretionary by the compensation
committee
Stock Awards. To promote the Companys long-term objectives, stock awards are made to officers
and employees who are in a position to make a significant contribution to our long-term success.
The stock awards are made to employees and consultants pursuant to our 1997 Stock Option Plan, in
the form of qualified and nonqualified stock options with a exercise price of the market price of
the Companys common stock on the date of grant. The Compensation Committee has discretion to
determine which employees and consultants will be granted stock options, the number of shares to be
optioned and the terms and conditions of such options. The full Board of Directors conducts the
administration of the option plan with respect to options granted to directors or to executive
officers. Options currently outstanding generally vest over a five year period. In selecting
recipients and the size of grants, the Compensation Committee considers various factors such as the
potential of the recipient, the salary of the recipient and competitive factors affecting our
ability to attract and retain employees, prior grants, a comparison of awards made to officers in
comparable positions at similar companies and the performance of our business. The Company did not
grant stock options to the named executive officers during the year ended December 31, 2010.
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Director Compensation
The following table shows certain information with respect to the compensation of all
directors of the Company for the year ended December 31, 2010.
2010 DIRECTOR COMPENSATION TABLE
Fees Earned or | Option | |||||||||||
Paid in Cash | Awards | Total | ||||||||||
Name | ($) | ($) | ($) | |||||||||
Current Directors |
||||||||||||
Dr. Philippe Garreau |
| | | |||||||||
Per Iversen |
| | | |||||||||
Raymond Boch |
1,750 | | 1,750 | |||||||||
Douglas Merrill |
2,750 | | 2,750 | |||||||||
Eric Andersen |
2,750 | | 2,750 |
Directors not receiving compensation as an officer or employee of the Company receive $500 per
meeting attended and $250 per meeting attended telephonically.
Compensation Tables and Related Information
The following tables and footnotes set forth information, for the years ended December 31,
2010 and December 31, 2009, concerning compensation awarded to, earned by or paid to (i) the
Companys Chief Executive Officer, and (ii) each of the Companys two (2) other most highly
compensated executive officers for the years ended December 31, 2009 and December 31, 2008 (the
Named Executive Officers).
Summary Compensation Table
Name and | Option | All Other | ||||||||||||||||||||
Principal | Salary | Bonus | Awards | Compensation | Total | |||||||||||||||||
Position | Year | ($) | ($) | ($)(1) | ($)(2) | ($) | ||||||||||||||||
Per Iversen |
2010 | 155,798 | 24,536 | | 7,707 | 188,041 | ||||||||||||||||
Chief Executive Officer (Principal Executive Officer) |
2009 | 158,285 | | | 7,738 | 166,023 | ||||||||||||||||
John Aubin |
2010 | 149,541 | 23,067 | 5,600 | 2,956 | 181,164 | ||||||||||||||||
Vice President Chief Technology Officer |
2009 | 161,716 | 25,000 | 5,600 | 2,784 | 195,100 | ||||||||||||||||
William Campbell |
2010 | 135,212 | 21,469 | 5,600 | 676 | 162,957 | ||||||||||||||||
Vice President, Engineering and Program Management |
2009 | 136,214 | 35,000 | 5,600 | 681 | 177,495 |
(1) | Represents the amount recognized for financial statement reporting purposes for the year
ended December 31, 2010 in accordance with the FASB standard on Stock Compensation. The
valuation assumptions used for the calculation are as follows: expected life of 7 years;
volatility of 7.74%; dividends of zero; and a risk free interest rate of 5.5%. |
|
(2) | Represents contributions under the Companys 401(k) Plan. In addition, Mr. Iversen received
$5,688 in compensation for the personal use of a Company car. |
Outstanding Equity Awards at Fiscal Year-End
Option Awards | ||||||||||||||||
Number of | Number of | |||||||||||||||
Securities | Securities | |||||||||||||||
Underlying | Underlying | |||||||||||||||
Unexercised | Unexercised | Option | ||||||||||||||
Options | Options | Exercise | Option | |||||||||||||
(#) | (#) | Price | Expiration | |||||||||||||
Name | Exercisable | Unexercisable | ($) | Date | ||||||||||||
Per Iversen |
| | | | ||||||||||||
John Aubin |
20,000 | | 3.00 | 3/5/12 | ||||||||||||
11,250 | 3,750 | 1.95 | 7/9/17 | |||||||||||||
William Campbell |
15,000 | | 3.00 | 11/25/12 | ||||||||||||
11,250 | 3,750 | 1.95 | 7/9/17 |
26
Table of Contents
Employment Agreement 2
Effective June 2, 2008 and executed on December 16, 2008, the Company entered into an
employment agreement with Per Iversen, pursuant to which Mr. Iversen was named President and Chief
Executive Officer of the Company. The agreement calls for Mr. Iversen to receive an initial base
salary of $150,000, and provides that Mr. Iversen may be entitled to an annual bonus as determined
by the Compensation Committee of the Companys Board of Directors. In addition, the Board of
Directors approved Mr. Iversens use of the company vehicle previously driven by the Companys
former CEO. Mr. Iversens employment agreement may be terminated by the Company for cause, which is
defined as the material breach of the employment agreement by Mr. Iversen or if Mr. Iversen commits
a material act of dishonesty or a material breach of trust or a fiduciary obligation with respect
to the Company. Under the employment agreement, Mr. Iversen is subject to certain non-disclosure,
non-solicitation and non-competitive covenants.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters. |
The following table sets forth, as of March 30, 2011, certain information with regard to
beneficial ownership (as determined in accordance with Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) of outstanding shares of the Companys Common Stock by (i) each
person known by the Company to beneficially own five percent (5%) or more of the outstanding shares
of the Companys Common Stock, (ii) each director and Named Executive Officer (as defined below)
individually, and (iii) all executive officers and directors of the Company as a group. Unless
otherwise indicated, the address of each of the persons named in the following table is c/o
Orbit/FR, Inc., 506 Prudential Road, Horsham, Pennsylvania 19044.
Percentage of | ||||||||
Total Number of | Class of | |||||||
Shares of | Common | |||||||
Common | Stock | |||||||
Stock Beneficial | Beneficially | |||||||
Name and Address of Beneficial Owner | Owned (1) | Owned (1) | ||||||
Five Percent (5%) or more Beneficial Owners |
||||||||
Microwave Vision, SA 17, Avenue de Norvege 91 953 Coutaboeuf-France |
3,700,000 | 61.8 | % | |||||
Wellington Trust Company (2) c/o Wellington Management Company, LLP 280 Congress Street Boston, MA 02210 |
310,900 | 5.1 | % | |||||
Directors |
||||||||
Dr. Philippe Garreau (3) 17, Avenue de Norvege 91 953 Coutaboeuf-France |
3,700,000 | 61.8 | % | |||||
Raymond Boch |
||||||||
Douglas Merrill |
| | ||||||
Eric Anderson |
| | ||||||
Named Executive Officers |
| | ||||||
Per Iversen |
| | ||||||
John Aubin (4) |
31,250 | * | ||||||
William Campbell (5) |
26,250 | * | ||||||
All executive officers and directors as a group (11 persons) |
3,849,600 | 62.4 | % |
* | Less than 1% of the outstanding Common Stock. |
|
(1) | The securities beneficially owned by an individual are determined in accordance with the
definition of beneficial ownership set forth in the regulations of the United States
Securities and Exchange Commission (the SEC). Accordingly, they may include securities owned
by or for, among others, the spouse and/or minor children of the individual and any other
relative who has the same home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to acquire under
outstanding stock options within 60 days of March 30, 2011. Beneficial ownership may be
disclaimed as to certain of the securities. |
|
(2) | Based on information set forth in the Schedule 13G filed by Wellington Trust Company with the
Securities and Exchange Commission on February 14, 2011. |
|
(3) | Represents 3,700,000 shares held by Microwave Vision, Dr. Garreau serves as the President and
CEO of Microwave Vision. |
|
(4) | Represents 31,250 shares of Common Stock issuable upon the exercise of options granted to Mr.
Aubin. |
|
(5) | Represents 26,250 shares of Common Stock issuable upon the exercise of options granted to Mr.
Campbell. |
27
Table of Contents
Item 13. | Certain Relationships and Related Transactions, and Director Independence. |
Review, Approval or Ratification of Transactions with Related Persons
The Board of Directors has adopted a policy regarding the review and approval of transactions
with related persons, which provides that certain transactions in which the Company is a party must
be approved by (i) the Audit Committee, and (ii) to the extent such transaction involves
compensation, also by the Compensation Committee. Those transactions that require review and
approval include transactions to which any executive officer, or board member or board member
nominee, or any immediate family member or affiliate of any of the foregoing, is a party with the
Company. Types of transactions excluded by the policy include transactions generally available to
all of our employees and transactions involving solely matters of executive compensation, which
transactions need only to be approved by our compensation committee.
Transactions subject to review under this policy may proceed if the Audit Committee finds that
the transaction is on terms comparable to those that could be obtained in arms length dealings
with an unrelated third party, and, to the extent they involve compensation, if they are also
approved by the Compensation Committee.
As of December 31, 2010 Microwave Vision owned 3.7 million shares, representing approximately
61.8% of the outstanding shares, of the Companys common stock.
Transactions with Related Persons during Fiscal Year 2010
Orbit-Alchut Technologies, Ltd., an Israeli publicly traded corporation controlled
approximately 61.8% of the Companys stock until the sale of that stock to Satimo, S.A. on May 13,
2008 (Satimo). On June 30, 2009, Microwave Vision acquired the 3.7 million common shares of the
Company through a reorganization involving its wholly owned subsidiary, Satimo. Included in sales
and cost of revenues for the year ended December 31, 2010 are approximately $2.3 million and
$423,000, respectively, relating to sales to and purchases from Microwave Vision. Included in sales
and cost of revenues for the year ended December 31, 2009 are approximately $588,000 and $271,000,
respectively, relating to sales to and purchases from Microwave Vision.
On August 14, 2009, the Company entered into an Assistance and Provision of Services Agreement
(the Services Agreement) with Microwave Vision and several subsidiaries of Microwave Vision,
including Satimo. Pursuant to the Services Agreement, Microwave Vision agreed to provide
management, operational, sales and marketing, legal, technical and other services to the Company,
Satimo and Microwave Visions other direct and indirect Subsidiaries (collectively, the
Subsidiaries). In consideration thereof, the Company, Satimo and each of the other Subsidiaries
agreed to pay Microwave Vision a fee to be determined as of the start of each calendar year,
commencing on January 1, 2009, based on the projected gross margins of each Subsidiary for that
year subject to adjustment at year end based on actual results of operations for that year. In
addition, the Company agreed to pay Microwave Vision an additional fee of 1% of its gross sales in
consideration of the right to use the name Microwave Vision in the Companys sales and marketing
activities. As a result of the implementation of the Services Agreement effective as of January 1,
2009, the Company recorded approximately $1.7 million and $1.5 million respectively in expenses
related to the Services Agreement for the years ended December 31, 2010 and 2009. As a result of
the year-end adjustment, the amount of expense charged for the quarters ended December 31, 2010 and
2009 were approximately $657,000 and $588,000 or $315,000 and $271,000 respectively, greater than
the quarterly charges accrued by the Company based upon budget.
Item 14. | Principal Accountant Fees and Services. |
Accountant Fees
The following table presents fees for professional services rendered in the United States by
Cornick, Garber & Sandler, LLP and in Israel, Ziv Haft for the audit of the Companys annual
financial statements, the review of the interim financial statements the preparation of its tax
returns, and fees for consulting and other professional services.
2010 | 2009 | |||||||
Audit Fees |
$ | 166,000 | $ | 168,000 | ||||
Audit-Related Fees |
47,000 | 66,000 | ||||||
Tax Fees |
27,000 | 19,000 | ||||||
All Other Fees |
| 4,000 |
All other fees relate to work performed under Sarbanes-Oxley Section 404 compliance
28
Table of Contents
Audit Committee Pre-Approval Policies and Procedures
The Companys Audit Committee policies and procedures require the pre-approval by the Audit
Committee of all fees paid to, and all services performed by, the Companys independent accounting
firm. The Audit Committee approves the proposed services, including the nature, type, and scope of
services contemplated and the related fees, to be rendered by the Companys independent accounting
firm during the year. In addition, Audit Committee pre-approval is also required for those
engagements that may arise during the course of the year that are outside the scope of the initial
services and fees pre-approved by the Audit Committee.
Pursuant to the Sarbanes-Oxley Act of 2002, the fees and services provided as noted in the
table above were authorized and approved by the Audit Committee in compliance with the pre-approval
policies and procedures described herein.
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENTS SCHEDULE |
(a)(1) Consolidated Financial Statements
33 | ||||
34 | ||||
35 | ||||
36 | ||||
37 | ||||
38 | ||||
39 |
(a)(3) Exhibits
The exhibits filed as part of this report are listed under exhibits as subsection (c) of this
Item 15.
(b) Exhibits
3.1 | Amended and Restated Certificate of Incorporation of the Company. (2) |
|||
3.2 | Bylaws of the Company. (7) |
|||
4.1 | Specimen Common Stock Certificate of the Company. (2) |
|||
4.2 | Citizens Bank Term Note, dated December 13, 2010, in the aggregate principal amount of $250,000.† |
|||
4.3 | Citizens Bank Revolving Demand Note, dated December 13, 2010, in the
aggregate principal amount of $2,250,000.† |
|||
10.1 | * | Employment Agreement dated January 1, 1997 by and between the Company and Moshe Pinkasy. (1) |
||
10.2 | 1997 Equity Incentive Plan. (1) |
|||
10.3 | ORBIT/FR Inc. non-debarment agreement dated February 15, 2000 (4) |
29
Table of Contents
10.4 | Consent Agreement. (8) |
|||
10.5 | * | Employment Agreement dated December 16, 2008 by and between the Company and Per Iversen. (9) |
||
10.6 | Services Agreement dated August 14, 2009 among the Company, Microwave Vision Group, S.A. and
the other parties thereto. (10) |
|||
10.7 | Loan Agreement, dated December 13, 2010 by and between the Company and Citizens Bank of Pennsylvania (Equipment Line of Credit).† |
|||
10.8 | Security Agreement, dated December 13, 2010, by and between the Company and Citizens Bank of Pennsylvania (Equipment Line of Credit).† |
|||
10.9 | Loan Agreement, dated December 13, 2010, by and between the Company and Citizens Bank of Pennsylvania (Revolving Credit Facility).† |
|||
10.10 | Security Agreement, dated December 13, 2010, by and between the Company and Citizens Bank of Pennsylvania (Revolving Credit Facility).† |
|||
14.1 | Employee Ethics Policy. (6) |
|||
21.1 | Subsidiaries of the Registrant. (3) |
|||
23.1 | Consent of Cornick, Garber & Sandler, LLP. |
|||
23.2 | Consent of Ziv Haft Certified Public Accountants (Isr.). |
|||
24.1 | Power of Attorney.† |
|||
31.1 | Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2003, of Per Iversen, President and Chief Executive Officer. |
|||
31.2 | Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2003, of Relland Winand, Chief Financial Officer. |
|||
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2003, of Per Iversen, President and Chief Executive Officer |
|||
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2003, of Relland Winand, Chief Financial Officer. |
30
Table of Contents
* | Management contract, compensatory plan or arrangement |
|
† | Previously filed |
|
(1) | Incorporated by reference to the Companys Registration Statement on Form S-1 (File No.
333-25015), filed with the Commission on April 11, 1997 |
|
(2) | Incorporated by reference to Amendment 1 of the Companys Registration Statement on Form S-1
(File No. 333-25015), filed with the Commission on May 19, 1997 |
|
(3) | Incorporated by reference to Amendment 2 of the Companys Registration Statement on Form S-1
(File No. 333-25015), filed with the Commission on June 5, 1997 |
|
(4) | Incorporated by reference to Companys Annual Report on Form 10-K filed on March 30, 2001 |
|
(5) | Incorporated by reference to Companys Annual Report on Form 10-K filed on March 31, 2003 |
|
(6) | Incorporated by reference to Companys Annual Report on Form 10-K filed on March 30, 2004 |
|
(7) | Incorporated by reference to Companys Quarterly Report on Form 8-K filed on March 26, 2007 |
|
(8) | Incorporated by reference to Companys Annual Report on Form 10-K filed on March 29, 2006 |
|
(9) | Incorporated by reference to Companys Annual Report on Form 10-K filed on April 15, 2009 |
|
(10) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q filed on August 19,
2009 |
31
Table of Contents
ORBIT/FR, Inc.
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ORBIT/FR, Inc |
||||
Date: October 26, 2011 | /s/ Per Iversen | |||
Per Iversen | ||||
President and Chief Executive Officer |
32
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and
Board of Directors
Orbit/FR, Inc.
Board of Directors
Orbit/FR, Inc.
We have audited the consolidated balance sheets of Orbit/FR, Inc. and Subsidiaries as of December
31, 2010 and December 31, 2009 and the related consolidated statements of operations, stockholders
equity and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the financial statements of
Orbit/FR Engineering, LTD., a wholly owned subsidiary, which statements reflect total assets of
$10,874,000 as of December 31, 2010 and $9,047,000 at December 31, 2009 and total revenues of
$16,348,000 and $14,435,000 for the respective years then ended. Those statements were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to
the amounts included for Orbit/FR Engineering, LTD., is based solely on the reports of the other
auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits and
the reports of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors, the consolidated
financial statements referred to above present fairly, in all material respects, the financial
position of Orbit/FR, Inc. and Subsidiaries as of December 31, 2010 and December 31, 2009 and the
consolidated results of their operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ CORNICK, GARBER & SANDLER, LLP
|
||||
March 30, 2011
New York, NY
New York, NY
33
Table of Contents
(LOGO)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
ORBIT/FR ENGINEERING, LTD.
We have audited the accompanying
balance sheet of Orbit/Fr Engineering, Ltd. (the Company) as of
December 31, 2010 and 2009 and the related statements of income, changes in shareholders equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Orbit/FR Engineering, Ltd. as of
December 31, 2010 and 2009, and the results of its operations, changes in equity
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ Ziv Haft.
Certified Public Accountants (Isr.)
BDO Member Firm
Certified Public Accountants (Isr.)
BDO Member Firm
Tel-Aviv, Israel
March 30, 2011
March 30, 2011
(LOGO)
34
Table of Contents
ORBIT/FR, Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
December 31, | ||||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,400 | $ | 1,622 | ||||
Accounts receivable, less allowance of $90 and $67 in 2010 and 2009, respectively |
5,693 | 9,207 | ||||||
Inventory |
2,776 | 2,681 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
4,941 | 1,668 | ||||||
Income tax refunds receivable |
655 | 542 | ||||||
Deferred income taxes |
1,437 | 835 | ||||||
Other |
745 | 277 | ||||||
Total current assets |
18,647 | 16,832 | ||||||
Property and equipment, net |
2,296 | 2,093 | ||||||
Deferred income taxes |
688 | 887 | ||||||
Cost in excess of net assets acquired |
301 | 301 | ||||||
Total assets |
$ | 21,932 | $ | 20,113 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 3,781 | $ | 3,946 | ||||
Accounts payable ultimate parent |
1,697 | 1,482 | ||||||
Accrued expenses |
3,728 | 3,355 | ||||||
Short-term bank financing |
| 250 | ||||||
Customer advances |
75 | 13 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
2,117 | 2,813 | ||||||
Total liabilities, all current |
11,398 | 11,859 | ||||||
Stockholders equity: |
||||||||
Preferred stock: $.01 par value: |
||||||||
Authorized shares2,000,000 Issued and outstanding sharesnone |
| | ||||||
Common stock: $.01 par value: |
||||||||
Authorized shares10,000,000 Issued shares6,084,473 |
61 | 61 | ||||||
Additional paid-in capital |
16,500 | 16,460 | ||||||
Accumulated deficit |
(5,727 | ) | (8,024 | ) | ||||
Accumulated
other comprehensive (loss)- Foreign currency translation adjustment net of $32, tax benefit |
(57 | ) | | |||||
Treasury stock82,700 shares in 2010 and 2009, at cost |
(243 | ) | (243 | ) | ||||
Total stockholders equity |
10,534 | 8,254 | ||||||
Total liabilities and stockholders equity |
$ | 21,932 | $ | 20,113 | ||||
See accompanying notes.
35
Table of Contents
ORBIT/FR, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
Years Ended December 31, | ||||||||
2010 | 2009 | |||||||
Contract revenues |
$ | 36,245 | $ | 31,246 | ||||
Cost of revenues |
25,514 | 20,483 | ||||||
Gross profit |
10,731 | 10,763 | ||||||
Operating expenses: |
||||||||
General and administrative |
3,113 | 3,005 | ||||||
Sales and marketing |
2,920 | 3,565 | ||||||
Sales, marketing, general and administrative-MVG |
1,681 | 1,539 | ||||||
Research and development |
1,253 | 1,308 | ||||||
(Gain) loss on disposal of assets |
(109 | ) | 167 | |||||
Total operating expenses |
8,858 | 9,584 | ||||||
Operating income |
1,873 | 1,179 | ||||||
Other (loss), net |
(73 | ) | (217 | ) | ||||
Income before income tax |
1,800 | 962 | ||||||
Income tax (benefit) |
(497 | ) | (508 | ) | ||||
Net income |
$ | 2,297 | $ | 1,470 | ||||
Other
comprehensive (loss)- Foreign currency translation adjustment, net of $32 tax benefit |
(57 | ) | | |||||
Total comprehensive income |
$ | 2,240 | $ | 1,470 | ||||
Basic and diluted income per share |
$ | 0.38 | $ | 0.24 | ||||
Weighted average number common shares basic |
6,001,773 | 6,001,583 | ||||||
Weighted average number common shares diluted |
6,029,701 | 6,001,583 | ||||||
See accompanying notes.
36
Table of Contents
ORBIT/FR, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Shares and amounts in thousands)
Additional | Accumulated | Total | ||||||||||||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | Treasury Stock | Stockholders | |||||||||||||||||||||||||||
Shares | Amount | Capital | Deficit | (Loss) | Shares | Amount | Equity | |||||||||||||||||||||||||
Balance, January 1, 2009 |
$ | 6,084 | $ | 61 | $ | 16,383 | $ | (9,494 | ) | $ | | $ | 83 | $ | (243 | ) | $ | 6,707 | ||||||||||||||
Net income |
| | | 1,470 | | | | 1,470 | ||||||||||||||||||||||||
Stock-based compensation |
| | 77 | | | | | 77 | ||||||||||||||||||||||||
Balance, December 31, 2009 |
6,084 | $ | 61 | $ | 16,460 | $ | (8,024 | ) | | 83 | $ | (243 | ) | $ | 8,254 | |||||||||||||||||
Net income |
2,297 | 2,297 | ||||||||||||||||||||||||||||||
Stock-based compensation |
| | 40 | | | | | 40 | ||||||||||||||||||||||||
Accumulated other
comprehensive (loss)
foreign currency
translation adjustment
$32 net of tax benefit |
| | | | (57 | ) | | | (57 | ) | ||||||||||||||||||||||
Balance, December 31, 2010 |
6,084 | $ | 61 | $ | 16,500 | $ | (5,727 | ) | $ | (57 | ) | 83 | $ | (243 | ) | $ | 10,534 | |||||||||||||||
See accompanying notes.
37
Table of Contents
ORBIT/FR, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,297 | $ | 1,470 | ||||
Adjustments to reconcile results of operations to net cash (used in) provided by operating activities: |
||||||||
Depreciation |
525 | 399 | ||||||
(Gain) loss on disposal of fixed assets |
(109 | ) | 66 | |||||
Stock-based compensation |
40 | 77 | ||||||
Deferred income tax provision |
(402 | ) | (508 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
3,437 | (1,547 | ) | |||||
Inventory |
(103 | ) | (327 | ) | ||||
Costs and estimated earnings in excess of billings on uncompleted contracts |
(3,282 | ) | (223 | ) | ||||
Income tax refunds receivable |
(112 | ) | (102 | ) | ||||
Other current assets |
(440 | ) | 22 | |||||
Accounts payable and accrued expenses |
89 | 1,763 | ||||||
Accounts payable ultimate parent |
313 | 1,387 | ||||||
Customer advances |
66 | (663 | ) | |||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
(603 | ) | 743 | |||||
Net cash provided by operating activities |
1,716 | 2,557 | ||||||
Cash flows from investing activities: |
||||||||
Insurance
proceeds for replacement of property and equipment |
134 | | ||||||
Proceeds from sale of property and equipment |
(764 | ) | (1,239 | ) | ||||
Net cash (used in) investing activities |
(630 | ) | (1,239 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from short term bank financing |
1,050 | |||||||
Repayments of short term bank financing |
(250 | ) | (2,267 | ) | ||||
Net cash (used in) financing activities |
(250 | ) | (1,217 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(58 | ) | | |||||
Net increase in cash and cash equivalents |
778 | 101 | ||||||
Cash and cash equivalents at beginning of year |
1,622 | 1,521 | ||||||
Cash and cash equivalents at end of year |
$ | 2,400 | $ | 1,622 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Net cash paid during the year for income taxes |
$ | 291 | $ | 267 | ||||
Net cash paid during the year for interest |
$ | 7 | $ | 15 | ||||
See accompanying notes.
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ORBIT / FR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share data)
1. Summary of Significant Accounting Policies
Ownership and Basis of Presentation
ORBIT/FR, Inc. (the Company) was incorporated in Delaware on December 9, 1996, as a
wholly-owned subsidiary of Orbit-Alchut Technologies, Ltd., an Israeli publicly traded corporation
(hereinafter referred to as Alchut). On May 13, 2008, Alchut sold all of its 3.7 million shares
of common stock of the Company to Satimo Industries, SA (Satimo) and on June 30, 2009, as a result
of a corporate reorganization, Satimo became a wholly owned subsidiary of Microwave Vision, SA
(Microwave Vision) a newly created holding company which is publicly traded on the ALTERNEXT
stock exchange. The Company develops, markets, and supports sophisticated automated microwave test
and measurement systems for the wireless communications, satellite, automotive, and
aerospace/defense industries and manufactures anechoic foam, a microwave absorbing material that is
an integral component of microwave test and measurement systems. ORBIT/FR, Inc., a holding company,
supports its worldwide customers through its subsidiaries ORBIT/FR Engineering, LTD (Israel),
(hereinafter referred to as Engineering), ORBIT/FR Europe (Germany), Advanced ElectroMagnetics,
Inc. (AEMI, San Diego, CA), and Orbit Advanced Technologies, Inc. and Flam and Russell, Inc.
(Horsham, PA). The Company sells its products to customers throughout Asia, Europe and North and
South America.
Principles of Consolidation
The consolidated
financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany accounts and transactions of the Company and its wholly-owned
subsidiaries have been eliminated in consolidation.
The Companys functional currency for the operations of its subsidiary in Israel is the U.S.
dollar. The Companys functional currency for the operations of its German subsidiary is the
Euro. The translation of foreign subsidiaries financial statements denominated in a functional currency
other than the U.S. dollar into U.S. dollars is performed at each balance sheet date as follows:
The foreign currency statement of operations is translated at the average exchange rate in effect
for the period. The balance sheet asset and liability accounts are translated at the period-end
exchange rate. The resulting translation gain or loss is recorded as a separate component of
stockholders equity. The change in the cumulative translation gains or losses from the preceding
period is separately reported, net of income tax effect, on the statement of operations under the
caption Other comprehensive income (loss) foreign currency translation adjustment, unless such
change is considered immaterial (in which case it is included in foreign exchange transaction gains
or losses).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts in the financial statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company classifies as cash equivalents all highly liquid instruments with original
maturities of three months or less at the time of purchase.
Accounts Receivable
The Company accounts for potential losses in accounts receivable utilizing the allowance
method. In reviewing aged receivables, management considers its knowledge of customers, historical
losses and current economic conditions in establishing the allowance for doubtful accounts.
Inventory
Inventory is stated at the lower of cost, determined on the first-in first out method, or
market.
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Table of Contents
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on accelerated methods
for both financial reporting and income tax reporting purposes over the estimated useful lives as
follows: office equipment 5-7 years; lab equipment 5 years; furniture and fixtures 7
years; transportation equipment 5 years; leasehold improvements life of lease.
Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired (goodwill), represents the excess of costs over the
fair value of the net assets acquired in connection with the Companys acquisition of Advanced
ElectroMagnetics, Inc. (AEMI) in 1997.
The Company has tested the goodwill of AEMI for impairment at December 31, 2010 and 2009 using
the present value of future cash flow valuation method. No adjustment for the value of goodwill was
necessary.
Revenue and Cost Recognition
The Companys principal sources of contract revenues are from engineering and design services
and the production of electro-mechanical equipment. Revenues from long-term fixed-price development
contracts performed principally under the Companys control are recognized on the percentage-of-
completion method, measured by the percentage of costs incurred to date to estimated total costs
for each contract when such costs can be reasonably estimated. Contract costs include all direct
material, labor and subcontractor costs and those indirect costs related to contract performance
such as indirect labor, supplies and tool costs. Selling, general and administrative costs are
charged to expense as incurred. Changes in job performance, job conditions, and estimated
profitability, including those arising from contract penalty provisions and final contract
settlements, may result in revisions to costs and revenue and are recognized in the period in which
the revisions are determined. Revenues recognized in excess of amounts billed are classified under
current assets as costs and estimated earnings in excess of billings on uncompleted contracts.
Amounts billed to customers in excess of revenues recognized to date are classified under current
liabilities as billings in excess of costs and estimated earnings on uncompleted contracts.
Revenues from electro-mechanical equipment sold to customers which are not part of a larger
contract are recognized when the contract is completed and the equipment is delivered.
Research and Development
Internally funded research and development costs are charged to operations as incurred.
Included in cost of revenues are customer-funded research and development costs of approximately $8
and $147 for the years ended December 31, 2010 and 2009, respectively. Other research and
development costs are separately reflected in the Consolidated Statement of Operations.
Concentrations of Credit Risk and Significant Customers
Financial instruments, which potentially subject the Company to a concentration of credit
risk, consist principally of cash and accounts receivable.
The Company maintains cash and cash equivalents with various major commercial institutions in
the U.S. and overseas. At December 31, 2010, cash balances that are either uninsured under the
Federal Deposit Insurance Corporation coverage limit per financial institution, or are located
overseas without such type of insurance coverage, totaled approximately $1,979. The Company does
not anticipate credit risk in connection with its concentration of cash.
To reduce credit risk relating to the Companys sales in the U.S. and overseas, the Company
performs ongoing credit evaluations of its commercial customers financial condition, but generally
does not require collateral for government and domestic commercial customers. For certain foreign
commercial customers, the Company generally requires irrevocable letters of credit in the amount of
the total contract. At December 31, 2010, there were twenty four bank guarantees in place for
foreign customers with an aggregate value of approximately $4,655.
One customer accounted for 10.6% of the Companys consolidated
revenue for the year ended December 31, 2010.
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Warranty Expense
The Company provides for warranty costs on its products. Product warranty periods generally
extend for one year from the date of sale. The warranty expense is not material.
Income Taxes
The Company uses the liability method to account for income taxes. Accordingly, deferred
income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts reportable for income tax
purposes. The Company files a consolidated federal income tax return with its domestic subsidiaries
and separate income tax returns in Israel and Germany for its foreign subsidiaries.
Foreign Currency Transactions
The Company
records transactions in connection with foreign currency invoices
received, collected,
issued or paid at the exchange rate in effect at the date of the
transaction. Receivables and payables
denominated in foreign currency are re-measured at each balance sheet date. The
differences resulting from unrealized changes in foreign exchange rates are recorded as foreign exchange
gain or loss, which is included as a component of Other (loss)
income, net on the consolidated statement of operations. When a transaction is collected or paid within an accounting period, a realized
foreign exchange gain or loss is recorded based on the rate at the date of settlement and the
previous carrying amount of the receivable or payable. The Company occasionally enters into forward
exchange currency contracts and their carrying amount is measured at each balance sheet date. The
change in carrying amount is recorded as a foreign exchange gain or loss. The foreign transaction
gain for the fiscal year ended December 31, 2010 was $22. The foreign transaction loss for the
year ended December 31, 2009 was $120.
For the years ended December 31, 2010 and 2009, approximately 21% and 14%, respectively, of
the Companys revenue was billed in currencies other than the
U.S. dollar. Transactions with the Companys parent are
predominantly in Euros. The majority of the costs incurred in performing the Companys contracts have been denominated in U.S.
dollars.
Income Per Share Amounts
Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted
average common shares outstanding for the period. Diluted income per share is calculated by
dividing net income by the weighted average common shares outstanding for the period plus the
effect of outstanding stock options when they are considered dilutive. Outstanding stock options
were not considered dilutive in 2009.
Stock-Based Compensation
The Company has stock-based employee compensation plans, which are described more fully in
Note 12. Prior to January 1, 2006, the Company accounted for stock options issued pursuant to its
stock option plans (the Plans) under recognition and measurement provisions of APB Opinion No.
25, as permitted by subsequent standards issued by the Financial Standards Accounting Board.
Effective January 1, 2006, the Company adopted the fair value provisions for share-based awards,
and compensation costs. All share based awards granted subsequent to January 1, 2006, are based on
the grant-date fair value estimated in accordance with the provisions of the Financial Standards
Accounting Board and recognized on a straight line basis over the shorter of the vesting or
requisite service periods.
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and bank
financing reported in the consolidated balance sheets equal or approximate fair value due to their
short maturities.
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Table of Contents
Impact of Recent Accounting Pronouncements
Public companies in the United States are subject to the accounting and reporting requirements
of various authorities, including the Financial Accounting Standards Board (FASB) and the
Securities and Exchange Commission (SEC). These authorities issue numerous pronouncements, most
of which are not applicable to the Companys current or reasonably foreseeable operating structure.
Below are the new authoritative pronouncements that management believes are relevant to the
Companys current operations.
In April 2009, the FASB issued FSP No. FAS-107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments. This amends previous guidance, to require disclosures about fair
value of financial instruments for interim reporting periods as well as in annual financial
statements. This guidance was effective for interim reporting periods ending after June 15, 2009.
This guidance did not have any impact on our consolidated financial statements.
In October 2009, the FASB issued revised guidance related to multiple-element arrangements
which requires an entity to allocate arrangement consideration at the inception of an arrangement
to all deliverables based on relative-selling-price. This update eliminates the use of the residual
method of allocation and requires the relative-selling-price method in all circumstances. This
guidance is effective for fiscal years beginning on or after September 15, 2010. Companies may use
either prospective application for revenue arrangements entered into, or materially modified, after
the effective date or through retrospective application to all revenue arrangements for all periods
presented. The Company does not believe this amended guidance will have a material impact on its
consolidated financial statements.
In October 2009, the FASB issued amended guidance that affects how entities account for
revenue arrangements that contain both hardware and software elements. Products that rely on
software will be accounted for under the revised multiple-element arrangement revenue recognition
guidance mentioned above rather than software revenue recognition guidance. The revised guidance
must be adopted no later than fiscal years beginning on or after September 15, 2010. The transition
method and period for the adoption of this guidance and the revisions to the multiple-elements
arrangements guidance noted above must be the same. The Company does not believe that this guidance
will have a material impact on its consolidated financial statements.
Management does not believe that any other recently issued, but not yet effected, accounting
standards if currently adopted would have a material effect on the Companys consolidated financial
statements.
2. Inventory
Inventory consists of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Work-in-process |
$ | 140 | $ | 509 | ||||
Parts and components |
2,636 | 2,172 | ||||||
Total |
$ | 2,776 | $ | 2,681 | ||||
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3. Property and Equipment
Property and equipment consists of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Lab and computer equipment |
$ | 2,864 | $ | 2,411 | ||||
Office equipment |
884 | 742 | ||||||
Transportation equipment |
61 | 45 | ||||||
Furniture and fixtures |
65 | 10 | ||||||
Fixed assets in process |
72 | 125 | ||||||
Leasehold improvements |
651 | 627 | ||||||
Total |
4,597 | 3,960 | ||||||
Less accumulated depreciation |
2,301 | 1,867 | ||||||
Property and equipment, net |
$ | 2,296 | $ | 2,093 | ||||
4. Accrued Expenses
Accrued expenses consist of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Contract costs |
$ | 72 | $ | 58 | ||||
Compensation |
1,673 | 1,525 | ||||||
Commissions |
628 | 450 | ||||||
Royalties |
71 | 58 | ||||||
Warranty |
574 | 452 | ||||||
Customer advances and deferred revenue |
240 | 241 | ||||||
Other |
470 | 571 | ||||||
Total |
$ | 3,728 | $ | 3,355 | ||||
5. Short Term Bank Financing
On December 13, 2010 the Company signed a new $2.25 million domestic demand line of credit
facility agreement with Citizens Bank. The revolving line can also be used to support the issuance of
letters of credit. The interest rate on loans under the line is at LIBOR rate plus 2.25%. The new
facility does not contain any financial covenants and is collateralized by the assets of Orbit
Advanced Technologies, Inc. and Advanced Electromagnetics, Inc. subsidiaries of Orbit/FR, Inc. The
agreement prohibits the payment of dividends on or any distribution on account of any class of
capital stock in cash or property without prior written consent of the Bank. In addition, the
Company also signed a $250,000 asset term note non-revolving line of credit with Citizens Bank. This facility has
an interest rate of prime plus two and one-half percent and allows up to a five year amortization
of any advances under the facility starting at the time of each advance.
Orbit/FR Engineering, LTD has established lines of credit with the two Israeli banks and one
Indian Bank (Israeli Branch). The line of credit from one Israeli bank has a NIS denominated limit
of 378 and USD 1,900 for the issuances of bank guarantees of letters of credit in favor of customers
and one Israeli bank has a US dollar denominated limit of $250 and $2,400 for the issuances of bank
guarantees of letters of credit in favor of customers. The Indian bank line of credit is $500 and
$3,000 for the issuances of bank guarantees of letters of credit in favor of customers. The
interest rates charged by all the banks are at LIBOR plus 2.25%.
There were no outstanding balances
due at December 31, 2010 and 2009 under the lines of credit. The bank agreements with all three
banks do not have expiration dates but are subject to termination on a quarterly basis based upon
the Companys financial performance for the quarter. These lines of credit are collateralized by
the assets of Orbit/FR Engineering, LTD., a subsidiary of Orbit/FR, Inc.
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6. Related Party Transactions
Included in sales and cost of revenues for the year ended December 31, 2010 are approximately
$2.3 million and $423 respectively relating to sales to and purchases from Microwave Vision.
Included in sales and cost of revenues for the year ended December 31, 2009, are approximately $530 and $683, respectively, relating to sales to and purchases from
Microwave Vision for the year ended December 31, 2009.
On August 14, 2009, the Company entered into an Assistance and Provision of Services Agreement
(the Services Agreement) with Microwave Vision and several subsidiaries of Microwave Vision,
including Satimo. Microwave Vision owns 3.7 million shares of common stock of the Company, which it
acquired through a reorganization involving its wholly owned subsidiary, Satimo. Satimo originally
acquired its shares of common stock of the Company from Orbit-Alchut Technologies, Ltd. on May 13,
2008. Pursuant to the Services Agreement, Microwave Vision agreed to provide management,
operational, sales and marketing, legal, technical and other services to the Company, Satimo, and
Microwave Visions other direct and indirect Subsidiaries (collectively, the Subsidiaries). In
consideration thereof, the Company, Satimo and each of the other Subsidiaries agreed to pay
Microwave Vision a fee to be determined as of the start of each calendar year, effective on January
1, 2009, based on the projected gross margins of each Subsidiary for that year, subject to
adjustment at year-end based on each entities gross margin (as defined) for the year. In addition,
the Company
agreed to pay Microwave Vision an additional fee of 1% of its gross sales in consideration of the
right to use the name Microwave Vision in the Companys sales and marketing
activities. The Company
has recorded approximately $1.7 million and $1.5 million respectively in expenses related to the
Services Agreement for the years ended December 31, 2010 and 2009. As a result of the year-end
adjustment, the amount of expense charged for the quarters ended December 31, 2010 and 2009 was
approximately $657,000 and $588,000 or $315,000 and $271,000 respectively, greater than the
quarterly charges accrued by the Company based upon budget.
7. Commitments and Contingencies
The Company leases its operating facilities and certain equipment under non-cancelable
operating lease agreements which expire in various years through 2015. Rent expense for the years
ended December 31, 2010 and 2009 was approximately $913 and $906, respectively. Future minimum
lease payments under non-cancelable operating leases with initial terms of one year or more are as
follows:
Year ending December 31: | ||||
2011 |
$ | 698 | ||
2012 |
510 | |||
2013 |
367 | |||
2014 |
265 | |||
2015 |
183 | |||
Total |
$ | 2,023 | ||
Under the terms of the Chief Scientist grant in Israel, Engineering is obligated to pay
royalties at a rate of 2% of revenues generated from the sale of certain products up to the amount
of the grant. For the years ended December 31, 2010 and 2009, royalties under this program were
approximately $17 and $8, respectively. At December 31, 2010, the Company had an outstanding
contingent obligation to the Chief Scientist of $87. Such contingent obligation is payable in
future periods based upon annual sales of products developed under the grants.
At December 31, 2010, the Company has outstanding letters of credit in the favor of customers
and a landlord totaling $5,955
As a result of the fire which occurred at the Companys AEMI subsidiary in California on
November 3, 2010, the Company has incurred additional clean-up and other costs which are subject to
ongoing insurance claims at December 31, 2010. Through December 31, 2010 the Company has received
$134, representing the replacement cost of certain machinery with a depreciated book basis of $25
resulting in a gain of $109. Insurance recoveries for other costs and business interruption
coverage are still pending at December 31, 2010 and will be reported as revenue upon settlement
with the insurance carrier.
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8. Segment and Geographic Information
The Company operates exclusively in one industry segment, the business of developing,
marketing and supporting sophisticated automated microwave test and measurement systems. In
addition to its principal operations and markets in the United States, the Company conducts sales,
customer support and service operations to other geographic locations in Europe, Asia, and North
America. The following table represents financial information by geographic region for the years
ended December 31, 2010 and 2009.
North | ||||||||||||||||
America | Europe | Asia | Total | |||||||||||||
2010 |
||||||||||||||||
Sales to unaffiliated customers |
$ | 17,102 | $ | 11,869 | $ | 7,274 | $ | 36,245 | ||||||||
Cost of revenues to unaffiliated customers |
12,079 | 8,409 | 5,026 | 25,514 | ||||||||||||
Gross profit unaffiliated customers |
$ | 5,023 | $ | 3,460 | $ | 2,248 | $ | 10,731 | ||||||||
Net property and equipment |
$ | 1,059 | $ | 1,237 | $ | | $ | 2,296 | ||||||||
Total assets |
$ | 12,087 | $ | 9,813 | $ | | $ | 21,900 | ||||||||
2009 |
||||||||||||||||
Sales to unaffiliated customers |
$ | 16,152 | $ | 8,208 | $ | 6,886 | $ | 31,246 | ||||||||
Cost of revenues to unaffiliated customers |
10,316 | 5,362 | 4,805 | 20,483 | ||||||||||||
Gross profit unaffiliated customers |
$ | 5,836 | $ | 2,846 | $ | 2,081 | $ | 10,763 | ||||||||
Net property and equipment |
$ | 812 | $ | 1,281 | $ | | $ | 2,093 | ||||||||
Total assets |
$ | 11,452 | $ | 8,661 | $ | | $ | 20,113 | ||||||||
In the table above North America includes property and assets of all domestic operations,
and Europe includes property and assets of the subsidiaries in Germany and Israel.
9. Income Taxes
Pretax income was applicable to the following jurisdictions:
Year ended December 31, | ||||||||
2010 | 2009 | |||||||
United States |
$ | 57 | $ | 665 | ||||
Foreign |
1,743 | 297 | ||||||
Total |
$ | 1,800 | $ | 962 | ||||
The components of income tax (benefit) are as follows:
Year ended December 31, | ||||||||
2010 | 2009 | |||||||
Currently Payable (Refundable): |
||||||||
Federal state and local taxes within the U.S. |
$ | 95 | $ | | ||||
Foreign |
(190 | ) | | |||||
Total |
(95 | ) | | |||||
Deferred: |
||||||||
Federal |
(382 | ) | (539 | ) | ||||
Foreign |
(20 | ) | 31 | |||||
Total |
(402 | ) | (508 | ) | ||||
Total income tax (benefit) |
$ | (497 | ) | $ | (508 | ) | ||
A reconciliation of income tax (benefit) at the U.S. Federal statutory tax rate and the actual
income tax (benefit) is as follows:
Year ended December 31, | ||||||||
2010 | 2009 | |||||||
Tax expense at statutory U.S. Federal rate |
$ | 612 | $ | 327 | ||||
State and local taxes within the U.S. |
35 | 17 | ||||||
Reversal of previous tax accruals |
(218 | ) | | |||||
Decrease in deferred tax asset valuation allowance |
(668 | ) | (1,181 | ) | ||||
Net additional prior years foreign income taxes resulting from tax examination |
| 274 | ||||||
Decrease in tax rate on foreign deferred
tax assets |
(152 | ) | | |||||
Foreign tax rate difference compared to U.S. tax rate |
(125 | ) | 31 | |||||
Other, net |
19 | 24 | ||||||
Total income tax (benefit) |
$ | (497 | ) | $ | (508 | ) | ||
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The tax effects of temporary differences that give rise to a significant portion of deferred
tax assets and liabilities consist of the following:
December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets: |
||||||||
U.S. net operating loss and tax credit carryforwards |
$ | 2,688 | $ | 2,912 | ||||
MVG expense not currently deductible |
287 | |||||||
Allowance for doubtful accounts |
31 | 24 | ||||||
Accrued warranty reserves |
100 | 63 | ||||||
Inventory reserve |
15 | 21 | ||||||
Accrued compensation |
161 | 174 | ||||||
Stock-based compensation |
71 | 113 | ||||||
Unearned service revenue |
86 | 86 | ||||||
Foreign, including German and Israel net operating loss carryforwards |
569 | 827 | ||||||
Total deferred tax assets |
4,008 | 4,220 | ||||||
Deferred tax liabilities: |
||||||||
Depreciation |
(174 | ) | | |||||
Purchase accounting basis differences |
(124 | ) | (124 | ) | ||||
Total deferred tax liabilities |
(298 | ) | (124 | ) | ||||
Net deferred tax asset |
3,710 | 4,096 | ||||||
Less valuation allowance |
(1,586 | ) | (2,374 | ) | ||||
Net deferred tax asset |
$ | 2,124 | $ | 1,722 | ||||
As of December 31, 2010, the Company has net operating loss carryforwards of approximately
$7,806 for U.S. federal income tax purposes which expire through 2024. On May 13, 2008, Alchut sold
all of its 3.7 million shares of common stock of the Company to Satimo. Due to the change in
ownership of the Company utilization of a portion of these net operating loss carryforward is
limited pursuant to Section 382 of the Internal Revenue Code to approximately $1,315 a year, plus
any losses incurred after May 13, 2008. The Company has a net operating loss carryforward in
Germany of approximately $431 and an Israeli net operating loss
carryforward of approximately $621,
both of which are available indefinitely. In 2010 and 2009, the Company decreased its valuation
allowance on its deferred tax assets by $668 and $1,098, respectively due to the Companys estimate
of its ability to generate sufficient future taxable income in the U.S., Israel and Germany to
realize a portion of its deferred tax assets.
The
Companys US tax returns for 2007 through 2010 are open to
examination by the Internal Revenue Service. The open years for
state tax examination vary from 2006 through 2010. The
Companys German and Israeli tax years open to examination are
2007 through 2010.
The Company has not provided for federal income taxes applicable to the undistributed earnings
of its foreign subsidiaries of approximately $1.0 million as of December 31, 2010, since these
earnings are considered permanently reinvested.
10. Retirement Plans
The Company has retirement plans which cover substantially all U.S. employees who have
attained the age of 21 and have completed 3 months of service. Eligible employees make voluntary
contributions to the plans up to specified percentages of their annual compensation as defined in
the plans. Under the plans, the Company makes discretionary matching contributions determinable
each plan year and additional contributions based on annual eligible compensation for each
participant. The plans are funded on a current basis. For the years ended December 31, 2010 and
2009, the Companys contributions to the plans were $47 and $45, respectively.
11. Long-Term Contracts
Long-term contracts in process accounted for using the percentage-of-completion method are as
follows:
December 31, | ||||||||
2010 | 2009 | |||||||
Accumulated expenditures on uncompleted contracts |
$ | 58,597 | $ | 45,179 | ||||
Estimated earnings thereon |
18,310 | 13,335 | ||||||
Total |
76,907 | 58,514 | ||||||
Less: applicable progress billings |
(74,083 | ) | (59,659 | ) | ||||
Net |
$ | 2,824 | $ | (1,145 | ) | |||
The long-term contracts are shown in the accompanying balance sheets as follows: |
||||||||
Costs and estimated earnings on uncompleted contracts in excess of billings |
$ | 4,941 | $ | 1,668 | ||||
Billings on uncompleted contracts in excess of costs and estimated earnings |
(2,117 | ) | (2,813 | ) | ||||
Net |
$ | 2,824 | $ | (1,145 | ) | |||
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12. Stock Option Plan
The Companys 1997 Equity Incentive Plan (the Incentive Plan), as subsequently amended,
provides for awards of 1,200,000 shares of the Companys stock. Options granted generally vest over
five years and typically have a life of ten years. The purpose of the Incentive Plan is to promote
the long-term retention of the Companys key employees and certain other persons who are in a
position to make significant contributions to the success of the Company. The Incentive Plan
permits grants of incentive stock options (ISOs), options not intended to qualify as ISOs
(nonqualified options), stock appreciation rights (SARs), restricted, unrestricted and deferred
stock awards, performance awards, loans and supplemental cash awards, and combinations of the
foregoing (all referred to as Awards).
In July of 2007, the Board of Directors approved two grants of non-qualified stock options for
84,300 and 435,100 shares to key employees, management and Board members of the Company. These
grants resulted in stock-based compensation expense of $26 and $63 for the years ended December 31,
2010 and December 31, 2009, respectively.
In March of 2008, the Board of Directors approved a grant of non-qualified stock options for
30,000 shares to the Companys Chief Financial Officer. This grant resulted in stock-based
compensation of $14 and $14 for the years ended December 31, 2010 and December 31, 2009,
respectively.
Detailed information concerning the Stock Option Plan is as follows at December 31:
2010 | 2009 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Options | Price | Options | Price | |||||||||||||
Options authorized |
1,200,000 | 1,200,000 | ||||||||||||||
Outstanding, beginning of year |
323,550 | $ | 2.55 | 482,700 | $ | 2.44 | ||||||||||
Options granted |
| | ||||||||||||||
Options forfeited |
(44,300 | ) | 3.40 | (159,150 | ) | 2.22 | ||||||||||
Options outstanding, end of year |
279,250 | 2.41 | 323,550 | 2.55 | ||||||||||||
Options exercisable, end of year |
241,225 | $ | 2.43 | 246,250 | $ | 2.61 | ||||||||||
Weighted average remaining contractual life (years) |
4.75 | 5.51 | ||||||||||||||
Weighted average fair value of options granted at market value |
$ | | $ | | ||||||||||||
Range of exercise prices per share, options outstanding |
$ | 1.95-$3.00 | $ | 1.95-$6.63 | ||||||||||||
The Company uses the Black-Scholes option valuation model for use in estimating the fair value
of its stock options. This model was developed for traded options which have no vesting
restrictions and are fully transferable. Option models require input of highly subjective
assumptions including future stock price volatility. Because the Companys stock options have
characteristics significantly different from those of traded options, and because changes in the
subjective assumptions can materially affect the fair value estimates, in managements opinion, the
Black-Scholes model does not necessarily provide a reliable measure of the fair value the Companys
stock options.
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Table of Contents
13. Stockholders Equity
Common Stock
The holders of shares of Common Stock are entitled to one vote for each share on record on any
matters to be voted on by the stockholders. The holders of Common Stock are entitled to receive
dividends if declared by the Board of Directors and to share ratably in the assets of the Company
legally available for distribution to its stockholders in the event of liquidation, dissolution or
winding-up of the Company. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights.
Preferred Stock
The Companys Board of Directors may, without further action by the Companys stockholders,
from time to time, direct the issuance of shares of Preferred Stock in series and may, at the time
of issuance, determine the rights, preferences and limitations of each series. The holders of
Preferred Stock would normally be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of the Company before any payment is made to the holders of
the Common Stock. The issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to the holders of Common Stock or could adversely affect the rights and
powers, including voting rights, of the holders of Common Stock.
Treasury Stock
On June 24, 1998, the Companys Board approved the repurchase of up to 300,000 shares of its
stock. The Company has repurchased 82,900 shares through December 31, 2010 for $243, of which 200
shares were re-issued in 2009 for a nominal amount.
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