<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22583
------------------------
ORBIT/FR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 23-2874370
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
506 PRUDENTIAL ROAD, HORSHAM, PA 19044
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(215) 674-5100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
There were 6,000,000 shares of Common Stock $.01 par value outstanding as
of August 14, 1997.
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<PAGE> 2
ORBIT/FR, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- June 30, 1997 (Unaudited) and
December 31, 1996.............................................. 3
Consolidated Statements of Operations -- Three months ended June
30, 1997 and 1996; Six months ended June 30, 1997 and 1996
(Unaudited).................................................... 4
Consolidated Statements of Cash Flows -- Six months ended June
30, 1997 and 1996 (Unaudited).................................. 5
Notes to Consolidated Financial Statements (Unaudited)........... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation........................................... 11
PART II. Other Information
Item 1. Legal Proceedings................................................ 14
Item 2. Changes in Securities............................................ 14
Item 3. Defaults upon Senior Securities.................................. 14
Item 4. Submission of Matters to a Vote of Security Holders.............. 14
Item 5. Other Information................................................ 14
Item 6. Exhibits and Reports on Form 8-K................................. 14
Signatures............................................................................. 15
Exhibit Index.......................................................................... 16
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ORBIT/FR, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $15,459 $ 325
Accounts receivable............................................... 5,309 4,865
Inventory......................................................... 2,545 2,241
Costs and estimated earnings in excess of billings on uncompleted
contracts...................................................... 1,136 573
Deferred income taxes............................................. 381 382
Other............................................................. 214 206
------- -------
Total current assets...................................... 25,044 8,592
Property and equipment, net......................................... 1,298 994
Excess of cost over net assets acquired, net........................ 887 --
Purchased software, less accumulated amortization of $70 at June 30,
1997 and $35 at December 31, 1996................................. 282 317
------- -------
Total assets.............................................. $27,511 $9,903
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................................. $ 1,015 $ 671
Accounts payable -- Parent........................................ 310 1,052
Accrued expenses.................................................. 3,456 1,552
Income taxes payable.............................................. 681 73
Customer advances................................................. 552 359
Billings in excess of costs and estimated earnings on uncompleted
contracts...................................................... 207 932
Deferred income taxes............................................. 784 683
------- -------
Total current liabilities................................. 7,005 5,322
Note payable to Parent.............................................. 2,722 2,722
Other liabilities................................................... 284 -
------- -------
Total liabilities................................................... 10,011 8,044
Stockholders' equity:
Preferred stock: $.01 par value:
Authorized shares -- 2,000,000
Issued and outstanding shares -- none.......................... -- --
Common stock: $.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- 6,000,000 at June 30, 1997 and
4,000,000 at December 31, 1996................................. 60 40
Additional paid-in capital........................................ 14,620 450
Retained earnings................................................. 2,820 1,369
------- -------
Total stockholders' equity................................ 17,500 1,859
------- -------
Total liabilities and stockholders' equity................ $27,511 $9,903
======= =======
</TABLE>
See accompanying notes.
3
<PAGE> 4
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................. $ 5,314 $ 1,803 $ 10,220 $ 3,336
Cost of revenues........................ 3,140 1,131 6,281 2,219
--------- --------- --------- ---------
Gross profit.............................. 2,174 672 3,939 1,117
Operating expenses:
General and administrative.............. 364 256 683 451
Sales and marketing..................... 273 188 546 300
Research and development................ 246 149 466 246
--------- --------- --------- ---------
Total operating expenses.................. 883 593 1,695 997
Operating income.......................... 1,291 79 2,244 120
Other income (expense).................... 40 (3) 17 3
--------- --------- --------- ---------
Income before income taxes................ 1,331 76 2,261 123
Income tax expense........................ 466 26 810 46
--------- --------- --------- ---------
Net income................................ $ 865 $ 50 $ 1,451 $ 77
========= ========= ========= =========
Net income per common share............... $ 0.20 $ 0.01 $ 0.35 $ 0.02
========= ========= ========= =========
Weighted average number of common
shares.................................. 4,271,685 4,000,000 4,137,071 4,000,000
========= ========= ========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 1,451 $ 77
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.................................................... 158 83
Amortization.................................................... 35 --
Deferred income tax provision................................... -- 22
Changes in operating assets and liabilities (net of effects of
acquisitions):
Accounts receivable........................................... (69) 189
Inventory..................................................... 29 169
Costs and estimated earnings in excess of billings on
uncompleted contracts........................................ (563) 591
Other assets.................................................. 28 (292)
Accounts payable and accrued expenses......................... 664 (460)
Accounts payable--Parent...................................... (742) 348
Income taxes payable.......................................... 575 (107)
Customer advances............................................. 193 31
Billings in excess of costs and estimated earnings on
uncompleted contracts........................................ (725) (245)
------- -------
Net cash provided by operating activities............................ 1,034 406
Cash flows from investing activities:
Purchase of property and equipment................................... (51) (59)
Cash held in escrow.................................................. -- (500)
Purchase of net assets through businesses acquired, net of cash
acquired........................................................... (1,227) (573)
------- -------
Net cash used in investing activities................................ (1,278) (1,132)
</TABLE>
(continued)
5
<PAGE> 6
ORBIT/FR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
-----------------------
1997 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering expenses
paid................................................................ $14,784 $ --
Accrued offering costs................................................ 594 --
Borrowings on line of credit.......................................... -- 1,150
Net repayments from note payable -- Parent............................ -- (368)
------- ------
Net cash provided by financing activities............................. 15,378 782
------- ------
Net increase in cash.................................................. 15,134 56
Cash at beginning of period........................................... 325 776
------- ------
Cash at end of period................................................. $15,459 $ 832
======= ======
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes.......................... $ 68 $ 62
======= ======
</TABLE>
See accompanying notes.
6
<PAGE> 7
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. OWNERSHIP AND BASIS OF PRESENTATION
ORBIT/FR, Inc. (the "Company"), incorporated in Delaware on December 9,
1996, is a wholly-owned subsidiary of Orbit Alchut Technologies, Ltd., an
Israeli publicly traded corporation (hereinafter referred to as the "Parent").
The Company develops, markets, and supports sophisticated automated microwave
test and measurement systems for wireless communications, satellite, automotive,
and aerospace/defense industries. The Company sells its products to customers
throughout Asia, Europe, Israel, and North and South America.
On December 31, 1996, as part of a corporate restructuring and in exchange
for 4,000,000 shares of the Company, the Parent transferred or caused to be
transferred to the Company, all of its issued and outstanding shares of two of
its subsidiaries, Orbit Advanced Technologies, Inc. ("Technologies"), a Delaware
corporation established in 1985, and Orbit F.R. Engineering, Ltd.
("Engineering"), an Israeli company incorporated on December 29, 1996. Both of
these subsidiaries are responsible for the microwave test and measurement
business. Prior to its incorporation on December 29, 1996, Engineering operated
as a separate division of the Parent. Effective January 1, 1997, the personnel
formerly employed in the microwave test and measurement division of the Parent
are employed by Engineering.
The consolidated results of the Company reflect Technologies and
Engineering on an as-if pooled basis for businesses under common control for all
periods presented in 1996. Further, the recapitalization of these businesses on
December 31, 1996 has retroactively been restated for common stock for all 1996
periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
consolidated financial statements have been included. The results of interim
periods are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. The consolidated financial statements and
footnotes should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in this Form
10-Q and the Company's Form S-1 Registration Statement, filed on June 17, 1997
with the Securities and Exchange Commission, which included the consolidated
financial statements and footnotes for the year ended December 31, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
7
<PAGE> 8
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net Income Per Share
Net income per share is computed using the weighted average number of
common shares and common share equivalents (stock options) outstanding during
the period. The common shares outstanding for all 1996 periods have been
restated to reflect the corporate restructuring described in Note 1.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement No.
128 on the calculation of the Company's primary and fully diluted earnings per
share is not expected to be material.
3. INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
Work-in-process.................................... $ 1,164 $ 1,211
Parts and components............................... 1,381 1,030
------ ------
$ 2,545 $ 2,241
====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
Lab and computer equipment......................... $ 1,445 $ 667
Office equipment................................... 743 657
Transportation equipment........................... 157 163
Furniture and fixtures............................. 76 44
Leasehold improvements............................. 112 4
------ ------
2,533 1,535
Less accumulated depreciation...................... 1,235 541
------ ------
Property and equipment, net........................ $ 1,298 $ 994
====== ======
</TABLE>
8
<PAGE> 9
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
JUNE 30, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Purchase price payable relating to AEMI............. $ 927 $ -
Accrued contract costs.............................. 873 414
Accrued offering costs.............................. 594 -
Accrued compensation................................ 586 436
Accrued commissions................................. 216 92
Accrued royalties................................... 119 87
Accrued warranty.................................... 106 81
Other............................................... 35 167
Purchase price payable relating to Flam & Russell,
Inc............................................... -- 275
------ ------
$ 3,456 $1,552
====== ======
</TABLE>
6. LINE OF CREDIT AGREEMENTS
During June 1997, the Company entered into two new working capital line of
credit agreements which increased its available funds from $1,150 to $2,150. At
June 30, 1997, no amounts under these lines were outstanding. These lines are
renewable annually in April, bear interest at rates ranging from 0.5% to 1.5%
over the bank's prime rate, and are secured by accounts receivable. The line of
credit agreements require the Company to comply with certain financial
performance covenants of which the Company was in compliance at June 30, 1997.
7. LONG-TERM CONTRACTS
Long-term contracts in process accounted for using the percentage of
completion method are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
JUNE 30, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Accumulated expenditures on uncompleted contracts... $ 8,183 $ 8,914
Estimated earnings thereon.......................... 2,480 1,031
------- -------
10,663 9,945
Less: applicable progress billings.................. 9,734 10,304
------- -------
Total..................................... $ 929 $ (359)
======= =======
</TABLE>
The long-term contracts are shown in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
JUNE 30, ------------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Costs and estimated earnings on uncompleted
contracts in excess of billings................... $ 1,136 $ 573
Billings on uncompleted contracts in excess of costs
and estimated earnings............................ (207) (932)
------ ------
$ 929 $ (359)
====== ======
</TABLE>
9
<PAGE> 10
ORBIT/FR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. INITIAL PUBLIC OFFERING
On June 17, 1997, the Company filed a Form S-1 Registration Statement with
the Securities and Exchange Commission whereby 2,000,000 shares of its common
stock were offered and sold at $8.25 per share (less underwriting discounts and
commissions). The Company generated net proceeds of $14,190 in connection with
this offering.
9. ACQUISITION OF ADVANCED ELECTROMAGNETICS, INC.
On June 17, 1997, contemporaneously with the completion of the Company's
public offering of its common stock, the Company acquired all of the issued and
outstanding shares of Advanced Electromagnetics, Inc. (AEMI) (a manufacturer of
anechoic foam) for a maximum purchase price of $1,600, subject to adjustment on
AEMI's financial performance for the three years ended March 31, 1997. One-half
of the final purchase price will be paid in cash and the other half will be paid
by the issuance of shares of the Company's common stock valued at the initial
offering price of $8.25. The acquisition was accounted for as a purchase, and
accordingly, the results of operations from June 17, 1997 through June 30, 1997
are included in the Company's results of operations. The purchase price has been
preliminarily determined to be $1,377 at June 30, 1997 and has been allocated to
the net assets acquired based on their estimated fair market values ($450 of the
purchase price was paid in cash on June 20, 1997). The excess of the purchase
price over the fair value of net assets acquired of $887 is being amortized on a
straight-line basis over twenty years.
The following unaudited proforma information represents a summary of
consolidated results of operations of the Company and AEMI for the six months
ended June 30, 1997 and June 30, 1996, as if the acquisition had occurred at the
beginning of 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
1997 1996
------- ------
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $11,672 $4,800
Net income.......................................... 1,361 327
Net income per common share......................... .33 .08
</TABLE>
10. RELATED PARTY TRANSACTIONS
The financial results of Engineering in the 1996 periods include all
contract revenue of the microwave test and measurement business unit of the
Parent, direct contract costs, direct personnel costs, electrical and mechanical
production services in an amount equal to the Parent's cost of providing such
services plus 5% and pro rata allocations of administrative expenses from the
Parent to Engineering. Such allocations of administrative expenses are based on
management's estimate of the level of these expenses required to support
Engineering, relative to the reasonable allocation of such costs. Interest
expense on intercompany debt has not been provided.
Note payable -- Parent reflects the amount due to the Parent for the net
working capital required by Engineering. At December 31, 1996, the balance of
$2,722 was converted into a three year, non-interest bearing promissory note
payable due in 1999.
Effective January 1, 1997, Engineering and the Parent entered into an
agreement, whereby Engineering will purchase from the Parent electrical and
mechanical production services. Engineering will pay the Parent the cost of
providing such services plus 5%. The Parent will provide other administrative
services, including but not limited to, bookkeeping, computer, legal,
accounting, cost management, information systems, and production support for a
fixed amount of $360 during 1997. This amount will be evaluated and determined
on an annual basis. Engineering is leasing office space from the Parent on an
annual basis, for a rental of $51 per year.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain information contained in this Form 10-Q contains forward looking
statements (as such term is defined in the Securities Exchange Act of 1934 and
the regulations thereunder), including without limitation, statements as to the
Company's financial condition, results of operations and liquidity and capital
resources and statements as to management's beliefs, expectations or options.
Such forward looking statements are subject to risks and uncertainties and may
be affected by various factors which may cause actual results to differ
materially from those in the forward looking statements. Certain of these risks,
uncertainties and other factors, as and when applicable, are discussed in the
Company's filings with the Securities and Exchange Commission including its most
recent Registration Statement on Form S-1, a copy of which may be obtained from
the Company upon request and without charge (except for the exhibits thereto).
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED SIX-MONTH PERIOD ENDED
----------------------------- -----------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues.................................. 100.0% 100.0% 100.0% 100.0%
Gross profit.................................. 40.9 37.3 38.5 33.5
General and administration.................... 6.9 14.2 6.7 13.5
Sales and marketing........................... 5.1 10.4 5.3 9.0
Research and development...................... 4.6 8.3 4.6 7.4
Operating income.............................. 24.3 4.4 21.9 3.6
Income before income taxes.................... 25.0 4.2 22.1 3.7
Net income.................................... 16.3 2.8 14.2 2.3
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues for the six months ended June 30, 1997 were $10.2
million compared to $3.3 million for the six months ended June 30, 1996, an
increase of approximately $6.9 million or 206%. Revenues from microwave test and
measurement accounted for all but $200,000 of this increase. Approximately $3.2
million of the increase was attributable to the aerospace/defense industry which
resulted from an improvement in the Company's ability to capture opportunities
within that industry following the acquisition of Flam & Russell with some
growth in the industry's domestic commercial sector. Approximately $1.7 million
of the increase was attributable to the wireless communications industry, $1.1
million of the increase was attributable to the satellite industry, $400,000 of
the increase was attributable to the automotive industry and $300,000 from the
operations of Advanced Electromagnetics, Inc., ("AEMI") accounted from the date
of acquisition.
Cost of revenues. Cost of revenues for the six months ended June 30, 1997
were $6.3 million compared to $2.2 million for the six months ended June 30,
1996, an increase of approximately $4.1 million or 183%. Gross margins rose from
33.5% for the six months ended June 30, 1996 to 38.5% for the six months ended
June 30, 1997, as a result of increased efficiencies in the Company's solution,
design, production and installation stages, as well as an increasing use of the
Company's standard off-the-shelf components in its turnkey systems. Cost of
revenues and gross margin for the six months ended June 30, 1997 were negatively
impacted by the completion of a $540,000 revenue contract with a relatively low
gross margin which the Company assumed when it acquired Flam & Russell.
General and administrative expenses. General and administrative expenses
for the six months ended June 30, 1997 were $683,000 compared to a $451,000 for
the six months ended June 30, 1996, an increase of approximately $232,000 or
51.4%. As a percentage of revenues, general and administrative expenses
decreased
11
<PAGE> 12
from 13.5% for the six months ended June 30, 1996 to 6.7% for the six months
ended June 30, 1997 due to an increase in revenues without a corresponding
increase in general and administrative expenses.
Sales and marketing expenses. Sales and marketing expenses for the six
months ended June 30, 1997 were $546,000 compared to $300,000 for the six months
ended June 30, 1996, an increase of approximately $246,000 or 82.0%. As a
percentage of revenues, sales and marketing expenses were 5.3% for the six
months ended June 30, 1997, a decrease from 9.0% for the six months ended June
30, 1996. Approximately $112,000 of this increase represented higher commissions
due to increased sales, while approximately $99,000 reflected the addition of
the Flam & Russell sales force and approximately $35,000 was attributable to
increased market research and recruiting efforts.
Research and development expenses. Research and development expenses for
the six months ended June 30, 1997 were $466,000 compared to $246,000 for the
six months ending June 30, 1996, an increase of $220,000 or 89.0%. This increase
reflected the additional development relating to the modification of the Flam &
Russell software to support the Company's software and hardware products for the
Company's solution for the wireless and automotive markets.
Income taxes. Income tax expense for the six months ended June 30, 1997 was
$810,000 compared to $46,000 for the six months June 30, 1996, an increase of
$764,000. The Company's effective tax rate decreased from 37.4% for the six
months ended June 30, 1996 to 35.8% for the six months ended June 30, 1997 as a
result of the implementation of new domestic and international tax strategies
designed to reduce its effective tax rate.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996
Revenues. Revenues for the three months ended June 30, 1997 were $5.3
million compared to $1.8 million for the three months ended June 30, 1996, an
increase of approximately $3.5 million or 194.7%. Revenues from microwave test
and measurement accounted for all but $200,000 of the increase. Approximately
$1.2 million of the increase was attributable to the aerospace/defense industry
which resulted from an improvement in the Company's ability to capture
opportunities in this industry following the acquisition of Flam & Russell,
along with some moderate growth in that industry. Approximately $800,000 of the
increase was attributable to the fast growing wireless communications industry,
$600,000 of the increase was attributable to the satellite industry, $400,000 of
the increase was attributable to the automotive industry, and $300,000 of the
increase was attributable to the AEMI operations.
Cost of revenues. Cost of revenues for the three months ended June 30, 1997
was $3.1 million compared to $1.1 million for the three months ended June 30,
1996, an increase of approximately $2.0 million or 177.6%. Gross margin rose
from 37.3% for the three months ended June 30, 1996 to 40.9% for the three
months ended June 30,1997, as a result of increased efficiencies in the
Company's solution, design, production and installation stages, as well as an
increasing use of the Company's standard off-the-shelf components in its turnkey
systems.
General and administrative expenses. General and administrative expenses
for the three months ended June 30, 1997 were $364,000 compared to a $256,000
for the three months ended June 30, 1996, an increase of approximately $108,000
or 42.2%. As a percentage of revenues, general and administrative expenses
decreased from 14.2% for the three months ended June 30, 1996 to 6.9% for the
three months ended June 30, 1997 due to an increase in revenues without a
corresponding increase in general and administrative expenses.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended June 30, 1997 were $273,000 compared to $188,000 for the three
months ended June 30, 1996, an increase of approximately $85,000 or 45.2%. As a
percentage of revenues, sales and marketing expenses were 5.1% for the three
months ended June 30, 1997, a decrease from 10.4% for the three months ended
June 30, 1996. Approximately $47,000 of this increase represented higher
commissions due to increased sales, while the remainder reflected the addition
of the Flam & Russell sales force.
Research and development expenses. Research and development expenses for
the three months ended June 30, 1997 were $246,000 compared to $149,000 for the
three months ended June 30, 1996, an increase of
12
<PAGE> 13
$97,000 or 65.1%. This increase reflects the additional development and
improvement of the software and hardware components for the Company's solution
for the wireless and automotive markets.
Income taxes. Income tax expense for the three months ended June 30, 1997
was 466,000 compared to 26,000 for the three months June 30, 1996, an increase
of $440,000. The Company's effective tax rate went from 34.2% for the three
months ended June 30, 1996 to 35.0% for the three months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its working capital requirements
through cash flows from its operations. The Company has two working capital bank
lines of credit aggregating $2,150,000, increased in June 1997 from $1,150,000.
At June 30, 1997, no amounts under these lines were outstanding. These lines of
credit are renewable annually in April, bear interest at rates ranging from 0.5%
to 1.5% over the bank's prime rate and are secured by accounts receivable. The
line of credit agreements require the Company to comply with certain financial
performance covenants of which the Company was in compliance at June 30, 1997.
At June 30, 1997, the Note Payable to Parent of $2,722,000 represented a three
year, non-interest bearing note owed by ORBIT/FR Engineering, Ltd., the
Company's Israeli subsidiary to Orbit-Alchut Technologies, Ltd., the majority
shareholder of the Company for the transfer by Alchut of working capital at the
end of 1996.
Net cash provided by operating activities for the first six months amounted
to $1,034,000 in 1997 versus $406,000 in 1996. The increase in cash provided by
operating activities in 1997 compared to 1996 was principally due to the
increase in net income to $1,451,000 in 1997 from $77,000 in 1996.
Net cash used in investing activities increased to $1,278,000 in 1997 from
$1,132,000 in 1996. This increase was principally due to the net assets acquired
from AEMI.
Net cash provided by in financing activities in 1997 amounted to
$15,378,000 versus $782,000 in 1996. These changes were principally due to the
proceeds raised in connection with the Company's initial public offering of
$14,784,000, net of offering expenses paid.
During the quarter ended June 30, 1997, the Company incurred an obligation
for approximately $1,377,000 for the AEMI acquisition of which $450,000 was paid
on June 20, 1997. Upon finalization of the AEMI purchase price, the total
obligation will be paid one half in cash and one half in common shares at the
initial public offering price of $8.25 per share.
During 1997, the Company also plans to incur capital expenditures of
approximately $400,000, a portion of which will be used to establish the
Company's European office, along with improving the Company's hardware and
software tools, and by investing in information systems for the Company and its
subsidiaries.
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 six months ended June 30, 1997, approximately 5% of the Company's revenues
was billed in currencies other than U.S. dollars. Substantially all of the costs
of the company's contracts, including costs subcontracted to Alchut, have been,
and will continue to be, U.S. dollar-denominated except for wages for
Engineering employees which are denominated in local currency. The Company
intends to continue to enter into U.S. dollar-denominated contracts.
INFLATION AND SEASONALITY
The Company does not believe that inflation or seasonality has had a
significant effect on the Company's operations to date.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- NOT APPLICABLE.
ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NOT APPLICABLE.
ITEM 5. OTHER INFORMATION -- NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
11 Statement Re: Computation of Earnings per Share
27 Financial Data Schedule
b. There were no reports on Form 8-K filed during the quarter ended June
30, 1997.
14
<PAGE> 15
ORBIT/FR, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORBIT/FR, INC.
--------------------------------------
Registrant
Date: August 14, 1997 By: /s/ ARYEH TRABELSI
--------------------------------------
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ JOSEPH SULLIVAN
--------------------------------------
Director of Finance and Treasurer
(Principal Financial Officer)
15
<PAGE> 16
ORBIT/FR, INC.
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. PAGE
- ------- ----
<C> <S> <C>
11 Statement Re: Computation of Earnings per Share.............................. 17
27 Financial Data Schedule...................................................... 18
</TABLE>
16
<PAGE> 1
Exhibit 11
ORBIT/FR, Inc.
Exhibit 11. Statement Re: Computation of Earnings Per Share (amounts in
thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
-------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 865 $ 50 $ 1,451 $ 77
=================================================
Weighted average number of common
shares outstanding 4,219,780 4,000,000 4,110,497 4,000,000
Net effect of dilutive stock options-
using the treasury stock method 42,734 -- 21,963 --
Shares to be issued in connection
with the AEMI acquisition 9,171 -- 4,611 --
-------------------------------------------------
4,271,685 4,000,000 4,137,071 4,000,000
=================================================
Net income per common share $ 0.20 $ 0.01 $ 0.35 $ 0.02
=================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001037115
<NAME> ORBIT/FR, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 15,459
<SECURITIES> 0
<RECEIVABLES> 5,309
<ALLOWANCES> 0
<INVENTORY> 2,545
<CURRENT-ASSETS> 25,044
<PP&E> 2,533
<DEPRECIATION> 1,235
<TOTAL-ASSETS> 27,511
<CURRENT-LIABILITIES> 7,005
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 17,440
<TOTAL-LIABILITY-AND-EQUITY> 27,511
<SALES> 10,220
<TOTAL-REVENUES> 10,220
<CGS> 6,281
<TOTAL-COSTS> 6,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,261
<INCOME-TAX> 810
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,451
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
