Filed by Bowne Pure Compliance
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended June 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33118
ORBCOMM INC.
(Exact name of registrant as specified in its charter)
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Delaware
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41-2118289 |
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(State or other jurisdiction
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(I.R.S. Employer |
of incorporation or organization)
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Identification No.) |
2115 Linwood Avenue, Fort Lee, New Jersey 07024
(Address of principal executive offices)
(201) 363-4900
(Registrants telephone number)
N/A
(Former name, former address and formal fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The
number of shares outstanding of the registrants common stock as
of August 6, 2008 is 42,069,517.
ORBCOMM Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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June 30, |
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December 31, |
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2008 |
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2007 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
98,962 |
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$ |
115,587 |
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Accounts receivable, net of allowances for doubtful accounts of $231 and $388 |
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4,839 |
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5,284 |
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Inventories |
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3,431 |
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2,722 |
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Advances to contract manufacturer |
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158 |
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158 |
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Prepaid expenses and other current assets |
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912 |
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1,078 |
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Total current assets |
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108,302 |
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124,829 |
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Long-term receivable |
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230 |
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542 |
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Satellite network and other equipment, net |
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68,873 |
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49,704 |
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Intangible assets, net |
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4,829 |
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5,572 |
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Restricted cash |
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5,680 |
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Other assets |
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981 |
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992 |
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Deferred tax assets |
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184 |
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184 |
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Total assets |
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$ |
189,079 |
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$ |
181,823 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
5,163 |
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$ |
4,373 |
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Accrued liabilities |
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8,886 |
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12,305 |
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Current portion of deferred revenue |
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3,101 |
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1,435 |
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Total current liabilities |
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17,150 |
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18,113 |
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Note payable related party |
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1,366 |
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1,170 |
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Deferred revenue, net of current portion |
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8,138 |
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1,507 |
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Other liability |
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184 |
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184 |
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Total liabilities |
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26,838 |
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20,974 |
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Minority interest |
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958 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, par value $0.001; 250,000,000 shares authorized;
42,056,245 and 41,658,066 shares issued and outstanding |
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42 |
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42 |
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Additional paid-in capital |
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226,997 |
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224,899 |
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Accumulated other comprehensive loss |
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(807 |
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(656 |
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Accumulated deficit |
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(64,949 |
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(63,436 |
) |
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Total stockholders equity |
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161,283 |
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160,849 |
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Total liabilities and stockholders equity |
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$ |
189,079 |
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$ |
181,823 |
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See notes to condensed consolidated financial statements.
3
ORBCOMM Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues: |
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Service revenues |
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$ |
5,757 |
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$ |
4,217 |
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$ |
10,612 |
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$ |
8,167 |
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Product sales |
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1,967 |
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2,410 |
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2,991 |
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4,421 |
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Total revenues |
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7,724 |
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6,627 |
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13,603 |
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12,588 |
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Costs and expenses (1): |
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Costs of services |
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2,128 |
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1,966 |
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4,162 |
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4,319 |
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Costs of product sales |
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1,713 |
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2,532 |
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2,994 |
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4,638 |
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Selling, general and administrative |
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5,174 |
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4,485 |
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9,619 |
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9,796 |
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Product development |
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206 |
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257 |
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462 |
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617 |
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Gain on customer claims settlements |
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(367 |
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(1,243 |
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Total costs and expenses |
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8,854 |
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9,240 |
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15,994 |
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19,370 |
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Loss from operations |
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(1,130 |
) |
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(2,613 |
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(2,391 |
) |
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(6,782 |
) |
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Other income (expense): |
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Interest income |
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356 |
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1,339 |
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1,122 |
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2,618 |
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Other income |
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12 |
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30 |
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23 |
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33 |
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Interest expense |
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(48 |
) |
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(53 |
) |
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(98 |
) |
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(105 |
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Total other income |
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320 |
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1,316 |
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1,047 |
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2,546 |
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Loss
before pre-control earnings of consolidated subsidiary and minority interest |
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(810 |
) |
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(1,297 |
) |
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(1,344 |
) |
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(4,236 |
) |
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Pre-control
earnings of consolidated subsidiary |
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(128 |
) |
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(128 |
) |
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Minority
interest |
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(41 |
) |
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(41 |
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Net loss |
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$ |
(979 |
) |
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$ |
(1,297 |
) |
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$ |
(1,513 |
) |
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$ |
(4,236 |
) |
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Net loss per common share: |
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Basic and diluted |
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$ |
(0.02 |
) |
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$ |
(0.03 |
) |
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$ |
(0.04 |
) |
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$ |
(0.11 |
) |
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Weighted average common shares outstanding: |
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Basic and diluted |
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41,961 |
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38,669 |
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41,882 |
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37,857 |
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(1) Stock-based compensation included in costs and expenses: |
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Costs of services |
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$ |
1 |
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$ |
90 |
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$ |
49 |
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$ |
310 |
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Costs of product sales |
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21 |
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58 |
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41 |
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|
87 |
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Selling, general and administrative |
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978 |
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905 |
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1,705 |
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2,542 |
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Product development |
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15 |
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30 |
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30 |
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72 |
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$ |
1,015 |
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$ |
1,083 |
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$ |
1,825 |
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$ |
3,011 |
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See notes to condensed consolidated financial statements.
4
ORBCOMM Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Six months ended |
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June 30, |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(1,513 |
) |
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$ |
(4,236 |
) |
Adjustments to reconcile net loss to net cash provided by
operating activities: |
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Change in allowance for doubtful accounts |
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(157 |
) |
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121 |
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Depreciation and amortization |
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1,311 |
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|
1,138 |
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Accretion on note payable related party |
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66 |
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66 |
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Stock-based compensation |
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1,825 |
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3,011 |
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Pre-control
earnings of consolidated subsidiary and minority interest |
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169 |
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Non cash portion of gain on customer claims settlement |
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(882 |
) |
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Expiration
of gateway purchase option |
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(325 |
) |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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1,507 |
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(423 |
) |
Inventories |
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(388 |
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|
443 |
|
Advances to contract manufacturer |
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366 |
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24 |
|
Prepaid expenses and other current assets |
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450 |
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188 |
|
Accounts payable and accrued liabilities |
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(495 |
) |
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(148 |
) |
Deferred revenue |
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1,052 |
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|
171 |
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Net cash provided by operating activities |
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2,986 |
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|
355 |
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Cash flows from investing activities: |
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Capital expenditures |
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(14,430 |
) |
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(9,596 |
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Purchases of marketable securities |
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(29,700 |
) |
Sales of marketable securities |
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21,500 |
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Change in
restricted cash |
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(5,680 |
) |
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Cash assumed
from step acquisition of subsidiary |
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366 |
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Net cash used in investing activities |
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(19,744 |
) |
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(17,796 |
) |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock in connection with secondary
public offering, net of underwriters discounts and commissions and
offering costs of $2,405 |
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31,922 |
|
Proceeds from exercise of warrants and options |
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|
252 |
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|
392 |
|
Payment of offering costs in connection with initial public offering |
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(609 |
) |
Payment of offering costs in connection with secondary public offering |
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|
(40 |
) |
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Net cash provided by financing activities |
|
|
212 |
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|
31,705 |
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Effect of exchange rate changes on cash and cash equivalents |
|
|
(79 |
) |
|
|
(42 |
) |
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Net increase (decrease) in cash and cash equivalents |
|
|
(16,625 |
) |
|
|
14,222 |
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Cash and cash equivalents: |
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Beginning of period |
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|
115,587 |
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|
62,139 |
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|
End of period |
|
$ |
98,962 |
|
|
$ |
76,361 |
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Supplemental cash flow disclosures: |
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Non cash investing activities: |
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Capital expenditures incurred not yet paid |
|
$ |
6,906 |
|
|
$ |
4,865 |
|
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Stock-based
compensation included in capital expenditures |
|
$ |
21 |
|
|
$ |
|
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|
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|
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Net assets
from step acquisition of subsidiary |
|
$ |
1,363 |
|
|
$ |
|
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|
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Asset basis
adjustment due to expiration of gateway purchase option |
|
$ |
161 |
|
|
$ |
|
|
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|
|
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Non cash financing activities - |
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|
Secondary public offering expenses incurred not yet paid |
|
$ |
|
|
|
$ |
878 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
ORBCOMM Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(in thousands, except share and per share amounts)
1. Business
ORBCOMM Inc. (ORBCOMM or the Company), a Delaware corporation, is a satellite-based data
communications company that operates a two-way global wireless data messaging system optimized for
narrowband data communication. In the third quarter of 2007, the Company began providing
terrestrial-based cellular communication services through a reseller agreement with a major
cellular wireless provider. The Company provides services through a
constellation of 28 owned
and operated low-Earth orbit satellites and
accompanying ground infrastructure through which small, low power,
fixed or mobile satellite subscriber
communicators, and terrestrial units connected to the cellular
wireless providers network, that can be connected to other public or
private networks, including the Internet (collectively, the ORBCOMM System). The ORBCOMM System is designed to enable businesses and government agencies to track, monitor, control and communicate
with fixed and mobile assets.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (the financial statements)
have been prepared pursuant to the rules of the Securities and Exchange Commission (the SEC).
Certain information and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of America have been
condensed or omitted pursuant to SEC rules. These financial statements should be read in
conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2007.
In the opinion of management, the financial statements as of June 30, 2008 and for the three and
six-month periods ended June 30, 2008 and 2007 include all adjustments (including normal recurring
accruals) necessary for a fair presentation of the consolidated financial position, results of
operations and cash flows for the periods presented. The results of operations for the three and
six months ended June 30, 2008 and 2007 are not necessarily indicative of the results to be
expected for the full year.
The financial statements include the accounts of the Company, its wholly-owned and majority-owned
subsidiaries, and investments in variable interest entities in which the Company is determined to
be the primary beneficiary. All significant intercompany accounts and transactions have been
eliminated in consolidation. The portions of majority-owned
subsidiaries that the Company does not own are reflected as minority
interests in the consolidated balance sheet.
Investments in entities over which the Company has the ability to exercise significant influence
but does not have a controlling interest are accounted for under the equity method of accounting.
The Company considers several factors in determining whether it has the ability to exercise
significant influence with respect to investments, including, but not limited to, direct and
indirect ownership level in the voting securities, active participation on the board of directors,
approval of operating and budgeting decisions and other participatory and protective rights. Under
the equity method, the Companys proportionate share of the net income or loss of such investee is
reflected in the Companys consolidated results of operations. The Companys interests in entities
that it accounts for pursuant to the equity method had no carrying value as of June 30, 2008 and
December 31, 2007. The Companys equity in the earnings or losses of those investees for the three
months and six months ended June 30, 2008 and 2007 is not significant. Non-controlling interests in
companies are accounted for by the cost method where the Company does not exercise significant
influence over the investee. The Companys cost basis investments had no carrying value as of
June 30, 2008 and December 31, 2007.
The
Company has incurred losses from inception including a net loss of
$1,513 for the six months
ended June 30, 2008 and as of June 30, 2008, the Company
has an accumulated deficit of $64,949. As
of June 30, 2008, the Companys primary source of liquidity consisted of cash and cash equivalents,
which the Company believes will be sufficient to provide working capital and milestone payments for
its quick-launch and next-generation satellites for at least the next twelve months.
6
Concentration of credit risk
Long-term receivables represent amounts due from the sale of products and services to related
parties that are collateralized by assets whose estimated fair market value exceeds the carrying
value of the receivables.
During the three months ended June 30, 2008 and 2007, one customer comprised 15.1% and 48.8% of
revenues, respectively. During the six months ended June 30,
2008 and 2007, the same customer comprised
20.8% and 44.6% of revenues, respectively. As of June 30, 2008 and December 31, 2007, this customer
accounted for 11.2% and 42.8% of accounts receivable, respectively. For the three months and six
months ended June 30, 2008, a second customer comprised 17.0%
and 11.1% of revenues, respectively.
As of June 30, 2008 this customer accounted for 17.9% of
accounts receivable.
Inventories
Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis.
Inventory represents finished goods available for sale to customers. The Company regularly
evaluates the realizability of inventories and adjusts the carrying value as necessary.
Income taxes
As of June 30, 2008, the Company had unrecognized tax benefits of $775. There were no changes to
the Companys unrecognized tax benefits during the three and six months ended June 30, 2008. The
Company is subject to U.S. federal and state examinations by tax authorities for all years since
its inception. The Company does not expect any significant changes to its unrecognized tax
positions during the next twelve months.
The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. No interest and penalties related to uncertain tax positions were recognized during the
three and six months ended June 30, 2008.
A valuation allowance has been provided for all of the Companys deferred tax assets except for an
unrecognized tax benefit of $184 because it is more likely than not that the Company will not
recognize the tax benefits of these deferred tax assets.
Recent accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), to define
fair value, establish a framework for measuring fair value in accordance with generally accepted
accounting principles and expand disclosures about fair value measurements. SFAS 157 requires
quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative
disclosures about the valuation techniques used to measure fair value in all annual periods. On
January 1, 2008, the Company adopted SFAS 157 except with respect to its non-financial assets and
liabilities for which the effective date is January 1, 2009. The adoption of SFAS 157 for the
Companys financial assets and liabilities did not have a material impact on the Companys
consolidated financial statements. The Company also does not expect the adoption of FAS 157 for its
non-financial assets and liabilities to have a material impact on the Companys financial
statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 expands opportunities to use fair value measurements
in financial reporting and permits entities to choose to measure many financial instruments and
certain other items at fair value. The Company adopted SFAS 159 on January 1, 2008, however the
Company did not elect the fair value option for any of its eligible financial instruments on the
effective date.
7
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that a noncontrolling
interest in a subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the consolidated
financial statements. It also calls for consistency in the manner of reporting changes in the
parents ownership interest and requires fair value measurement of any noncontrolling equity
investment retained in a deconsolidation. SFAS 160 is effective for the Company on January 1, 2009.
The Company is currently evaluating the impact SFAS 160 will have on its consolidated financial
statements.
In December 2007, the FASB issued No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS
141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other
events in which one entity obtains control over one or more other businesses. It broadens the fair
value measurement and recognition of assets acquired, liabilities assumed, and interests
transferred as a result of business combinations. SFAS 141R expands on required disclosures to
improve the statement users abilities to evaluate the nature and financial effects of business
combinations. SFAS 141R is effective for the Company on January 1, 2009. The impact of adopting
SFAS 141R will be dependent on the business combinations that the Company may pursue after its
effective date.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an Amendment of FASB Statement
No. 133 (SFAS 161). SFAS 161 requires expanded
qualitative, quantitative and credit-risk disclosures of derivative instruments and hedging
activities. These disclosures include more detailed information about gains and losses, location of
derivative instruments in financial statements, and credit-risk-related contingent features in
derivative instruments. SFAS 161 also clarifies that derivative instruments are subject to
concentration of credit risk disclosures under SFAS 107, Disclosure About Fair Value of Financial
Instruments, SFAS 161, which applies only to disclosures, is effective for the Company on
January 1, 2009. The Company does not currently engage in any
derivative transactions, and the Company does not anticipate SFAS 161
will have a significant impact on its
consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. This statement shall be
effective 60 days following the Securities and Exchange Commissions approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. The
Company is evaluating the potential
impact that the adoption of SFAS No. 162 may have on its consolidated financial statements.
3. ORBCOMM Japan
On March 25, 2008, the Company received a 37% equity interest in ORBCOMM Japan and cash of $602 in satisfaction of claims against ORBCOMM Japan. The distribution was pursuant to a
voluntary reorganization of ORBCOMM Japan in accordance with a rehabilitation plan approved by the
Tokyo district court on December 25, 2007.
8
The Company and ORBCOMM Japan are parties to a service license agreement, pursuant to which ORBCOMM
Japan acts as a country representative and resells the Companys services in Japan. ORBCOMM Japan owns a
gateway earth station in Japan, holds the regulatory authority and authorization to operate the
gateway earth station and provides the Companys satellite communication services in Japan.
The consideration the Company received for settlement of claims against ORBCOMM Japan exceeded the
$366 carrying value of current and long-term receivables from ORBCOMM Japan by $876 and the
Company recognized a gain for the same amount in the first quarter of
2008. The estimated fair value of the Companys equity interest
in ORBCOMM Japan was $640 at March 31, 2008.
The
Companys aggregate claims against ORBCOMM Japan totaled approximately $2,910, of which $2,410 related to
amounts owed to the Company pursuant to a change in control payment provision in the service license agreement
that was triggered by a change in control of ORBCOMM Japan prior to the reorganization. The Company had not
previously recognized any amounts in its financial statements related to the change in control provision because
it believed that the collection of the change in control payment was
not reasonably assured.
ORBCOMM
Japans results of operations were not significant for the
period from March 25, 2008 through March 31, 2008.
On May 12, 2008, the Company entered into an amended service license agreement with ORBCOMM Japan,
which expires in June 2018. On May 15, 2008, in consideration for entering into the amended
service license agreement, the Company received 616 newly issued shares of common stock from
ORBCOMM Japan representing an additional 14% equity interest and the Company recognized a
gain of $242 during the three months ended June 30, 2008. As a result, the Companys
ownership interest in ORBCOMM Japan increased to 51%. On June 9, 2008, the Company and the minority stockholder entered into an agreement, which
terminated the minority stockholders substantive participatory
rights in the governance of ORBCOMM Japan and resulted in the Company
obtaining a controlling interest in ORBCOMM Japan.
As the
51% interest in ORBCOMM Japan was acquired in two transactions during
2008, the Company has accounted for this transaction using the
step acquisition method prescribed by Accounting Research Bulletin No. 51, Consolidated Financial
Statements (ARB 51). As permitted by ARB 51, the Company consolidated ORBCOMM
Japans results of operations as though the controlling interest was acquired on
April 1, 2008. For the three and six months ended June 30,
2008, the Company deducted in its statement of operations $128 of
the pre-control earnings of
ORBCOMM Japan from the termination of the minority stockholders substantive participatory
rights on June 9, 2008 and a minority interest of $41 for the
49% interest in the income of ORBCOMM Japan attributable to the minority stockholder for the period after change in control.
ORBCOMM Japan has net operating loss carryforwards that expire through 2014. As a result of ORBCOMM
Japans voluntary reorganization, the Company has recorded a full valuation allowance for the
deferred tax assets relating to the net operating loss carryforwards because it is more likely than
not that ORBCOMM Japan will not recognize the benefits of these
deferred tax assets due to its limited operating history following
reorganization. The Company
will maintain the valuation allowance until sufficient positive evidence exists to support
reversal.
4. Comprehensive Loss
The components of comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(979 |
) |
|
$ |
(1,297 |
) |
|
$ |
(1,513 |
) |
|
$ |
(4,236 |
) |
Foreign currency translation adjustment |
|
|
(96 |
) |
|
|
(44 |
) |
|
|
(151 |
) |
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(1,075 |
) |
|
$ |
(1,341 |
) |
|
$ |
(1,664 |
) |
|
$ |
(4,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Stock-based Compensation
The Companys share-based compensation plans consist of its 2006 Long-Term Incentives Plan (the
2006 LTIP) and its 2004 Stock Option Plan. As of June 30, 2008, there were 2,249,500 shares
available for grant under the 2006 LTIP and no shares available for grant under the 2004 Stock
Option Plan.
For the three months ended June 30, 2008 and 2007, the Company recorded stock-based compensation
expense of $1,015 and $1,083, respectively. For the six months ended June 30, 2008 and 2007, the
Company recorded stock-based compensation expense of $1,825 and $3,011, respectively. For the
three and six months ended June 30, 2008, the Company capitalized stock-based compensation of $21
to satellite network and other equipment. For the three and six months ended June 30, 2007, the
Company did not capitalize stock-based compensation to satellite network and other equipment.
9
The components of the Companys stock-based compensation expense are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
$ |
24 |
|
|
$ |
57 |
|
|
$ |
48 |
|
|
$ |
114 |
|
Restricted stock units |
|
|
719 |
|
|
|
904 |
|
|
|
1,416 |
|
|
|
2,423 |
|
Stock appreciation rights |
|
|
272 |
|
|
|
122 |
|
|
|
361 |
|
|
|
474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,015 |
|
|
$ |
1,083 |
|
|
$ |
1,825 |
|
|
$ |
3,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2008, the Company had an aggregate of $4,419 of unrecognized compensation costs for
all share-based payment arrangements.
Time-Based Restricted Stock Units
During the six months ended June 30, 2008, the Company granted 124,551 time-based RSUs. These RSUs
vest over various periods through May 2011.
A summary of the Companys time-based RSUs for the six months ended June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted-Average
Grant Date
Fair Value |
|
Balance at January 1, 2008 |
|
|
356,538 |
|
|
$ |
11.20 |
|
Granted |
|
|
124,551 |
|
|
|
5.71 |
|
Vested |
|
|
(185,008 |
) |
|
|
11.09 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
296,081 |
|
|
$ |
8.96 |
|
|
|
|
|
|
|
|
For the three months ended June 30, 2008 and 2007, the Company recorded stock-based compensation
expense of $568 and $561 related to the time-based RSUs. For the six months ended June 30, 2008
and 2007, the Company recorded stock-based compensation expense of $1,081 and $1,056 related to the
time-based RSUs. As of June 30, 2008, $1,515 of total unrecognized compensation cost related to the
time-based RSUs granted is expected to be recognized over periods through May 2011.
Performance-Based Restricted Stock Units
During the six months ended June 30, 2008, 129,784 performance-based RSUs were granted when the
Compensation Committee established financial and operational performance targets for fiscal 2008.
These RSUs will vest through May 2009 and the Company estimates that 100% of the performance
targets will be achieved and 6,000 performance-based RSUs granted
during 2007 will vest in January 2009.
A summary of the Companys performance-based RSUs for the six months ended June 30, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted-Average
Grant Date
Fair Value |
|
Balance at January 1, 2008 |
|
|
179,404 |
|
|
$ |
12.58 |
|
Granted |
|
|
129,784 |
|
|
|
4.81 |
|
Vested |
|
|
(61,079 |
) |
|
|
12.85 |
|
Forfeited or expired |
|
|
(110,825 |
) |
|
|
12.48 |
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
137,284 |
|
|
$ |
5.20 |
|
|
|
|
|
|
|
|
10
For
the three months ended June 30, 2008 and 2007, the Company
recorded stock-based compensation expense of $151 and $343 related to the performance-based RSUs, respectively. For the six months ended June
30, 2008 and 2007, the Company recorded stock-based compensation of $335 and $1,367 related to the
performance-based RSUs, respectively. As of June 30, 2008, $471 of total unrecognized compensation
cost related to the performance-based RSUs is expected to be recognized through the second quarter
of 2009.
The fair value of the performance-and time-based RSU awards granted in 2008 is based upon the
closing stock price of the Companys common stock on the date of grant.
Time-Based Stock Appreciation Rights
During the six months ended June 30, 2008, the Company granted 1,075,000 time-based SARs. These
SARS vest over various periods through December 2010.
A summary of the Companys time-based SARs for the six months ended June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(In thousands) |
|
Outstanding at January 1, 2008 |
|
|
66,667 |
|
|
$ |
11.00 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,075,000 |
|
|
|
4.96 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
1,141,667 |
|
|
$ |
5.31 |
|
|
|
9.66 |
|
|
$ |
796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
44,444 |
|
|
$ |
11.00 |
|
|
|
8.25 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
June 30, 2008 |
|
|
1,141,667 |
|
|
$ |
5.31 |
|
|
|
9.66 |
|
|
$ |
796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended June 30, 2008 and 2007, the Company
recorded stock-based compensation expense of
$243 and $30 relating to the time-based SARs, respectively. For the six months ended June 30, 2008
and 2007, the Company recorded stock-based compensation of $276 and $61 relating to the time-based
SARs, respectively. As of June 30, 2008, $2,284 of total unrecognized compensation cost related to
the time-based SARs is expected to be recognized over periods through December 31, 2010.
Performance-Based Stock Appreciation Rights
During the six months ended June 30, 2008, 115,555 performance-based SARs were granted when the
Compensation Committee established financial and operational performance targets for fiscal 2008.
These SARs will vest through March 2009 and the Company estimates that 100% of the performance
targets will be achieved.
A summary of the Companys performance-based SARs for the six months ended June 30, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(In thousands) |
|
Outstanding at January 1, 2008 |
|
|
217,289 |
|
|
$ |
11.00 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
115,555 |
|
|
|
11.00 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(70,945 |
) |
|
|
11.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
261,899 |
|
|
$ |
11.00 |
|
|
|
8.95 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
146,344 |
|
|
$ |
11.00 |
|
|
|
8.38 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at June 30, 2008 |
|
|
261,899 |
|
|
$ |
11.00 |
|
|
|
8.95 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The weighted-average grant date fair value of the performance-based SARs granted during the six
months ended June 30, 2008 was $0.98 per share.
For
the three months ended June 30, 2008 and 2007, the Company
recorded stock-based compensation expense of
$29 and $92 relating to the performance-based SARs, respectively. For the six months ended June 30,
2008 and 2007, the Company recorded stock-based compensation expense of $85 and $413 relating to
the performance-based SARs, respectively. As of June 30, 2008, $77 of total unrecognized
compensation cost related to the performance-based SARs is expected to be recognized through the
first quarter of 2009.
The fair value of each SAR award is estimated on the date of grant using the Black-Scholes option
pricing model with the assumptions described below for the periods indicated. Expected volatility
was based on the stock volatility for comparable publicly traded companies. The Company uses the
simplified method based on the average of the vesting term and the contractual term to calculate
the expected life of each SAR award. Estimated forfeitures were based on voluntary and involuntary
termination behavior as well as analysis of actual SAR forfeitures. The risk-free interest rate was
based on the U.S. Treasury yield curve at the time of the grant over the expected term of the SAR
grants.
|
|
|
|
|
|
|
Six months ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
Risk-free interest rate |
|
2.50% to 2.67% |
|
4.93% |
Expected life (years) |
|
5.50 to 6.00 |
|
5.50 |
Estimated volatility factor |
|
43.98% |
|
43.93% |
Expected dividends |
|
None |
|
None |
2004 Stock Option Plan
A summary of the status of the Companys stock options as of June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Intrinsic Value |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (years) |
|
|
(In thousands) |
|
Outstanding at January 1, 2008 |
|
|
832,957 |
|
|
$ |
3.02 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(47,167 |
) |
|
|
3.76 |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2008 |
|
|
785,790 |
|
|
$ |
2.98 |
|
|
|
5.65 |
|
|
$ |
2,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2008 |
|
|
779,538 |
|
|
$ |
2.96 |
|
|
|
5.64 |
|
|
$ |
2,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
June 30, 2008 |
|
|
785,790 |
|
|
$ |
2.98 |
|
|
|
5.65 |
|
|
$ |
2,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2008, the Company issued 15,917 shares of common stock upon
the exercise of stock options at an per share exercise price of $4.26. The Company received gross
proceeds of $68 from the exercise of these stock options. In
addition, the Company issued 14,853 shares of common stock upon the cashless exercise of stock options to purchase 31,250 common shares
with per share exercise prices of $2.78 to $4.26.
12
As of June 30, 2008, $72 of total unrecognized compensation cost related to stock options issued to
employees is expected to be recognized ratably through March 31, 2009.
6. Net Loss per Common Share
Basic net loss per common share is calculated by dividing net loss by the weighted-average number
of common shares outstanding for the year. Diluted net loss per common share is the same as basic
net loss per common share, because potentially dilutive securities such as RSUs, SARs, stock
options and stock warrants would have an antidilutive effect as the Company incurred a net loss for
the three and six months ended June 30, 2008 and 2007.
The potentially dilutive securities excluded from the determination of diluted loss per
share, as their effect is antidilutive, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
Common stock warrants |
|
|
322,560 |
|
|
|
831,997 |
|
Stock options |
|
|
785,790 |
|
|
|
958,269 |
|
RSUs |
|
|
433,365 |
|
|
|
553,816 |
|
SARs |
|
|
1,403,566 |
|
|
|
283,956 |
|
|
|
|
|
|
|
|
|
|
|
2,945,281 |
|
|
|
2,628,038 |
|
|
|
|
|
|
|
|
7. Satellite Network and Other Equipment
Satellite network and other equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life |
|
|
June 30, |
|
|
December 31, |
|
|
|
(years) |
|
|
2008 |
|
|
2007 |
|
Land |
|
|
|
|
|
$ |
381 |
|
|
$ |
381 |
|
Satellite network |
|
|
5-10 |
|
|
|
9,642 |
|
|
|
9,463 |
|
Capitalized software |
|
|
3-5 |
|
|
|
1,067 |
|
|
|
887 |
|
Computer hardware |
|
|
5 |
|
|
|
1,002 |
|
|
|
920 |
|
Other |
|
|
5-7 |
|
|
|
876 |
|
|
|
565 |
|
Assets under construction |
|
|
|
|
|
|
64,691 |
|
|
|
45,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,659 |
|
|
|
57,922 |
|
Less: accumulated depreciation and amortization |
|
|
|
|
|
|
(8,786 |
) |
|
|
(8,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,873 |
|
|
$ |
49,704 |
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2008 and 2007, the Company capitalized costs attributable to
the design and development of internal-use software in the amount of
$233 and $306, respectively.
Depreciation and amortization expense for the three months ended June 30, 2008 and 2007 was $292
and $225, respectively. This includes amortization of internal-use software of $65 and $54 for the
three months ended June 30, 2008 and 2007, respectively. Depreciation and amortization expense for
the six months ended June 30, 2008 and 2007 was $568 and $395, respectively. This includes
amortization of internal-use software of $139 and $98 for the six months ended June 30, 2008 and
2007, respectively.
Assets under construction primarily consist of costs relating to the design, development and launch
of a single demonstration satellite pursuant to a contract with the United States Coast Guard
(USCG) (see Notes 11 and 15) and milestone payments and other costs pursuant to the Companys
satellite payload and launch procurement agreements with Orbital Sciences and
OHB-System AG for its quick-launch satellites (See Note 15) and upgrades to its infrastructure and
ground segment.
On
June 19, 2008, the Coast Guard demonstration satellite and five
quick-launch satellites were launched and are currently undergoing
in-orbit testing.
As a result of preliminary indications from the on-going in-orbit testing of the Coast Guard
demonstration satellite and the five quick-launch satellites, the Companys
satellite providers are investigating the lower than nominal gateway transmission power on one
satellite and temporary outages to the reaction wheel components of the attitude control system on
each of the satellites. While the Company expects that its satellite providers will be able to
resolve or develop operational procedures to satisfactorily mitigate the affect of these anomalies,
there can be no assurance in this regard.
13
8. Restricted Cash
Restricted cash consists of cash collateral of $5,000 for a performance bond required by the FCC in
connection with the Company obtaining expanded FCC authorization to
construct, launch and operate an additional 24 next-generation satellites. Under the terms of the performance bond, the cash
collateral will be reduced in increments of $1,000 upon completion of specified milestones.
Restricted
cash also includes $680 deposited into an escrow account under the terms of the Orbital
Sciences procurement agreement for the quick-launch satellites. The
amounts in escrow will be
paid to Orbital Sciences one year following the successful completion of in-orbit testing of the
six quick-launch satellites (See Note 15).
The
interest income earned on the restricted cash balances is unrestricted and included in
interest income in the consolidated statements of operations.
9. Intangible Assets
The Companys intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
Useful life |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
(years) |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
Acquired licenses |
|
|
6 |
|
|
$ |
8,115 |
|
|
$ |
(3,286 |
) |
|
$ |
4,829 |
|
|
$ |
8,115 |
|
|
$ |
(2,543 |
) |
|
$ |
5,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $371 for the three months ended June 30, 2008 and 2007 and was $743 for
the six months ended June 30, 2008 and 2007.
Estimated amortization expense for intangible assets subsequent to June 30, 2008 is as follows:
|
|
|
|
|
Years ending December 31,
|
|
|
|
|
Remainder of 2008 |
|
$ |
743 |
|
2009 |
|
|
1,486 |
|
2010 |
|
|
1,486 |
|
2011 |
|
|
1,114 |
|
|
|
|
|
|
|
$ |
4,829 |
|
|
|
|
|
10. Accrued Liabilities
The Companys accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Advances from USCG (See Notes 11 and 15) |
|
$ |
|
|
|
$ |
7,228 |
|
Gateway
settlement obligation (See Note 15) |
|
|
|
|
|
|
644 |
|
Accrued compensation and benefits |
|
|
1,874 |
|
|
|
1,821 |
|
Accrued interest |
|
|
710 |
|
|
|
712 |
|
Accrued professional services |
|
|
747 |
|
|
|
425 |
|
Accrued satellite network and other equipment |
|
|
3,597 |
|
|
|
|
|
Accrued inventory purchases |
|
|
361 |
|
|
|
|
|
Other accrued expenses |
|
|
1,597 |
|
|
|
1,475 |
|
|
|
|
|
|
|
|
|
|
$ |
8,886 |
|
|
$ |
12,305 |
|
|
|
|
|
|
|
|
14
11. Deferred Revenues
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Professional services |
|
$ |
7,228 |
|
|
$ |
|
|
Service activation fees |
|
|
2,684 |
|
|
|
1,796 |
|
Manufacturing license fees |
|
|
68 |
|
|
|
75 |
|
Prepaid services |
|
|
1,259 |
|
|
|
1,071 |
|
|
|
|
|
|
|
|
|
|
|
11,239 |
|
|
|
2,942 |
|
Less current portion |
|
|
(3,101 |
) |
|
|
(1,435 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
8,138 |
|
|
$ |
1,507 |
|
|
|
|
|
|
|
|
During 2004, the Company entered into a contract with the USCG to design, develop, launch and
operate a single satellite equipped with the capability to receive, process and forward Automatic
Identification System (AIS) data (the Concept Validation Project). Under the terms of the
agreement, title to the Concept Validation Project demonstration satellite remains with the
Company, however the USCG was granted a non-exclusive, royalty-free license to use the designs,
software processes and procedures developed under the contract in connection with any future
Company satellites that are AIS enabled. The Company is permitted to use the Concept Validation
Project satellite to provide services to other customers. The agreement also provides for post-launch maintenance and AIS data transmission
services to be provided by the Company to the USCG for an initial term of 14 months. At its option,
the USCG may elect under the agreement to receive maintenance and AIS data transmission services
for up to an additional 18 months subsequent to the initial term. The deliverables under the
arrangement do not qualify as separate units of accounting and, as a result, revenues from the
contract will be recognized ratably, commencing when the Concept Validation Project demonstration
satellite is operational, over 6 years, the expected life of the customer relationship.
Deferred professional services revenues at June 30, 2008, represent
amounts received from the USCG under the contract. At December 31, 2007 amounts received from the
USCG were reflected as an accrued liability in the consolidated
balance sheet (See Notes 10 and 15).
The Concept Validation Project demonstration satellite was
launched on June 19, 2008.
12. Note Payable
In connection with the acquisition of a majority interest in Satcom in 2005, the Company recorded
an indebtedness to OHB Technology A.G. (formerly known as OHB Teledata A.G.) (OHB), a stockholder
of the Company. At June 30, 2008, the principal balance of the note payable was 1,138 ($1,793)
and it had a carrying value of $1,366. At December 31, 2007, the principal balance of the note
payable was 1,138 ($1,661) and it had a carrying value of $1,170. The carrying value was based
on the notes estimated fair value at the time of acquisition. The difference between the carrying
value and principal balance is being amortized to interest expense over the estimated life of the
note of six years. Interest expense related to the note for each of the three months and six months
ended June 30, 2008 and 2007 was $33 and $66, respectively. This note does not bear interest and
has no fixed repayment term. Repayment will be made from the distribution profits (as defined in
the note agreement) of ORBCOMM Europe LLC. The note has been classified as long-term and the
Company does not expect any repayments to be required prior to June 30, 2009.
15
13. Stockholders Equity
Warrants to purchase the Companys common stock outstanding at June 30, 2008 were as follows:
|
|
|
|
|
|
|
Shares subject |
|
|
|
to |
|
Exercise price |
|
Warrants |
|
$2.33 |
|
|
39,350 |
|
$3.38 |
|
|
25,224 |
|
$4.26 |
|
|
257,986 |
|
|
|
|
|
|
|
|
322,560 |
|
|
|
|
|
During the six months ended June 30, 2008, the Company issued 76,739 shares of common stock upon
the exercise of warrants at per share exercise prices ranging from $2.33 to $4.26. The Company
received gross proceeds of $184 from the exercise of these warrants. In addition, the Company
issued 37,183 shares of common stock upon the cashless exercise of warrants to purchase 69,242
common shares with per share exercise prices ranging from $2.33 to $4.26.
During the six months ended June 30, 2008, warrants to purchase 5,362 common shares with per share
exercise prices of $2.33 and $3.38 expired.
At June 30, 2008, the Company has reserved the following shares of common stock for future
issuance:
|
|
|
|
|
|
|
Shares |
|
Employee stock compensation plans |
|
|
4,872,221 |
|
Warrants to purchase common stock |
|
|
322,560 |
|
|
|
|
|
|
|
|
5,194,781 |
|
|
|
|
|
14. Geographic Information
The Company operates in one reportable segment, machine to machine data communications. Other than
satellites in orbit, long-lived assets outside of the United States are not significant. The
following table summarizes revenues on a percentage basis by geographic region, based on the
country in which the customer is located:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Unites States |
|
|
75 |
% |
|
|
93 |
% |
|
|
82 |
% |
|
|
91 |
% |
Japan |
|
|
20 |
% |
|
|
|
|
|
|
13 |
% |
|
|
|
|
Other |
|
|
5 |
% |
|
|
7 |
% |
|
|
5 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
No other single geographic areas are more than 10% of revenues for the three months and six months
ended June 30, 2008 and 2007.
15. Commitments and Contingencies
Procurement agreements in connection with quick-launch satellites
On April 21, 2006, the Company entered into an agreement with Orbital Sciences whereby Orbital
Sciences will design, manufacture, test and deliver to the Company, one payload engineering
development unit and six AIS-equipped satellite payloads for the Company. The cost of the payloads
is $17,000, subject to adjustment under certain circumstances. Payments under the agreement are due
upon the achievement of specified milestones by Orbital Sciences. As of June 30, 2008, the Company
has made milestone payments of $16,150 under this agreement. The Company anticipates making the
remaining payments subject to adjustments under the agreement of $150 in 2008 and $700 in 2009.
16
On
June 5, 2006, the Company entered into an agreement with OHB System, AG, an affiliate of OHB, to
design, develop and manufacture six satellite buses, integrate such
buses with the payloads to be provided by Orbital Sciences, and launch the six integrated satellites. The price for the six
satellite buses and launch services is $20,000 and payments under the agreement are due upon
specific milestones achieved by OHB System, AG.
The
Company launched five of the six satellites on June 19, 2008. Due to delays associated with the construction of the final quick-launch satellite, the Company is
retaining it for future deployment.
On
July 2, 2008, the Company and OHB System, AG entered into an agreement to amend the June 5, 2006
agreement in connection with the successful launch of the Coast Guard
demonstration satellite and the five quick-launch satellites on
June 19, 2008. Pursuant to the agreement, the
Company and OHB System, AG agreed to a revised schedule of milestone and related payments for the
launch of the five quick-launch satellites and delivery schedule of the sixth quick-launch
satellite, with no modification to the price in the agreement entered into on June 5, 2006,
including certain launch support and in-orbit testing services for the sixth quick-launch
satellite. In addition, the Company agreed to pay an additional $450
to OHB System, AG
relating to the construction of the five quick-launch satellites. The
Company and OHB System, AG have
also agreed to waive any applicable on-time delivery incentive payments and to waive any applicable
liquidating damages, except for any liquidating delay damages with
respect to delivery delay of the sixth
quick-launch satellite.
As of June 30, 2008, the Company has made milestone payments of $15,600 under this agreement. In addition,
OHB System, AG will provide services relating to the development, demonstration and launch of the
Companys next-generation satellites at a total cost of $1,350. The
Company anticipates making the remaining payments under the agreement of $3,167 in the third quarter of 2008, for the six satellite buses and the related integration and launch
services.
Procurement agreements in connection with U.S. Coast Guard contract
In May 2004, the Company entered into an agreement to construct and deploy a satellite for use by
the USCG (see Note 11). In connection with this agreement, the Company entered into procurement
agreements with Orbital Sciences and OHB System, AG. All expenditures relating to this project are
being capitalized as assets under construction until the satellite
enters service. The satellite was launched on June 19, 2008. As of
June 30, 2008 and December 31, 2007, the Company has incurred $7,585 and $7,138 of costs related to
this project, respectively. As of June 30, 2008, the Companys remaining obligations under these
procurement agreements were $121.
As a result of delays in launching the satellite, in February 2007, the USCG issued a unilateral
modification to the contract setting a definitive launch date of July 2, 2007. On September 13,
2007, the Company and USCG entered into an amendment to the agreement to extend the definitive
launch date to December 31, 2007. In consideration for agreeing to extend the launch date, the
Company will provide up to 200 hours of additional support for up to 14 months after the launch
date at no cost and reduce USCGs cost for the post-launch maintenance options and for certain
usage options.
The USCG project was planned to be launched with the Companys quick-launch satellites, however
the launch did not occur by December 31, 2007. On January 14, 2008, the Company received a cure
notice from the USCG notifying the Company that unless the satellite is launched within 90 days
after receipt of the cure notice, the USCG would have been able to terminate the contract for default and pursue the
remedies available to it, one of which is procuring supplies and services similar to those
terminated and holding the Company liable for any excess costs of procurement.
17
On April 14, 2008, the Company and the USCG entered into an amendment to the agreement extending
the definitive launch date to August 15, 2008. In consideration for agreeing to the extend the
launch date, the Company will provide the USCG with all AIS data from each of the quick-launch
satellites being launched with the Coast Guard demonstration satellite, to the extent the
satellites are providing service, for 90 continuous days (upon request by the USCG during the first
180 days of the base operating period) at no additional cost. In addition, the USCG will have
certain intellectual property rights over the AIS data received by the AIS receivers aboard the
quick-launch satellites and the Coast Guard demonstration satellite solely during the 90-day
evaluation period to share only with other U.S. government agencies, provided that during the
90-day evaluation period the Company is permitted to use the AIS data from the quick-launch
satellites in connection with the Companys other programs.
On June 19, 2008, the Coast Guard demonstration satellite and five quick-launch satellites were
launched and are currently undergoing in-orbit testing which is
expected to be completed within a few months at which time the
satellites will be placed in service.
Procurement agreement in connection with next-generation satellites
On May 5, 2008, the Company entered into a procurement agreement with Sierra
Nevada Corporation (SNC) pursuant to which SNC will construct eighteen low-earth-orbit satellites
in three sets of six satellites (shipsets) for the Companys next-generation satellites (the
Initial Satellites). Under the agreement, SNC will also provide launch support services, a test
satellite (excluding the mechanical structure), a satellite software simulator and the associated
ground support equipment. Under the agreement, the Company may elect to use the launch option to be
offered by SNC or it may contract separately with other providers for launch services and launch
insurance for the satellites.
Under
the agreement, the Company has the option, exercisable at any time until the third
anniversary of the execution of the agreement, to order up to thirty additional satellites
substantially identical to the Initial Satellites (the Optional Satellites).
The total contract price for the Initial Satellites is $117,000, subject to reduction upon
failure to achieve certain in-orbit operational milestones with respect to the Initial Satellites
or if the pre-ship reviews of each shipset are delayed more than 60 days after the specified time
periods described below. The Company has agreed to pay SNC up to $1,500 in incentive payments for
the successful operation of the Initial Satellites five years following the successful completion
of in-orbit testing for the third shipset of six satellites. The price for the Optional Satellites
ranges from $5,000 to $7,700 per satellite depending on the number of satellites ordered and the
timing of the exercise of the option.
The agreement also requires SNC to complete the pre-ship review of the Initial Satellites (i)
no later than 24 months after the execution of the agreement for the first shipset of six
satellites, (ii) no later than 31 months after the
execution of the agreement for the second
shipset of six satellites and (iii) no later than 36 months
after the execution of the agreement
for the third shipset of six satellites. Payments under the agreement will begin upon the execution
of the agreement and will extend into the second quarter of 2012, subject to SNCs successful
completion of each payment milestone. As of June 30, 2008, the Company has made milestone
payments of $4,680 under the agreement. The Company anticipates
making payments under the agreement of $25,740 during the remainder of 2008.
Under
the agreement, SNC has agreed to provide the Company with an optional secured credit
facility for up to $20,000 commencing 24 months after the
execution of the agreement and
maturing 44 months after the effective date. If the Company elects to establish and use the
credit facility it and SNC will enter into a formal credit facility on terms established in the
agreement.
18
Gateway settlement obligation
In 1996, a predecessor to the Company entered into a contract to purchase gateway earth stations
(GESs) from ViaSAT Inc. (the GESs Contract). As of September 15, 2000, the date the predecessor
company filed for bankruptcy, approximately $11,000 had been paid to ViaSAT, leaving approximately
$3,700 owing under the GESs Contract for 8.5 GESs manufactured and stored by ViaSAT. In December
2004, the Company and ViaSAT entered into a settlement agreement whereby the Company was granted
title to 4 completed GESs in return for a commitment to pay an aggregate of $1,000 by December
2007. The Company had options,
which expired in December 2007, to purchase any or all of the remaining 4.5 GESs for aggregate
consideration of $2,700. However, the Company would have been
required to purchase one of the remaining 4.5 GESs for
$1,000 prior to the sale or disposition of the last of the 4 GESs for which title has been
transferred. The Company recorded
the 4 GESs in inventory at an aggregate value of $1,644 upon
execution of the settlement agreement. During 2007, the Company and
ViaSAT entered into discussions to extend the option, however such
discussions were terminated during the second quarter of 2008 with
the parties having no further obligations under the settlement
agreement. As a result, the Companys accrued liability of
$644 related to the settlement agreement was reversed in June 2008
and the Company reduced costs of product sales by $161, cost of services by $164 and satellite network and other assets by $319.
Airtime credits
In 2001, in connection with the organization of ORBCOMM Europe LLC and the reorganization of the
ORBCOMM business in Europe, the Company agreed to grant certain country representatives in Europe
approximately $3,736 in airtime credits. The Company has not recorded the airtime credits as a
liability for the following reasons: (i) the Company has no obligation to pay the unused airtime
credits if they are not utilized; and (ii) the airtime credits are earned by the country
representatives only when the Company generates revenue from the country representatives. The
airtime credits have no expiration date. Accordingly, the Company is recording airtime credits as
services are rendered and these airtime credits are recorded net of revenues from the country
representatives. For the three months ended June 30, 2008 and 2007, airtime credits used totaled
approximately $72 and $45, respectively and for the six months ended June 30, 2008 and 2007,
airtime credits used totaled approximately $113 and $88, respectively. As of June 30, 2008 and
December 31, 2007, unused credits granted by the Company were approximately $2,377 and $2,490,
respectively.
Litigation
From time to time, the Company is involved in various litigation matters involving ordinary and
routine claims incidental to its business. Management currently believes that the outcome of these
proceedings, either individually or in the aggregate, will not have a material adverse effect on
the Companys business, results of operations or financial condition. The Company is also involved
in certain litigation matters as discussed below.
Class Action Litigation
On September 20 and 25, 2007, two separate plaintiffs filed purported class action lawsuits in the United States
District Court for the District of New Jersey against the Company and certain of its officers. On June 2, 2008,
the Court consolidated the actions, appointed Erwin Weichel, David
Peterson and William Hunt as lead plaintiffs and
approved the lead plaintiffs selection of co-lead and liaison
counsel. On July 17, 2008, the lead plaintiffs filed their consolidated complaint against the Company and certain of its officers, and added as defendants the
two co-lead underwriters of the Companys initial public
offering, UBS Securities LLC and Morgan Stanley & Co. Incorporated. The
consolidated complaint alleges, among other things, that the Companys registration statement related to its initial public offering in
November 2006 contained material misstatements and omissions in violation of the Securities Act of 1933. The
action cited, among other things, a drop in the trading price of the Companys common stock that followed disclosure on August 14, 2007
of a change in the Companys definition of billable subscriber communicators and reduced guidance for the
remainder of 2007 released with the Companys 2007 second quarter financial results. The action seeks to recover
compensatory and rescissory damages, on behalf of a class of shareholders who purchased common stock in and/or
traceable to the Companys initial public offering on or about November 3, 2006 through August 14, 2007. The
Company intends to defend the matter vigorously. No provision for losses, if any, that might result from the
matter have been recorded in the Companys consolidated financial statements as this action is in its preliminary
stages and the Company is unable to predict the outcome and,
therefore, it is not probable that a liability has been
incurred and the amount of loss, if any, is not reasonably estimable.
16.
Subsequent Event
One of the Companys plane D satellites, which had limited availability and a battery anomaly
preventing nighttime operation, is no longer providing operational service subsequent to June 30,
2008 although it may continue to provide operational service on a limited basis. The remaining five plane D
satellites are being repositioned to minimize coverage gaps that impact system latency and overall
capacity. The Company does not expect the absence of this satellite to materially affect its
business. In addition, this satellite is fully depreciated.
19
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Safe Harbor Statement Under the Private Securities Litigation Reform of Act 1995.
Certain statements discussed in Part I, Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements generally relate to our plans, objectives and expectations
for future events and includes statements about our expectations, beliefs, plans, objectives,
intentions, assumptions and other statements that are not historical facts. Such forward-looking
statements, including those concerning the Companys expectations, are subject to known and unknown
risks and uncertainties, which could cause actual results to differ materially from the results,
projected, expected or implied by the forward-looking statements, some of which are beyond the
Companys control, that may cause the Companys actual results, performance or achievements, or
industry results, to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks and uncertainties include but
are not limited to: substantial losses we have incurred and expect to continue to incur; demand for
and market acceptance of our products and services and the applications developed by our resellers;
loss or decline or slowdown in the growth in business from Asset Intelligence division of General
Electric Company (GE), other value-added resellers or VARs and international value-added
resellers or IVARs; loss or decline or slowdown in growth in business
of any of the specific industry sectors the Company serves, such as
transportation; litigation proceedings; technological changes, pricing pressures and other
competitive factors; the inability of our international resellers to develop markets outside the
United States; satellite launch failures, satellite launch and construction delays and cost
overruns and in-orbit satellite failures or reduced performance; the failure of our system or
reductions in levels of service due to technological malfunctions or deficiencies or other events;
our inability to renew or expand our satellite constellation; political, legal regulatory,
government administrative and economic conditions and developments in the United States and other
countries and territories in which we operate and changes in our business strategy. These and other
risks are described in more detail in Part I, Item 1A. Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2007. The Company undertakes no obligation to publicly revise
any forward-looking statements or cautionary factors, except as required by law.
Overview
Presently, we operate the only global commercial wireless messaging system optimized for narrowband
communications. Our system consists of a global network of 28 low-Earth orbit, or LEO, satellites
and accompanying ground infrastructure. We now operate 28 satellites as one of our plane D satellites, which had limited availability and a battery anomaly preventing
nighttime operation, is no longer providing operational service although it may continue to provide
service on a limited basis. The remaining five D plane satellites are being repositioned to
minimize coverage gaps that impact system latency and overall capacity. We do not expect the
absence of this satellite to materially affect our business.
On June 19, 2008, the Coast Guard demonstration satellite and five quick-launch satellites were
successfully launched. Each of the satellites was successfully separated from the launch vehicle
in the proper orbit and is undergoing initial in-orbit testing. As a result of preliminary indications from the on-going in-orbit testing of our new satellites,
our satellite providers are investigating the lower than nominal gateway transmission power on one
satellite and temporary outages to the reaction wheel components of the attitude control system on
each of the satellites. While we expect that our satellite providers will be able to resolve or
develop operational procedures to satisfactorily mitigate the affect of these anomalies, there can
be no assurance in this regard.
These satellites will be
positioned optimally to augment our existing constellation, which,
upon successful completion of in-orbit testing, would increase the number of
low-earth orbit satellites to 34 and provide additional capacity and improved message delivery
speeds for current and future users. In addition, these satellites are equipped with AIS payloads
which will enable them to receive and report AIS transmissions to be used for ship tracking and
other navigational activities.
Our two-way communications system enables our customers and end-users, which include large and
established multinational businesses and government agencies, to track, monitor, control and
communicate cost-effectively with fixed and mobile assets located anywhere in the world. In 2007,
we began providing terrestrial-based cellular communication services through a re-seller agreement
with a major cellular wireless provider. These services commenced in the third quarter of 2007. In addition, a re-seller agreement was signed
with a second major cellular wireless provider in the fourth quarter of 2007 and services with this
provider are expected to commence in the second half of 2008. These terrestrial-based communication
services enable our customers who have higher bandwidth requirements to receive and send messages
from communication devices based on terrestrial-based technologies using the cellular providers
wireless network as well as from dual-mode devices combining our satellite subscriber communicators
with devices for terrestrial-based technologies. As a result, our customers are now able to
integrate into their applications a terrestrial communications device that will allow them to add
messages, including data intensive messaging from the cellular providers wireless network.
20
Our products and services enable our customers and end-users to enhance productivity, reduce costs
and improve security through a variety of commercial, government and emerging homeland security
applications. We enable our customers and end-users to achieve these benefits using a single global
technology standard for machine-to-machine and telematic, or M2M, data communications. Our
customers have made significant investments in developing ORBCOMM-based applications. Examples of
assets that are connected through our M2M data communications system include trucks, trailers,
railcars, containers, heavy equipment, fluid tanks, utility meters, pipeline monitoring equipment,
marine vessels and oil wells. Our customers include original equipment manufacturers, or OEMs, such
as Caterpillar Inc., Komatsu Ltd., Hitachi Construction Machinery
Co., Ltd. (Hitachi) and the Volvo Group,
IVARs, such as the GE, VARs, such as Fleet Management Services, XATA Corporation and American
Innovations, Ltd., and government agencies, such as the U.S. Coast Guard.
Presently our unique M2M data communications system is comprised of three elements: (i) a
constellation of 28 LEO satellites in multiple orbital
planes between 435 and 550 miles above the Earth operating in the Very High Frequency, or VHF,
radio frequency spectrum, (ii) related ground infrastructure, including 15 gateway earth stations,
four regional gateway control centers and a network control center in Dulles, Virginia, through
which data sent to and from satellite subscriber communicators are
routed and includes a communications node for terrestrial services
through which data sent to and from terrestrial units are routed and (iii) satellite subscriber communicators
and cellular terrestrial units, or wireless subscriber identity
modules (SIMS), attached to a variety of fixed and mobile assets worldwide.
Our principal products and services are satellite-based data communications services and product
sales from subscriber communicators. During the third quarter of 2007, we commenced
terrestrial-based cellular communication services, which consist of reselling airtime using a
cellular providers wireless technology network and product sales from cellular wireless SIMS for
use with devices or equipment that enable the use of the cellular providers wireless network for
data communications. We provide global M2M data communications services through our satellite-based
system. We focus our communications services on narrowband data applications. These data messages
are typically sent by a remote subscriber communicator through our satellite system to our ground
facilities for forwarding through an appropriate terrestrial communications network to the ultimate
destination. In addition we offer terrestrial cellular communication services which support
higher bandwidth applications that are not typical for an ORBCOMM application. These data messages
are sent by terrestrial-based subscriber communicators using wireless SIMS which are routed through the cellular providers wireless
network to our ground facilities and forwarded to the ultimate destination in real time.
Increasingly, businesses and governments face the need to track, control, monitor and communicate
with fixed and mobile assets that are located throughout the world. At the same time, these assets
increasingly incorporate microprocessors, sensors and other devices that can provide a variety of
information about the assets location, condition, operation or measurements and respond to
external commands. As these intelligent devices proliferate, we believe that the need to establish
two-way communications with these devices is greater than ever. Increasingly, owners and users of
these intelligent devices are seeking low cost and efficient communications systems that will
enable them to communicate with these devices.
Our products and services are typically combined with industry-or customer-specific applications
developed by our resellers which are sold to their end-user customers. We do not generally market
to end-users directly; instead, we utilize a cost-effective sales and marketing strategy of
partnering with resellers (i.e, VARs and country representatives). These resellers, which
are our direct customers, market to end-users.
ORBCOMM Japan
On
March 25, 2008, we received a 37% equity interest in ORBCOMM
Japan, which was accounted for an investment in affiliates at
March 31, 2008. ORBCOMM Japans results of operations were not significant for the period
from March 25, 2008 through March 31, 2008. On May 15, 2008, we received an additional 14% equity
interest in Japan and, as a result, our ownership interest increased to 51%. On June 9,
2008, we entered into an agreement with the minority stockholder,
which terminated its substantive
participatory rights in the governance of ORBCOMM Japan and as a
result, we obtained the controlling interest in ORBCOMM Japan.
21
We
consolidated the results of ORBCOMM Japan as though the controlling
interest was acquired on April 1, 2008 and
therefore deducted $0.1 million of ORBCOMM Japans earnings
for the period prior to June 9, 2008 (the date we acquired our
controlling interest) in our consolidated statement of operations. See Note 3 to the condensed consolidated
financial statements for further discussion.
Critical Accounting Policies
Our discussion and analysis of our results of operations, liquidity and capital resources are based
on our unaudited condensed consolidated financial statements which have been prepared in accordance
with accounting principles generally accepted in the United States of America (GAAP). The
preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including
those related to revenue recognition, costs of revenues, accounts receivable, satellite network and
other equipment, capitalized development costs, intangible assets, inventory valuation, the
valuation of deferred tax assets, uncertain tax positions and the fair value of securities
underlying share-based payment arrangements. We base our estimates on historical and anticipated
results and trends and on various other assumptions that we believe are reasonable under the
circumstances, including assumptions as to future events. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual
results may differ from our estimates and could have a significant adverse effect on our results of
operations and financial position. For a discussion of our critical accounting policies see Part
II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
in our Annual Report on Form 10-K for the year ended December 31, 2007. There have been no material
changes to our critical accounting policies during the three and six months ended June 30, 2008.
EBITDA
EBITDA is defined as earnings before interest income (expense), provision for income taxes and
depreciation and amortization. We believe EBITDA is useful to our management and investors in
evaluating our operating performance because it is one of the primary measures used by us to
evaluate the economic productivity of our operations, including our ability to obtain and maintain
our customers, our ability to operate our business effectively, the efficiency of our employees and
the profitability associated with their performance; it also helps our management and investors to
meaningfully evaluate and compare the results of our operations from period to period on a
consistent basis by removing the impact of our financing transactions and the depreciation and
amortization impact of capital investments from our operating results. In addition, our management
uses EBITDA in presentations to our board of directors to enable it to have the same measurement of
operating performance used by management and for planning purposes, including the preparation of
our annual operating budget.
EBITDA is not a performance measure calculated in accordance with GAAP. While we consider EBITDA to
be an important measure of operating performance, it should be considered in addition to, and not
as a substitute for, or superior to, net loss or other measures of financial performance prepared
in accordance with GAAP and may be different than EBITDA measures presented by other companies.
22
The following table (in thousands) reconciles our net loss to EBITDA for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(979 |
) |
|
$ |
(1,297 |
) |
|
$ |
(1,513 |
) |
|
$ |
(4,236 |
) |
Interest income |
|
|
(356 |
) |
|
|
(1,339 |
) |
|
|
(1,122 |
) |
|
|
(2,618 |
) |
Interest expense |
|
|
48 |
|
|
|
53 |
|
|
|
98 |
|
|
|
105 |
|
Depreciation and amortization |
|
|
663 |
|
|
|
596 |
|
|
|
1,311 |
|
|
|
1,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
(624 |
) |
|
$ |
(1,987 |
) |
|
$ |
(1,226 |
) |
|
$ |
(5,611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months: EBITDA during the three months ended June 30, 2008
improved by $1.4 million over 2007 including $0.4 million from ORBCOMM Japan. This improvement was due to increases in net service revenues of $1.5 million and gross
profit from product sales of $0.4 million, offset by an
increase in operating expenses of $0.4 million.
Operating expenses increased during the three months ended June 30, 2008 primarily due
to ORBCOMM Japan.
Six
months: EBITDA during the six months ended June 30, 2008
improved by $4.4 million over 2007 including $0.4 million
from ORBCOMM Japan.
This improvement was due to an increase in net service revenues of $2.4 million and a decrease in
operating expenses of $1.7 million.
Operating expenses decreased during the six months ended June 30, 2008, due to a decrease
in stock-based compensation of $1.2 million and a gain of
$1.2 million primarily from the settlement of
claims against ORBCOMM Japan and a $0.3 million reduction in
operating expenses associated with a asset purchase option. The decreases in operating expenses were offset by an increase in payroll
costs $0.4 million and $0.3 million in operating expenses of ORBCOMM Japan.
Results of Operations
Revenues
Revenues consist of service revenues and product sales. Service revenues are based upon utilization
of subscriber communicators on our communications system and the reselling of airtime from the
utilization of terrestrial-based subscriber communicators using SIMS on the cellular providers
wireless network. These service revenues generally consist of a one-time activation for each
subscriber communicator and SIMS activated for use on our
communications systems and monthly usage
fees. Service revenues are also earned from providing engineering, technical and management support
services to customers, and from license fees and a one time royalty by third parties for the use of
our proprietary communications protocol, which enables subscriber communicators to connect to our
M2M data communications system. Product sales consist of sales of subscriber communicators, other
products such as subscriber communicator peripherals, and other equipment such as gateway earth
stations and gateway control centers to customers. During the third quarter of 2007, we began
selling cellular wireless subscriber identity modules, or SIMS, (for our terrestrial-communications
services) to our resellers and direct customers.
23
The table below presents our revenues for the three and six months ended June 30,
2008 and 2007,
together with the percentage of total revenue represented by each
revenue category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
Service revenues |
|
$ |
5,757 |
|
|
|
74.5 |
% |
|
$ |
4,217 |
|
|
|
63.6 |
% |
|
$ |
10,612 |
|
|
|
78.0 |
% |
|
$ |
8,167 |
|
|
|
64.9 |
% |
Product sales |
|
|
1,967 |
|
|
|
25.5 |
% |
|
|
2,410 |
|
|
|
36.4 |
% |
|
|
2,991 |
|
|
|
22.0 |
% |
|
|
4,421 |
|
|
|
35.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,724 |
|
|
|
100.0 |
% |
|
$ |
6,627 |
|
|
|
100.0 |
% |
|
$ |
13,603 |
|
|
|
100.0 |
% |
|
$ |
12,588 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months: Total revenues for the three months ended June 30, 2008
increased by $1.1 million, which included $1.4 million of
revenues from ORBCOMM Japan, or
16.6%, to $7.7 million from $6.6 million for the three months ended June 30, 2007.
Six
Months: Total revenues for the six months ended June 30, 2008
increased by $1.0 million, which included $1.4 million of
revenues from ORBCOMM Japan, or
8.0%, to $13.6 million from $12.6 million for the six months ended June 30, 2007.
Service revenues
Three Months: Service revenues increased $1.5 million for the three months ended June 30, 2008, or
36.5%, to $5.8 million, or approximately 74.5% of total revenues, from $4.2 million, or
approximately 63.6% of total revenues for the three months ended June 30, 2007.
Six Months: Service revenues increased $2.4 million for the six months ended June 30, 2008, or
30.0%, to $10.6 million, or approximately 78.0% of total revenues, from $8.2 million, or
approximately 64.9% of total revenues for the six months ended June 30, 2007.
The increases in service revenues for the three and six months ended June 30, 2008 over the
corresponding 2007 periods were primarily due to an increase in the number of billable subscriber
communicators activated on our communications system and
$0.3 million of incremental service revenue margin provided by ORBCOMM Japan. As of
June 30, 2008, there were approximately 420,000 billable subscriber communicators on the ORBCOMM
System compared to approximately 278,000 billable subscriber communicators as of June 30, 2007, an
increase of approximately 51.0%. Service revenue growth can be impacted by the customary lag
between subscriber communicator activations and recognition of service revenue from these units. In
addition, this customary lag has been increased by the slowdown in deployments of activated units
to end users by GE.
Product sales
Three Months: Revenue from product sales decreased $0.4 million for the three months ended June 30,
2008 or 18.4%, to $2.0 million, including $1.1 million from
ORBCOMM Japan, or approximately 25.5% of total revenues, from $2.4 million, or
approximately 36.4% of total revenues for the three months ended June 30, 2007.
24
Six Months: Revenue from product sales decreased $1.4 million for the six months ended June 30,
2008 or 32.4%, to $3.0 million, including $1.1 million from
ORBCOMM Japan, or approximately 22.0% of total revenues, from $4.4 million, or
approximately 35.1% of total revenues for the six months ended June 30, 2007.
The decrease in revenues for the three and six months ended June 30, 2008 over the corresponding
2007 periods were primarily due to lower product sales to GE. We expect this trend to continue throughout
2008 due to lower demand for subscriber communicators by VARs in the
transportation sector, primarily GE, which is in default under its
subscriber communicator supply agreement with our Stellar subsidiary.
See Part II, Item 5, Other Information in this
Form 10-Q for a further discussion.
Costs of services
Costs of services include the expenses associated with our network engineers, the repair and
maintenance of our ground infrastructure, the depreciation associated with our communications
system and the amortization of licenses acquired.
Three
Months: Costs of services increased by $0.2 million, or 8.2%,
to $2.1 million for the three
months ended June 30, 2008 from $2.0 million during the three months ended June 30, 2007.
The increase is primarily due to costs related to our terrestrial-based cellular communication services
which commenced in the third quarter of 2007.
As a
percentage of service revenues, cost of services were 37.0% of service revenues for the three
months ended June 30, 2008 compared to 46.6% for the three months ended June 30, 2007.
Six
Months: Costs of services decreased by $0.2 million or 3.6% to
$4.2 million for the six months ended June 30, 2008 from
$4.3 million during the six months ended June 30, 2007. The
decrease is primarily due to a decrease of $0.3 million in
stock-based compensation offset by $0.2 million of costs related to our terrestrial-based cellular communication services which commenced
in the third quarter of 2007. As a percentage of service revenues, cost
of services were 39.2% of
service revenues for the six months ended June 30, 2008 compared to 52.9% for the six months ended
June 30, 2007.
We expect that costs of services will increase
in future periods due to
depreciation expense associated with the recently launched Coast Guard demonstration satellite and five
quick-launch satellites once they are placed in service.
Costs of product sales
Costs of product sales include the cost of subscriber communicators and SIMS and related peripheral
equipment, as well as the operational costs to fulfill customer orders, including costs for
employees.
Three
Months: Costs of product sales decreased for the three months ended
June 30, 2008 by $0.8 million, or 32.4%, to $1.7 million, which included $0.7 million from
ORBCOMM Japan, from $2.5 million for the three months ended June 30, 2007.
Product cost represented 69.5% of the cost of product sales for the three months ended June 30,
2008, which decreased by $0.9 million, or 43.1%, to $1.2 million for the three months ended
June 30, 2008 from $2.1 million for the three months ended June 30, 2007.
Excluding a cost reduction of $0.2 million from the gateway
earth station sold in 2007 resulting from an expiration of a gateway
purchase option, we had a gross profit from
product sales (revenues from product sales minus costs of product sales including distribution
costs) of $0.1 million, including $0.4 million of gross
profit from ORBCOMM Japan for the three months ended June 30, 2008 compared to a gross loss from
product sales of $0.1 million for the three months ended June 30, 2007.
Six
Months: Costs of product sales decreased for the six months ended
June 30, 2008 by $1.6 million, or 35.5%, to $3.0 million, which included $0.7 million from
ORBCOMM Japan, from $4.6 million for the six months ended June 30, 2007.
Product cost represented 68.0% of the cost of product sales for the six months ended June 30, 2008,
which decreased by $1.8 million, or 47.1%, to $2.0 million for the six months ended June 30, 2008
from $3.8 million for the six months ended June 30, 2007.
Excluding a cost reduction of $0.2 million from the gateway earth station sold in 2007, we had a gross loss from
product sales (revenues from product sales minus costs of product sales including distribution
costs) of $0.2 million including $0.4 million of gross
profit from ORBCOMM Japan in 2008 for the six months ended June 30,
2008 and 2007.
25
Excluding
the gross profit from product sales from the inclusion of ORBCOMM
Japan and a cost reduction
of the gateway earth station sold in 2007, the gross loss from product sales for the three and six months ended June
30, 2008 was related to lower revenues from subscriber communicator
sales which were not sufficient to
cover costs associated with distribution, fulfillment and customer service costs associated with
completing customer orders.
Selling, general and administrative expenses
Selling, general and administrative expenses relate primarily to compensation and associated
expenses for employees in general management, sales and marketing, and finance, litigation expenses
and regulatory matters.
Three Months: Selling, general and administrative expenses increased $0.7 million, or 15.4%, to
$5.2 million for the three months ended June 30, 2008 from $4.5 million for the three months ended
June 30, 2007. The increase is primarily due to a $0.2 million increase in employee
costs, resulting primarily from increases in stock-based compensation of $0.1 million and payroll
costs $0.1 million and a $0.3 million increase in
professional fees, primarily due to being a public company.
Six Months: Selling, general and administrative expenses decreased $0.2 million, or 1.8%, to $9.6
million for the six months ended June 30, 2008 from $9.8 million for the six months ended June 30,
2007. The decrease is primarily due to lower employee costs of $0.4 million, resulting
primarily from a decrease in stock-based compensation of $0.8 million, offset by an increase in
payroll costs of $0.4 million.
Product development expenses
Product development expenses consist primarily of the expenses associated with the staff of our
engineering development team, along with the cost of third parties that are contracted for specific
development projects.
Three Months: Product development expenses for the three months ended June 30, 2008 and 2007 were
$0.2 million and $0.3 million, respectively, decreasing 19.8% in the current year period over the
same period in the prior year.
Six Months: Product development expenses for the six months ended June 30, 2008 and 2007 were $0.5
million and $0.6 million, respectively, decreasing 25.1% in the current year period over the same
period in the prior year.
Product development expenses decreased primarily relating to timing of product development
activities.
Gain on customer claims settlements
In June 2008, we recognized a $0.1 million gain on a settlement of a claim against a VAR
upon receipt of the settlement.
On March 25, 2008, we received a 37% equity interest in ORBCOMM Japan and cash of $0.6 million in
satisfaction of claims against ORBCOMM Japan, pursuant to a voluntary reorganization of ORBCOMM
Japan in accordance with the rehabilitation plan approved by the Tokyo district court on December
25, 2007. The fair value of the consideration we received for settlement of claims against ORBCOMM Japan
exceeded the $0.4 million carrying value of current and long-term receivables from ORBCOMM Japan by
$0.9 million and we recognized a gain for the same amount for
the three months ended March 31, 2008. On May 15, 2008, we
received 616 newly issued shares of common stock from ORBCOMM Japan
representing an additional 14% equity interest and recognized a gain of
$0.2 million during the three months ended June 30, 2008.
26
Other income (expense)
Other
income is comprised primarily of interest income from our investments, foreign exchange gains and interest expense.
Three Months: Other income was $0.3 million for the three months ended June 30, 2008 compared to
$1.3 million for the three months ended June 30, 2007.
Six Months: Other income was $1.0 million for the six months June 30, 2008 compared to $2.5 million
for the six months ended June 30, 2007.
The decrease in other income (expense) for the three and six months ended June 30, 2008 was
primarily due to lower interest rates from investing in low risk U.S. Treasury securities in 2008
compared to higher interest rates from investing in investment grade floating rate redeemable
municipal debt securities in 2007.
Pre-control earnings in
subsidiary and minority interest
Pre-control earnings in subsidiary and
minority interest relates to earnings that are attributable to the other
shareholder of ORBCOMM Japan. Pre-control earnings in subsidiary comprise of
earnings prior to the change in control, and minority interest comprises of
earnings after the change in control, not attributable to us.
For the three and six months ended
June 30, 2008 the pre-control earnings in ORBCOMM Japan were
$0.1 million and minority interest was $0.1 million.
Net losses
Three
Months: As a result of the items described above, our net loss
narrowed to $1.0 million for the three months ended
June 30, 2008 compared to a net loss of $1.3 million,
decreasing by $0.3 million, an improvement of 24.5%.
Six Months: As a result of the items described above, our net loss narrowed to $1.5 million for the
six months ended June 30, 2008, compared to a net loss of $4.2 million for the six months ended
June 30, 2007, decreasing by $2.7 million, an improvement of 64.3%.
Liquidity and Capital Resources
Overview
Our liquidity requirements arise from our working capital needs and to fund capital expenditures to
support our current operations, and facilitate growth and expansion. Since our inception, we have
financed our operations from sales of our common stock through public offerings and private
placements of debt, convertible redeemable preferred stock, membership interests and common stock.
We have incurred losses from operations since inception, including a
net loss of $1.5 million for
the six months ended June 30, 2008 and as of June 30, 2008 we have an accumulated deficit of
approximately $64.9 million. As of June 30, 2008, our primary source of liquidity consisted of cash
and cash equivalents including U.S. Treasury securities totaling $99.0 million.
Operating activities
Cash provided by our operating activities for the six months ended June 30, 2008 was $3.0 million
resulting from a net loss of $1.5 million, offset by adjustments
for non-cash items of $2.0 million
and $2.5 million of cash generated from working capital. Adjustments for non-cash items primarily
consisted of $1.3 million for depreciation and amortization and $1.8 million for stock-based
compensation, offset by a $0.9 million non-cash gains primarily related to obtaining our 51% interest in ORBCOMM Japan
and a $0.3 million reduction of expenses due to expiration of an
asset purchase option. Working capital activities primarily
consisted of a net sources of cash of $1.5 million for a decrease to accounts receivable primarily
related to timing of collections and a $1.0 million increase in deferred revenue primarily related
to an increase in the number of billable subscriber communicators activated on the ORBCOMM system.
27
Cash provided by our operating activities for the six months ended June 30, 2007 was $0.4 million
resulting from a net loss of $4.2 million, offset by adjustments for non-cash items of $4.3 million
and $0.3 million of cash generated from working capital. Adjustments for non-cash items primarily
consisted of $1.1 million for depreciation and amortization and $3.0 million for stock-based
compensation. Working capital activities primarily consisted of a net source of cash of $0.4
million for a decrease to inventories primarily related to better inventory management, a source of
cash of $0.2 million for an increase in deferred revenue primarily related to billings we rendered
in connection with our Coast Guard demonstration satellite scheduled for launch during 2007, offset
by a net use of cash of $0.4 million for an increase in accounts receivable primarily related to
timing of collections.
Investing activities
Cash used in our investing activities for the six months ended June 30, 2008 was $19.7 million,
resulting from capital expenditures of $14.4 million and an increase of $5.7 million to
restricted cash as collateral for a performance bond in connection with obtaining FCC
authorization to construct, launch and operate an additional
twenty-four next-generation satellites and
the Orbital Sciences procurement agreement for the quick-launch satellites.
Capital expenditures included $13.9 million for the Coast Guard demonstration satellite,
quick-launch and next-generation satellites and $0.5 million of improvements to our internal
infrastructure and ground segment.
Cash used in our investing activities for the six ended June 30, 2007 was $17.8 million resulting
from capital expenditures of $9.6 million and purchases of marketable securities consisting of
investment grade floating rate redeemable municipal debt securities totaling $29.7 million offset
by sales of marketable securities of $21.5 million. Capital expenditures included $7.9 million for
the Coast Guard demonstration satellite, quick-launch and next-generation satellites and $1.7
million of improvements to our internal infrastructure and ground segment.
Financing activities
Cash provided by our financing activities for the six months ended June 30, 2008 was $0.3 million
resulting primarily from proceeds received from the issuance of an aggregate of
92,656 shares of common stock upon the exercise of warrants and stock options to purchase common
stock at per share exercise prices ranging from $2.33 to $4.26.
Cash provided by our financing activities for the six months ended June 30, 2007 was $31.7 million
resulting primarily from $31.9 million in net proceeds received from our secondary public offering
of common stock in May 2007, after deducting underwriters discounts and commissions and offering costs.
Future Liquidity and Capital Resource Requirements
We expect cash flows from operating activities, along with our existing cash and cash equivalents
will be sufficient to provide working capital and fund capital expenditures, which primarily
includes milestone payments under the procurement agreements for quick-launch and
next-generation satellites for at least the next 12 months. For the remainder of 2008, we expect to
incur approximately $25.0 to $30.0 million of capital expenditures primarily for our next-generation satellites.
Contractual Obligations
Other than with respect to the contractual obligation discussed below there have been no material
changes in our contractual obligations as of June 30, 2008, as previously disclosed in Part II,
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
under the heading Contractual Obligations in our Annual Report on Form 10-K for the year ended
December 31, 2007.
28
On May 5, 2008, we entered into a Procurement Agreement (the Agreement) with Sierra Nevada
Corporation (SNC) pursuant to which SNC will construct eighteen low-earth-orbit satellites in
three sets of six satellites (shipsets) for our next-generation satellites (the Initial
Satellites). Under the Agreement, SNC will also provide launch support services, a test satellite
(excluding the mechanical structure), a satellite software simulator and the associated ground
support equipment. Under the Agreement, we may elect to use the launch option to be offered by SNC
or it may contract separately with other providers for launch services and launch insurance for the
satellites.
Under the Agreement, we have the option, exercisable at any time until the third anniversary of the
execution of the Agreement, to order up to thirty additional satellites substantially identical to
the Initial Satellites (the Optional Satellites).
The total contract price (for the initial Satellites) is $117 million, subject to reduction upon
failure to achieve certain in-orbit operational milestones with respect to the Initial Satellites
or if the pre-ship reviews of each shipset are delayed more than 60 days after the specified time
periods described below. We have agreed to pay SNC up to $1.5 million in incentive payments for the
successful operation of the Initial Satellites five years following the successful completion of
in-orbit testing for the third shipset of six satellites. The price for the Optional Satellites
ranges from $5.0 million to $7.7 million per satellite depending on the number of satellites
ordered and the timing of the exercise of the option.
The Agreement also requires SNC to complete the pre-ship review of the Initial Satellites (i) no
later than 24 months after the execution of the Agreement for the first shipset of six satellites,
(ii) no later than 31 months after the execution of the Agreement for the second shipset of six
satellites and (iii) no later than 36 months after the execution of the Agreement for the third
shipset of six satellites. Payments under the Agreement will begin upon the execution of the
Agreement and will extend into the second quarter of 2012, subject to SNCs successful completion
of each payment milestone.
Under the Agreement, SNC has agreed to provide us with an optional secured credit facility for up
to $20.0 million commencing 24 months after the execution
of the Agreement and maturing 44 months after the effective date. If we elect to establish and use the credit facility we and
SNC will enter into a formal credit facility on terms established in the Agreement.
On July 2, 2008, we and OHB-System AG entered into an agreement to amend the June 5, 2006
agreement in connection with the successful launch of the Coast Guard demonstration satellite
and the five quick-launch satellites on June 19, 2008. Pursuant to the agreement, we and
OHB-System AG agreed to a revised schedule of milestone and related payments for the launch of
the five quick-launch satellites and delivery schedule of the sixth quick-launch satellite,
with no modification to the $20 million contract value entered into on June 5, 2006, including certain launch
support and in-orbit testing services for the sixth quick-launch satellite. In addition, we
agreed to pay an additional $0.5 million to OHB-System AG
relating to the construction of the five
quick-launch satellites. We and OHB-System, AG have agreed to waive any applicable on-time
delivery incentive payments and to waive any applicable liquidating damages, except for any
liquidating delay damages with respect to delivery delay of the sixth quick-launch satellite.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation
S-K.
Recent accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), to define
fair value, establish a framework for measuring fair value in accordance with generally accepted
accounting principles (GAAP) and expand disclosures about fair value measurements. SFAS 157
requires quantitative disclosures using a tabular format in all periods (interim and annual) and
qualitative disclosures about the valuation techniques used to measure fair value in all annual
periods. On January 1, 2008, we adopted SFAS 157, except with respect to our non-financial assets
and liabilities, for which the effective date is January 1, 2009. The adoption of SFAS 157 for our
financial assets and liabilities did not have a material impact on our consolidated financial
statements. We also do not expect the adoption of SFAS 157 for our non-financial assets and
liabilities to have a material impact on our financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159). SFAS 159 expands opportunities to use fair value measurements
in financial reporting and permits entities to choose to measure many financial instruments and
certain other items at fair value. SFAS 159 is effective for us on January 1, 2008. However, we did
not elect the fair value option for any of our eligible financial instruments on the effective
date.
29
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that a noncontrolling
interest in a subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the consolidated
financial statements. It also calls for consistency in the manner of reporting changes in the
parents ownership interest and requires fair value measurement of any noncontrolling equity
investment retained in a deconsolidation. SFAS 160 is effective for us on January 1, 2009. We are
currently evaluating the impact SFAS 160 will have on our consolidated financial statements.
In December 2007, the FASB issued No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS
141R broadens the guidance of SFAS 141, extending its applicability to all transactions and other
events in which one entity obtains control over one or more other businesses. It broadens the fair
value measurement and recognition of assets acquired, liabilities assumed, and interests
transferred as a result of business combinations. SFAS 141R expands on required disclosures to
improve the statement users abilities to evaluate the nature and financial effects of business
combinations. SFAS 141R is effective for us on January 1, 2009. The impact of adopting SFAS 141R
will be dependent on the business combinations that we may pursue after its effective date.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133 (SFAS 161). FAS 161 requires expanded
qualitative, quantitative and credit-risk disclosures of derivative instruments and hedging
activities. These disclosures include more detailed information about gains and losses, location of
derivative instruments in financial statements, and credit-risk-related contingent features in
derivative instruments. SFAS 161 also clarifies that derivative instruments are subject to
concentration of credit risk disclosures under SFAS No. 107, Disclosure About Fair Value of
Financial Instruments, SFAS 161, which applies only to disclosures, is effective for us on January
1, 2009. We do not currently engage in any derivative transactions,
and we do not anticipate SFAS 161 will have a significant on our consolidated financial
statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. This statement shall be
effective 60 days following the Securities and Exchange Commissions approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. We are
currently evaluating the potential
impact that the adoption of SFAS No. 162 may have on its consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
There has been no material changes in our assessment of our sensitivity to market risk as of June 30, 2008, as previously disclosed in Part II, Item 7A Quantitative and Qualitative Disclosures
about Market Risks in our Annual Report on Form 10-K for the year ended December 31, 2007.
Concentration of credit risk
During
the three months ended June 30, 2008 and 2007, revenues from GE, comprised 15.1% and 48.8% of
revenues, respectively. During the six months ended June 30, 2008 and 2007, revenues from GE comprised
20.8% and 44.6% of revenues, respectively.
For
the three months and six months ended June 30, 2008, revenues
from Hitachi comprised 17.0% and 11.1% of revenues,
respectively. For the three and six months ended June 30, 2007,
revenues from Hitachi comprised less than 10% of revenues.
30
Item 4. Disclosure Controls and Procedures
Evaluation of the Companys disclosure controls and procedures. The Companys management evaluated,
with the participation of the Companys Chief Executive Officer and Chief Financial Officer, the
effectiveness of the design and operation of the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)), as of June 30, 2008. Based on their evaluation, the Companys Chief Executive
Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures
were effective as of June 30, 2008.
Internal Control over Financial Reporting. There were no changes in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have
materially affected, or are reasonably likely to materially affect, the Companys internal control
over financial reporting.
31
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We discuss certain legal proceedings pending the Company in the notes to the condensed consolidated
financial statements and refer you to that discussion for important information concerning those
legal proceedings, including the basis for such actions and relief sought. See Note 15 to the
condensed consolidated financial statements for this discussion.
Item 1A. Risk Factors
There have been no material changes in the risk factors as of June 30, 2008, as previously
disclosed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended
December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Use of Proceeds from Initial Public Offering
On November 2, 2006, the SEC declared effective our Registration Statement on Form S-1
(Registration No. 333-134088), relating to our initial public offering. After deducting
underwriters discounts and commissions and other offering costs, our net proceeds were
approximately $68.3 million. We intend to use the remaining net proceeds from our initial public
offering to provide working capital and fund capital expenditures, primarily related to the
deployment of additional satellites, which will be comprised of our quick-launch and
next-generation satellites. As of June 30, 2008, we have used $35.1 million for such purposes.
Pending such uses, we are investing the net proceeds in short-term interest bearing cash
equivalents.
Exercise of Warrants
During the six months ended June 30, 2008, we issued 76,739 shares of common stock upon the
exercise of warrants at per share exercise prices ranging from $2.33
to $4.26. We received gross
proceeds of $0.2 million from the exercise of these warrants. In addition, we issued 37,183 shares
of common stock upon the cash less exercise of warrants to purchase 69,242 common shares with per
share exercise prices ranging from $2.33 to $4.26.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At our annual meeting of shareholders on May 2, 2008, the following two proposals were voted
on and approved:
|
|
|
Proposal 1 |
|
(To elect three Class II directors to three-year terms
expiring at the 2011 annual meeting of shareholders.) |
|
|
|
|
|
|
|
|
|
|
|
Votes For |
|
|
Votes Witheld |
|
Marc J. Eisenberg |
|
|
31,735,362 |
|
|
|
490,554 |
|
Timothy Kelleher |
|
|
31,737,562 |
|
|
|
488,354 |
|
John Major |
|
|
28,634,291 |
|
|
|
3,591,625 |
|
|
|
|
Proposal 2
|
|
(To ratify the appointment of Deloitte & Touche LLP as the
Companys independent registered public accounting firm for the
fiscal year ending December 31, 2008.) |
|
|
|
|
|
For |
|
Against |
|
Abstain |
32,126,220
|
|
36,985
|
|
62,711 |
32
Item 5. Other Information
GE Equipment Services is a strategic partner that develops applications that use our M2M data
communications system. Our largest GE customer is the AI subsidiary of GE Equipment Services, which
is dedicated to M2M data communications applications and which renewed its IVAR agreement with us
through 2010. On October 10, 2006, our Stellar subsidiary entered into an agreement (the 2006 Agreement)
with AI to supply up to 412,000 units (of which 270,000 are non-cancelable) of in-production and
future models of Stellars subscriber communicators from August 1, 2006 through December 31, 2009
to support AIs applications utilizing our M2M data communications system.
AI purchased 72% and 8% of its minimum non-cancelable volume for 2007 and the first half of
2008, respectively, under the 2006 Agreement and, as a result, AI is in default under the terms of
the 2006 Agreement. We are currently in discussions with AI to amend the 2006 Agreement to extend
the time periods within which AI is required to purchase its minimum committed volumes. However,
there can be no assurance as to whether or when a mutually satisfactory amendment will be agreed to
by the parties. In the event that we and AI are unable to reach a mutually satisfactory resolution
regarding the 2006 Agreement, we may pursue remedies available to us.
Item 6. Exhibits
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|
|
|
|
|
10.1 |
|
|
Amendment of Solicitation/Modification of Contract dated April 14, 2008 amending the
Validation Services Agreement dated as of May 12, 2004 by and between the Company and the U.S.
Coast Guard. |
|
|
|
|
|
|
*10.2 |
|
|
ORBCOMM Generation 2 Procurement Agreement, dated May 5, 2008 between the Company and Sierra
Nevada Corporation. |
|
|
|
|
|
|
*10.3 |
|
|
Memorandum of Agreement dated July 2, 2008 between the Company and
OHB System, AG concerning modifications to Amendment No. 1 dated as
of June 5, 2006 of ORBCOMM Concept Demonstration Satellite Bus,
Integration Test and Launch Services Procurement Agreement, dated
March 10, 2005 by and between the Company and OHB System, AG. |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350. |
|
|
|
* |
|
Portions of this exhibit have been omitted and filed separately with the Office of the
Secretary of the Securities and Exchange Commission pursuant to a confidential treatment
request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
ORBCOMM Inc.
(Registrant)
|
|
Date: August 11, 2008 |
/s/ Marc J. Eisenberg
|
|
|
Marc J. Eisenberg, |
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
Date: August 11, 2008 |
/s/ Robert G. Costantini
|
|
|
Robert G. Costantini, |
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
33
EXHIBIT INDEX
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|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
|
|
10.1 |
|
|
Amendment of Solicitation/Modification of Contract dated April 14, 2008 amending the
Validation Services Agreement dated as of May 12, 2004 by and between the Company and the U.S.
Coast Guard. |
|
|
|
|
|
|
*10.2 |
|
|
ORBCOMM Generation 2 Procurement Agreement dated May 5, 2008 by and
between the Company and Sierra Nevada Corporation. |
|
|
|
|
|
|
*10.3 |
|
|
Memorandum of Agreement dated July 2, 2008 between the Company and
OHB System, AG concerning modifications to Amendment No. 1 dated as
of June 5, 2006 of ORBCOMM Concept Demonstration Satellite Bus,
Integration Test and Launch Services Procurement Agreement, dated
March 10, 2005 by and between the Company and OHB System, AG. |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer required by Rule 13a-14(a). |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350. |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C. Section 1350. |
|
|
|
* |
|
Portions of this exhibit have been omitted and filed separately with the Office of the
Secretary of the Securities and Exchange Commission pursuant to a confidential treatment
request. |
34