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 March 31, 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
of incorporation or organization)
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(I.R.S. Employer
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
(Do not check if a smaller reporting company)
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Smaller reporting company o |
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
May 7, 2008 is 41,929,086.
Part I. Financial Information
Item 1. Financial Statements
ORBCOMM Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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March 31, |
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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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$ |
114,400 |
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$ |
115,587 |
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Accounts receivable, net of allowances for
doubtful accounts of $203 and $388 |
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4,110 |
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5,284 |
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Inventories |
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3,538 |
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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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994 |
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1,078 |
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Total current assets |
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123,200 |
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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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51,322 |
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49,704 |
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Investment in affiliates |
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640 |
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Intangible assets, net |
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5,200 |
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5,572 |
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Other assets |
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991 |
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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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$ |
181,767 |
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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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$ |
3,340 |
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$ |
4,373 |
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Accrued liabilities |
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12,498 |
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12,305 |
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Current portion of deferred revenue |
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1,590 |
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1,435 |
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Total current liabilities |
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17,428 |
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18,113 |
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Note payable related party |
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1,296 |
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1,170 |
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Deferred revenue, net of current portion |
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1,656 |
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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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20,564 |
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20,974 |
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Commitments and contingencies |
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Stockholders equity: |
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Common stock, par value $0.001; 250,000,000
shares authorized; 41,872,329 and 41,658,066 shares
issued and outstanding |
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42 |
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42 |
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Additional paid-in capital |
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225,842 |
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224,899 |
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Accumulated other comprehensive loss |
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(711 |
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(656 |
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Accumulated deficit |
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(63,970 |
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(63,436 |
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Total stockholders equity |
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161,203 |
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160,849 |
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Total liabilities and stockholders equity |
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$ |
181,767 |
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$ |
181,823 |
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See notes to condensed consolidated financial statements.
2
ORBCOMM Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
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Three months ended |
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March 31, |
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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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$ |
4,855 |
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$ |
3,950 |
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Product sales |
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1,024 |
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2,011 |
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Total revenues |
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5,879 |
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5,961 |
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Costs and expenses (1): |
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Costs of services |
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2,034 |
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2,353 |
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Costs of product sales |
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1,281 |
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2,106 |
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Selling, general and administrative |
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4,445 |
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5,311 |
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Product development |
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256 |
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360 |
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Gain on customer claims settlement |
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(876 |
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Total costs and expenses |
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7,140 |
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10,130 |
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Loss from operations |
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(1,261 |
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(4,169 |
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Other income (expense): |
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Interest income |
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766 |
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1,279 |
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Other income |
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11 |
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3 |
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Interest expense |
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(50 |
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(52 |
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Total other income |
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727 |
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1,230 |
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Net loss |
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$ |
(534 |
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$ |
(2,939 |
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Net loss per common share: |
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Basic and diluted |
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$ |
(0.01 |
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$ |
(0.08 |
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Weighted average common shares outstanding: |
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Basic and diluted |
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41,803 |
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37,036 |
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(1) Stock-based compensation included in costs and expenses: |
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Costs of services |
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$ |
48 |
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$ |
220 |
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Costs of product sales |
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20 |
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29 |
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Selling, general and administrative |
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727 |
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1,637 |
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Product development |
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15 |
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42 |
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$ |
810 |
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$ |
1,928 |
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See notes to condensed consolidated financial statements.
3
ORBCOMM Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Three months ended |
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March 31, |
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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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$ |
(534 |
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$ |
(2,939 |
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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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(185 |
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(2 |
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Depreciation and amortization |
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648 |
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542 |
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Accretion on note payable related party |
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33 |
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33 |
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Stock-based compensation |
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810 |
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1,928 |
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Noncash
portion of gain on customer claims settlement |
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(640 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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1,359 |
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142 |
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Inventories |
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(816 |
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1,400 |
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Advances to contract manufacturer |
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27 |
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Prepaid expenses and other assets |
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396 |
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(514 |
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Accounts payable and accrued liabilities |
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(1,236 |
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105 |
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Deferred revenue |
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304 |
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13 |
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Net cash provided by operating activities |
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139 |
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735 |
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Cash flows from investing activities: |
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Capital expenditures |
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(1,458 |
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(3,007 |
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Purchases of marketable securities |
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(19,050 |
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Sales of marketable securities |
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6,800 |
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Net cash used in investing activities |
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(1,458 |
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(15,257 |
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Cash flows from financing activities: |
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Proceeds from exercise of warrants |
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133 |
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Payment of offering costs in connection with initial public offering |
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(599 |
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Payment of offering costs in connection with secondary public offering |
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(40 |
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Net cash provided by (used in) financing activities |
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93 |
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(599 |
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Effect of exchange rate changes on cash and cash equivalents |
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39 |
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(6 |
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Net decrease in cash and cash equivalents |
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(1,187 |
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(15,127 |
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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 |
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$ |
114,400 |
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$ |
47,012 |
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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 |
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$ |
1,895 |
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$ |
5,630 |
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See notes to condensed consolidated financial statements.
4
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 these services through a constellation of 29 owned and operated low-Earth orbit satellites
and accompanying ground infrastructure through which small, low power, fixed or mobile subscriber
communicators (Communicators) and cellular wireless subscriber identity modules, or SIMS, that
can be can be connected to other public or private networks, including the Internet and the
cellular wireless providers networks (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 March 31, 2008 and for the three month
periods ended March 31, 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 months
ended March 31, 2008 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. 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, other than its 37% interest in
ORBCOMM Japan Limited (ORBCOMM Japan) (see Note 7) had no carrying value as of March 31, 2008 and December 31, 2007. The Companys equity in the earnings or losses of those investees for the three months ended March
31, 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 March 31, 2008 and December 31, 2007.
The Company
has incurred losses from inception including a net loss of $534 for the three months
ended March 31, 2008 and as of March 31, 2008, the
Company has an accumulated deficit of $63,970.
As of March 31, 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 fund
capital expenditures including the deployment of its quick-launch satellites and investments in its
next-generation satellites for at least the next twelve months.
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 March 31, 2008 and 2007, one customer
comprised 28.2% and 39.7% of
revenues, respectively. As of March 31, 2008 and December 31, 2007, this customer accounted for
24.1% and 42.8% of accounts receivable, respectively.
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.
5
Income taxes
As of
March 31, 2008, the Company had unrecognized tax benefits of
$775. There were no changes to the Companys unrecognized tax benefits during the three months ended March 31, 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 months ended March 31,
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.
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 is currently
evaluating the impact of SFAS 161 will have on its consolidated financial
statements.
3. Comprehensive Loss
The components of comprehensive loss are as follows:
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|
Three months ended |
|
|
|
March 31, |
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|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(534 |
) |
|
$ |
(2,939 |
) |
Foreign currency translation adjustment |
|
|
(55 |
) |
|
|
(24 |
) |
|
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|
Comprehensive loss |
|
$ |
(589 |
) |
|
$ |
(2,963 |
) |
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|
|
|
|
|
4. 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 March 31, 2008, there were 2,250,944 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 March 31, 2008 and 2007,
the Company recorded stock-based compensation expense of $810 and
$1,928, respectively.
The components of the Companys stock-based compensation expense are presented below:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Stock options |
|
$ |
24 |
|
|
$ |
57 |
|
Restricted stock units |
|
|
697 |
|
|
|
1,520 |
|
Stock appreciation rights |
|
|
89 |
|
|
|
351 |
|
|
|
|
|
|
|
|
Total |
|
$ |
810 |
|
|
$ |
1,928 |
|
|
|
|
|
|
|
|
As of March 31, 2008, the Company had an aggregate of $5,470 of unrecognized compensation
costs for all share-based payment arrangements.
6
Time-Based Restricted Stock Units
During
the three months ended March 31, 2008, the Company granted 121,052
time-based RSUs. These RSUs vest over
various periods through December 2010.
A summary
of the Companys time-based RSUs for the three months ended
March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Grant Date Fair Value |
|
Balance at January 1, 2008 |
|
|
356,538 |
|
|
$ |
11.20 |
|
Granted |
|
|
121,052 |
|
|
|
5.70 |
|
Vested |
|
|
(129,370 |
) |
|
|
11.17 |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
348,220 |
|
|
$ |
9.30 |
|
|
|
|
|
|
|
|
For
the three months ended March 31, 2008 and 2007, the Company recorded stock-based compensation
expense of $513 and $495 related to the time-based RSUs. As of March 31, 2008, $2,083 of total
unrecognized compensation cost related to the time-based RSUs granted is expected to be recognized
over periods through December 2010.
Performance-Based Restricted Stock Units
During
the three months ended March 31, 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.
The Company expects that 54,522 performance-based RSUs granted during 2007 will vest in the
second quarter of 2008 and 6,000 performance-based RSUs granted during 2007 will vest in January 2009.
A summary of the Companys performance-based RSUs for the three months ended March 31, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Shares |
|
|
Grant Date Fair Value |
|
Balance at January 1, 2008 |
|
|
179,404 |
|
|
$ |
12.58 |
|
Granted |
|
|
129,784 |
|
|
|
4.81 |
|
Vested |
|
|
(1,500 |
) |
|
|
12.89 |
|
Forfeited or expired |
|
|
(108,770 |
) |
|
|
12.50 |
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
198,918 |
|
|
$ |
7.55 |
|
|
|
|
|
|
|
|
For the three months ended March 31, 2008 and 2007, the Company recorded stock-based compensation
expense of $184 and $1,025 related to the performance-based RSUs, respectively. As of March 31,
2008, $657 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 three months ended March 31, 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 three months ended March 31, 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 March 31, 2008 |
|
|
1,141,667 |
|
|
$ |
5.31 |
|
|
|
9.91 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
44,444 |
|
|
$ |
11.00 |
|
|
|
8.50 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2008 |
|
|
1,141,667 |
|
|
$ |
5.31 |
|
|
|
9.91 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
For the three months ended March 31, 2008 and 2007, the Company recorded stock-based compensation
expense of $33 and $30 relating to the time-based SARs, respectively. As of March 31, 2008, $2,528
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 three months ended March 31, 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.
The Company expects that 44,610 performance based SARs granted during 2007 will vest in the
second quarter of 2008.
A summary of the Companys performance-based SARs for the three months ended March 31, 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 March 31, 2008 |
|
|
261,899 |
|
|
$ |
11.00 |
|
|
|
9.20 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
146,344 |
|
|
$ |
11.00 |
|
|
|
8.63 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at March 31, 2008 |
|
|
261,899 |
|
|
$ |
11.00 |
|
|
|
9.20 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair value of the performance-based SARs granted during the three
months ended March 31, 2008 was $0.98 per share.
For the three months ended March 31, 2008 and 2007, the Company recorded stock-based compensation
expense of $56 and $321 relating to the performance-based SARs, respectively. As of March 31, 2008,
$106 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.
|
|
|
|
|
|
|
Three months ended |
|
|
March 31, |
|
|
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
The fair value of each stock option 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 historical activity to estimate the expected life of stock options, giving consideration to
the contractual terms and vesting schedules. Estimated forfeitures were based on voluntary and
involuntary termination behavior as well as analysis of actual option 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 stock option grants. No
stock options were granted during the three months ended March 31, 2008 and 2007.
8
A summary of the status of the Companys stock options as of March 31, 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
832,957 |
|
|
$ |
3.02 |
|
|
|
5.90 |
|
|
$ |
1,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
824,621 |
|
|
$ |
3.01 |
|
|
|
5.89 |
|
|
$ |
1,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at
March 31, 2008 |
|
|
832,957 |
|
|
$ |
3.02 |
|
|
|
5.90 |
|
|
$ |
1,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008, $96 of total unrecognized compensation cost related to stock options issued
to employees is expected to be recognized ratably through March 31, 2009.
5. 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 months ended March 31, 2008 and 2007.
The potentially dilutive securities excluded from the determination of basic and diluted loss per
share, as their effect is antidilutive, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
Common stock warrants |
|
|
371,850 |
|
|
|
1,443,985 |
|
Stock options |
|
|
832,957 |
|
|
|
1,464,420 |
|
RSUs |
|
|
547,138 |
|
|
|
759,889 |
|
SARs |
|
|
1,403,566 |
|
|
|
297,779 |
|
|
|
|
|
|
|
|
|
|
|
3,155,511 |
|
|
|
3,966,073 |
|
|
|
|
|
|
|
|
6. Satellite Network and Other Equipment
Satellite network and other equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful life |
|
|
March 31, |
|
|
December 31, |
|
|
|
(years) |
|
|
2008 |
|
|
2007 |
|
Land |
|
|
|
|
|
$ |
381 |
|
|
$ |
381 |
|
Satellite network |
|
|
5-10 |
|
|
|
9,497 |
|
|
|
9,463 |
|
Capitalized software |
|
|
3-5 |
|
|
|
908 |
|
|
|
887 |
|
Computer hardware |
|
|
5 |
|
|
|
940 |
|
|
|
920 |
|
Other |
|
|
5-7 |
|
|
|
665 |
|
|
|
565 |
|
Assets under construction |
|
|
|
|
|
|
47,425 |
|
|
|
45,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,816 |
|
|
|
57,922 |
|
Less: accumulated depreciation and amortization |
|
|
|
|
|
|
(8,494 |
) |
|
|
(8,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,322 |
|
|
$ |
49,704 |
|
|
|
|
|
|
|
|
|
|
|
|
During the three months ended March 31, 2008 and 2007, the Company capitalized costs attributable
to the design and development of internal-use software in the amount of $132 and $139,
respectively. Depreciation and amortization expense for the three months ended March 31, 2008 and 2007 was $276 and $170, respectively. This includes amortization of internal-use
software of $74 and $44 for the three months ended March 31, 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 9 and 14) and milestone payments and other costs pursuant to the Companys
satellite payload and launch procurement agreements with Orbital Sciences Corporation and
OHB-System AG for its quick-launch satellites (see Note 14) and upgrades to its infrastructure and
ground segment.
9
7. Investment in 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.
The Company and ORBCOMM Japan are parties to a service license agreement,
pursuant to which ORBCOMM Japan acts as a country representative and a reseller of 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.
The estimated fair value of the Companys equity interest in
ORBCOMM Japan of $640 has been recorded in investment in affiliates at March 31, 2008.
The Company’s 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.
The transaction was accounted for as of March 31, 2008 as ORBCOMM Japans results of operations
were not significant for the period from March 25, 2008 through March 31, 2008.
The
following table presents summary balance sheet of ORBCOMM Japan as of March 31,
2008:
|
|
|
|
|
Balance Sheet Data: |
|
|
|
|
Current assets |
|
$ |
1,974 |
|
Total assets |
|
|
2,077 |
|
Current liabilities |
|
|
348 |
|
Total liabilities |
|
|
348 |
|
Stockholders equity |
|
|
1,729 |
|
8. Intangible Assets
The Companys intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
December 31, 2007 |
|
|
|
Useful life |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
(years) |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
|
Cost |
|
|
amortization |
|
|
Net |
|
Acquired licenses |
|
|
6 |
|
|
$ |
8,115 |
|
|
$ |
(2,915 |
) |
|
$ |
5,200 |
|
|
$ |
8,115 |
|
|
$ |
(2,543 |
) |
|
$ |
5,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $372 for the three months ended March 31, 2008 and 2007.
Estimated amortization expense for intangible assets subsequent to March 31, 2008 is as follows:
|
|
|
|
|
Years ending December 31, |
|
|
|
|
Remainder of 2008 |
|
$ |
1,114 |
|
2009 |
|
|
1,486 |
|
2010 |
|
|
1,486 |
|
2011 |
|
|
1,114 |
|
|
|
|
|
|
|
$ |
5,200 |
|
|
|
|
|
9. Accrued Liabilities
The Companys accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Advances from USCG (See Note 14) |
|
$ |
7,228 |
|
|
$ |
7,228 |
|
Gateway settlement obligation (see Note 14) |
|
|
644 |
|
|
|
644 |
|
Accrued compensation and benefits |
|
|
1,384 |
|
|
|
1,821 |
|
Accrued interest |
|
|
697 |
|
|
|
712 |
|
Accrued professional services |
|
|
436 |
|
|
|
425 |
|
Accrued inventory purchases |
|
|
562 |
|
|
|
|
|
Other accrued expenses |
|
|
1,547 |
|
|
|
1,475 |
|
|
|
|
|
|
|
|
|
|
$ |
12,498 |
|
|
$ |
12,305 |
|
|
|
|
|
|
|
|
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. On March 21, 2008, the Company
received a modification of its current license agreement to allow the
inclusion of AIS receivers on its satellites. 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 upon the launch
of the Concept Validation Project demonstration satellite (expected during 2008) over the expected
life of the customer relationship.
On April 14, 2008, the Company and USCG agreed to extend the
launch date of this satellite to August 15, 2008 (See Note 14).
10. Deferred Revenues
Deferred revenues consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
Service activation fees |
|
$ |
2,144 |
|
|
$ |
1,796 |
|
Manufacturing license fees |
|
|
71 |
|
|
|
75 |
|
Prepaid services |
|
|
1,031 |
|
|
|
1,071 |
|
|
|
|
|
|
|
|
|
|
|
3,246 |
|
|
|
2,942 |
|
Less current portion |
|
|
(1,590 |
) |
|
|
(1,435 |
) |
|
|
|
|
|
|
|
Long-term portion |
|
$ |
1,656 |
|
|
$ |
1,507 |
|
|
|
|
|
|
|
|
10
11. 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 March 31, 2008, the principal balance of the note payable was 1,138
($1,755) and it had a carrying value of $1,296. 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 ended
March 31, 2008 and 2007 was $33. 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 March 31, 2009.
12. Stockholders Equity
Warrants
to purchase the Companys common stock outstanding at March 31, 2008 were as follows:
|
|
|
|
|
|
|
Shares subject |
|
|
|
to |
|
Exercise price |
|
Warrants |
|
$2.33 |
|
|
88,640 |
|
$3.38 |
|
|
25,224 |
|
$4.26 |
|
|
257,986 |
|
|
|
|
|
|
|
|
371,850 |
|
|
|
|
|
During
the three months ended March 31, 2008, the Company issued 54,974 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 $133 from the exercise of these warrants. In addition, the Company
issued 21,019 shares of common stock upon the cashless exercise of warrants to purchase 41,717
common shares with per share exercise prices ranging from $2.33 to $4.26.
During
the three months ended March 31, 2008, warrants to purchase 5,362 common shares with per
share exercise prices of $2.33 and $3.38 expired.
At March 31, 2008, the Company has reserved the following shares of common stock for future
issuance:
|
|
|
|
|
|
|
Shares |
|
Employee stock compensation plans |
|
|
5,034,605 |
|
Warrants to purchase common stock |
|
|
371,850 |
|
|
|
|
|
|
|
|
5,406,455 |
|
|
|
|
|
13. 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 |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
United States |
|
|
91 |
% |
|
|
89 |
% |
Other(1) |
|
|
9 |
% |
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
(1) |
|
No other single geographic areas are more than 10% of revenues for the three
months ended March 31, 2007. |
11
14. 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 March 31, 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.
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. In addition, if OHB-System AG meets specific on-time
delivery milestones, the Company would be obligated to pay up to an additional $1,000. As of March
31, 2008, the Company has made milestone payments of $14,600 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.
Due to delays associated with the construction of the final quick-launch satellite, the Company
intends to retain it for future deployment.
The Company anticipates making the remaining payments under the agreement of $5,000 and $400 in
2008 and 2009, respectively, 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 9). 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. The satellite is expected to be launched during
2008. As of March 31, 2008 and December 31, 2007, the Company has incurred $7,163 and $7,138 of costs
related to this project, respectively. As of March 31, 2008, the Companys remaining obligation under
these procurement agreements were $362.
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 is 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 may 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. The Company has indemnification rights against the launch services provider for the Coast Guard demonstration satellite in the event the launch services
contract is terminated for default from and against any and all claims, demands, assessments and all liabilities and
costs related thereto for which the Company becomes liable, including but not limited to any assessment of damages
and/or reprocurement costs by the USCG. As of March 31, 2008 and December 31, 2007, the Company
believed that the launch of the Coast Guard demonstration satellite would have likely extended
beyond the 90 days cure period.
The Company had reflected all amounts
received under the USCG contract in accrued liabilities in its March 31, 2008 and December 31, 2007 consolidated balance sheet.
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.
12
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. ViaSAT maintains a security interest and
lien in the 4 GESs and has the right to possession of each GESs until the lien associated with the
GESs has been satisfied. The Company has 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 must 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 and ViaSAT are in discussions to extend the
option. The Company recorded the 4 GESs in inventory at an aggregate value of $1,644 upon execution
of the settlement agreement. As of March 31, 2008 and December 31, 2007, the accrued liability for
the settlement agreement was $644.
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 March 31, 2008 and 2007, airtime credits used totaled
approximately $41 and $43, respectively. As of March 31, 2008 and December 31, 2007, unused credits
granted by the Company were approximately $2,449 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. The actions allege 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 actions cited a drop in the trading price of the Companys common stock
that followed disclosure on August 14, 2007 of reduced guidance for the remainder of 2007 released
with the Companys second quarter financial results. The actions seek to recover compensatory, and
in one complaint 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 court has yet to certify the class or appoint a lead plaintiff(s). 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.
15. Subsequent Event
Procurement
agreement in connection with next-generation satellites
On May 5, 2008, the Company 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 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.
Under the Agreement, SNC has agreed to provide the Company with an optional secured credit
facility for up to $20,000 commencing twenty-four months after the
execution of the Agreement and maturing forty four 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.
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; 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 to launch the Coast Guard demonstration satellite by the
definitive launch date; 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.
13
Overview
Presently, we operate the only global commercial wireless messaging system optimized for narrowband
communications. Our system consists of a global network of 29 low-Earth orbit, or LEO, satellites
and accompanying ground infrastructure. Our two-way communications system enables our customers and
end-users, which include large and established multinational businesses and government agencies, to
track, monitor, control and communicate cost-effectively with fixed and mobile assets located
anywhere in the world. 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 and revenues from such services were not significant. 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 first 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.
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. 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 29 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 subscriber
communicators are routed and (iii) subscriber communicators and cellular wireless
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 provide terrestrial cellular communication services
which support higher bandwidth applications that are not typical for an
ORBCOMM application. These data messages are sent by cellular 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 over 160 resellers (i.e,
VARs and country representatives). These resellers, which are our direct customers, market to
end-users.
14
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 months ended March 31, 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.
The following table (in thousands) reconciles our net loss to EBITDA for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(534 |
) |
|
$ |
(2,939 |
) |
Interest income |
|
|
(766 |
) |
|
|
(1,279 |
) |
Interest expense |
|
|
50 |
|
|
|
52 |
|
Depreciation and amortization |
|
|
648 |
|
|
|
542 |
|
EBITDA |
|
$ |
(602 |
) |
|
$ |
(3,624 |
) |
EBITDA
during the three months ended March 31, 2008 improved by
$3.0 million over the three months ended March 31, 2007. This
improvement was due to an increase in net service revenues of
$1.1 million and a decrease in operating
expenses of $2.2 million. Operating expenses decreased in the first quarter of 2008, due to
a decrease in stock-based compensation of $1.1 million and a gain of $0.9 million from the settlement of claims
from 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 system 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.
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
Service revenues |
|
$ |
4,855 |
|
|
|
82.6 |
% |
|
$ |
3,950 |
|
|
|
66.3 |
% |
Product sales |
|
|
1,024 |
|
|
|
17.4 |
% |
|
|
2,011 |
|
|
|
33.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,879 |
|
|
|
100.0 |
% |
|
$ |
5,961 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues for the three months ended March 31, 2008 decreased by
$0.1 million, or 1.4%, to
$5.9 million from $6.0 million for the three months ended
March 31, 2007. This decrease related to a decrease in product sales of $1.0 million offset by an
increase in service revenues of $0.9 million.
Service revenues
Service
revenues increased $0.9 million for the three months ended
March 31, 2008, or 22.9%, to
$4.9 million, or approximately 82.6% of total revenues, from $4.0 million, or approximately 66.3% of
total revenues for the three months ended March 31, 2007. This increase was primarily due to an
increase in the number of billable subscriber communicators activated
on our communications system. As of March 31, 2008, there were approximately 380,000 billable
subscriber communicators on the ORBCOMM System as compared
to approximately 250,000 billable subscriber communicators as of
March 31, 2007, an increase of approximately 51.8%.
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
Revenue from product sales decreased $1.0 million for the three months ended March 31, 2008, or
49.1%, to $1.0 million, or approximately 17.4% of total revenues, from $2.0 million, or
approximately 33.7% of total revenues for the three months ended March 31, 2007. This decrease was
primarily due to lower sales to GE. We expect this trend to
continue throughout 2008 due to lower demand for subscriber communicators by VARs in the
transportation sector.
Costs of services
Costs of services include the expenses associated with our engineering groups, the repair and
maintenance of our ground infrastructure, the depreciation associated with our communications
system and the amortization of licenses acquired.
Costs of services decreased by $0.4 million, or 13.5%, to $2.0 million for the three months ended
March 31, 2008 from $2.4 million during the three months ended March 31, 2007. The decrease
was due to a $0.2 million decrease in stock-based compensation and lower equipment
maintenance costs of $0.2 million. As a percentage of service
revenues, cost of services were 40.0%
of service revenues for the three months ended March 31, 2008 compared to 59.6% for the three
months ended March 31, 2007. This decrease in costs of services
as a percentage of service revenue is primarily due to an increase in service revenues.
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.
Costs of
product sales decreased by $0.8 million, or 39.2%, to $1.3 million for the three months
ended March 31, 2008 from $2.1 million for the three months ended March 31, 2007.
Product cost
represented 66.0% of the cost of product sales for the three months ended March 31,
2008, which
decreased by $0.9 million, or 51.8%, to $0.8 million for the three months
ended March 31, 2008 from
$1.8 million for the three months ended March 31, 2007. We had a gross
loss from product sales
(revenues from product sales minus costs of product sales including
costs for Stellar) of $0.3 million
and $0.1 million for the three months ended March 31, 2008 and 2007, respectively. The
gross loss from product sales was related to
lower revenues from subscriber communicator sales which was not enough 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.
Selling, general and administrative expenses decreased by $0.9 million, or 16.3%, to $4.4 million
for the three months ended March 31, 2008 from $5.3 million for the three months ended March 31,
2007. This decrease is primarily due to lower employee costs of $0.6 million, resulting primarily
from a decrease in stock-based compensation of $0.9 million, offset by an increase in payroll
costs of $0.3 million and a decrease in professional fees of $0.5 million, primarily due to
reduced litigation expenses as a result of settling the Quake litigation in 2007.
16
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.
Product
development expenses for the three months ended March 31, 2008
and 2007 were $0.3 million
and $0.4 million, respectively, decreasing 28.9% in the current year period over the same period in
the prior year.
Gain on customer claims 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. The estimated
fair value of our equity interest in ORBCOMM Japan in the amount of
$0.6 million has been recorded in investment in affiliates at
March 31, 2008.
Other income (expense)
Other income is comprised primarily of interest income from our cash and cash equivalents, which
consists of U.S. Treasuries, interest bearing instruments, including commercial paper, and our
investments in investment grade floating rate redeemable municipal debt securities classified as
available-for-sale marketable securities, foreign exchange gains and interest expense.
Other income was $0.8 million for the three months ended March 31, 2008 compared to $1.3 million
for the three months ended March 31, 2007. This decrease was primarily due to lower interest rates
from investing in low risk U.S. Treasury securities during the three months ended March 31, 2008
compared to higher interest rates from investing in investment grade floating rate redeemable
municipal debt securities during the three months ended March 31, 2007. We expect that interest
income will continue to decrease in future periods as cash is used for our capital expenditures,
working capital purposes and to fund operating losses.
Net loss and net loss applicable to common shares
As a
result of the items described above, our net loss narrowed to $0.5 million for the three
months ended March 31, 2008, compared to a net loss of $2.4 million for the three months ended
March 31, 2007, decreasing by $1.8 million, an improvement
of 81.8%.
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 $0.5 million for the three months ended March 31, 2008 and as of
March 31, 2008 we have an accumulated deficit of approximately
$64.0 million. As of March 31, 2008, our primary
source of liquidity consisted of cash and cash equivalents including
U.S. Treasury securities totaling $114.0 million.
Operating activities
Cash
provided by our operating activities for the three months ended
March 31, 2008 was $0.1 million resulting from a net loss of $0.5 million, offset by adjustments for non-cash items of
$0.7 million. Adjustments for non-cash items primarily
consisted of $0.6 million for depreciation and amortization and $0.8 million for stock-based
compensation, offset by decreases of $0.2 million in the allowance for doubtful accounts and a
$0.6 million non-cash gain related to the 37% interest we
received in ORBCOMM Japan in March 2008.
Cash
provided by in our operating activities for the three months ended March 31, 2007 was $0.7
million resulting from a net loss of $2.9 million offset by adjustments for non-cash items of $2.5
million, and $1.1 million of cash generated from working capital. Adjustments for non-cash items
primarily consisted of $0.5 million for depreciation and amortization and $1.9 million for
stock-based compensation. Working capital activities primarily consisted of a net source of cash of
$1.4 million for a decrease to inventories primarily related to better inventory management, offset
by a use of cash of $0.5 million for an increase in prepaid expense and other current assets
primarily related to deferred costs incurred in connection with a secondary public
offering of our common stock completed in May 2007.
Investing activities
Cash used in our investing activities for the three months ended March 31, 2008 was $1.5 million,
resulting from capital expenditures of $0.6 million for the quick-launch and next generation
satellites and $0.9 million of improvements to our internal infrastructure and ground segment.
Cash used in our investing activities for the three months ended March 31, 2007 was $15.3 million
resulting from capital expenditures of $3.0 million and purchases of marketable securities
consisting of investment grade floating rate redeemable municipal debt securities totaling $19.0 million offset by sales of marketable securities of $6.8 million. Capital
expenditures included $2.2 million for the quick-launch and next-generation satellites and $0.8
million of improvements to our internal infrastructure and ground segment.
17
Financing activities
Cash
provided by our financing activities for the three months ended March 31, 2008 was $0.1 million
resulting primarily from proceeds received from the exercise from the issuance of an aggregate of
54,974 shares of common stock upon the exercise of warrants to purchase common stock at per share
exercise prices ranging from $2.33 to $4.26.
Cash used in our financing activities the three months ended March 31, 2007 was $0.6 million,
resulting from payments of invoices in 2007 related to offering costs incurred in connection with
our initial public offering in November 2006.
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 the deployment of additional satellites for at least the next 12 months. For the remainder of 2008,
we expect to incur approximately $36 million of capital expenditures primarily for our
quick-launch and 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 March 31, 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.
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 $20,000 commencing twenty-four months after the execution of
the Agreement and maturing forty four
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.
Off-Balance Sheet Arrangements
We have no material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Recent accounting pronouncements
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.
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 Activitiesan
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 are currently evaluating the impact of SFAS 161
will have on our 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 March
31, 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 March 31, 2008 and 2007, sales to GE,
comprised 28.2% and 39.7% of our revenues, respectively.
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 March 31, 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 March 31, 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.
18
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 14 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 March 31, 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 March 31, 2008, we have used $19.6 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 three months ended March 31, 2008, we issued 54,974 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 $0.1 million from the exercise of these warrants. In addition, we issued 21,019 shares
of common stock upon the cash less exercise of warrants to purchase 41,717 common shares with per
share exercise prices ranging form $2.33 to $4.26.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
10.27 |
|
Employment Agreement between Jerome B. Eisenberg and the Company. |
|
10.28 |
|
Employment Agreement between Marc J. Eisenberg and the Company. |
|
10.29 |
|
Employment Agreement between Robert G. Costantini and the Company. |
|
10.30 |
|
Employment Agreement between John J. Stolte Jr. and the Company. |
|
10.31 |
|
Employment Agreement between
Christian G. Le Brun, Esq. and the Company. |
|
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. |
19
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: May 12, 2008 |
/s/ Marc J. Eisenberg
|
|
|
Marc J. Eisenberg, |
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Date: May 12, 2008 |
/s/ Robert G. Costantini
|
|
|
Robert G. Costantini, |
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
|
20
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
10.27 |
|
Employment Agreement between Jerome B. Eisenberg and the Company. |
|
|
|
10.28 |
|
Employment Agreement between Marc J. Eisenberg and the Company. |
|
|
|
10.29 |
|
Employment Agreement between Robert G. Costantini and the Company. |
|
|
|
10.30 |
|
Employment Agreement between John J. Stolte Jr. and the Company. |
|
|
|
10.31 |
|
Employment Agreement between Christian G. LeBrun, Esq. and the Company. |
|
|
|
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. |
21