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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from       to
 Commission File Number 0-22583
 ORBIT/FR, Inc.
 (Exact Name of Registrant as Specified in its Charter)
 DELAWARE
    
    23-2874370(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)506 Prudential Road, Horsham, PA
    
    19044(Address of principal executive offices)
    
    (Zip Code)
 (215) 674-5100
(Registrants telephone number, including area code)
 Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




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ORBIT/FR, Inc.
 Index
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated Balance SheetsSeptember 30, 2007
(Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of OperationsThree and nine months
ended September 30, 2007 and 2006 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows Nine months
ended September 30, 2007 and 2006 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements
(Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosure of Market Risk
    
    
    14Item 4 Controls and procedures
    
    
    14PART II. Other InformationItem 1. Legal Proceedings
    
    
    15Item 1A. Risk Factors
    
    
    15Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Securities
    
    
    15Item 3. Defaults upon Senior Securities
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15Item 5. Other Information
    
    
    15Item 6. Exhibits and Reports on Form 8-K
    
    
    15Signatures
    
    
    16Certification pursuant to Section 302, Israel Adan, President & CEOCertification pursuant to Section 302, Dave Lubbe, CFOCertification pursuant to Section 906, Israel Adan, President & CEOCertification pursuant to Section 906, Dave Lubbe, CFO
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ORBIT/FR, Inc.
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share data)
 September 30,
    
    
    December 31,2007
    
    
    2006UnauditedASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,450
    
    
    $
    3,901Accounts receivable, less allowance of $215
and $269 in 2007 and 2006, respectively
    
    
    3,765
    
    
    
    5,769Inventory
    
    
    3,502
    
    
    
    3,156Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    3,522
    
    
    
    1,480Income tax refunds receivable
    
    
    12
    
    
    
    336Deferred income taxes
    
    
    677
    
    
    
    721Other
    
    
    352
    
    
    
    151Total current assets
    
    
    14,280
    
    
    
    15,514Property and equipment, net
    
    
    1,577
    
    
    
    1,169Deferred income taxes
    
    
    933
    
    
    
    463Cost in excess of net assets acquired
    
    
    381
    
    
    
    381Total assets
    
    $
    17,171
    
    
    $
    17,527LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,650
    
    
    $
    2,235Accounts payableParent
    
    
    1,382
    
    
    
    833Accrued expenses
    
    
    3,461
    
    
    
    2,789Short term bank financing
    
    
    
    
    
    
    400Customer advances
    
    
    14
    
    
    
    2,232Income taxes payable
    
    
    51
    
    
    
    47Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    1,416
    
    
    
    935Deferred income taxes
    
    
    654
    
    
    
    177Total liabilities, all current
    
    
    8,628
    
    
    
    9,648Stockholders equity:Preferred stock: $.01 par value:Authorized shares2,000,000
Issued and outstanding sharesnone
    
    
    
    
    
    
    Common stock: $.01 par value:Authorized shares10,000,000
Issued shares6,084,473
    
    
    61
    
    
    
    61Additional paid-in capital
    
    
    15,222
    
    
    
    15,173Accumulated deficit
    
    
    (6,497
    )
    
    
    (7,112
    )Treasury stock82,900 shares
    
    
    (243
    )
    
    
    (243
    )Total stockholders equity
    
    
    8,543
    
    
    
    7,879Total liabilities and stockholders equity
    
    $
    17,171
    
    
    $
    17,527
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ORBIT/FR, Inc.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Contract revenues
    
    $
    8,302
    
    
    $
    6,964
    
    
    $
    22,020
    
    
    $
    21,773Cost of revenues
    
    
    5,867
    
    
    
    4,843
    
    
    
    15,089
    
    
    
    15,444Gross profit
    
    
    2,435
    
    
    
    2,121
    
    
    
    6,931
    
    
    
    6,329Operating expenses:General and administrative
    
    
    778
    
    
    
    653
    
    
    
    2,507
    
    
    
    2,175Sales and marketing
    
    
    928
    
    
    
    732
    
    
    
    2,610
    
    
    
    2,225Research and development
    
    
    433
    
    
    
    392
    
    
    
    1,171
    
    
    
    1,129Total operating expenses
    
    
    2,139
    
    
    
    1,777
    
    
    
    6,288
    
    
    
    5,529Operating income
    
    
    296
    
    
    
    344
    
    
    
    643
    
    
    
    800Other income (expense), net
    
    
    99
    
    
    
    (1
    )
    
    
    207
    
    
    
    51Income before income tax
expense
    
    
    395
    
    
    
    343
    
    
    
    850
    
    
    
    851Income tax expense
    
    
    73
    
    
    
    100
    
    
    
    235
    
    
    
    239Net income
    
    $
    322
    
    
    $
    243
    
    
    $
    615
    
    
    $
    612Basic and diluted income per share
    
    $
    0.05
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    0.10Weighted average number
basic common shares
    
    
    6,001,573
    
    
    
    6,001,573
    
    
    
    6,001,573
    
    
    
    6,001,573Weighted average number
diluted common shares
    
    
    6,023,589
    
    
    
    6,022,829
    
    
    
    6,019,083
    
    
    
    6,019,582
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ORBIT/FR, Inc.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 Nine months endedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    615
    
    
    $
    612Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation
    
    
    286
    
    
    
    230Deferred income tax benefit
    
    
    51
    
    
    
    6Stock option compensation expense
    
    
    49
    
    
    
    Changes in operating assets and liabilitiesAccounts receivable
    
    
    2,004
    
    
    
    295Inventory
    
    
    (346
    )
    
    
    (103
    )Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    (2,042
    )
    
    
    (1,286
    )Income tax refunds receivable
    
    
    324
    
    
    
    25Other assets
    
    
    (201
    )
    
    
    204Accounts payable and accrued expenses
    
    
    87
    
    
    
    1,819Accounts payableParent
    
    
    549
    
    
    
    (27
    )Income taxes payable
    
    
    4
    
    
    
    63Customer advances
    
    
    (2,218
    )
    
    
    (52
    )Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    481
    
    
    
    (938
    )Net cash provided by (used in) operating activities
    
    
    (357
    )
    
    
    848Cash flows from investing activities:Purchase of equipment
    
    
    (694
    )
    
    
    (282
    )Net cash used in investing activities
    
    
    (694
    )
    
    
    (282
    )Cash flows from financing activities:Short-term bank loan
    
    
    200
    
    
    
    250Repayment of short-term bank loan
    
    
    (600
    )
    
    
    (250
    )Net cash used financing activities
    
    
    (400
    )
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (1,451
    )
    
    
    566Cash and cash equivalents at beginning of year
    
    
    3,901
    
    
    
    3,188Cash and cash equivalents at end of period
    
    $
    2,450
    
    
    $
    3,754Supplemental disclosures of cash flow information:Cash paid during the period for income taxes
    
    $
    211
    
    
    $
    251Net cash received (paid) during the period for interest
    
    $
    29
    
    
    $
    26
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ORBIT/FR, Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007
(Amounts in thousands, except share and per share data)
 1. Ownership and Basis of Presentation
  2. Summary of Significant Accounting Policies
 Interim Financial Information
  Principles of Consolidation
  Use of Estimates
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007
(Amounts in thousands, except share and per share data)
 Adoption of New Standard
  2. Summary of Significant Accounting Policies (continued)
   Net Income Per Share
  3. Inventory
  September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Work-in-process
    
    $
    1,280
    
    
    $
    1,885Parts and components
    
    
    2,222
    
    
    
    1,271$
    3,502
    
    
    $
    3,156
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007
(Amounts in thousands, except share and per share data)
 4. Property and Equipment
  September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Lab and computer equipment
    
    $
    3,034
    
    
    $
    2,582Office equipment
    
    
    993
    
    
    
    1,027Transportation equipment
    
    
    226
    
    
    
    156Furniture and fixtures
    
    
    15
    
    
    
    11Leasehold improvements
    
    
    138
    
    
    
    3414,406
    
    
    
    4,117Less accumulated depreciation
    
    
    2,829
    
    
    
    2,948Property and equipment, net
    
    $
    1,577
    
    
    $
    1,169
 5. Accrued Expenses
  September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Accrued contract costs
    
    $
    169
    
    
    $
    146Accrued compensation
    
    
    1,563
    
    
    
    1,434Accrued commissions
    
    
    374
    
    
    
    197Accrued royalties
    
    
    57
    
    
    
    54Accrued warranty
    
    
    382
    
    
    
    359Accrued DTC settlement costs
    
    
    
    
    
    
    33Other accruals
    
    
    916
    
    
    
    566$
    3,461
    
    
    $
    2,789
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007
(Amounts in thousands, except share and per share data)
 6. Long-Term Contracts
 September 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Accumulated expenditures on uncompleted contracts
    
    $
    21,646
    
    
    $
    16,869Estimated earnings thereon
    
    
    5,690
    
    
    
    3,67327,336
    
    
    
    20,542Less: applicable progress billings
    
    
    25,230
    
    
    
    19,997Total
    
    $
    2,106
    
    
    $
    545The long-term contracts are shown
in the accompanying balance sheets as follows:Costs and estimated earnings on uncompleted
contracts in excess of billings
    
    $
    3,522
    
    
    $
    1,480Billings on uncompleted contracts in excess of
costs and estimated earnings
    
    
    (1,416
    )
    
    
    (935
    )$
    2,106
    
    
    $
    545
 7. Related Party Transactions
  8.
Stock Options
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2007
(Amounts in thousands, except share and per share data)
 9. Segment and Geographic Information
  Three months ended September 30, 2007
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    2,287
    
    
    $
    2,693
    
    
    $
    3,322
    
    
    $
    8,302Cost of sales to unaffiliated customers
    
    
    1,396
    
    
    
    2,040
    
    
    
    2,431
    
    
    
    5,867Gross profit unaffiliated customers
    
    $
    891
    
    
    $
    653
    
    
    $
    891
    
    
    $
    2,435
 Three months ended September 30, 2006
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    3,462
    
    
    $
    2,350
    
    
    $
    1,152
    
    
    $
    6,964Cost of sales to unaffiliated customers
    
    
    2,220
    
    
    
    1,776
    
    
    
    847
    
    
    
    4,843Gross profit unaffiliated customers
    
    $
    1,242
    
    
    $
    574
    
    
    $
    305
    
    
    $
    2,121
 Nine months ended September 30, 2007
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    7,613
    
    
    $
    5,303
    
    
    $
    9,104
    
    
    $
    22,020Cost of sales to unaffiliated customers
    
    
    4,398
    
    
    
    4,258
    
    
    
    6,433
    
    
    
    15,089Gross profit unaffiliated customers
    
    $
    3,215
    
    
    $
    1,045
    
    
    $
    2,671
    
    
    $
    6,931
 Nine months ended September 30, 2006
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    10,641
    
    
    $
    6,810
    
    
    $
    4,322
    
    
    $
    21,773Cost of sales to unaffiliated customers
    
    
    6,837
    
    
    
    5,686
    
    
    
    2,921
    
    
    
    15,444Gross profit unaffiliated customers
    
    $
    3,804
    
    
    $
    1,124
    
    
    $
    1,401
    
    
    $
    6,329
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
  Results of Operations
  Three Months Ended September 30,
    
    Nine Months Ended September 30,2007
    
    2006
    
    2007
    
    2006(Unaudited)
    
    (Unaudited)Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    29.3
    
    
    
    30.4
    
    
    
    31.5
    
    
    
    29.1General and
administrative
    
    
    9.4
    
    
    
    9.4
    
    
    
    11.4
    
    
    
    10.0Sales and marketing
    
    
    11.2
    
    
    
    10.6
    
    
    
    11.9
    
    
    
    10.2Research and development
    
    
    5.2
    
    
    
    5.7
    
    
    
    5.3
    
    
    
    5.2Operating income
    
    
    3.6
    
    
    
    4.9
    
    
    
    2.9
    
    
    
    3.7Income before
income tax expense
    
    
    4.8
    
    
    
    4.9
    
    
    
    3.9
    
    
    
    3.9Net income
    
    
    3.9
    
    
    
    3.5
    
    
    
    2.8
    
    
    
    2.8
 Three months ended September 30, 2007 compared to three months ended September 30, 2006.
 Revenues.
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Cost of revenues.
 General and administrative expenses.
 Sales and marketing expenses.
 Research and development expenses.
 Other income (expense), net.
 Income taxes.
 Nine months ended September 30, 2007 compared to nine months ended September 30, 2006.
 Revenues.
 12




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Cost of revenues.
 General and administrative expenses.
 Sales and marketing expenses.
 Research and development expenses.
 Other income (expense) net,
 Income taxes.
 Liquidity and Capital Resources
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Inflation and Seasonality
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 (a)
    
    Evaluation of disclosure controls and procedures. The Companys disclosure controls and
procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) are
designed to ensure that information required to be disclosed by us in the reports that are
filed or submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. These disclosure controls and procedures include controls and
procedures designed to ensure that information required to be disclosed under the
Securities Exchange Act of 1934 is accumulated and communicated to our management on a
timely basis to allow decisions regarding required disclosure. The Company evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of
September 30, 2007. Based on this evaluation, the Companys Chief Executive Officer and
Chief Financial Officer previously concluded that as of September 30, 2007, these controls
and procedures were effective.(b)
    
    Change in Internal Control. There have been no changes in internal control over
financial reporting identified in connection with the foregoing evaluation that occurred
during the Companys fiscal quarter ended September 30, 2007 that have materially affected,
or are reasonably likely to materially affect, the Companys internal control over
financial reporting.
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of ProceedNot applicable
 
 Item 3. Defaults upon Senior SecuritiesNot applicable
 
 Item 4. Submission of Matters to a Vote of Security HoldersNot applicable
 
 Item 5. Other Information    None
 
 Item 6. Exhibits
 31.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Israel Adan,
President and Chief Executive Officer.31.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Dave Lubbe, Chief
Financial Officer.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Israel Adan,
President and Chief Executive Officer.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Dave Lubbe, Chief
Financial Officer.
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ORBIT/FR, Inc.
 
 SIGNATURES
  Orbit/FR, Inc.RegistrantDate: November 14, 2007/s/ Israel Adan

President and Chief Executive OfficerDate: November 14, 2007/s/ Dave Lubbe

Chief Financial Officer
 16