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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 June 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June 30, 2007 (Unaudited) and December 31, 2006
    
    
    3Consolidated Statements of OperationsThree and six  months ended June 30, 2007 and 2006 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows-- Six months ended June 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
    
    
    16Item 1A.
    
    Risk Factors
    
    
    16Item 2.
    
    Changes in Securities, Use of  Proceeds and Issuer Purchases of Equity Securities
    
    
    16Item 3.
    
    Defaults upon Senior Securities
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Item 5.
    
    Other Information
    
    
    16Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    16Signatures
    
    
    
    
    171997 Equity Incentive Plan of Orbit/FR, Inc. as amendedCertification, Israel Adan, President and Chief Executve OfficerCertification, Dave Lubbe, Chief Financial OfficerCertification, Israel Adan, President and Chief Executve Officer, pursuant to Section 906Certification, Dave Lubbe, Chief Financial Officer, Pursuant to Section 906
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ORBIT/FR, Inc.
 
 CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
 June 30,
    
    
    December 31,2007
    
    
    2006UnauditedASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,722
    
    
    $
    3,901Accounts receivable, less allowance of $215
and $269 in 2007 and 2006, respectively
    
    
    4,870
    
    
    
    5,769Inventory
    
    
    3,564
    
    
    
    3,156Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    3,619
    
    
    
    1,480Income tax refunds receivable
    
    
    211
    
    
    
    336Deferred income taxes
    
    
    735
    
    
    
    721Other
    
    
    166
    
    
    
    151Total current assets
    
    
    14,887
    
    
    
    15,514Property and equipment, net
    
    
    1,446
    
    
    
    1,169Deferred income taxes
    
    
    759
    
    
    
    463Cost in excess of net assets acquired
    
    
    381
    
    
    
    381Total assets
    
    $
    17,473
    
    
    $
    17,527LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,871
    
    
    $
    2,235Accounts payableParent
    
    
    1,207
    
    
    
    833Accrued expenses
    
    
    3,014
    
    
    
    2,789Short term bank financing
    
    
    200
    
    
    
    400Customer advances
    
    
    577
    
    
    
    2,232Income taxes payable
    
    
    14
    
    
    
    47Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    1,911
    
    
    
    935Deferred income taxes
    
    
    507
    
    
    
    177Total liabilities, all current
    
    
    9,301
    
    
    
    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10,000,000Issued shares6,084,473
    
    
    61
    
    
    
    61Additional paid-in capital
    
    
    15,173
    
    
    
    15,173Accumulated deficit
    
    
    (6,819
    )
    
    
    (7,112
    )Treasury stock82,900 shares
    
    
    (243
    )
    
    
    (243
    )Total stockholders equity
    
    
    8,172
    
    
    
    7,879Total liabilities and stockholders equity
    
    $
    17,473
    
    
    $
    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 June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Contract revenues
    
    $
    7,204
    
    
    $
    7,280
    
    
    $
    13,718
    
    
    $
    14,809Cost of revenues
    
    
    4,929
    
    
    
    5,382
    
    
    
    9,222
    
    
    
    10,601Gross profit
    
    
    2,275
    
    
    
    1,898
    
    
    
    4,496
    
    
    
    4,208Operating expenses:General and administrative
    
    
    832
    
    
    
    749
    
    
    
    1,729
    
    
    
    1,522Sales and marketing
    
    
    865
    
    
    
    722
    
    
    
    1,682
    
    
    
    1,493Research and development
    
    
    361
    
    
    
    327
    
    
    
    738
    
    
    
    737Total operating expenses
    
    
    2,058
    
    
    
    1,798
    
    
    
    4,149
    
    
    
    3,752Operating income
    
    
    217
    
    
    
    100
    
    
    
    347
    
    
    
    456Other income, net
    
    
    23
    
    
    
    6
    
    
    
    108
    
    
    
    52Income before income taxes
    
    
    240
    
    
    
    106
    
    
    
    455
    
    
    
    508Income tax expense
    
    
    89
    
    
    
    27
    
    
    
    162
    
    
    
    139Net income
    
    $
    151
    
    
    $
    79
    
    
    $
    293
    
    
    $
    369Basic and diluted income per share
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.05
    
    
    $
    0.06Weighted average number
basic common shares
    
    
    6,001,573
    
    
    
    6,001,573
    
    
    
    6,001,573
    
    
    
    6,001,573Weighted average number
diluted common shares
    
    
    6,025,530
    
    
    
    6,021,780
    
    
    
    6,023,158
    
    
    
    6,017,730
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ORBIT/FR, Inc.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 Six months endedJune 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    293
    
    
    $
    369Adjustments to reconcile net income to net cash
used in operating activities:Depreciation and amortization
    
    
    191
    
    
    
    186Deferred income tax provision
    
    
    20
    
    
    
    12Changes in operating assets and liabilities:Accounts receivable
    
    
    899
    
    
    
    (740
    )Inventory
    
    
    (408
    )
    
    
    (273
    )Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    (2,139
    )
    
    
    (679
    )Income tax refunds receivable
    
    
    125
    
    
    
    67Other current assets
    
    
    (15
    )
    
    
    228Accounts payable and accrued expenses
    
    
    (139
    )
    
    
    1,508Accounts payableParent
    
    
    374
    
    
    
    122Customer advances
    
    
    (1,655
    )
    
    
    685Income taxes payable
    
    
    (33
    )
    
    
    48Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    976
    
    
    
    (1,713
    )Net cash used in operating activities
    
    
    (1,511
    )
    
    
    (180
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (468
    )
    
    
    (226
    )Net cash used in investing activities
    
    
    (468
    )
    
    
    (226
    )Cash flows from financing activities:Proceeds from short term notes payable
    
    
    200
    
    
    
    Repayment of short term notes payable
    
    
    (400
    )
    
    
    Net cash used in financing activities
    
    
    (200
    )
    
    
    Net decrease in cash and cash equivalents
    
    
    (2,179
    )
    
    
    (406
    )Cash and cash equivalents at beginning of period
    
    
    3,901
    
    
    
    3,189Cash and cash equivalents at end of period
    
    $
    1,722
    
    
    $
    2,783Supplemental disclosures of cash flow information:Cash paid during the period for income taxes
    
    $
    190
    
    
    $
    141Cash received during the period for interest
    
    $
    31
    
    
    $
    19
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ORBIT/FR, Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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
  Adoption of New Standard
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2007
(Amounts in thousands, except share and per share data)
 2. Summary of Significant Accounting Policies (continued)
   Net Income Per Share
  3. Inventory
  June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Work-in-process
    
    $
    862
    
    
    $
    1,885Parts and components
    
    
    2,702
    
    
    
    1,271$
    3,564
    
    
    $
    3,156
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2007
(Amounts in thousands, except share and per share data)
 4. Property and Equipment
  June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Lab and computer equipment
    
    $
    2,832
    
    
    $
    2,582Office equipment
    
    
    967
    
    
    
    1,027Transportation equipment
    
    
    217
    
    
    
    156Furniture and fixtures
    
    
    9
    
    
    
    11Leasehold improvements
    
    
    139
    
    
    
    3414,164
    
    
    
    4,117Less accumulated depreciation
    
    
    2,718
    
    
    
    2,948Property and equipment, net
    
    $
    1,446
    
    
    $
    1,169
 5. Accrued Expenses
  June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Accrued contract costs
    
    $
    379
    
    
    $
    146Accrued compensation
    
    
    1,575
    
    
    
    1,434Accrued commissions
    
    
    280
    
    
    
    197Accrued royalties
    
    
    54
    
    
    
    54Accrued warranty
    
    
    425
    
    
    
    359Accrued DTC settlement costs
    
    
    33
    
    
    
    33Other accruals
    
    
    268
    
    
    
    566$
    3,014
    
    
    $
    2,789
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2007
(Amounts in thousands, except share and per share data)
 6. Long-Term Contracts
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)Accumulated expenditures on uncompleted contracts
    
    $
    17,976
    
    
    $
    16,869Estimated earnings thereon
    
    
    5,167
    
    
    
    3,67323,143
    
    
    
    20,542Less: applicable progress billings
    
    
    21,435
    
    
    
    19,997Total
    
    $
    1,708
    
    
    $
    545The long-term contracts are shown in the
accompanying balance sheets as follows:Costs and estimated earnings on uncompleted
contracts in excess of billings
    
    $
    3,619
    
    
    $
    1,480Billings on uncompleted contracts in excess of
costs and estimated earnings
    
    
    (1,911
    )
    
    
    (935
    )$
    1,708
    
    
    $
    545
 7. Related Party Transactions
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ORBIT/FR, Inc.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2007
(Amounts in thousands, except share and per share data)
 8. Segment and Geographic Information
  Three months ended June 30, 2007
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    2,457
    
    
    $
    1,125
    
    
    $
    3,622
    
    
    $
    7,204Cost of sales to unaffiliated customers
    
    
    1,384
    
    
    
    1,050
    
    
    
    2,495
    
    
    
    4,929Gross profit unaffiliated customers
    
    $
    1,073
    
    
    $
    75
    
    
    $
    1,127
    
    
    $
    2,275
 Three months ended June 30, 2006
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    3,178
    
    
    $
    2,919
    
    
    $
    1,183
    
    
    $
    7,280Cost of sales to unaffiliated customers
    
    
    2,105
    
    
    
    2,455
    
    
    
    822
    
    
    
    5,382Gross profit unaffiliated customers
    
    $
    1,073
    
    
    $
    464
    
    
    $
    361
    
    
    $
    1,898
 Six months ended June 30, 2007
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    5,326
    
    
    $
    2,611
    
    
    $
    5,781
    
    
    $
    13,718Cost of sales to unaffiliated customers
    
    
    3,002
    
    
    
    2,219
    
    
    
    4,001
    
    
    
    9,222Gross profit unaffiliated customers
    
    $
    2,324
    
    
    $
    392
    
    
    $
    1,780
    
    
    $
    4,496
 Six months ended June 30, 2006
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalSales to unaffiliated customers
    
    $
    7,180
    
    
    $
    4,459
    
    
    $
    3,170
    
    
    $
    14,809Cost of sales to unaffiliated customers
    
    
    4,617
    
    
    
    3,910
    
    
    
    2,074
    
    
    
    10,601Gross profit unaffiliated customers
    
    $
    2,563
    
    
    $
    549
    
    
    $
    1,096
    
    
    $
    4,208
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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 June 30,
    
    Six Months Ended June 30,2007
    
    2006
    
    2007
    
    2006(Unaudited)
    
    (Unaudited)Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    31.6
    
    
    
    26.1
    
    
    
    32.8
    
    
    
    28.4General and
administrative
    
    
    11.6
    
    
    
    10.3
    
    
    
    12.6
    
    
    
    10.3Sales and marketing
    
    
    12.0
    
    
    
    9.9
    
    
    
    12.3
    
    
    
    10.1Research and development
    
    
    5.0
    
    
    
    4.5
    
    
    
    5.4
    
    
    
    5.0Operating income
    
    
    3.0
    
    
    
    1.4
    
    
    
    2.5
    
    
    
    3.1Income before
income taxes
    
    
    3.3
    
    
    
    1.5
    
    
    
    3.3
    
    
    
    3.4Net income
    
    
    2.1
    
    
    
    1.1
    
    
    
    2.1
    
    
    
    2.5
 Three months ended June 30, 2007 compared to three months ended June 30, 2006.
 Revenues.
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Cost of revenues.
 General and administrative expenses.
 Sales and marketing expenses.
 Research and development expenses.
 Other income, net.
 Income taxes.
 Six months ended June 30, 2007 compared to six months ended June 30, 2006.
 Revenues.
 Cost of revenues.
 12




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General and administrative expenses.
 Sales and marketing expenses.
 Research and development expenses.
 Other income 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
June 30, 2007. Based on this evaluation, the Companys Chief Executive Officer and Chief
Financial Officer previously concluded that as of June 30, 2007, these controls and
procedures were effective.Prior to the evaluation of the Companys disclosure controls and
procedures as of March 31, 2007, on March 13, 2007 the Companys Board of Directors
approved amendments to the Companys 1997 Equity Incentive Plan (the Amendments).
The Company failed to file the details of the Amendments on a Current Report on Form 8-K
within the four (4) business day period after the date of such approval of the Amendment,
as required by the rules governing the filing of Current Reports on Form 8-K, and did not
file a copy of the 1997 Equity Incentive Plan, as amended by the Amendments, with its
Quarterly Report on Form 10-Q for the period ended March 31, 2007. The Company has
described the Amendments under Item 5 of this Form 10-Q and has filed a copy of the 1997
Equity Incentive Plan, as amended by the Amendments, as an exhibit to this Form 10-Q.
Based upon the failure of the Company to file a Current Report on Form 8-K regarding the
Amendment within the time period permitted under the rules governing the filing of
Current Reports on Form 8-K and to file a copy of the 1997 Equity Incentive Plan, as
amended by the Amendments, with its Quarterly Report on Form 10-Q for the period ended
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March 31, 2007, our Chief Executive Officer and Chief Financial Officer have subsequently
concluded that our disclosure controls and procedures were deficient as of March 31, 2007
as such disclosure controls and procedures applied to the filing of Current Reports on Form
8-K and Quarterly Reports on Form 10-Q relating to the Amendments. The Company has since
revised and updated its disclosure controls and procedures to address this deficiency to
ensure that such information relating to the public announcement or release in the future
of non-public information regarding amendments to material agreements will be recorded,
processed, summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms.(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 June 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
  
 Item 6. Exhibits
 10.1
    
    1997 Equity Incentive Plan of Orbit/FR, Inc., as amended.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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##### Table of Contents



ORBIT/FR, Inc.
 
 SIGNATURES
  Orbit/FR, Inc.RegistrantDate: August 14, 2007/s/ Israel AdanPresident and Chief Executive OfficerDate: August 14, 2007/s/ Dave LubbeChief Financial Officer
 17