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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, 2010
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



ORBIT/FR, Inc.
 Index
 Page No.PART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsCondensed Consolidated Balance SheetsSeptember 30, 2010 (Unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of OperationsThree and nine months ended September 30, 2010 and 2009 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows Nine months ended September 30, 2010 and 2009 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 4. Controls and procedures
    
    
    15PART II. Other InformationItem 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 6. Exhibits
    
    
    16Signatures
    
    
    17Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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ORBIT/FR, Inc.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share data)
 September 30,
    
    
    December 31,2010
    
    
    2009UnauditedASSETSCurrent assets:Cash and cash equivalents
    
    $
    3,433
    
    
    $
    1,622Accounts receivable, less allowance of $90 and $67
    
    
    5,603
    
    
    
    9,207Inventory
    
    
    2,870
    
    
    
    2,681Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    5,136
    
    
    
    1,668Income tax refunds receivable
    
    
    543
    
    
    
    542Deferred income taxes
    
    
    726
    
    
    
    835Other
    
    
    501
    
    
    
    277Total current assets
    
    
    18,812
    
    
    
    16,832Property and equipment, net
    
    
    2,372
    
    
    
    2,093Deferred income taxes
    
    
    1,093
    
    
    
    887Cost in excess of net assets acquired
    
    
    301
    
    
    
    301Total assets
    
    $
    22,578
    
    
    $
    20,113LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,883
    
    
    $
    3,946Accounts payableparent company
    
    
    1,874
    
    
    
    1,482Accrued expenses
    
    
    3,504
    
    
    
    3,355Short term bank financing
    
    
    
    
    
    
    250Customer advances
    
    
    11
    
    
    
    13Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    3,338
    
    
    
    2,813Total liabilities, all current
    
    
    12,610
    
    
    
    11,859Stockholders equity:Preferred stock: $.01 par value:Authorized shares2,000,000Issued and outstanding sharesnone
    
    
    
    
    
    
    Common stock: $.01 par value:Authorized shares10,000,000Issued shares6,084,473
    
    
    61
    
    
    
    61Additional paid-in capital
    
    
    16,490
    
    
    
    16,460Accumulated deficit
    
    
    (6,292
    )
    
    
    (8,024
    )Accumulated other comprehensive (loss) -
foreign translation adjustment
    
    
    (48
    )
    
    
    Treasury stock82,700 shares
    
    
    (243
    )
    
    
    (243
    )Total stockholders equity
    
    
    9,968
    
    
    
    8,254Total liabilities and stockholders equity
    
    $
    22,578
    
    
    $
    20,113
   3




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ORBIT/FR, Inc.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands, except share and per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Contract revenues
    
    $
    9,700
    
    
    $
    7,755
    
    
    $
    26,158
    
    
    $
    20,705Cost of revenues
    
    
    6,948
    
    
    
    4,983
    
    
    
    18,078
    
    
    
    13,902Gross profit
    
    
    2,752
    
    
    
    2,772
    
    
    
    8,080
    
    
    
    6,803Operating expenses:General and administrative:
    
    
    802
    
    
    
    865
    
    
    
    2,298
    
    
    
    2,103Sales and marketing:
    
    
    702
    
    
    
    791
    
    
    
    2,199
    
    
    
    2,615Sales, marketing,
general and administrative  MVG
    
    
    342
    
    
    
    317
    
    
    
    1,025
    
    
    
    952Research and development
    
    
    414
    
    
    
    312
    
    
    
    978
    
    
    
    1,024Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Total operating expenses
    
    
    2,260
    
    
    
    2,285
    
    
    
    6,500
    
    
    
    6,848Operating income (loss)
    
    
    492
    
    
    
    487
    
    
    
    1,580
    
    
    
    (45
    )Other (loss), net
    
    
    (204
    )
    
    
    (21
    )
    
    
    (78
    )
    
    
    (143
    )Income (loss) before income taxes
    
    
    288
    
    
    
    466
    
    
    
    1,502
    
    
    
    (188
    )Income tax (benefit)
    
    
    (139
    )
    
    
    
    
    
    
    (231
    )
    
    
    Net income (loss)
    
    
    427
    
    
    
    466
    
    
    
    1,733
    
    
    
    (188
    )Other comprehensive income (loss) -
foreign translation adjustment
    
    
    136
    
    
    
    
    
    
    
    (48
    )
    
    
    Total comprehensive income (loss)
    
    $
    563
    
    
    $
    466
    
    
    $
    1,685
    
    
    $
    (188
    )Basic income (loss) per share
    
    $
    0.07
    
    
    $
    0.08
    
    
    $
    0.29
    
    
    $
    (0.03
    )Diluted income (loss) per share
    
    $
    0.07
    
    
    $
    0.08
    
    
    $
    0.29
    
    
    $
    (0.03
    )Weighted average number
basic common shares
    
    
    6,001,773
    
    
    
    6,001,573
    
    
    
    6,001,773
    
    
    
    6,001,573Weighted average number
diluted common shares
    
    
    6,026,250
    
    
    
    6,001,573
    
    
    
    6,017,532
    
    
    
    6,001,573
   4




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ORBIT/FR, Inc.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    1,733
    
    
    $
    (188
    )Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation and amortization
    
    
    376
    
    
    
    284Loss on disposal of fixed assets
    
    
    
    
    
    
    53Stock based compensation
    
    
    31
    
    
    
    76Deferred income taxes
    
    
    (97
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    3,533
    
    
    
    1,472Inventory
    
    
    (195
    )
    
    
    (219
    )Costs and estimated earnings in excess of billings
on uncompleted contracts
    
    
    (3,466
    )
    
    
    (1,099
    )Income tax refunds receivable
    
    
    
    
    
    
    175Other current assets
    
    
    (228
    )
    
    
    (407
    )Accounts payable and accrued expenses
    
    
    94
    
    
    
    245Accounts payableparent company
    
    
    377
    
    
    
    1,085Customer advances
    
    
    (2
    )
    
    
    (546
    )Billings in excess of costs and estimated earnings
on uncompleted contracts
    
    
    573
    
    
    
    915Net cash provided by operating activities
    
    
    2,729
    
    
    
    1,846Cash flows from investing activities:Purchase of property and equipment
    
    
    (729
    )
    
    
    (1,078
    )Net cash (used in) investing activities
    
    
    (729
    )
    
    
    (1,078
    )Cash flows from financing activities:Proceeds from short term notes payable
    
    
    
    
    
    
    800Repayment of short term notes payable
    
    
    (250
    )
    
    
    (1,817
    )Net cash (used in) financing activities
    
    
    (250
    )
    
    
    (1,017
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    61
    
    
    
    Net increase in cash and cash equivalents
    
    
    1,811
    
    
    
    (249
    )Cash and cash equivalents at beginning of period
    
    
    1,622
    
    
    
    1,521Cash and cash equivalents at end of period
    
    $
    3,433
    
    
    $
    1,272Supplemental disclosures of cash flow information:Cash paid (received) during the period for income taxes
    
    $
    243
    
    
    $
    (168
    )Cash paid during the period for interest
    
    $
    4
    
    
    $
    12
   5




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ORBIT/FR, Inc.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 September 30, 2010
 (Amounts in thousands, except share and per share data)
 1. Ownership and Basis of Presentation
  2. Summary of Significant Accounting Policies
 Interim Financial Information
   6




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ORBIT/FR, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2010
(Amounts in thousands, except share and per share data)
 3. Inventory
  Parts and components
    
    $
    2,707Work- in- process
    
    
    163Total
    
    $
    2,870
 4. Property and Equipment
  Lab and computer equipment
    
    $
    2,897Office equipment
    
    
    871Transportation equipment
    
    
    61Furniture and fixtures
    
    
    12Fixed assets in progress
    
    
    124Leasehold improvements
    
    
    650Total
    
    
    4,615Less accumulated depreciation
    
    
    2,243Property and equipment, net
    
    $
    2,372
 5. Accrued Expenses
  Contract costs
    
    $
    52Compensation
    
    
    1,637Commissions
    
    
    612Royalties
    
    
    53Warranty
    
    
    470Deferred revenue
    
    
    96Other accruals
    
    
    584Total
    
    $
    3,504
  7




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ORBIT/FR, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2010
(Amounts in thousands, except share and per share data)
 6. Long-Term Contracts
  Accumulated expenditures on uncompleted contracts
    
    $
    48,068Estimated earnings thereon
    
    
    15,668Total
    
    
    63,736Less: Applicable progress billings
    
    
    (61,938
    )Balance
    
    $
    1,798
  Costs and estimated earnings on uncompleted
contracts in excess of billings
    
    $
    5,136Billings on uncompleted contracts in excess of
costs and estimated earnings
    
    
    (3,338
    )Total
    
    $
    1,798
 7. Income Taxes
    8




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ORBIT/FR, Inc.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2010
(Amounts in thousands, except share and per share data)
 8. Related Party Transactions
  9. Segment and Geographic Information
  Three months ended September 30, 2010
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalContract revenues
    
    $
    5,157
    
    
    $
    2,912
    
    
    $
    1,631
    
    
    $
    9,700Cost of revenues
    
    
    3,946
    
    
    
    1,979
    
    
    
    1,023
    
    
    
    6,948Gross profit
    
    $
    1,211
    
    
    $
    933
    
    
    $
    608
    
    
    $
    2,752
 Three months ended September 30, 2009
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalContract revenues
    
    $
    3,482
    
    
    $
    2,588
    
    
    $
    1,685
    
    
    $
    7,755Cost of revenues
    
    
    2,122
    
    
    
    1,703
    
    
    
    1,158
    
    
    
    4,983Gross profit
    
    $
    1,360
    
    
    $
    885
    
    
    $
    527
    
    
    $
    2,772
 Nine months ended September 30, 2010
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalContract revenues
    
    $
    11,775
    
    
    $
    9,123
    
    
    $
    5,260
    
    
    $
    26,158Cost of revenues
    
    
    8,154
    
    
    
    6,434
    
    
    
    3,490
    
    
    
    18,078Gross profit
    
    $
    3,621
    
    
    $
    2,689
    
    
    $
    1,770
    
    
    $
    8,080
 Nine months ended September 30, 2009
    
    North America
    
    
    Europe
    
    
    Asia
    
    
    TotalContract revenues
    
    $
    9,717
    
    
    $
    5,983
    
    
    $
    5,005
    
    
    $
    20,705Cost of revenues
    
    
    6,408
    
    
    
    4,041
    
    
    
    3,453
    
    
    
    13,902Gross profit
    
    $
    3,309
    
    
    $
    1,942
    
    
    $
    1,552
    
    
    $
    6,803
   9




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
  Critical Accounting Policies
 Revenue and Cost Recognition
   10




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Accounts Receivable
  Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    28.3
    
    
    
    35.8
    
    
    
    30.9
    
    
    
    32.9General and
administrative
    
    
    8.3
    
    
    
    11.2
    
    
    
    8.8
    
    
    
    10.1Sales and marketing
    
    
    7.2
    
    
    
    10.2
    
    
    
    8.4
    
    
    
    12.6Research and development
    
    
    4.3
    
    
    
    4.0
    
    
    
    3.7
    
    
    
    4.9Microwave Vision Group
corporate expenses
    
    
    3.5
    
    
    
    4.1
    
    
    
    3.9
    
    
    
    4.6Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7Operating income (loss)
    
    
    5.0
    
    
    
    6.3
    
    
    
    6.1
    
    
    
    (0.2
    )Income (loss) before income taxes
    
    
    3.0
    
    
    
    6.0
    
    
    
    5.7
    
    
    
    (0.9
    )Net income (loss)
    
    
    4.4
    
    
    
    6.0
    
    
    
    6.6
    
    
    
    (0.9
    )
 Three months ended September 30, 2010 compared to three months ended September 30, 2009.
 Revenues.
  11




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Cost of revenues.
 General and administrative expense.
 Sales and marketing expenses.
 Sales, marketing general and administrative-Microwave Vision Group.
 Research and development expenses.
 Other (loss), net.
 Income taxes.
  Other
comprehensive income (loss)-foreign translation adjustment.
  12




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Nine months ended September 30, 2010 compared to nine months ended September 30, 2009.
 Revenues.
 Cost of revenues.
 General and administrative expenses.
 Sales and marketing expenses.
 Sales, marketing general and administrative-Microwave Vision Group.
  13




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Research and development expenses.
 Loss on disposal of assets.
 Other (loss),net,
 Income taxes.
  Other
comprehensive income (loss)-foreign translation adjustment.
 Liquidity and Capital Resources
     14




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Inflation and Seasonality
  
 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) 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, 2010. Based on this
evaluation, a material weakness in the recording of revenue under one contract
using the percentage of completion method was discovered. As a result, the
Company’s Chief Executive Officer and Chief Financial Officer concluded
that as of September 30, 2010, these controls and procedures were not
effective.(b)
    
    Changes in Internal Control Over Financial ReportingDuring the three
months ended September 30, 2010 we determined that there was a material
weakness in the recording of revenue using the percentage of completion method
relating to one contract with an unusual infrequently occurring circumstance.
This material weakness, if not corrected, could result in the overstatement of
contract revenues in the Company’s financial statements. As a result, the
Company has amended its internal control procedures to include a process
whereby all revenue recognized under the percentage of completion method is
subject to an enhanced review by senior management. The material weakness did
not result in any misstatement in the Company’s financial statements.
  15




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
 31.1
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, Per Iversen, President and Chief Executive Officer.31.2
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, Relland Winand, 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, Per Iversen,
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, Relland Winand, Chief
Financial Officer.
  16




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SIGNATURES
  Orbit/FR, Inc.Date: November 19, 2010
    /s/  Per IversenPresident and Chief Executive Officer  17