-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RJbIkyWQuTPGCa3ovWKEuU1Bev9yCMzGnIc0WbcN2ywgvaC+HVmcSZKKmCOjnAvP DvWQVfvnkRg3BNTmaH3tpg== 0000893220-04-001705.txt : 20040813 0000893220-04-001705.hdr.sgml : 20040813 20040812192937 ACCESSION NUMBER: 0000893220-04-001705 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBIT FR INC CENTRAL INDEX KEY: 0001037115 STANDARD INDUSTRIAL CLASSIFICATION: INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS [3825] IRS NUMBER: 232874370 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22583 FILM NUMBER: 04971636 BUSINESS ADDRESS: STREET 1: 506 PRUDENTIAL RD CITY: HORSHAM STATE: PA ZIP: 19044 BUSINESS PHONE: 2156745100 MAIL ADDRESS: STREET 1: 506 PRUDENTIAL RD CITY: HORSHAM STATE: PA ZIP: 19044 10-Q 1 w00323e10vq.txt FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 OR [ ] 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. EMPLOYER OF 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) Indicate by check mark whether the registrant (1) has 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 [X] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] There were 6,084,473 shares of common stock, $.01 par value, outstanding as of August 13, 2004. ================================================================================ 1 ORBIT/FR, INC. INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets--June 30, 2004 (Unaudited) and December 31, 2003.................................................... 3 Consolidated Statements of Operations-- Three and six months ended June 30, 2004 and 2003(Unaudited).............................................. 4 Consolidated Statements of Cash Flows-- Six months ended June 30, 2004 and 2003(Unaudited)............................................... 5 Notes to Consolidated Financial Statements (Unaudited).......................................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 10 Item 3. Quantitative and Qualitative Disclosure of Market Risk................................. 13 Item 4. Controls and procedures................................................................ 13 PART II. Other Information Item 1. Legal Proceedings...................................................................... 14 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities..... 14 Item 3. Defaults upon Senior Securities........................................................ 14 Item 4. Submission of Matters to a Vote of Security Holders.................................... 14 Item 5. Other Information...................................................................... 14 Item 6. Exhibits and Reports on Form 8-K....................................................... 14 Signatures................................................................................................... 15
2 ORBIT/FR, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2004 2003 --------- ------------ UNAUDITED ASSETS Current assets: Cash and cash equivalents $ 1,598 $ 2,413 Accounts receivable, less allowance of $181 and $187 in 2004 and 2003, respectively 3,096 4,026 Inventory 2,348 1,549 Costs and estimated earnings in excess of billings on uncompleted contracts 2,380 605 Deferred income taxes 274 275 Other 703 465 ------- ------- Total current assets 10,399 9,333 Property and equipment, net 1,275 1,401 Deferred income taxes 147 145 Cost in excess of net assets acquired 381 381 ------- ------- Total assets $12,202 $11,260 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,627 $ 1,578 Accounts payable--Parent 931 197 Accrued expenses 2,133 1,880 Customer advances 505 456 Income taxes payable 34 19 Billings in excess of costs and estimated earnings on uncompleted contracts 1,279 1,857 Deferred income taxes 125 125 ------- ------- Total liabilities, all current 6,634 6,112 ------- ------- Stockholders' 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 61 Additional paid-in capital 15,173 15,173 Accumulated deficit (9,423) (9,843) Treasury stock--82,900 shares (243) (243) ------- ------- Total stockholders' equity 5,568 5,148 ------- ------- Total liabilities and stockholders' equity $12,202 $11,260 ======= =======
See accompanying notes. 3 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, 2004 2003 2004 2003 --------------------------- -------------------------- Contract revenues $ 5,468 $ 3,281 $ 10,092 $ 7,865 Cost of revenues 3,429 2,417 6,489 5,549 ----------- ----------- ----------- ----------- Gross profit 2,039 864 3,603 2,316 ----------- ----------- ----------- ----------- Operating expenses: General and administrative 740 609 1,329 1,204 Sales and marketing 611 550 1,211 1,181 Research and development 255 303 489 593 ----------- ----------- ----------- ----------- Total operating expenses 1,606 1,462 3,029 2,978 ----------- ----------- ----------- ----------- Operating income (loss) 433 (598) 574 (662) Other expense, net (5) (36) (30) (69) ----------- ----------- ----------- ----------- Income (loss) before income taxes 428 (634) 544 (731) Income tax expense 21 49 124 125 ----------- ----------- ----------- ----------- Net income (loss) $ 407 $ (683) $ 420 $ (856) =========== =========== =========== =========== Basic and diluted income (loss) per share $ .07 $ (.11) $ .07 $ (.14) =========== =========== =========== =========== Weighted average number common shares - basic and diluted 6,001,573 6,001,573 6,001,573 6,001,573 =========== =========== =========== ===========
See accompanying notes. 4 ORBIT/FR, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------- 2004 2003 ------- ------- Cash flows from operating activities: Net income (loss) $ 420 $ (856) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 206 211 Deferred income tax provision (1) (70) Changes in operating assets and liabilities: Accounts receivable 930 1,824 Inventory (799) 225 Costs and estimated earnings in excess of billings on uncompleted contracts (1,775) (283) Other current assets (238) (216) Accounts payable and accrued expenses 302 (55) Accounts payable--Parent 734 (346) Customer advances 49 191 Income taxes payable 15 (26) Billings in excess of costs and estimated earnings on uncompleted contracts (578) (983) ------- ------- Net cash used in operating activities (735) (384) ------- ------- Cash flows from investing activities: Purchase of property and equipment (80) (382) ------- ------- Net cash used in investing activities (80) (382) ------- ------- Cash flows from financing activities: Repayment of note receivable -- 28 ------- ------- Net cash provided by financing activities -- 28 ------- ------- Net decrease in cash and cash equivalents (815) (738) Cash and cash equivalents at beginning of period 2,413 3,030 ------- ------- Cash and cash equivalents at end of period $ 1,598 $ 2,292 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 80 $ 71 ======= =======
See accompanying notes. 5 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2004 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. OWNERSHIP AND BASIS OF PRESENTATION ORBIT/FR, Inc. (the "Company"), was incorporated in Delaware on December 9, 1996, as a wholly owned subsidiary of Orbit-Alchut Technologies, Ltd., an Israeli publicly traded corporation (hereinafter referred to as the "Parent"). The Company develops, markets, and supports sophisticated automated microwave test and measurement systems for the wireless communications, satellite, automotive, aerospace/defense and electromagnetic compatibility (EMC) industries, and manufactures anechoic foam, a microwave absorbing material that is an integral component of microwave test and measurement systems. ORBIT/FR, Inc., a holding company, supports its world wide customers through its subsidiaries ORBIT/FR Engineering, LTD (hereinafter referred to as "Engineering", Israel), ORBIT/FR Europe, (Germany), Advanced Electromagnetics, Inc. ("AEMI", San Diego, CA), and Orbit Advanced Technologies, Inc. and its wholly-owned subsidiary, Flam and Russell, Inc, (Horsham, PA). The Company sells its products to customers throughout Asia, Europe, Israel, and North and South America. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Information The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2004 and 2003 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The consolidated financial statements and footnotes should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-Q and in the Company's Form 10-K for the year ended December 31, 2003, filed on March 30, 2004 with the Securities and Exchange Commission, which included the consolidated financial statements and footnotes for the year ended December 31, 2003. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions of the Company and its wholly-owned subsidiaries have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. 6 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2004 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Income (Loss) Per Share Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding for the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding for the period plus the dilutive effect of stock options. The dilutive effect of stock options was not assumed for the three and six months ended June 30, 2004 and 2003 because the effect of these securities is antidilutive. 3. INVENTORY Inventory consists of the following:
JUNE 30, DECEMBER 31, 2004 2003 ----------- ------------ (UNAUDITED) Work-in-process $1,599 $ 991 Parts and components 749 558 ------ -------- $2,348 $ 1,549 ====== ========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30, DECEMBER 31, 2004 2003 ----------- ------------ (UNAUDITED) Lab and computer equipment $2,168 $2,536 Office equipment 823 908 Transportation equipment 395 376 Furniture and fixtures 17 38 Leasehold improvements 281 288 ------ ----- 3,684 4,146 Less accumulated depreciation 2,409 2,745 ------ ------ Property and equipment, net $1,275 $1,401 ====== ======
7 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2004 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 5. ACCRUED EXPENSES Accrued expenses consist of the following:
JUNE 30, DECEMBER 31, 2004 2003 ----------- ----------- (UNAUDITED) Accrued contract costs $ 384 $ 338 Accrued compensation 982 797 Accrued commissions 116 65 Accrued royalties 118 117 Accrued warranty 331 411 Other accruals 202 152 ------ ------ $2,133 $1,880 ====== ======
6. LONG-TERM CONTRACTS
JUNE 30, DECEMBER 31, 2004 2003 ---------- ------------ (UNAUDITED) Accumulated expenditures on uncompleted contracts $ 10,110 $ 7,856 Estimated earnings thereon 1,809 560 -------- ------- 11,919 8,416 Less: applicable progress billings 10,818 9,668 -------- ------- Total $ 1,101 $(1,252) ======== ======= The long-term contracts are shown in the accompanying balance sheets as follows: Costs and estimated earnings on uncompleted contracts in excess of billings $ 2,380 $ 605 Billings on uncompleted contracts in excess of costs and estimated earnings (1,279) (1,857) -------- ------- $ 1,101 $(1,252) ======== =======
7. RELATED PARTY TRANSACTIONS Engineering and the Parent have an agreement, whereby Engineering purchases from the Parent electrical and mechanical production services. In addition, the Parent provides other administrative services, including, but not limited to, bookkeeping, computer, legal, accounting, cost management, information systems, and production support. Engineering pays the Parent for these services based upon a rate of cost of production services plus 21%. Engineering is leasing office space from the Parent on an annual basis, for a rental of $61 per year. These agreements are to be evaluated on an annual basis. 8 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2004 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 8. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates exclusively in one industry segment, the business of developing, marketing and supporting sophisticated automated microwave test and measurement systems. In addition to its principal operations and markets in the United States, the Company conducts sales, customer support and service operations out of other geographic locations in Europe, Asia, and North America. The following table represents financial information by geographic region for the three and six months ended June 30, 2004 and 2003.
Three months ended June 30, 2004 North America Europe Asia Total - ----------------------------------------- ------------- ------- ---- ----- Sales to unaffiliated customers $ 3,439 $ 1,246 $ 783 $ 5,468 Cost of sales to unaffiliated customers 2,504 565 360 3,429 ------- ------- ------- ------- Gross profit unaffiliated customers $ 935 $ 681 $ 423 $ 2,039 ======= ======= ======= =======
Three months ended June 30, 2003 North America Europe Asia Total -------------------------------- ------------- ------- ---- ----- Sales to unaffiliated customers $ 1,736 $ 338 $ 1,207 $ 3,281 Cost of sales to unaffiliated customers 1,273 401 743 2,417 ------- ------- ------- ------- Gross profit unaffiliated customers $ 463 $ (63) $ 464 $ 864 ======= ======= ======= =======
Six months ended June 30, 2004 North America Europe Asia Total ------------------------------ ------------- ------- ---- ----- Sales to unaffiliated customers $ 5,703 $ 2,024 $ 2,365 $10,092 Cost of sales to unaffiliated customers 3,943 1,073 1,473 6,489 ------- ------- ------- ------- Gross profit unaffiliated customers $ 1,760 $ 951 $ 892 $ 3,603 ======= ======= ======= =======
Six months ended June 30, 2003 North America Europe Asia Total ------------------------------ ------------- ------- ---- ----- Sales to unaffiliated customers $ 4,384 $ 897 $ 2,584 $ 7,865 Cost of sales to unaffiliated customers 3,166 878 1,505 5,549 ------- ------- ------- ------- Gross profit unaffiliated customers $ 1,218 $ 19 $ 1,079 $ 2,316 ======= ======= ======= =======
In the table above, "North America" includes all United States operations, and "Europe" includes subsidiaries in Germany and Israel. 9. INCOME TAXES Income tax expense was not recorded during the three and six months ended June 30, 2004 on the Company's profitable domestic operations as previous income tax benefits on losses were reserved for in prior periods. The Company has reflected income tax expense on profitable foreign operations during the three and six months ended June 30, 2004 and 2003. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Certain information contained in this Form 10-Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder), including without limitation, statements as to the Company's financial condition, results of operations and liquidity and capital resources and statements as to management's beliefs, expectations or options. Such forward looking statements are subject to risks and uncertainties and may be affected by various factors which may cause actual results to differ materially from those in the forward looking statements. Certain of these risks, uncertainties and other factors, as and when applicable, are discussed in the Company's filings with the Securities and Exchange Commission including its most recent Registration Statement on Form S-1, and in its most recent Annual Report on Form 10-K, as amended, a copy of which may be obtained from the Company upon request and without charge (except for the exhibits thereto). RESULTS OF OPERATIONS The following table sets forth certain financial data as a percentage of revenues for the periods indicated:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2004 2003 2004 2003 ---- ---- ---- ---- Revenues 100.0% 100.0% 100.0% 100.0% Gross profit 37.3 26.3 35.7 29.4 General and administrative 13.5 18.6 13.2 15.3 Sales and marketing 11.2 16.8 12.0 15.0 Research and development 4.7 9.2 4.8 7.5 Operating income (loss) 7.9 (18.2) 5.7 (8.4) Income (loss) before income taxes 7.8 (19.3) 5.4 (9.3) Net income (loss) 7.4 (20.8) 4.2 (10.9)
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003. Revenues. Revenues for the three months ended June 30, 2004 were approximately $5.5 million compared to $3.3 million for the three months ended June 30, 2003, an increase of approximately $2.2 million or 67%. Revenues from the defense, satellite, automotive, EMC and University markets increased approximately $1.9 million, $210,000, $204,000, $63,000, and $44,000, respectively, while revenues from the wireless market decreased approximately $234,000. Geographically, revenues from North America and Europe increased approximately $1.7 million and 908,000, respectively, while revenues from Asia decreased approximately $424,000 from prior year levels. The increased sales are largely a result of significant completion of large U.S. defense contracts. Cost of revenues. Cost of revenues for the three months ended June 30, 2004 were approximately $3.4 million compared to approximately $2.4 million for the three months ended June 30, 2003, an increase 10 of approximately $1.0 million or 42%. Gross margins increased to 37% for the three months ended June 30, 2004 from 26% for the three months ended June 30, 2003. The increase in gross margins in the quarter is primarily a result of improvements in the contract bid and program management processes, and increased revenues resulting in a greater utilization of existing resources. General and administrative expenses. General and administrative expenses for the three months ended June 30, 2004 were $740,000 compared to $609,000 for the three months ended June 30, 2003, an increase of approximately $131,000 or 21%. As a percentage of revenues, general and administrative expenses decreased to 13.5% for the three months ended June 30, 2004 from 18.6% for the three months ended June 30, 2003. The increased costs were mostly the result of investments made in the Company's compliance programs. Sales and marketing expenses. Sales and marketing expenses for the three months ended June 30, 2004 were $611,000 compared to $550,000 for the three months ended June 30, 2003, an increase of approximately $61,000 or 11%. As a percentage of revenues, sales and marketing expenses decreased to 11.2% for the three months ended June 30, 2004, from 16.8% for the three months ended June 30, 2003. Research and development expenses. Research and development expenses for the three months ended June 30, 2004 were $255,000 compared to $303,000 for the three months ended June 30, 2003, a decrease of approximately $48,000 or 16%, The decrease is largely due both to significant research and development efforts expended during the three months ended June 30, 2003 on the Company's 959 Spectrum software product, and to the Company's ability to utilize its existing resources to meet contract deadlines in 2004. As a percentage of revenues, research and development expenses decreased to 4.7% for the three months ended June 30, 2004, from 9.2% for the three months ended June 30, 2003. Other expense, net. Other expense, net for the three months ended June 30, 2004 was approximately $5,000 compared to $36,000 for the three months ended June 30, 2003, a decrease of approximately $31,000. The Company recognizes interest income and expense and foreign currency translation gains and losses as other income (expense). Favorable foreign currency translation rates reduced the Company's other loss in 2004. Income taxes. Income tax expense for the three months ended June 30, 2004 was $21,000 compared to $49,000 for the three months ended June 30, 2003, a decrease in expense of $28,000. Income tax expense was not recorded during the three months ended June 30, 2004 on the Company's profitable domestic operations as previously recorded income tax benefits on losses were reserved for. The Company has reflected income tax expense on its profitable foreign operations during the three months ended June 30, 2004 and 2003. SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003. Revenues. Revenues for the six months ended June 30, 2004 were approximately $10.1 million, compared to approximately $7.9 million for the six months ended June 30, 2003, an increase of approximately $2.2 million or 28%. Revenues from the defense, satellite, automotive, EMC and University markets increased approximately $1.7 million, $394,000, $214,000, $208,000, and $53,000, respectively, while revenues from the wireless market decreased approximately $322,000. Geographically, revenues from North America and Europe increased approximately $1.7 million and $908,000, respectively while revenues from Asia decreased approximately $424,000 from prior year levels. The increased sales are largely a result of significant completion of large U.S. defense contracts. Cost of revenues. Cost of revenues for the six months ended June 30, 2004 were approximately $6.5 million compared to approximately $5.5 million for the six months ended June 30, 2003, an increase of approximately $1.0 million or 18%. Gross margins increased to 36% for the six months ended June 30, 11 2004 from 29% for the six months ended June 30, 2003. The increase in gross margins in the period are largely the result of improvements in contract bid and program management processes, and i a greater utilization of existing resources. General and administrative expenses. General and administrative expenses for the six months ended June 30, 2004 were $1.3 million compared to $1.2 million for the six months ended June 30, 2003,an increase of approximately $100,000 or 8%. As a percentage of revenues, general and administrative expenses decreased to 13.2% for the six months ended June 30, 2004 from 15.3 % for the six months ended June 30, 2003. The increased costs are largely a result of investments made in the Company's compliance program. Sales and marketing expenses. Sales and marketing expenses for the six months ended June 30, 2004 and 2003 were approximately $1.2 million. As a percentage of revenues, sales and marketing expenses decreased to 12.0% for the six months ended June 30, 2004, from 15.0% for the six months ended June 30, 2003. Research and development expenses. Research and development expenses for the six months ended June 30, 2004 were $489,000 compared to $593,000 for the six months ended June 30, 2003, a decrease of approximately $104,000 or 18%. The decrease is due both to significant research and development efforts expended during the six months ended June 30, 2003 on the Company's 959 Spectrum software product, and to the Company utilization of its resources to meet contract deadlines in 2004. As a percentage of revenues, research and development expenses decreased to 4.8% for the six months ended June 30, 2004, from 7.5% for the six months ended June 30, 2003. Other expense, net. Other expense, net for the six months ended June 30, 2004 was approximately $30,000 compared to $69,000 for the six months ended June 30, 2003, a decrease of approximately $39,000. The Company recognizes interest income and expense and foreign currency translation gains and losses as other income (expense). Favorable foreign currency translation rates reduced the Company's other loss in 2004. Income taxes. Income tax expense for the six months ended June 30, 2004 was $124,000 compared to $125,000 of income tax expense for the six months ended June 30, 2003. Income tax expense was not recorded during the six months ended June 30, 2004 on the Company's profitable domestic operations as previously recorded income tax benefits on losses were reserved for. The Company has reflected income tax expense on its profitable foreign operations during the six months ended June 30, 2004 and 2003. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities during the six months ended June 30, 2004 was $735,000 compared to $384,000 used during the six months ended June 30, 2003. The Company's net income, adjusted for non cash items, provided $625,000 of operating cash during the six months ended June 30, 2004, compared to $715,000 used in operating activities during the six months ended June 30, 2003. Changes in the Company's operating assets and liabilities during the six months ended June 30, 2004 used an additional $1.4 million in operating cash compared to $331,000 provided during the six months ended June 30, 2003. Net cash used in investing activities during the six months ended June 30, 2004 for the purchase of property and equipment was $80,000. During the six months ended June 30, 2003, the Company purchased $382,000 in property and equipment. The Company has exposure to currency fluctuations as a result of billing certain of its contracts in foreign currency. When selling to customers in countries with less stable currencies, the Company bills in 12 U.S. dollars. For the six months ended June 30, 2004, approximately 23% of the Company's revenues were billed in U.S. dollars. Substantially all of the costs of the Company's contracts, including costs subcontracted to the Parent, have been, and will continue to be, U.S. dollar-denominated except for wages for employees of the Company's Israeli and German subsidiaries, which are denominated in local currency. The Company intends to continue to enter into U.S. dollar-denominated contracts. INFLATION AND SEASONALITY The Company does not believe that inflation or seasonality has had a significant effect on the Company's operations to date. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from fluctuations in foreign currency exchange rates. We manage exposure to variability in foreign currency exchange rates primarily through the use of natural hedges, as both liabilities and assets are denominated in the local currency. However, different durations in our funding obligations and assets may expose us to the risk of foreign exchange rate fluctuations. We have not entered into any derivative instrument transactions to manage this risk. Based on our overall foreign currency rate exposure at June 30, 2004, we do not believe that a hypothetical 10% change in foreign currency rates would materially adversely affect our financial position. ITEM 4. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of the end of the period covered by this quarterly report (the "Evaluation Date"), have concluded that as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this quarterly report was being prepared. There were no significant changes in the Company's internal controls over financial reporting or in other factors that could significantly affect the Company's internal controls and procedures subsequent to the Evaluation Date, nor any significant deficiencies or material weaknesses in such internal controls and procedures requiring corrective actions. 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not currently subject to any material legal proceedings and is not aware of any threatened litigation, unasserted claims or assessments that could have a material adverse effect on the Company's business, operating results, or financial condition. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES 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--NOT APPLICABLE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. 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. b. REPORTS ON FORM 8-K None. 14 ORBIT/FR, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ORBIT/FR, INC. ------------------------------------ Registrant Date: August 13, 2004 /s/ Israel Adan ------------------------------------- President and Chief Executive Officer Date: August 13, 2004 /s/ Dave Lubbe ------------------------------------ Chief Financial Officer 15 EX-31.1 2 w00323exv31w1.txt CEO CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31.1 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Israel Adan, Chief Executive Officer of ORBIT/FR, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ORBIT/FR, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report (the "Evaluation Date") based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 16 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Israel Adan --------------------- Israel Adan Chief Executive Officer 17 EX-31.2 3 w00323exv31w2.txt CFO CERTIFICATION PURSUANT TO SECTION 302 Exhibit 31.2 CERTIFICATION PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Dave Lubbe, Chief Financial Officer of ORBIT/FR, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of ORBIT/FR, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report (the "Evaluation Date") based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): 18 a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Dave Lubbe --------------------------- Dave Lubbe Chief Financial Officer 19 EX-32.1 4 w00323exv32w1.txt CEO CERTIFICATION PURSUANT TO SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Orbit/FR, Inc. (the "Company") on Form 10-Q for the three months ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Israel Adan, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 13, 2004 /s/ Israel Adan - ------------------------- Israel Adan President and Chief Executive Officer 20 EX-32.2 5 w00323exv32w2.txt CFO CERTIFICATION PURSUANT TO SECTION 906 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Orbit/FR, Inc. (the "Company") on Form 10-Q for the three months ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dave Lubbe, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. August 13, 2004 /s/ Dave Lubbe - ------------------------ Dave Lubbe Chief Financial Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----