-----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, GmGq/4qgB4LV1iUs/NArMBZ/jqx/3kX0+ih/TW7/Cry2HbfZR+SfOUh4mi02ibJn 020bmgN9AhIB1WFjlTBWyA== 0000893220-06-001864.txt : 20060814 0000893220-06-001864.hdr.sgml : 20060814 20060814100528 ACCESSION NUMBER: 0000893220-06-001864 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060814 DATE AS OF CHANGE: 20060814 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: 061027283 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 w24307e10vq.txt FORM 10-Q ORBIT/FR, INC. ================================================================================ 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, 2006 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 a large accelerated filer, an accelerated filer, or an accelerated filer or a non-accelerated filer. See definition of "accelerated filed and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (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 14, 2006. ================================================================================ 1 ORBIT/FR, INC. INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets--June 30, 2006 (Unaudited) and December 31, 2005 .................... 3 Consolidated Statements of Operations--Three and six months ended June 30, 2006 and 2005 (Unaudited) ...... 4 Consolidated Statements of Cash Flows--Six months ended June 30, 2006 and 2005 (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 1A. Risk Factors ............................................ 14 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ............................................. 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 ................................................ 14 Signatures .......................................................... 15
2 ORBIT/FR, INC. CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE, 30 DECEMBER 31, 2006 2005 --------- ------------ UNAUDITED ASSETS Current assets: Cash and cash equivalents $ 2,783 $ 3,188 Accounts receivable, less allowance of $197 and $168 in 2006 and 2005, respectively 5,552 4,812 Inventory 2,623 2,351 Costs and estimated earnings in excess of billings on uncompleted contracts 1,615 936 Income tax refunds receivable 354 422 Deferred income taxes 275 302 Other 171 400 ------- ------- Total current assets 13,373 12,411 Property and equipment, net 1,169 1,129 Deferred income taxes 625 610 Cost in excess of net assets acquired 381 381 ------- ------- Total assets $15,548 $14,531 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,677 $ 1,324 Accounts payable--Parent 585 462 Accrued expenses 2,544 2,390 Customer advances 1,460 776 Income taxes payable 87 39 Billings in excess of costs and estimated earnings on uncompleted contracts 983 2,697 Deferred income taxes 125 125 ------- ------- Total liabilities, all current 8,461 7,813 ------- ------- 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 (7,904) (8,273) Treasury stock--82,900 shares (243) (243) ------- ------- Total stockholders' equity 7,087 6,718 ------- ------- Total liabilities and stockholders' equity $15,548 $14,531 ======= =======
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, --------------------------- ------------------------- 2006 2005 2006 2005 ---------- ---------- ---------- ----------- Contract revenues $ 7,280 $ 5,331 $ 14,809 $ 11,544 Cost of revenues 5,382 3,727 10,601 8,016 ---------- ---------- ---------- ---------- Gross profit 1,898 1,604 4,208 3,528 ---------- ---------- ---------- ---------- Operating expenses: General and administrative 749 541 1,522 1,158 Sales and marketing 722 764 1,493 1,680 Research and development 327 285 737 524 ---------- ---------- ---------- ---------- Total operating expenses 1,798 1,590 3,752 3,362 ---------- ---------- ---------- ---------- Operating income 100 14 456 166 Other income (expense), net 6 (22) 52 (13) ---------- ---------- ---------- ---------- Income (loss) before income taxes 106 (8) 508 153 Income tax expense 27 40 139 59 ---------- ---------- ---------- ---------- Net income (loss) $ 79 $ (48) $ 369 $ 94 ========== ========== ========== ========== Basic and diluted income (loss) per share $ 0.01 $ (0.01) $ 0.06 $ 0.02 ========== ========== ========== ========== Weighted average number basic common shares 6,001,573 6,001,573 6,001,573 6,001,573 ========== ========== ========== ========== Weighted average number diluted common shares 6,021,780 6,001,573 6,017,730 6,001,573 ========== ========== ========== ==========
See accompanying notes. 4 ORBIT/FR, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------ 2006 2005 ------- ------- Cash flows from operating activities: Net income $ 369 $ 94 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 186 245 Deferred income tax provision 12 (54) Changes in operating assets and liabilities: Accounts receivable (740) 127 Inventory (273) (50) Costs and estimated earnings in excess of billings on uncompleted contracts (679) (936) Income tax refunds receivable 67 (128) Other current assets 228 226 Accounts payable and accrued expenses 1,508 (60) Accounts payable--Parent 122 12 Customer advances 685 130 Income taxes payable 48 23 Billings in excess of costs and estimated earnings on uncompleted contracts (1,713) (992) ------- ------- Net cash used in operating activities (180) (1,363) ------- ------- Cash flows from investing activities: Purchase of property and equipment (226) (118) ------- ------- Net cash used in investing activities (226) (118) ------- ------- Net decrease in cash and cash equivalents (406) (1,481) Cash and cash equivalents at beginning of period 3,189 2,814 ------- ------- Cash and cash equivalents at end of period $ 2,783 $ 1,333 ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 141 $ 124 ======= =======
See accompanying notes. 5 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2006 (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 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, 2006 and 2005 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 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, 2006. 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 the Company's Form 10-K for the year ended December 31, 2005 filed on March 29, 2006 with the Securities and Exchange Commission, which included the consolidated financial statements and footnotes for the year ended December 31, 2005. 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. Adoption of New Standard Through December 31, 2005, the Company followed the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" for its stock based compensation. Effective January 1, 2006, the Company adopted the provision for FASB Statement No. 6 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2006 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 123(R), "Share Based Payment", which supersedes APB No. 25. Since all options granted as of December 31, 2005 were fully vested and there were no options granted during the three and six months ended June 30, 2006, the Company did not recognize compensation expense due to options in the financial statements during the three and six months ended June 30, 2006. 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, 2006 and 2005 because the effect of those securities is antidilutive. 3. INVENTORY Inventory consists of the following:
JUNE 30, DECEMBER 31, 2006 2005 ----------- ------------ (UNAUDITED) Work-in-process $ 982 $1,304 Parts and components 1,641 1,047 ------ ------ $2,623 $2,351 ====== ======
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30, DECEMBER 31, 2006 2005 ----------- ------------ (UNAUDITED) Manufacturing, lab and computer equipment $2,486 $2,308 Office equipment 960 943 Transportation equipment 187 458 Furniture and fixtures 11 15 Leasehold improvements 335 294 ------ ------ 3,979 4,018 Less accumulated depreciation 2,810 2,889 ------ ------ Property and equipment, net $1,169 $1,129 ====== ======
7 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2006 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 5. ACCRUED EXPENSES Accrued expenses consists of the following:
JUNE 30, DECEMBER 31, 2006 2005 ----------- ------------ (UNAUDITED) Accrued contract costs $ 175 $ 209 Accrued compensation 1,409 1,257 Accrued commissions 203 235 Accrued royalties 53 59 Accrued warranty 324 319 Accrued DTC settlement costs 67 67 Other accruals 313 244 ------ ------ $2,544 $2,390 ====== ======
6. LONG-TERM CONTRACTS
JUNE 30, DECEMBER 31, 2006 2005 ----------- ------------ (UNAUDITED) Accumulated expenditures on uncompleted contracts $10,890 $ 8,410 Estimated earnings thereon 2,395 2,290 ------- ------- 13,285 10,700 Less: applicable progress billings 12,653 12,461 ------- ------- Total $ 632 $(1,761) ======= =======
The long-term contracts are shown in the accompanying balance sheets as follows: Costs and estimated earnings on uncompleted contracts in excess of billings $1,615 $ 936 Billings on uncompleted contracts in excess of costs and estimated earnings (983) (2,697) ------ ------- $ 632 $(1,761) ====== =======
8 ORBIT/FR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2006 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 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 evaluated on an annual basis. 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, 2006 and 2005.
Three months ended June 30, 2006 North America Europe Asia Total - -------------------------------- ------------- ------ ------ ------ Sales to unaffiliated customers $3,178 $2,919 $1,183 $7,280 Cost of sales to unaffiliated customers 2,105 2,455 822 5,382 ------ ------ ------ ------ Gross profit unaffiliated customers $1,073 $ 464 $ 361 $1,898 ====== ====== ====== ======
Three months ended June 30, 2005 North America Europe Asia Total - -------------------------------- ------------- ------ ------ ------ Sales to unaffiliated customers $3,421 $816 $1,094 $5,331 Cost of sales to unaffiliated customers 2,568 548 611 3,727 ------ ---- ------ ------ Gross profit unaffiliated customers $ 853 $268 $ 483 $1,604 ====== ==== ====== ======
Six months ended June 30, 2006 North America Europe Asia Total - ------------------------------ ------------- ------ ------ ------- Sales to unaffiliated customers $7,180 $4,459 $3,170 $14,809 Cost of sales to unaffiliated customers 4,617 3,910 2,074 10,601 ------ ------ ------ ------- Gross profit unaffiliated customers $2,563 $ 549 $1,096 $ 4,208 ====== ====== ====== =======
Six months ended June 30, 2005 North America Europe Asia Total - ------------------------------ ------------- ------ ------ ------- Sales to unaffiliated customers $7,340 $1,441 $2,763 $11,544 Cost of sales to unaffiliated customers 5,233 938 1,845 8,016 ------ ------ ------ ------- Gross profit unaffiliated customers $2,107 $ 503 $ 918 $ 3,528 ====== ====== ====== =======
In table above "North America" includes all United States operations, and "Europe" includes subsidiaries in Germany and Israel. 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 Registration Statement on Form S-1 and in Item 1A "Risk Factors" its most recent Annual Report on Form 10-K, for the year ended December 31, 2005, 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, --------------------------- ------------------------- 2006 2005 2006 2005 ----- ----- ----- ----- (Unaudited) (Unaudited) Revenues 100.0% 100.0% 100.0% 100.0% Gross profit 26.1 30.1 28.4 30.6 General and administrative 10.3 10.1 10.3 10.0 Sales and marketing 9.9 14.3 10.1 14.6 Research and development 4.5 5.3 5.0 4.5 Operating income 1.4 0.3 3.1 1.4 Income (loss) before income taxes 1.5 (0.2) 3.4 1.3 Net income (loss) 1.1 (0.9) 2.5 0.8
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THREE MONTHS ENDED JUNE 30, 2005. Revenues. Revenues for the three months ended June 30, 2006 were approximately $7.3 million compared to approximately $5.3 million for the three months ended June 30, 2005, an increase of approximately $2.0 million or 37%. Revenues from the defense and university markets increased approximately $2.9 million and $66,000 respectively, while revenues from the wireless, satellite, automotive, and EMC markets decreased $484,000, $216,000, $156,000 and $130,000, respectively. Geographically, European and Asian revenues increased approximately $2.1 million and $88,000, respectively, while North America revenues decreased approximately $238,000 from prior year levels. Revenues recognized during the three months ended June 30, 2006 were most significantly impacted by extensive completion of the Company's largest European defense contract. 10 Cost of revenues. Cost of revenues for the three months ended June 30, 2006 were approximately $5.4 million compared to approximately $3.7 million for the three months ended June 30, 2005, an increase of approximately $1.7 million or 44%. Gross margins decreased to 26% for the three months ended June 30, 2006 from 30% for the three months ended June 30, 2005. The decreased gross margins are the result of the Company's use of a major subcontractor on the Company's largest European defense contract. General and administrative expenses. General and administrative expenses for the three months ended June 30, 2006 were $749,000 compared to $541,000 for the three months ended June 30, 2005, an increase of approximately $208,000 or 38%. As a percentage of revenues, general and administrative expenses increased to 10.3% for the three months ended June 30, 2006 from 10.1% for the three months ended June 30, 2005. The increased general and administrative expenses were a result of the addition of management personnel at the Company's absorber manufacturing facility and increased compliance costs. Sales and marketing expenses. Sales and marketing expenses for the three months ended June 30, 2006 were $722,000 compared to $764,000 for the three months ended June 30, 2005, a decrease of approximately $42,000 or 5%. As a percentage of revenues, sales and marketing expenses decreased to 9.9% for the three months ended June 30, 2006, from 14.3% for the three months ended June 30, 2005. The decreased sales and marketing expenses were largely due to the reorganization of the Company's European and Asian sales and marketing operations. Research and development expenses. Research and development expenses for the three months ended June 30, 2006 were $327,000 compared to $285,000 for the three months ended June 30, 2005, an increase of approximately $42,000 or 15%. Increased 2006 costs are a result of new product development and enhancements intended to improve performance, and the Company's production efficiency. As a percentage of revenues, research and development expenses decreased to 4.5% for the three months ended June 30, 2006 from 5.3% for the three months ended June 30, 2005. Other income (expense), net. Other income, net, for the three months ended June 30, 2006 was approximately $6,000 compared to other expense, net, of $22,000 for the three months ended June 30, 2005, an increase of approximately $28,000. The Company recognizes interest income and expense and foreign currency translation gains and losses as other income (expense). Income taxes. Income tax expense for the three months ended June 30, 2006 was $27,000 compared to $40,000 for the three months ended June 30, 2005, a decrease in expense of $13,000. The Company records income tax expense on profitable operations and income tax benefits on losses. SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO SIX MONTHS ENDED JUNE 30, 2005. Revenues. Revenues for the six months ended June 30, 2006 were approximately $14.8 million, compared to approximately $11.5 million for the six months ended June 30, 2005, an increase of approximately $3.3 million or 28%. Revenues from the defense, and university markets increased approximately $4.6 million, and $86,000 respectively, while revenues from the satellite, wireless, EMC and automotive markets decreased approximately $814,000, $368,000, $172,000 and $61,000, respectively. Geographically, revenues from Europe and Asia increased approximately $3.0 million and $407,000, respectively, while revenues from North America decreased approximately $160,000 from prior year levels. Revenues recognized during the six months ended June 30, 2006 were most significantly impacted by extensive completion of the Company's largest European defense contract in the six months ended June 30, 2006.. Cost of revenues. Cost of revenues for the six months ended June 30, 2006 were approximately $10.6 million compared to approximately $8.0 million for the six months ended June 30, 2005, an increase of approximately $2.6 million or 32%. Gross margins decreased to 28% for the six months ended June 30, 11 2006 from 31% for the six months ended June 30, 2005. The decreased gross margins are the result of the Company's use of a major subcontractor on the Company's largest European defense contract in the six months ended June 30, 2006.. General and administrative expenses. General and administrative expenses for the six months ended June 30, 2006 were approximately $1.5 million compared to approximately $1.2 million for the six months ended June 30, 2005, an increase of approximately $364,000 or 31%. As a percentage of revenues, general and administrative expenses increased to 10.3% for the six months ended June 30, 2006 from 10.0 % for the six months ended June 30, 2005. The increased general and administrative expenses were a result of the addition of senior management personnel, and increased compliance and information processing costs. Sales and marketing expenses. Sales and marketing expenses for the six months ended June 30, 2006 were approximately $1.5 million, compared to approximately $1.7 million for the six months ended June 30, 2005, an decrease of approximately $187,000 or 11.1%. As a percentage of revenues, sales and marketing expenses decreased to 10.1% for the six months ended June 30, 2006, from 14.6% for the six months ended June 30, 2005. The decreased sales and marketing expenses were largely due to the reorganization of the Company's European and Asian sales and marketing operations. Research and development expenses. Research and development expenses for the six months ended June 30, 2006 were $737,000 compared to $524,000 for the six months ended June 30, 2005, an increase of approximately $213,000 or 41%. Increased 2006 costs are a result of increased internal and subcontractor effort for product enhancements intended to improve performance, and the Company's production efficiency. As a percentage of revenues, research and development expenses increased to 5.0% for the six months ended June 30, 2006, from 4.5% for the six months ended June 30, 2005. Other income (expense) net, Other income, net for the six months ended June 30, 2006 was approximately $52,000 compared to an other expense, net of $13,000 for the six months ended June 30, 2005, a difference of approximately $65,000. The Company recognizes interest income and expense and foreign currency translation gains and losses as other income (loss). Income taxes. Income tax expense for the six months ended June 30, 2006 was $139,000 compared to $59,000 of income tax expense for the six months ended June 30, 2005. The Company records income tax expense on profitable operations and income tax benefits on losses. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities during the six months ended June 30, 2006 was approximately $180,000 compared to approximately $1.4 million used in operating activities during the six months ended June 30, 2005. The Company's net income, adjusted for non-cash items, provided $567,000 of operating cash, compared to $285,000 provided by operating activities during the six months ended June 30, 2005. Changes in the Company's operating assets and liabilities during the six months ended June 30, 2006 used $747,000 in operating cash compared to $1.6 million used during the six months ended June 30, 2005. Net cash used in investing activities during the six months ended June 30, 2006 for the purchase of property and equipment was approximately $226,000 compared to approximately $118,000 invested during the six months ended June 30, 2005. The Company's most significant investments in property and equipment during the six months ended June 30, 2006 related to upgrades to the Company's absorber manufacturing 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, 2006, approximately 66% 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, 2006, 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 (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, 2006. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer previously concluded that as of June 30, 2006, 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 June 30, 2006 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 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 1A. RISK FACTORS In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2005 which could materially affect our business, financial condition or future results of operations. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2005 are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and future results of operations. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS - 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 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. 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 14, 2006 /s/ Israel Adan ---------------------------------------- President and Chief Executive Officer Date: August 14, 2006 /s/ Dave Lubbe ---------------------------------------- Chief Financial Officer 15 EX-31.1 2 w24307exv31w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, CHIEF EXECUTIVE OFFICER 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 14, 2006 /s/ Israel Adan ---------------------------------------- Israel Adan Chief Executive Officer 17 EX-31.2 3 w24307exv31w2.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, CHIEF FINANCIAL OFFICER 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 14, 2006 /s/ Dave Lubbe ---------------------------------------- Dave Lubbe Chief Financial Officer 19 EX-32.1 4 w24307exv32w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, SECTION 906, PRESIDENT & CEO 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 and six months ending June 30, 2006 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 14, 2006 /s/ Israel Adan - ------------------------------------- Israel Adan President and Chief Executive Officer 20 EX-32.2 5 w24307exv32w2.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, SECTION 906, CHIEF FINANCIAL OFFICER 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 and six months ending June 30, 2006 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 14, 2006 /s/ Dave Lubbe - ------------------------------------- Dave Lubbe Chief Financial Officer 21 -----END PRIVACY-ENHANCED MESSAGE-----