UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 3 to

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-22583

ORBIT/FR, Inc.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE		23-2874370
(State or Other Jurisdiction		(IRS 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)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Indicate by check mark in the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities Act. Yes o No þ

Indicate by check mark in the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the act. Yes o No þ

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Act) Yes o No þ

As of June 30, 2010, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $4,741,652 (based on the closing price of the Common Stock on June 30, 2010 of $2.06 per share). The information provided shall in no way be construed as an admission that any officer, director, or 10% shareholder in the Company may or may not be deemed an affiliate of the Company or that he/it is the beneficial owner of the shares reported as being held by him/it, and any such inference is hereby disclaimed. The information provided herein is included solely for record keeping purposes of the Securities and Exchange Commission. As of March 30, 2010, 6,001,773 shares of Common Stock were outstanding.

 

 

ORBIT/FR, Inc.

Index

		Page No.
PART II
Item 8 Financial Statements and Supplementary Data			4
PART IV
Item 15 Exhibits, Financial Statement Schedule, and Reports on Form 8-K			20
Exhibit 23.1
Exhibit 23.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Explanatory Note

This Amendment No. 3 to the Annual Report on Form 10-K/A (the “Amendment”) of Orbit/FR, Inc. (the “Company” or “we”) is being filed solely for the purpose of correcting a typographical error in the audit report of Ziv Haft. Except as described above, no other changes are being made to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as amended (the “Form 10-K”). This Amendment does not reflect events occurring after the March 31, 2011 filing of our Form 10-K and does not modify or update the disclosure contained in the Form 10-K in any way other than as described in this Explanatory Note.

PART II

Item 8.		Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and
Board of Directors
Orbit/FR, Inc.

We have audited the consolidated balance sheets of Orbit/FR, Inc. and Subsidiaries as of December 31, 2010 and December 31, 2009 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Orbit/FR Engineering, LTD., a wholly owned subsidiary, which statements reflect total assets of $10,874,000 as of December 31, 2010 and $9,047,000 at December 31, 2009 and total revenues of $16,348,000 and $14,435,000 for the respective years then ended. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Orbit/FR Engineering, LTD., is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Orbit/FR, Inc. and Subsidiaries as of December 31, 2010 and December 31, 2009 and the consolidated results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

		/s/ CORNICK, GARBER & SANDLER, LLP

March 30, 2011
New York, NY

(LOGO)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

ORBIT/FR ENGINEERING, LTD.

We have audited the accompanying balance sheet of Orbit/Fr Engineering, Ltd. (“the Company”) as of December 31, 2010 and 2009 and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Orbit/FR Engineering, Ltd. as of December 31, 2010 and 2009, and the results of its operations, changes in equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Ziv Haft.
Certified Public Accountants (Isr.)
BDO Member Firm

Tel-Aviv, Israel
March 28, 2011

(LOGO)

ORBIT/FR, Inc.

		December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	2,400			$	1,622
Accounts receivable, less allowance of $90 and $67 in 2010 and 2009, respectively			5,693				9,207
Inventory			2,776				2,681
Costs and estimated earnings in excess of billings on uncompleted contracts			4,941				1,668
Income tax refunds receivable			655				542
Deferred income taxes			1,437				835
Other			745				277
Total current assets			18,647				16,832
Property and equipment, net			2,296				2,093
Deferred income taxes			688				887
Cost in excess of net assets acquired			301				301
Total assets		$	21,932			$	20,113
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	3,781			$	3,946
Accounts payable— ultimate parent			1,697				1,482
Accrued expenses			3,728				3,355
Short-term bank financing			—				250
Customer advances			75				13
Billings in excess of costs and estimated earnings on uncompleted contracts			2,117				2,813
Total liabilities, all current			11,398				11,859
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			16,500				16,460
Accumulated deficit			(5,727	)			(8,024	)
Accumulated other comprehensive (loss)- Foreign currency translation adjustment net of $32, tax benefit			(57	)			—
Treasury stock—82,700 shares in 2010 and 2009, at cost			(243	)			(243	)
Total stockholders’ equity			10,534				8,254
Total liabilities and stockholders’ equity		$	21,932			$	20,113

See accompanying notes.

ORBIT/FR, Inc.

		Years Ended December 31,
		2010				2009
Contract revenues		$	36,245			$	31,246
Cost of revenues			25,514				20,483
Gross profit			10,731				10,763
Operating expenses:
General and administrative			3,113				3,005
Sales and marketing			2,920				3,565
Sales, marketing, general and administrative-MVG			1,681				1,539
Research and development			1,253				1,308
(Gain) loss on disposal of assets			(109	)			167
Total operating expenses			8,858				9,584
Operating income			1,873				1,179
Other (loss), net			(73	)			(217	)
Income before income tax			1,800				962
Income tax (benefit)			(497	)			(508	)
Net income		$	2,297			$	1,470
Other comprehensive (loss)- Foreign currency translation adjustment, net of $32 tax benefit			(57	)			—
Total comprehensive income		$	2,240			$	1,470
Basic and diluted income per share		$	0.38			$	0.24
Weighted average number common shares — basic			6,001,773				6,001,583
Weighted average number common shares — diluted			6,029,701				6,001,583

See accompanying notes.

ORBIT/FR, Inc.

										Additional								Accumulated												Total
		Common Stock								Paid-in				Accumulated				Comprehensive				Treasury Stock								Stockholders’
		Shares				Amount				Capital				Deficit				(Loss)				Shares				Amount				Equity
Balance, January 1, 2009		$	6,084			$	61			$	16,383			$	(9,494	)		$	—			$	83			$	(243	)		$	6,707
Net income			—				—				—				1,470				—				—				—				1,470
Stock-based compensation			—				—				77				—				—				—				—				77
Balance, December 31, 2009			6,084			$	61			$	16,460			$	(8,024	)			—				83			$	(243	)		$	8,254
Net income															2,297																2,297
Stock-based compensation			—				—				40				—				—				—				—				40
Accumulated other comprehensive (loss) — foreign currency translation adjustment $32 net of tax benefit			—				—				—				—				(57	)			—				—				(57	)
Balance, December 31, 2010			6,084			$	61			$	16,500			$	(5,727	)		$	(57	)			83			$	(243	)		$	10,534

See accompanying notes.

ORBIT/FR, Inc.

		Year Ended December 31,
		2010				2009
Cash flows from operating activities:
Net income		$	2,297			$	1,470
Adjustments to reconcile results of operations to net cash (used in) provided by operating activities:
Depreciation			525				399
(Gain) loss on disposal of fixed assets			(109	)			66
Stock-based compensation			40				77
Deferred income tax provision			(402	)			(508	)
Changes in operating assets and liabilities:
Accounts receivable			3,437				(1,547	)
Inventory			(103	)			(327	)
Costs and estimated earnings in excess of billings on uncompleted contracts			(3,282	)			(223	)
Income tax refunds receivable			(112	)			(102	)
Other current assets			(440	)			22
Accounts payable and accrued expenses			89				1,763
Accounts payable— ultimate parent			313				1,387
Customer advances			66				(663	)
Billings in excess of costs and estimated earnings on uncompleted contracts			(603	)			743
Net cash provided by operating activities			1,716				2,557
Cash flows from investing activities:
Insurance proceeds for replacement of property and equipment			134				—
Proceeds from sale of property and equipment			(764	)			(1,239	)
Net cash (used in) investing activities			(630	)			(1,239	)
Cash flows from financing activities
Proceeds from short term bank financing							1,050
Repayments of short term bank financing			(250	)			(2,267	)
Net cash (used in) financing activities			(250	)			(1,217	)
Effect of exchange rate changes on cash and cash equivalents			(58	)			—
Net increase in cash and cash equivalents			778				101
Cash and cash equivalents at beginning of year			1,622				1,521
Cash and cash equivalents at end of year		$	2,400			$	1,622
Supplemental disclosures of cash flow information:
Net cash paid during the year for income taxes		$	291			$	267
Net cash paid during the year for interest		$	7			$	15

See accompanying notes.

ORBIT / FR, Inc.

1. Summary of Significant Accounting Policies

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 “Alchut”). On May 13, 2008, Alchut sold all of its 3.7 million shares of common stock of the Company to Satimo Industries, SA (Satimo) and on June 30, 2009, as a result of a corporate reorganization, Satimo became a wholly owned subsidiary of Microwave Vision, SA (“Microwave Vision”) a newly created holding company which is publicly traded on the ALTERNEXT stock exchange. The Company develops, markets, and supports sophisticated automated microwave test and measurement systems for the wireless communications, satellite, automotive, and aerospace/defense 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 worldwide customers through its subsidiaries ORBIT/FR Engineering, LTD (Israel), (hereinafter referred to as “Engineering”), 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 and North and South America.

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. The Company’s functional currency for the operations of its subsidiary in Israel is the U.S. dollar. The Company’s functional currency for the operations of its German subsidiary is the Euro. The translation of foreign subsidiaries’ financial statements denominated in a functional currency other than the U.S. dollar into U.S. dollars is performed at each balance sheet date as follows: The foreign currency statement of operations is translated at the average exchange rate in effect for the period. The balance sheet asset and liability accounts are translated at the period-end exchange rate. The resulting translation gain or loss is recorded as a separate component of stockholders’ equity. The change in the cumulative translation gains or losses from the preceding period is separately reported, net of income tax effect, on the statement of operations under the caption “Other comprehensive income (loss) — foreign currency translation adjustment,” unless such change is considered immaterial (in which case it is included in foreign exchange transaction gains or losses).

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.

Cash and Cash Equivalents

The Company classifies as cash equivalents all highly liquid instruments with original maturities of three months or less at the time of purchase.

Accounts Receivable

The Company accounts for potential losses in accounts receivable utilizing the allowance method. In reviewing aged receivables, management considers its knowledge of customers, historical losses and current economic conditions in establishing the allowance for doubtful accounts.

Inventory

Inventory is stated at the lower of cost, determined on the first-in first out method, or market.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed on accelerated methods for both financial reporting and income tax reporting purposes over the estimated useful lives as follows: office equipment — 5-7 years; lab equipment — 5 years; furniture and fixtures — 7 years; transportation equipment — 5 years; leasehold improvements — life of lease.

Cost in Excess of Net Assets Acquired

Cost in excess of net assets acquired (“goodwill”), represents the excess of costs over the fair value of the net assets acquired in connection with the Company’s acquisition of Advanced ElectroMagnetics, Inc. (AEMI) in 1997.

The Company has tested the goodwill of AEMI for impairment at December 31, 2010 and 2009 using the present value of future cash flow valuation method. No adjustment for the value of goodwill was necessary.

Revenue and Cost Recognition

The Company’s principal sources of contract revenues are from engineering and design services and the production of electro-mechanical equipment. Revenues from long-term fixed-price development contracts performed principally under the Company’s control are recognized on the percentage-of- completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract when such costs can be reasonably estimated. Contract costs include all direct material, labor and subcontractor costs and those indirect costs related to contract performance such as indirect labor, supplies and tool costs. Selling, general and administrative costs are charged to expense as incurred. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and revenue and are recognized in the period in which the revisions are determined. Revenues recognized in excess of amounts billed are classified under current assets as costs and estimated earnings in excess of billings on uncompleted contracts. Amounts billed to customers in excess of revenues recognized to date are classified under current liabilities as billings in excess of costs and estimated earnings on uncompleted contracts.

Revenues from electro-mechanical equipment sold to customers which are not part of a larger contract are recognized when the contract is completed and the equipment is delivered.

Research and Development

Internally funded research and development costs are charged to operations as incurred. Included in cost of revenues are customer-funded research and development costs of approximately $8 and $147 for the years ended December 31, 2010 and 2009, respectively. Other research and development costs are separately reflected in the Consolidated Statement of Operations.

Concentrations of Credit Risk and Significant Customers

Financial instruments, which potentially subject the Company to a concentration of credit risk, consist principally of cash and accounts receivable.

The Company maintains cash and cash equivalents with various major commercial institutions in the U.S. and overseas. At December 31, 2010, cash balances that are either uninsured under the Federal Deposit Insurance Corporation coverage limit per financial institution, or are located overseas without such type of insurance coverage, totaled approximately $1,979. The Company does not anticipate credit risk in connection with its concentration of cash.

To reduce credit risk relating to the Company’s sales in the U.S. and overseas, the Company performs ongoing credit evaluations of its commercial customers’ financial condition, but generally does not require collateral for government and domestic commercial customers. For certain foreign commercial customers, the Company generally requires irrevocable letters of credit in the amount of the total contract. At December 31, 2010, there were twenty four bank guarantees in place for foreign customers with an aggregate value of approximately $4,655. One customer accounted for 10.6% of the Company’s consolidated revenue for the year ended December 31, 2010.

Warranty Expense

The Company provides for warranty costs on its products. Product warranty periods generally extend for one year from the date of sale. The warranty expense is not material.

Income Taxes

The Company uses the liability method to account for income taxes. Accordingly, deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reportable for income tax purposes. The Company files a consolidated federal income tax return with its domestic subsidiaries and separate income tax returns in Israel and Germany for its foreign subsidiaries.

Foreign Currency Transactions

The Company records transactions in connection with foreign currency invoices received, collected, issued or paid at the exchange rate in effect at the date of the transaction. Receivables and payables denominated in foreign currency are re-measured at each balance sheet date. The differences resulting from unrealized changes in foreign exchange rates are recorded as foreign exchange gain or loss, which is included as a component of “Other (loss) income, net” on the consolidated statement of operations. When a transaction is collected or paid within an accounting period, a realized foreign exchange gain or loss is recorded based on the rate at the date of settlement and the previous carrying amount of the receivable or payable. The Company occasionally enters into forward exchange currency contracts and their carrying amount is measured at each balance sheet date. The change in carrying amount is recorded as a foreign exchange gain or loss. The foreign transaction gain for the fiscal year ended December 31, 2010 was $22. The foreign transaction loss for the year ended December 31, 2009 was $120.

For the years ended December 31, 2010 and 2009, approximately 21% and 14%, respectively, of the Company’s revenue was billed in currencies other than the U.S. dollar. Transactions with the Company’s parent are predominantly in Euros. The majority of the costs incurred in performing the Company’s contracts have been denominated in U.S. dollars.

Income Per Share Amounts

Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average common shares outstanding for the period. Diluted income per share is calculated by dividing net income by the weighted average common shares outstanding for the period plus the effect of outstanding stock options when they are considered dilutive. Outstanding stock options were not considered dilutive in 2009.

Stock-Based Compensation

The Company has stock-based employee compensation plans, which are described more fully in Note 12. Prior to January 1, 2006, the Company accounted for stock options issued pursuant to its stock option plans (the “Plans”) under recognition and measurement provisions of APB Opinion No. 25, as permitted by subsequent standards issued by the Financial Standards Accounting Board. Effective January 1, 2006, the Company adopted the fair value provisions for share-based awards, and compensation costs. All share based awards granted subsequent to January 1, 2006, are based on the grant-date fair value estimated in accordance with the provisions of the Financial Standards Accounting Board and recognized on a straight line basis over the shorter of the vesting or requisite service periods.

Fair Value of Financial Instruments

Cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and bank financing reported in the consolidated balance sheets equal or approximate fair value due to their short maturities.

Impact of Recent Accounting Pronouncements

Public companies in the United States are subject to the accounting and reporting requirements of various authorities, including the Financial Accounting Standards Board (“FASB”) and the Securities and Exchange Commission (“SEC”). These authorities issue numerous pronouncements, most of which are not applicable to the Company’s current or reasonably foreseeable operating structure. Below are the new authoritative pronouncements that management believes are relevant to the Company’s current operations.

In April 2009, the FASB issued FSP No. FAS-107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This amends previous guidance, to require disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This guidance was effective for interim reporting periods ending after June 15, 2009. This guidance did not have any impact on our consolidated financial statements.

In October 2009, the FASB issued revised guidance related to multiple-element arrangements which requires an entity to allocate arrangement consideration at the inception of an arrangement to all deliverables based on relative-selling-price. This update eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances. This guidance is effective for fiscal years beginning on or after September 15, 2010. Companies may use either prospective application for revenue arrangements entered into, or materially modified, after the effective date or through retrospective application to all revenue arrangements for all periods presented. The Company does not believe this amended guidance will have a material impact on its consolidated financial statements.

In October 2009, the FASB issued amended guidance that affects how entities account for revenue arrangements that contain both hardware and software elements. Products that rely on software will be accounted for under the revised multiple-element arrangement revenue recognition guidance mentioned above rather than software revenue recognition guidance. The revised guidance must be adopted no later than fiscal years beginning on or after September 15, 2010. The transition method and period for the adoption of this guidance and the revisions to the multiple-elements arrangements guidance noted above must be the same. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effected, accounting standards if currently adopted would have a material effect on the Company’s consolidated financial statements.

2. Inventory

Inventory consists of the following:

		December 31,
		2010				2009
Work-in-process		$	140			$	509
Parts and components			2,636				2,172
Total		$	2,776			$	2,681

3. Property and Equipment

Property and equipment consists of the following:

		December 31,
		2010				2009
Lab and computer equipment		$	2,864			$	2,411
Office equipment			884				742
Transportation equipment			61				45
Furniture and fixtures			65				10
Fixed assets in process			72				125
Leasehold improvements			651				627
Total			4,597				3,960
Less accumulated depreciation			2,301				1,867
Property and equipment, net		$	2,296			$	2,093

4. Accrued Expenses

Accrued expenses consist of the following:

		December 31,
		2010				2009
Contract costs		$	72			$	58
Compensation			1,673				1,525
Commissions			628				450
Royalties			71				58
Warranty			574				452
Customer advances and deferred revenue			240				241
Other			470				571
Total		$	3,728			$	3,355

5. Short Term Bank Financing

On December 13, 2010 the Company signed a new $2.25 million domestic demand line of credit facility agreement with Citizens Bank. The revolving line can also be used to support the issuance of letters of credit. The interest rate on loans under the line is at LIBOR rate plus 2.25%. The new facility does not contain any financial covenants and is collateralized by the assets of Orbit Advanced Technologies, Inc. and Advanced Electromagnetics, Inc. subsidiaries of Orbit/FR, Inc. The agreement prohibits the payment of dividends on or any distribution on account of any class of capital stock in cash or property without prior written consent of the Bank. In addition, the Company also signed a $250,000 asset term note non-revolving line of credit with Citizens Bank. This facility has an interest rate of prime plus two and one-half percent and allows up to a five year amortization of any advances under the facility starting at the time of each advance.

Orbit/FR Engineering, LTD has established lines of credit with the two Israeli banks and one Indian Bank (Israeli Branch). The line of credit from one Israeli bank has a NIS denominated limit of 378 and USD 1,900 for the issuances of bank guarantees of letters of credit in favor of customers and one Israeli bank has a US dollar denominated limit of $250 and $2,400 for the issuances of bank guarantees of letters of credit in favor of customers. The Indian bank line of credit is $500 and $3,000 for the issuances of bank guarantees of letters of credit in favor of customers. The interest rates charged by all the banks are at LIBOR plus 2.25%. There were no outstanding balances due at December 31, 2010 and 2009 under the lines of credit. The bank agreements with all three banks do not have expiration dates but are subject to termination on a quarterly basis based upon the Company’s financial performance for the quarter. These lines of credit are collateralized by the assets of Orbit/FR Engineering, LTD., a subsidiary of Orbit/FR, Inc.

6. Related Party Transactions

Included in sales and cost of revenues for the year ended December 31, 2010 are approximately $2.3 million and $423 respectively relating to sales to and purchases from Microwave Vision. Included in sales and cost of revenues for the year ended December 31, 2009, are approximately $530 and $683, respectively, relating to sales to and purchases from Microwave Vision for the year ended December 31, 2009.

On August 14, 2009, the Company entered into an Assistance and Provision of Services Agreement (the “Services Agreement”) with Microwave Vision and several subsidiaries of Microwave Vision, including Satimo. Microwave Vision owns 3.7 million shares of common stock of the Company, which it acquired through a reorganization involving its wholly owned subsidiary, Satimo. Satimo originally acquired its shares of common stock of the Company from Orbit-Alchut Technologies, Ltd. on May 13, 2008. Pursuant to the Services Agreement, Microwave Vision agreed to provide management, operational, sales and marketing, legal, technical and other services to the Company, Satimo, and Microwave Vision’s other direct and indirect Subsidiaries (collectively, the “Subsidiaries”). In consideration thereof, the Company, Satimo and each of the other Subsidiaries agreed to pay Microwave Vision a fee to be determined as of the start of each calendar year, effective on January 1, 2009, based on the projected gross margins of each Subsidiary for that year, subject to adjustment at year-end based on each entities gross margin (as defined) for the year. In addition, the Company agreed to pay Microwave Vision an additional fee of 1% of its gross sales in consideration of the right to use the name “Microwave Vision” in the Company’s sales and marketing activities. The Company has recorded approximately $1.7 million and $1.5 million respectively in expenses related to the Services Agreement for the years ended December 31, 2010 and 2009. As a result of the year-end adjustment, the amount of expense charged for the quarters ended December 31, 2010 and 2009 was approximately $657,000 and $588,000 or $315,000 and $271,000 respectively, greater than the quarterly charges accrued by the Company based upon budget.

7. Commitments and Contingencies

The Company leases its operating facilities and certain equipment under non-cancelable operating lease agreements which expire in various years through 2015. Rent expense for the years ended December 31, 2010 and 2009 was approximately $913 and $906, respectively. Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more are as follows:

Year ending December 31:
2011		$	698
2012			510
2013			367
2014			265
2015			183
Total		$	2,023

Under the terms of the Chief Scientist grant in Israel, Engineering is obligated to pay royalties at a rate of 2% of revenues generated from the sale of certain products up to the amount of the grant. For the years ended December 31, 2010 and 2009, royalties under this program were approximately $17 and $8, respectively. At December 31, 2010, the Company had an outstanding contingent obligation to the Chief Scientist of $87. Such contingent obligation is payable in future periods based upon annual sales of products developed under the grants.

At December 31, 2010, the Company has outstanding letters of credit in the favor of customers and a landlord totaling $5,955

As a result of the fire which occurred at the Company’s AEMI subsidiary in California on November 3, 2010, the Company has incurred additional clean-up and other costs which are subject to ongoing insurance claims at December 31, 2010. Through December 31, 2010 the Company has received $134, representing the replacement cost of certain machinery with a depreciated book basis of $25 resulting in a gain of $109. Insurance recoveries for other costs and business interruption coverage are still pending at December 31, 2010 and will be reported as revenue upon settlement with the insurance carrier.

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 to other geographic locations in Europe, Asia, and North America. The following table represents financial information by geographic region for the years ended December 31, 2010 and 2009.

		North
		America				Europe				Asia				Total
2010
Sales to unaffiliated customers		$	17,102			$	11,869			$	7,274			$	36,245
Cost of revenues to unaffiliated customers			12,079				8,409				5,026				25,514
Gross profit unaffiliated customers		$	5,023			$	3,460			$	2,248			$	10,731
Net property and equipment		$	1,059			$	1,237			$	—			$	2,296
Total assets		$	12,087			$	9,813			$	—			$	21,900
2009
Sales to unaffiliated customers		$	16,152			$	8,208			$	6,886			$	31,246
Cost of revenues to unaffiliated customers			10,316				5,362				4,805				20,483
Gross profit unaffiliated customers		$	5,836			$	2,846			$	2,081			$	10,763
Net property and equipment		$	812			$	1,281			$	—			$	2,093
Total assets		$	11,452			$	8,661			$	—			$	20,113

In the table above “North America” includes property and assets of all domestic operations, and “Europe” includes property and assets of the subsidiaries in Germany and Israel.

9. Income Taxes

Pretax income was applicable to the following jurisdictions:

		Year ended December 31,
		2010				2009
United States		$	57			$	665
Foreign			1,743				297
Total		$	1,800			$	962

The components of income tax (benefit) are as follows:

		Year ended December 31,
		2010				2009
Currently Payable (Refundable):
Federal state and local taxes within the U.S.		$	95			$	—
Foreign			(190	)			—
Total			(95	)			—
Deferred:
Federal			(382	)			(539	)
Foreign			(20	)			31
Total			(402	)			(508	)
Total income tax (benefit)		$	(497	)		$	(508	)

A reconciliation of income tax (benefit) at the U.S. Federal statutory tax rate and the actual income tax (benefit) is as follows:

		Year ended December 31,
		2010				2009
Tax expense at statutory U.S. Federal rate		$	612			$	327
State and local taxes within the U.S.			35				17
Reversal of previous tax accruals			(218	)			—
Decrease in deferred tax asset valuation allowance			(668	)			(1,181	)
Net additional prior years’ foreign income taxes resulting from tax examination			—				274
Decrease in tax rate on foreign deferred tax assets			(152	)			—
Foreign tax rate difference compared to U.S. tax rate			(125	)			31
Other, net			19				24
Total income tax (benefit)		$	(497	)		$	(508	)

The tax effects of temporary differences that give rise to a significant portion of deferred tax assets and liabilities consist of the following:

		December 31,
		2010				2009
Deferred tax assets:
U.S. net operating loss and tax credit carryforwards		$	2,688			$	2,912
MVG expense not currently deductible			287
Allowance for doubtful accounts			31				24
Accrued warranty reserves			100				63
Inventory reserve			15				21
Accrued compensation			161				174
Stock-based compensation			71				113
Unearned service revenue			86				86
Foreign, including German and Israel net operating loss carryforwards			569				827
Total deferred tax assets			4,008				4,220
Deferred tax liabilities:
Depreciation			(174	)			—
Purchase accounting basis differences			(124	)			(124	)
Total deferred tax liabilities			(298	)			(124	)
Net deferred tax asset			3,710				4,096
Less valuation allowance			(1,586	)			(2,374	)
Net deferred tax asset		$	2,124			$	1,722

As of December 31, 2010, the Company has net operating loss carryforwards of approximately $7,806 for U.S. federal income tax purposes which expire through 2024. On May 13, 2008, Alchut sold all of its 3.7 million shares of common stock of the Company to Satimo. Due to the change in ownership of the Company utilization of a portion of these net operating loss carryforward is limited pursuant to Section 382 of the Internal Revenue Code to approximately $1,315 a year, plus any losses incurred after May 13, 2008. The Company has a net operating loss carryforward in Germany of approximately $431 and an Israeli net operating loss carryforward of approximately $621, both of which are available indefinitely. In 2010 and 2009, the Company decreased its valuation allowance on its deferred tax assets by $668 and $1,098, respectively due to the Company’s estimate of its ability to generate sufficient future taxable income in the U.S., Israel and Germany to realize a portion of its deferred tax assets.

The Company’s US tax returns for 2007 through 2010 are open to examination by the Internal Revenue Service. The open years for state tax examination vary from 2006 through 2010. The Company’s German and Israeli tax years open to examination are 2007 through 2010.

The Company has not provided for federal income taxes applicable to the undistributed earnings of its foreign subsidiaries of approximately $1.0 million as of December 31, 2010, since these earnings are considered permanently reinvested.

10. Retirement Plans

The Company has retirement plans which cover substantially all U.S. employees who have attained the age of 21 and have completed 3 months of service. Eligible employees make voluntary contributions to the plans up to specified percentages of their annual compensation as defined in the plans. Under the plans, the Company makes discretionary matching contributions determinable each plan year and additional contributions based on annual eligible compensation for each participant. The plans are funded on a current basis. For the years ended December 31, 2010 and 2009, the Company’s contributions to the plans were $47 and $45, respectively.

11. Long-Term Contracts

Long-term contracts in process accounted for using the percentage-of-completion method are as follows:

		December 31,
		2010				2009
Accumulated expenditures on uncompleted contracts		$	58,597			$	45,179
Estimated earnings thereon			18,310				13,335
Total			76,907				58,514
Less: applicable progress billings			(74,083	)			(59,659	)
Net		$	2,824			$	(1,145	)
The long-term contracts are shown in the accompanying balance sheets as follows:
Costs and estimated earnings on uncompleted contracts in excess of billings		$	4,941			$	1,668
Billings on uncompleted contracts in excess of costs and estimated earnings			(2,117	)			(2,813	)
Net		$	2,824			$	(1,145	)

12. Stock Option Plan

The Company’s 1997 Equity Incentive Plan (the “Incentive Plan”), as subsequently amended, provides for awards of 1,200,000 shares of the Company’s stock. Options granted generally vest over five years and typically have a life of ten years. The purpose of the Incentive Plan is to promote the long-term retention of the Company’s key employees and certain other persons who are in a position to make significant contributions to the success of the Company. The Incentive Plan permits grants of incentive stock options (“ISOs”), options not intended to qualify as ISOs (“nonqualified options”), stock appreciation rights (“SARs”), restricted, unrestricted and deferred stock awards, performance awards, loans and supplemental cash awards, and combinations of the foregoing (all referred to as “Awards”).

In July of 2007, the Board of Directors approved two grants of non-qualified stock options for 84,300 and 435,100 shares to key employees, management and Board members of the Company. These grants resulted in stock-based compensation expense of $26 and $63 for the years ended December 31, 2010 and December 31, 2009, respectively.

In March of 2008, the Board of Directors approved a grant of non-qualified stock options for 30,000 shares to the Company’s Chief Financial Officer. This grant resulted in stock-based compensation of $14 and $14 for the years ended December 31, 2010 and December 31, 2009, respectively.

Detailed information concerning the Stock Option Plan is as follows at December 31:

		2010								2009
						Weighted								Weighted
						Average								Average
						Exercise								Exercise
		Options				Price				Options				Price
Options authorized			1,200,000								1,200,000
Outstanding, beginning of year			323,550			$	2.55				482,700			$	2.44
Options granted			—								—
Options forfeited			(44,300	)			3.40				(159,150	)			2.22
Options outstanding, end of year			279,250				2.41				323,550				2.55
Options exercisable, end of year			241,225			$	2.43				246,250			$	2.61
Weighted average remaining contractual life (years)							4.75								5.51
Weighted average fair value of options granted at market value						$	—							$	—
Range of exercise prices per share, options outstanding						$	1.95-$3.00							$	1.95-$6.63

The Company uses the Black-Scholes option valuation model for use in estimating the fair value of its stock options. This model was developed for traded options which have no vesting restrictions and are fully transferable. Option models require input of highly subjective assumptions including future stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimates, in management’s opinion, the Black-Scholes model does not necessarily provide a reliable measure of the fair value the Company’s stock options.

13. Stockholders’ Equity

Common Stock

The holders of shares of Common Stock are entitled to one vote for each share on record on any matters to be voted on by the stockholders. The holders of Common Stock are entitled to receive dividends if declared by the Board of Directors and to share ratably in the assets of the Company legally available for distribution to its stockholders in the event of liquidation, dissolution or winding-up of the Company. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights.

Preferred Stock

The Company’s Board of Directors may, without further action by the Company’s stockholders, from time to time, direct the issuance of shares of Preferred Stock in series and may, at the time of issuance, determine the rights, preferences and limitations of each series. The holders of Preferred Stock would normally be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of the Company before any payment is made to the holders of the Common Stock. The issuance of Preferred Stock could decrease the amount of earnings and assets available for distribution to the holders of Common Stock or could adversely affect the rights and powers, including voting rights, of the holders of Common Stock.

Treasury Stock

On June 24, 1998, the Company’s Board approved the repurchase of up to 300,000 shares of its stock. The Company has repurchased 82,900 shares through December 31, 2010 for $243, of which 200 shares were re-issued in 2009 for a nominal amount.

PART IV

ITEM 15.		EXHIBITS, FINANCIAL STATEMENTS SCHEDULE

Exhibits

	3.1			Amended and Restated Certificate of Incorporation of the Company. (2)
	3.2			Bylaws of the Company. (7)
	4.1			Specimen Common Stock Certificate of the Company. (2)
	4.2			Citizens Bank Term Note, dated December 13, 2010, in the aggregate principal amount of $250,000.†
	4.3			Citizens Bank Revolving Demand Note, dated December 13, 2010, in the aggregate principal amount of $2,250,000.†
	10.1	*		Employment Agreement dated January 1, 1997 by and between the Company and Moshe Pinkasy. (1)
	10.2	*		1997 Equity Incentive Plan. (1)
	10.3			ORBIT/FR Inc. non-debarment agreement dated February 15, 2000 (4)

	10.4			Consent Agreement. (8)
	10.5	*		Employment Agreement dated December 16, 2008 by and between the Company and Per Iversen. (9)
	10.6			Services Agreement dated August 14, 2009 among the Company, Microwave Vision Group, S.A. and the other parties thereto. (10)
	10.7			Loan Agreement, dated December 13, 2010 by and between the Company and Citizens Bank of Pennsylvania (Equipment Line of Credit).†
	10.8			Security Agreement, dated December 13, 2010, by and between the Company and Citizens Bank of Pennsylvania (Equipment Line of Credit).†
	10.9			Loan Agreement, dated December 13, 2010, by and between the Company and Citizens Bank of Pennsylvania (Revolving Credit Facility).†
	10.10			Security Agreement, dated December 13, 2010, by and between the Company and Citizens Bank of Pennsylvania (Revolving Credit Facility).†
	14.1			Employee Ethics Policy. (6)
	21.1			Subsidiaries of the Registrant. (3)
	23.1			Consent of Cornick, Garber & Sandler, LLP.
	23.2			Consent of Ziv Haft Certified Public Accountants (Isr.).
	24.1			Power of Attorney.†
	31.1			Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003, of Per Iversen, President and Chief Executive Officer.
	31.2			Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2003, of 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 2003, of 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 2003, of Relland Winand, Chief Financial Officer.

ORBIT/FR, Inc.

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) 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.