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 ~~September~~March 3031, ~~2011~~2012

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

For the Transition Period from to

Commission File Number 0-22583

ORBIT/FR, Inc.

(Exact Name of Registrant as Specified in its Charter)

DELAWARE		23-2874370
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
506 Prudential Road, Horsham, PA		19044
(Address of principal executive offices)		(Zip Code)

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 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 x 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 definitions of “large accelerated filer, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.

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

~~Non-accelerated~~Indicate ~~filer~~by ~~(Do~~check ~~not~~mark ~~check~~whether ifthe aregistrant ~~smaller~~is ~~reporting~~a shell company) ~~Smaller~~(as ~~reporting~~defined ~~company~~in xRule 12b-2 of the Exchange Act). Yes oNox

~~Indicate~~There bywere ~~check~~6,001,773 ~~mark~~shares ~~whether~~of ~~the~~common ~~registrant~~stock, is$.01 apar ~~shell~~value, ~~company~~outstanding (as ~~defined in Rule 12b-2~~ of ~~the~~May ~~Exchange~~15, ~~Act)~~2012. ~~Yes o No x~~

There were 6,001,773 shares of common stock, $.01 par value, outstanding as of November 21, 2011.

ORBIT/FR, Inc.

Index

			Page No.
PART I	FINANCIAL INFORMATION
PART I.	FINANCIAL INFORMATION
	Item 1	Consolidated Financial Statements
	Item 1.	Consolidated Financial Statements
		Condensed Consolidated Balance Sheets—September 30, 2011 (Unaudited) and December 31, 2010	4
		Condensed Consolidated Balance Sheets—March 31, 2012 (Unaudited) and December 31, 2011	4
		Condensed Consolidated Statements of Operations—Three and nine months ended September 30, 2011 and 2010 (Unaudited)	5
		Condensed Consolidated Statements of Operations—Three months ended March 31, 2012 and 2011 (Unaudited)	5
		Condensed Consolidated Statements of Cash Flows—Three and nine months ended September 30, 2011 and 2010 (Unaudited)	6
		Condensed Consolidated Statements of Cash Flows—Three months ended March 31, 2012 and 2011 (Unaudited)	6
		Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 4	Controls and procedures	17
	Item 4.	Controls and procedures	16
PART II	Other Information
PART II.	Other Information
	Item 1	Legal Proceedings	19
	Item 1.	Legal Proceedings	17
	Item 1A	Risk Factors	19
	Item 1A.	Risk Factors	17
	Item 6	Exhibits	19
	Item 6.	Exhibits	17
Signatures			2018

Index

ORBIT/FR, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

	September 30,			December 31,
	March 31,			December 31,
	2011			2010
	2012			2011
	Unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	1,~~233~~058		$	23,~~400~~266
Accounts receivable, less allowance of $62 and $90		4,603			5,693
Accounts receivable, less allowance of $76 in 2012 and 2011		4,979			6,709
Inventory		3,~~421~~281			2,~~776~~923
Costs and estimated earnings in excess of billings on uncompleted contracts		5,~~100~~647			45,~~941~~256
Income tax refunds receivable		~~469~~255			~~655~~694
Deferred income taxes		~~1,207~~919			~~1,437~~917
Other		~~452~~728			~~745~~277
Total current assets		16,~~485~~867			1820,~~647~~042
Property and equipment, net		23,~~593~~019			2,~~296~~974
Deferred income taxes		~~645~~944			~~688~~933
Cost in excess of net assets acquired		301			301
Goodwill		301			301
Total assets	$	2021,~~024~~131		$	2124,~~932~~250
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	32,~~003~~875		$	3,~~781~~313
Accounts payable—parent company		2,028			1,697
Accounts payable—ultimate parent		1,283			1,519
Accrued expenses		3,~~090~~416			3,~~728~~364
Customer advances		--71			75228
Billings in excess of costs and estimated earnings on uncompleted contracts		23,~~389~~458			25,~~117~~258
Short term debt		300			--
Short-term bank financing		200			500
Current portion of long term debt		2627			--27
Total current liabilities		1011,~~836~~330			1114,~~398~~209
Long term debt		113			--
Long-term debt (less current portion above)		99			106
Stockholders' equity:
Preferred stock: $.01 par value: Authorized shares--2,000,000 Issued and outstanding shares--none		--			--
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
Common stock: $.01 par value:Authorized shares--10,000,000 Issued shares--6,084,473		61			61
Additional paid-in capital		16,~~525~~532			16,~~500~~529
Accumulated deficit		(76,~~222~~576	)		(56,~~727~~279	)
Accumulated other comprehensive income (loss) - foreign currency translation adjustment		(46	)		(57	)
Accumulated other comprehensive (loss) -foreign currency translation adjustment net of $25 in 2012 and $42 in 2011, income tax benefit		(72	)		(133	)
Treasury stock--82,700 shares		(243	)		(243	)
Treasury stock--82,700 shares in 2012 and 2011 at cost		(243	)		(243	)
Total stockholders' equity		9,~~075~~702			109,~~534~~935
Total liabilities and stockholders' equity	$	2021,~~024~~131		$	2124,~~932~~250

See accompanying notes.

Index

ORBIT/FR, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2011			2010			2011			2010
	2012			2011
Contract revenues	$	7,~~643~~704		$	97,~~700~~317		$	~~23,161~~		$	~~26,158~~
Cost of revenues		5,~~974~~734			65,~~948~~976			~~18,280~~			~~18,078~~
Gross profit		1,~~669~~970			21,~~752~~341			~~4,881~~			~~8,080~~
Operating expenses:
General and administrative		~~806~~694			~~802~~746			~~2,339~~			~~2,298~~
Sales and marketing		~~660~~689			~~702~~720			~~1,969~~			~~2,199~~
Sales, marketing, general and administrative – MVG		~~250~~300			~~342~~250			~~750~~			~~1,025~~
Research and development		~~288~~453			~~414~~269			~~912~~			~~978~~
Insurance proceeds		--			--			(132	)		--
Total operating expenses		2,136			1,985
Total operating expenses		2,004			2,260			5,838			6,500
Operating (loss)		(166	)		(644	)
Operating (loss) income		(335	)		492			(957	)		1,580
Other (loss), net		(67	)		(216	)
Other income (loss), net		132			(204	)		(197	)		(78	)
(Loss) before income taxes		(233	)		(860	)
(Loss) income before income taxes		(203	)		288			(1,154	)		1,502
Income tax expense (benefit)		63			(229	)
Income tax expense (benefit)		93			(139	)		340			(231	)
Net (loss)		(296	)		(631	)
Net (loss) income		(296	)		427			(1,494	)		1,733
Other comprehensive income -
Other comprehensive (loss) income - Foreign currency translation adjustment		(86	)		136			11			(48	)
Foreign currency translation adjustment, net of $34 and $36 income tax benefit		61			64
Total comprehensive (loss) income	$	(382	)	$	563		$	(1,483	)	$	1,685
Total comprehensive (loss)	$	(235	)	$	(567	)
Basic (loss) income per share	$	(0.05	)	$	0.07		$	(0.25	)	$	0.29
Basic (loss) per share	$	(0.05	)	$	(0.11	)
Diluted (loss) income per share	$	(0.05	)	$	(0.0711	)	$	~~(0.25~~	)	$	~~0.29~~
Weighted average number basic common shares		6,001,773			6,001,773			~~6,001,773~~			~~6,001,773~~
Weighted average number diluted common shares		6,001,773			6,~~026~~001,~~250~~773			~~6,001,773~~			~~6,017,532~~

See accompanying notes.

Index

ORBIT/FR, Inc.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
	2011			2010
	2012			2011
Cash flows from operating activities:
Net (loss) income	$	(1,494	)	$	1,733
Net (loss)	$	(296	)	$	(631	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		~~430~~166			~~376~~144
Stock based compensation		243			317
Deferred income taxes		~~272~~(13	)		~~(97~~199	)
Changes in operating assets and liabilities:
Accounts receivable		1,~~099~~763			32,~~533~~070
Inventory		(~~641~~354	)		(~~195~~343	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(~~140~~376	)		~~(3,466~~510	)
Income tax refunds receivable		~~186~~441			--329
Other current assets		~~263~~(455	)		(~~228~~160	)
Accounts payable and accrued expenses		(~~1,437~~404	)		94(1,030	)
Accounts payable—parent company		353			377
Accounts payable—ultimate parent		(227	)		468
Customer advances		(75161	)		(271	)
Billings in excess of costs and estimated earnings on uncompleted contracts		~~259~~(1,818	)		~~573~~789
Net cash (used by) provided by operating activities		(901	)		2,729
Net cash (used in) provided by operating activities		(1,731	)		2,281
Cash flows from investing activities:
Purchase of property and equipment		(~~722~~203	)		(~~729~~322	)
Net cash (used in) investing activities		(~~722~~203	)		(~~729~~322	)
Cash flows from financing activities:
Proceeds from short term notes payable		1,100			--
Proceeds from short- term bank financing		200			200
Repayment of short term notes payable		(800	)		(250	)
Repayment of short-term bank financing		(500	)		(200	)
Proceeds from long term debt		143			--
Repayment of long term debt		(7	)		--
Repayment of long term debt		(4	)		--
Net cash used in financing activities		(307	)		--
Net cash provided by (used in) financing activities		439			(250	)
Effect of foreign exchange rate changes on cash and cash equivalents		33			29
Effect of foreign exchange rate changes on cash and cash equivalents		17			61
Net (decrease) increase in cash and cash equivalents		(2,208	)		1,988
Net (decrease) increase in cash and cash equivalents		(1,167	)		1,811
Cash and cash equivalents at beginning of period		3,266			2,400
Cash and cash equivalents at beginning of perid		2,400			1,622
Cash and cash equivalents at end of period	$	1,058		$	4,388
Cash and cash equivalents at end of period	$	1,233		$	3,433
Supplemental disclosures of cash flow information:
Cash (received) paid during the period for income taxes	$	(267	)	$	243
Cash (received) during the period for income taxes	$	(253	)	$	(333	)
Cash paid during the period for interest	$	151		$	186

See accompanying notes.

Index

ORBIT/FR, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September~~March 3031, ~~2011~~2012

(Amounts in thousands, except share and per share data)

1. Ownership and Business

ORBIT/FR, Inc. (the "Company") was incorporated in Delaware on December 9, 1996, as a wholly owned subsidiary of Orbit-Alchut Technologies, Ltd., (now known as Orbit Technologies, Ltd.), an Israeli publicly traded corporation. On May 13, 2008, Orbit-Alchut Technologies, Ltd. (“Alchut”) sold all of its 3.7 million shares of common stock of the Company to Satimo, SA (“Satimo”). On June 30, 2009, Microwave Vision Group, SA, (“Microwave Vision” or “MVG”), acquired all 3.7 million common shares of the Company through a reorganization involving its wholly owned subsidiary, Satimo. 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 (Israel) (hereinafter referred to as “Engineering”); ORBIT/FR Europe GmbH (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 North America, Europe and Asia.

2. Basis of Presentation

Interim Financial Information

The accompanying unaudited condensed consolidated financial statements for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~March 31, 2011 have been prepared in accordance with generally accepted accounting principles in the United States 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 condensed consolidated financial statements have been included. The results of the interim period are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2011~~2012. The condensed 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, ~~2010~~2011, filed on ~~March~~April 319, ~~2011~~2012 with the Securities and Exchange Commission, which included the consolidated financial statements and footnotes for the year ended December 31, ~~2010~~2011.

3. Inventory

Inventory at ~~September~~March 3031, ~~2011~~2012 consists of the following:

Parts and components	$	23,~~943~~077
Work- in- process		~~478~~204
Total	$	3,~~421~~281

Index

ORBIT/FR, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September~~March 3031, ~~2011~~2012

(Amounts in thousands, except share and per share data)

4. Property and Equipment

Property and equipment at ~~September~~March 3031, ~~2011~~2012 consists of the following:

Lab and computer equipment	$	3,~~311~~704
Office equipment		~~976~~1,119
Transportation equipment		61
Furniture and fixtures		7074
Fixed assets in progress		~~276~~464
Leasehold improvements		~~671~~683
Total		56,~~365~~105
Less accumulated depreciation		23,~~772~~086
Property and equipment, net	$	23,~~593~~019

5. Accrued Expenses

Accrued expenses at ~~September~~March 3031, ~~2011~~2012 consist of the following:

Contract costs	$	68209
Compensation		1,~~576~~600
Commissions		~~476~~514
Warranty		~~494~~400
Deferred revenue		~~127~~341
Other accruals		~~349~~352
Total	$	3,~~090~~416

6. Long-Term Contracts

Long-term contracts in process accounted for using the percentage-of-completion method are summarized as follows at ~~September~~March 3031, ~~2011~~2012:

Accumulated expenditures on uncompleted contracts	$	5941,~~158~~176
Estimated earnings thereon		1612,~~245~~438
Total		7553,~~403~~614
Less: Applicable progress billings		(7251,~~692~~425	)
Balance	$	2,~~711~~189

Index

ORBIT/FR, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September~~March 3031, ~~2011~~2012

(Amounts in thousands, except share and per share data)

The long-term contracts are shown in the accompanying balance ~~sheets~~sheet as follows:

Costs and estimated earnings on uncompleted contracts in excess of billings	$	5,~~100~~647
Billings on uncompleted contracts in excess of costs and estimated earnings		(23,~~389~~458	)
Balance	$	2,~~711~~189

7. Foreign Currency ~~Transactions~~Translation

~~The~~For ~~Company~~the ~~records~~quarters ~~transactions~~ended inMarch ~~connection~~31, ~~with~~2012 ~~foreign~~and ~~currency~~2011, ~~including~~approximately ~~invoices~~52% ~~received~~and 21%, ~~collected~~respectively, ~~issued~~of orthe ~~paid~~Company’s atrevenue ~~the~~was ~~exchange~~billed ~~rate~~ in ~~effect~~currencies atother ~~the~~than ~~date of~~ the ~~transaction~~U.S. ~~Receivables,~~dollar. ~~payables~~This ~~and~~increase ~~other~~in ~~balance~~revenues ~~sheets~~billed ~~accounts denominated~~ in ~~foreign~~currencies ~~currency~~other ~~are~~than ~~re-measured at each balance sheet date~~U.S. ~~The~~dollars ~~differences~~as ~~resulting~~of ~~from~~March ~~unrealized~~31, ~~changes~~2012 inversus ~~foreign~~March ~~exchange~~31, ~~rates~~2011 ~~are~~reflects ~~recorded~~an asincrease ~~foreign~~in ~~exchange~~business ~~gain or loss which is included as a component~~ of ~~“Other income (loss), net” on~~ the ~~consolidated~~Israeli ~~statement~~and ofGerman ~~operations. Also~~subsidiaries, ~~when~~including a ~~transaction~~contract ismix ~~settled~~that ~~(collected~~has ~~or paid) within an accounting period,~~ a ~~realized~~higher ~~foreign~~number ~~exchange~~of ~~gain~~non-U.S. ordollar ~~loss~~contracts, isand ~~recorded based on~~ the ~~rate~~reduction inof ~~effect~~domestic atbusiness. ~~the~~The ~~date~~majority of ~~settlement and~~ the ~~previous~~costs ~~carrying amount~~ of the ~~receivable or payable. The~~ Company’s ~~occasionally enters into forward exchange currency~~ contracts ~~and~~had ~~their~~been ~~carrying~~from ~~amount~~U.S. isdollar ~~also~~denominated ~~measured at each balance sheet date~~transactions. ~~The~~However, ~~change in carrying amount is also recorded~~ as adomestic ~~foreign~~business ~~exchange~~has ~~gain~~decreased, orthe ~~loss.~~Company’s ~~The~~costs ~~foreign~~on ~~exchange~~contracts ~~transaction~~have ~~gain~~been ~~for~~in ~~the~~currencies ~~three~~other ~~months~~than ~~ended~~U.S. ~~September 30~~dollars, ~~2011~~predominately ~~was~~Euros by ~~$153 and~~ the ~~foreign~~German ~~exchange~~subsidiary ~~transaction~~and ~~loss~~shekels ~~for~~by the ~~three~~Israeli ~~months ended September 30, 2010 was $186~~subsidiary. ~~The~~Transactions ~~foreign~~with ~~exchange transaction losses for~~ the ~~nine~~Company’s ~~month~~parent ~~periods~~are ~~ended~~predominantly ~~September~~in ~~30, 2011 and September 30, 2010 were $111 and $14, respectively~~Euros.

The Company asrecords transactions in connection with foreign currency including invoices received, collected, issued or paid at the exchange rate in effect at the date of ~~September~~the 30transaction. Receivables, ~~2011~~payables ~~had~~and other balance sheets accounts 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 gains or losses which are included as a component of “Other income (loss), net” ~~liabilities~~on the consolidated statement of 4operations.9 ~~million~~Also, ~~shekels~~when a transaction is settled (collected or paid) within an accounting period, a realized foreign exchange gain or loss is recorded based on the rate in effect at the date of settlement and 0the previous carrying amount of the receivable or payable.9 ~~million~~The ~~Euros~~Company occasionally enters into forward exchange currency contracts and their carrying amount is also measured at each balance sheet date. The change in carrying amount is also recorded as a foreign exchange gain or loss. The foreign exchange transaction loss for the three months ended March 31, ~~subject~~2012 towas $0.036 million and the foreign exchange ~~fluctuations~~transaction loss for the three months ended March 31, 2011 was $0.178 million.

The Company as of March 31, 2012 had net liabilities of 3.3 million shekels and net assets 0.7 million Euros, subject to foreign exchange fluctuations.

8. Income Taxes

The Company has recorded an income tax expense of approximately $0.31 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 based on the operating income of its Israeli ~~subsidiary~~ and ~~the~~German ~~reduction of their deferred tax assets reflecting the decrease in Israel’s corporate tax rate~~subsidiaries. The U.S. tax benefit ~~due~~applicable to the ~~2011~~March 31, 2012 U.S. operating losses of the Company was not recorded due to management’s current estimate that the benefit will not be utilized this year. The AnCompany had recorded an income tax benefit, ~~which~~of ~~partially~~approximately ~~reduced~~$0.4 ~~income~~million ~~tax~~for ~~expense~~the three months ended March 31, ~~applicable~~2011 relating to the operating ~~losses~~loss ofincurred ~~our~~by ~~German~~the ~~subsidiary~~Company ~~was~~and ~~recorded~~management’s ~~for~~estimate that the ~~nine~~benefit would be utilized in 2011. That tax benefit realized by the Company’s operating loss in the three month period ended ~~September~~March 3031, 2011 ~~based~~was onpartially ~~management’s~~offset ~~current~~by ~~estimate~~tax ~~that~~expense ~~this~~of the Israeli subsidiary ~~will~~resulting ~~have~~from ~~pretax~~the ~~earnings~~reduction ~~for~~of their deferred tax assets reflecting the ~~year~~reduction of Israel’s corporate tax rate.

Index

ORBIT/FR, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September~~March 3031, ~~2011~~2012

(Amounts in thousands, except share and per share data)

9. Debt

The components of debt shown in the accompanying balance sheet are as follows:

	September 30,			December 31,
	March 31,			December 31,
	2011			2010
	2012			2011
Short term bank loans	$	300		$	--
Short-term bank financing	$	200		$	500
Total long term debt	$	139		$	--
Total long-term debt	$	126		$	133
Less: current portion		(2627	)		--(27	)
Total long-term debt, net of current portion	$	~~113~~99		$	--106

~~The~~In July, 2011, the Company borrowed $0.14 million of the $0.25 million available under its Term Note-Non Revolving Line of Credit to purchase a Computer Numerical Control (CNC) machine for its subsidiary Advanced Electromagnetics, Inc. The current portion of this long term debt at March 31, 2012 is $0.~~026~~027 million and is included in current liabilities. The long -term debt portion is $0.~~113~~099 million and $0.106 million for the quarter ended March 31, 2012 and the year ended December 31, 2011, respectively. The note is payable in 60 equal installments and has an interest rate of 4.28%. The remaining principal payments by year are: ~~2011 $0.01 million,~~ 2012 $0.03 million, 2013 $0.03 million, 2014 $0.03 million, 2015 $0.03 million and 2016 $0.01million. On September 23, 2011 the Term Note-Non Revolving Line of Credit was extended to August 31, 2017. The Bank also extended the Conversion Date of the Term Note to August 31, 2012.

At ~~September~~March 3031, ~~2011~~2012 the Company had borrowed $0.32 million under its $2.25 million Revolving Demand Note bank facility. The interest rate on amounts outstanding under the facility is LIBOR rate plus 2.25%. This facility does not contain any financial covenants and can be used to issue letters of credit. ~~Currently,~~The ~~one~~revolving ~~letter~~line of credit isagreement ~~outstanding~~requires inan ~~the~~annual ~~amount~~“clean-up” period of $130 days where no loans under the line may be outstanding.0 ~~million~~The ~~and~~Company ~~will~~has ~~expire~~met ~~November~~this 15requirement in the quarter ended March 31, ~~2011~~2012.

10. Related Party Transactions

The Company is party to an Assistance and Provision of Services Agreement (the "Services Agreement") with its majority stockholder Microwave Vision and several subsidiaries of Microwave Vision. Microwave Vision provides management, operational, sales and marketing, legal, technical and other services to the Company and Microwave Vision's other direct and indirect subsidiaries. In consideration thereof, the Company, and each of Microwave Visions’ other subsidiaries agreed to pay Microwave Vision a fee determined as of the start of each calendar year based on the projected gross margins of each subsidiary for that year, subject to adjustment at year end based on actual gross margin. 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. As of ~~September~~March 3031, ~~2011~~2012, the fee for the year ending December 31, ~~2011~~2012 has not been determined. However, based on information provided by Microwave Vision the Company has accrued an estimated performance fee of $0.25 million and $0.75 million respectively for the three months and nine months ended September 30, 2011.

Index

ORBIT/FR, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September~~March 3031, ~~2011~~2012

(Amounts in thousands, except share and per share data)

11The ~~Segment~~Company ~~and~~has ~~Geographic~~accrued ~~Information~~an estimated fee of $0.3 million for the three months ended March 31, 2012 which represents twenty-five percent of the 2011 MVG fee. For the three month period ended March 31, 2011, the Company had accrued an estimated fee of $0.25 million. The Company recorded approximately $1.2 million in expenses related to the Services Agreement for the year ended December 31, 2011.

~~The Company operates exclusively in one industry segment, the business of developing, marketing and supporting sophisticated automated microwave test and measurement systems~~11. InSegment ~~addition to its principal operations~~ and ~~markets~~Geographic in the United States, the Company conducts sales, customer support and service operations in other geographic locations in Europe, Asia and North America. The following table represents financial information by geographic region for the three and nine months ended September 30, 2011 and 2010. The following table is exclusive of intercompany transactions within the Company.Information

Three months ended September 30, 2011	North America		Europe		Asia		Total
Contract revenues	$	2,156	$	2,920	$	2,567	$	7,643
Cost of revenues		2,042		2,064		1,868		5,974
Gross profit	$	114	$	856	$	699	$	1,669

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 in other geographic locations in Europe, Asia and North America. The following table represents financial information by geographic region for the three months ended March 31, 2012 and 2011. The following table is exclusive of intercompany transactions within the Company.

Three months ended September 30, 2011

North America

Europe

Asia

Total

Three months ended March 31, 2012

North America

Europe

Asia

Total

Contract revenues

51,~~157~~936

23,~~912~~377

12,~~631~~391

97,~~700~~704

Cost of revenues

31,~~946~~492

12,~~979~~447

1,~~023~~795

65,~~948~~734

Gross profit

~~1,211~~444

~~933~~930

~~608~~596

21,~~752~~970

Nine months ended September 30, 2011

North America

Europe

Asia

Total

Three months ended March 31, 2011

North America

Europe

Asia

Total

Contract revenues

82,~~080~~726

71,~~462~~999

72,~~619~~592

237,~~161~~317

Cost of revenues

72,~~433~~623

51,~~338~~526

51,~~509~~827

185,~~280~~976

Gross profit

~~647~~103

~~2,124~~473

~~2,110~~765

41,~~881~~341

Nine months ended September 30, 2010	North America		Europe		Asia		Total
Contract revenues	$	11,775	$	9,123	$	5,260	$	26,158
Cost of revenues		8,154		6,434		3,490		18,078
Gross profit	$	3,621	$	2,689	$	1,770	$	8,080

In the table above "North America" includes all of the Company’s United States operations, and "Europe" includes the Company’s subsidiaries in Germany and Israel.

Index

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 in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011, a copy of which may be obtained from the Company upon request and without charge (except for the exhibits thereto).

Critical Accounting Policies

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 equipment costs. 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. Any estimated losses on contracts are recorded in the period losses are first identified. Revenues from electro-mechanical equipment sold to customers that are not part of a larger contract are recognized when the contract is substantially completed. 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 received from 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.

Accounts Receivable

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

Foreign Currency Transactions

The Company records transactions in connection with foreign currency including invoices received, collected, issued or paid at the exchange rate in effect at the date of the transaction. Receivables, payables and other balance sheets accounts 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~~gains or ~~loss~~losses which isare included as a component of “Other income (loss), net” on the consolidated statement of operations. Also, when a transaction is settled (collected or paid) within an accounting period, a realized foreign exchange gain or loss is recorded based on the rate in effect 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 also measured at each balance sheet date. The change in carrying amount is also recorded as a foreign exchange gain or loss.

Index

Results of Operations

The following table sets forth certain financial data as a percentage of revenues for the periods indicated:

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2011			2010			2011			2010
	2012			2011
	(Unaudited)						~~(Unaudited)~~
Revenues		100.000	%		100.000	%		~~100.00~~	%		~~100.00~~	%
Gross profit		2125.86			2818.3			~~21.1~~			~~30.9~~
General and administrative		109.50			810.32			~~10.1~~			~~8.8~~
Sales and marketing		8.69			79.28			~~8.5~~			~~8.4~~
Research and development		35.89			4.3.7			~~3.9~~			~~3.7~~
Microwave Vision Group corporate expenses		3.39			3.54			~~3.2~~			~~3.9~~
Insurance reimbursement		--			--			(0.5	)		--
Operating (loss)		(2.1	)		(8.8	)
Operating (loss) income		(4.4	)		5.0			(4.1	)		6.1
(Loss) before income taxes		(3.0	)		(9.4	)
(Loss) income before income taxes		(2.6	)		3.0			(5.0	)		5.7
Net (loss)		(3.8	)		(7.1	)
Net (loss) income		(3.9	)		4.4			(6.5	)		6.6

Three months ended ~~September~~March 3031, ~~2011~~2012 compared to three months ended ~~September~~March 3031, ~~2010~~2011.

Revenues. Revenues for the three months ended ~~September~~March 3031, ~~2011~~2012 were approximately $7.67 million compared to approximately $9.7.3million ~~million~~ for the three months ended ~~September~~March 3031, ~~2010~~2011, representing aan ~~decrease~~increase of approximately $20.14 million ~~or 21~~.~~6%.~~ Revenues from the ~~university~~wireless, ~~wireless~~automotive and satellite markets increased approximately $01.3 million, $0.2 million and $0.1million respectively,; while revenues from the defense market and the university markets decreased $20.7 million and $0.5 million respectively reflecting decreased ~~U.S.~~business ~~defense~~in ~~business~~those markets. Geographically, revenues from Asia increased $0.9 million. North America revenues decreased approximately $3.0 million and European revenues remained unchanged.

Cost of revenues. Cost of revenues for the three months ended ~~September~~March 3031, ~~2011~~2012 was approximately $65.07 million, compared to $6.90 million for the for the three months ended ~~September~~March 3031, ~~2010~~2011. Gross profit ~~decreased~~increased to 2125.86% of revenues for the three months ended ~~September~~March 3031, ~~2011~~2012 from 2818.3% for the three months ended ~~September~~March 3031, ~~2010~~2011. The ~~lower~~increase of the gross profit percentage asof ~~compared~~the toNorth ~~September~~American ~~30,~~business ~~2010~~from ~~was~~3.8% ~~due~~in tothe ~~several~~quarter ~~factors~~ended March 31, ~~including~~2011 ~~contract~~to ~~mix~~22.9% infor the ~~North~~quarter ~~American~~ended ~~business: work~~March ~~was~~31, ~~performed~~2012 onwas ~~contracts~~due ~~that~~to ~~have~~the ~~lower~~completion ~~gross~~in ~~margins~~2011of ~~including two~~ contracts in that ~~are~~had costs in aexcess ~~loss~~of ~~position~~previous estimates which ~~incurred~~resulted ~~additional~~in ~~estimated~~reduction ~~costs~~ to ~~complete~~gross margin. An increase in the ~~quarter.~~gross ~~The~~margin ~~Company~~percentage ~~anticipates~~of ~~that~~the ~~these~~European ~~contracts~~business ~~will~~from be23.7% ~~substantially~~in ~~completed~~the byquarter ~~December~~ended March 31, 2011. ~~One~~to of27.5% in the ~~contracts~~quarter ~~has~~ended aMarch ~~provision~~31, ~~for~~2012 ~~penalties~~is ~~for~~the ~~late~~result ~~delivery.~~of Nocontract ~~provision~~mix ~~has~~as ~~been~~work ~~made~~progresses byon higher gross margin contracts in the ~~Company~~current ~~for~~quarter ~~any~~ended ~~potential~~March ~~late~~31, ~~penalties~~2012 asthan in the ~~Company~~same isquarter ended 2011. A gross margin percentage decrease in the ~~process~~Asian ofbusiness ~~negotiating~~from ~~with~~29.5% in the ~~customer~~quarter toended ~~have~~March ~~these~~31, ~~penalties~~2011 ~~waived~~to 24.9% Inin the quarter ended ~~September~~March 3031, ~~2010,~~2012 ~~the~~reflects ~~Company~~contract ~~had~~mix ~~two~~as work has begun on Asian ~~contracts~~business that ~~yielded~~has ~~higher~~a lower gross ~~margins than~~margin ~~originally~~in ~~anticipated~~the ~~resulting~~quarter inended ~~additional~~March ~~gross~~31, ~~margin~~2012 ~~recognized.~~than ~~These~~the ~~Asian~~gross ~~contracts~~margin ~~were~~for ~~substantially~~the ~~completed~~same atperiod ~~December~~in ~~31, 2010~~2011.

Index

General and administrative expense. General and administrative expenses, exclusive of the charges from Microwave Vision Group, SA (“Microwave Vision” or “MVG”) were $0.87 million for the three month periods ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~ 2011, respectively. As a percentage of revenues, the general and administrative expenses ~~increased~~decreased to 109.50% for the three months ended ~~September~~March 3031, ~~2011~~2012 from 810.32% for the three months ended ~~September~~March 3031, ~~2010~~2011, reflecting ~~lower~~increased sales volume in the current three month period ended versus the year ago quarter. There ~~were~~was no material changes in the individual components of general and administrative expense in the quarter ended ~~September~~March 3031, ~~2011~~2012 versus the quarter ended ~~September~~March 3031, ~~2010~~2011.

Sales and marketing expense. Sales and marketing expense, exclusive of the charges from MVG, for the three month periods ended ~~September~~March 3031, ~~2011~~2012 and ~~September~~March 3031, ~~2010~~2011 were $0.7 million. As a percentage of revenues, sales and marketing expenses ~~increased~~decreased to 8.69% for the three months ended ~~September~~March 3031, ~~2011~~2012, from 79.28% for the three months ended ~~September~~March 3031, ~~2010~~2011 reflecting ~~lower~~increased sales volume in the current quarter. There was no material changes in the individual components of general and administrative expense in the quarter ended March 31, 2012 versus the quarter ended March 31, 2011.

Sales, marketing general and administrative-Microwave Vision Group. The preliminary performance fee for the year ending December 31, ~~2011~~2012 has not yet been determined as of ~~September~~March 3031, ~~2011~~2012. ~~Based~~The ~~on information provided by Microwave Vision, the~~ Company has accrued an estimated ~~quarterly~~ fee of $0.253 million ~~through~~for ~~September~~the 30three months ended March 31, 2012 which represents twenty-five percent of the 2011 MVG fee. The preliminary MVG fee may be subject to adjustment before the year end and will be adjusted at December 31, ~~2011~~2012 based upon the actual gross margin of each MVG subsidiary at year-end. The Company had accrued an estimated fee of $0.3425 million for the three month period ended ~~September~~March 3031, ~~2010~~2011. The Company recorded approximately $1.2 million in expenses related to the Services Agreement for the year ended December 31, 2011.

Research and development expense. Research and development expenses for the three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 were $0.35 million and $0.43 million, respectively. As a percentage of revenues, research and development expense ~~decreased~~increased to 35.89% for the three months ended ~~September~~March 3031, ~~2011~~2012 from 4.3.9% for the three month period ended ~~June~~March 3031, ~~2010~~2011. The ~~decrease~~increase primarily reflects ~~reduced~~increased activity in ~~antenna~~absorber ~~measurement~~technology ~~systems.~~and ~~However,~~research ~~this~~and ~~reduced~~development ~~activity~~personnel ~~was~~returning ~~partially~~to ~~offset~~their bynormal ~~increased~~duties ~~activity~~after inhaving ~~absorber~~been ~~technology~~used to meet contract deliveries.

Other ~~income~~ (loss), net. Other ~~income~~ (loss), net, for the three months ended ~~September~~March 3031, ~~2011~~2012 was approximately $0.1 million compared to other (loss), net of $0.2 million for the three months ended ~~September~~March 3031, ~~2010~~2011. The Company’s other ~~income~~(loss), net in ~~2011~~2012 results ~~primarily~~ from bank charges and foreign currency exchange ~~gains~~losses attributable to the Company’s expenses payable in Euros which include the invoices billed to the Company by Microwave Vision under the Services Agreement, since the value of the Euro ~~weakened~~increased 2.9% in ~~relation~~the quarter from its value at December 31, 2011. Other (loss), net for the three months ended March 31, 2011 was primarily due to foreign currency exchange losses attributable to the ~~U.S.~~Company’s ~~dollar~~expenses ~~during~~payable in Euros which include the ~~current~~invoices ~~three~~billed ~~month~~to ~~period~~the Company by Microwave Vision under the Services Agreement, since the value of the Euro increased 6% in the quarter from its value at December 31, 2010.

Income taxes. For the three months ended September 30, 2011 the Company recorded income tax expense of approximately $0.1 million resulting from the operating income in the current period of our Israeli subsidiary. The U.S. tax benefit due to the 2011 U.S. operating losses of the Company in the three months ended September 30, 2011 were not recorded due to management’s current estimate that the benefit will not be utilized this year. An income tax benefit, which partially reduced income tax expense, applicable to the operating losses of our German subsidiary was recorded for the three month period ended September 30, 2011, based on management’s current estimate that this subsidiary will have pretax earnings for the year.

Index

~~Other~~Income ~~comprehensive~~taxes. For ~~income~~the ~~(loss)-foreign~~three ~~currency~~months ~~translation~~ended ~~adjustment.~~March ~~The~~31, 2012 the Company recorded ~~other~~income ~~comprehensive~~tax ~~loss-foreign~~expense ~~currency translation adjustment~~ of approximately $0.1 million ~~for~~resulting from the operating income in the current period of our Israeli and German subsidiaries. The U.S. tax benefit due to the 2012 U.S. operating losses of the Company in the three months ended ~~September~~March 3031, ~~2011~~2012 ~~versus~~was anot ~~comprehensive~~recorded ~~income-foreign~~due ~~currency~~to ~~translation~~management’s ~~adjustment~~current estimate that the benefit would not be utilized this year. The Company had recorded an income tax benefit of approximately $0.14 million for the three months ended ~~September~~March 3031, ~~2010.~~2011 ~~This~~relating ~~comprehensive~~to the operating loss isincurred by the ~~result~~Company ofand management’s estimate that the ~~Euro~~benefit ~~exchange~~would ~~rate~~be toutilized ~~the~~in U2011.S. ~~dollar~~That ~~decreasing~~tax ~~for~~benefit realized by the Company’s operating loss in the three ~~months~~month period ended ~~September~~March 3031, 2011 was partially offset by tax expense of the Israeli subsidiary resulting from the reduction of their deferred tax assets reflecting the reduction of Israel’s corporate tax rate.

~~Nine~~ Other comprehensive income-foreign currency translation adjustment. The Company recorded other comprehensive loss-foreign currency translation adjustment of $0.1 million for the three months ended ~~September~~March 3031, 2012 and March 31, 2011, ~~compared~~respectively. The comprehensive loss is the result of the Euro exchange rate to ~~nine~~the ~~months~~U.S. ~~ended~~dollar ~~September~~increasing ~~30,~~in ~~2010~~both periods.

~~Revenues.~~Liquidity Revenues for the nine months ended September 30, 2011 were approximately $23.2 million compared to approximately $26.2 million for the nine months ended September 30, 2010. Revenues from the university and ~~EMC~~Capital markets increased approximately $1.5 million and $0.4 million, respectively, while revenues from the defense, wireless, and satellite markets decreased $4.0 million, $0.6 million, $0.3 million respectively. Geographically, revenues from Asia increased $2.4 million. European and North American revenues decreased approximately $3.7 million and $1.7 million respectively.Resources

~~Cost~~The ofCompany ~~revenues. Cost~~has ofsatisfied ~~revenues~~its ~~for~~working ~~the~~capital ~~nine~~requirements ~~months~~from ~~ended~~cash ~~September~~reserves ~~30,~~and ~~2011~~the ~~was~~use ~~approximately~~of ~~$18~~its lines of credit.3 ~~million~~Net ~~compared~~cash toused ~~approximately~~by ~~$18.1~~operating ~~million~~activities ~~for~~during the ~~nine~~three months ended ~~September~~March 3031, ~~2010,~~2012 anwas ~~increase of~~ approximately $01.27 million orcompared ~~1.1%.~~to ~~Gross~~cash ~~profit~~provided ~~percentage~~by ~~decreased~~operations toof 21$2.1%3 ofmillion ~~revenues~~during ~~for~~ the ~~nine~~three ~~months~~month ended ~~September~~March 3031, 2011 ~~from 30~~.9% ~~for~~The ~~the~~decrease ~~nine~~of ~~months~~accounts ~~ended~~receivable ~~September~~of ~~30,~~approximately ~~2010~~$1.8 ~~The~~million ~~lower~~and ~~gross profit percentage primarily reflects~~ the ~~contract~~decrease ~~mix~~of inincome ~~the~~tax ~~North~~refunds ~~American~~receivable ~~business:~~of ~~work~~$0.4 ~~was~~were ~~performed~~the onmost ~~contracts~~significant ~~that~~sources ~~have~~of ~~lower~~cash ~~gross profit~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012. ~~versus~~The ~~the~~reduction ~~nine~~of ~~months~~billings ~~ended September 30, 2010, including two contracts that are~~ in aexcess ~~loss~~of ~~position~~costs ~~which~~and ~~have incurred additional~~ estimated ~~costs~~earnings toon ~~complete~~uncompleted ~~year~~contracts toof ~~date~~$2.2 ~~The Company anticipates that these contracts will be substantially completed by December 31~~million, ~~2011.~~the ~~One~~increase of ~~the~~other ~~contracts~~current ~~has~~assets aof ~~provision for penalties for late delivery~~$0.5 Nomillion ~~provision~~and ~~has been made by~~ the ~~Company~~reduction ~~for~~of ~~any~~accounts ~~potential~~payable ~~late~~and ~~penalties~~accrued asexpenses ~~the Company is in the process~~ of ~~negotiating with the customer to have these penalties waived~~$0.4 Inmillion ~~addition,~~were the ~~gross~~most ~~profit~~significant ~~percentage~~uses of ~~the~~cash ~~Asian~~for ~~business decreased reflecting work performed on of several high margin contracts in~~ the ~~nine~~three ~~month~~months ~~period~~ ended ~~September~~March ~~30, 2011. These Asian contracts were substantially completed at December~~ 31, ~~2010~~2012.

~~General~~Net ~~and~~cash ~~administrative~~used ~~expense.~~in ~~General~~investing ~~and~~activities ~~administrative expenses, exclusive of the charges from MVG, were $2.3 million~~ for ~~each of~~ the ~~nine~~purchase ~~month periods ended September 30, 2011 and September 30, 2010. As a percentage~~ of ~~revenues,~~property ~~these general~~ and ~~administrative~~equipment ~~expenses~~was ~~increased to 10~~$0.1%2 ~~for~~million ~~the nine months ended September 30, 2011 from 8.8%~~ for the ~~nine~~three months ~~ended~~period ~~September 30, 2010, reflecting reduced sales for the nine months~~ ended ~~September~~March 3031, ~~2011. There were no material changes in the individual components of general and administrative expense in the nine months ended September 30, 2011 versus the nine months ended September 30, 2010.~~ 2012

~~Sales~~The ~~and~~Company ~~marketing~~used ~~expense.~~cash ~~Sales~~reserves ~~and~~to ~~marketing~~repay ~~expense,~~amounts ~~exclusive~~outstanding ofunder ~~the~~its ~~charges~~$2.25 ~~from~~million ~~MVG,~~Revolving ~~for~~Demand ~~the~~Note ~~nine~~bank ~~months~~facility ~~ended~~of ~~September 30, 2011 decreased to~~ $2.0.5 million ~~from~~under its $2.225 million ~~for~~Revolving ~~the~~Demand ~~nine~~Note ~~months~~bank ~~ended September 30, 2010~~facility. ~~As a percentage of revenues~~However, ~~sales~~the ~~and~~Company ~~marketing~~then ~~expenses~~used ~~increased~~proceeds toof 8$0.5%2 ~~for~~million ~~the nine months ended September 30, 2011,~~ from ~~8.4%~~its ~~for~~credit ~~the~~facility ~~nine~~to ~~months~~help ~~ended~~meet ~~September~~its ~~30,~~working ~~2010.~~capital ~~This decrease primarily reflects reduced agent commissions, lower payroll costs and travel costs versus the nine month period ended September 30, 2010~~requirements.

The revolving line of credit agreement requires an annual “clean-up” period of 30 days where no loans under the line may be outstanding. The Company has met this requirement in the quarter ended March 31, 2012

The Company has exposure primarily to Euro and shekel currency fluctuations in connection with foreign currency invoices received, collected, issued or paid as a result of certain contracts. Amounts owed to or due from MVG under the services agreement is in foreign currency, primarily the Euro. When selling to customers in countries with less stable currencies, the Company bills in U.S. dollars. For the three months ended March 31, 2012 approximately 48% of the Company's revenues were billed in U.S. dollars. This decrease in revenues billed predominately in U.S. dollars as of March 31, 2012 reflects an increase in business of the Israeli and German subsidiaries, including a contract mix that has a higher number of non-U.S. dollar contracts, and the reduction of domestic business. The majority of the costs of the Company’s contracts had been from U.S. dollar denominated transactions. However, as domestic business has decreased, the Company’s costs on contracts have been in currencies other than U.S. dollars, predominately Euros by the German subsidiary and shekels by the Israeli subsidiary.

Index

Sales, marketing general and administrative-Microwave Vision Group. The preliminary performance fee for the year ending December 31, 2011 has not yet been determined as of September 30, 2011. Based on information provided by Microwave Vision, the Company has accrued an estimated quarterly fee of $0.75 million through September 30, 2011. The preliminary MVG fee may be subject to adjustment before the year end and will be adjusted at December 31, 2011 based upon the actual gross margin of each MVG subsidiary at year-end. The Company had accrued an estimated $0.75 million for the nine month period ended September 30, 2010.

Research and development expense. Research and development expenses were $0.9 million for the nine month period ended September 30, 2011 and $1.0 million for the nine month period ended September 30, 2010. As a percentage of revenues, research and development increased to 3.9% for the nine months ended September 30, 2011 from 3.7% for the nine months ended September 30, 2010, reflecting reduced sales for the nine month period ended September 30, 2011. The decrease primarily reflects reduced activity in antenna measurement systems. However, this reduced activity was partially offset by increased activity in absorber technology.

Insurance proceeds. As discussed in the December 31, 2010 Form 10-K, the Company’s AEMI subsidiary had increased costs of revenues due to the impact of the oven fire in the fourth quarter of 2010. The Company received approximately $0.13 million as full reimbursement by the insurance company for these costs in the quarter ended June 30, 2011.

Other (loss) income, net. Other loss, net, for the nine months ended September 30, 2011 was approximately $0.2 million compared to other loss, net of $0.1 million for the nine months ended September 30, 2010. The Company’s other loss, net in 2011 resulted primarily from foreign currency exchange losses attributable to the Company’s expenses payable in Euros, which include the invoices billed to the Company by MVG under the Services Agreement.

Income taxes. For the nine months ended September 30, 2011, the Company recorded income tax expense of approximately $0.3 million resulting from income taxes applicable to the net income of our Israeli subsidiary and the reduction in value of the Israeli subsidiary’s deferred tax assets due to a tax rate reduction. The U.S. tax benefit due to the 2011 U.S. operating losses of the Company in the nine months ended September 30, 2011 was not recorded due to management’s current estimate that the benefit will not be utilized this year. An income tax benefit, which partially reduced income taxes, applicable to the operating losses of our German subsidiary was recorded for the nine month period ended September 30, 2011 based on our current estimate that this subsidiary will have pretax earnings for the year.

Other comprehensive income (loss)-foreign currency translation adjustment. The Company recorded other comprehensive income-foreign currency translation adjustment of $0.01 million for the nine months ended September, 2011 versus a comprehensive loss-foreign currency translation adjustment of $0.1 million for the nine months ended September 30, 2010. This comprehensive income is the result of the Euro exchange rate to the U.S. dollar decreasing for the nine months ended September 30, 2011.

Liquidity and Capital Resources

The Company has satisfied its working capital requirements from cash reserves and the use of its lines of credit. Net cash used by operating activities during the nine months ended September 30, 2011 was approximately $0.9 million compared to cash provided by operations of $2.7 million during the nine months ended September 30, 2010. The reduction of accounts receivable of approximately $1.1 million and the increase in accounts payable-parent company of $0.4 were the most significant sources of cash for the nine months ended September 30, 2011. The net loss of $1.3 million, the reduction of accounts payable and accrued expenses of $1.4 million and the increase in inventory of approximately $0.6 million were the most significant uses of cash for the nine months ended September 30, 2011.

Index

Net cash used in investing activities for the purchase of property and equipment was $0.7 million for the nine month periods ended September 30, 2011 and September 30, 2010.

The Company used proceeds of $0.3 million under its $2.25 million Revolving Demand Note bank facility to help meet its working capital cash requirements. In addition, the Company borrowed approximately $0.14 million of the $0.25 available under its Term Note-Non Revolving Line of Credit to purchase a Computer Numerical Control (CNC) machine for its subsidiary, Advanced Electromagnetics, Inc. On September 23, 2011, the Term Note-Non Revolving Line of Credit was extended to August 31, 2017. The Bank also extended the Conversion Date of the Term Note to August 31, 2012.

The Company has exposure primarily to Euro and shekel currency fluctuations in connection with foreign currency invoices received, collected, issued or paid as a result of certain contracts. Amounts owed to or due from MVG under the services agreement is in foreign currency, primarily the Euro. When selling to customers in countries with less stable currencies, the Company bills in U.S. dollars. For the nine months ended September 30, 2011, approximately 71% of the Company's revenues were billed in U.S. dollars. A large portion of the costs of the Company's contracts have been, and are expected in the future to 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.

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 4.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed by us in the reports that are filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Securities Exchange Act of 1934 is accumulated and communicated to our management on a timely basis to allow decisions regarding required disclosure. The Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September~~March 3031, ~~2011~~2012. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of ~~September~~March 3031, ~~2011~~2012, these controls and procedures were effective.

17(b) Changes in Internal Over Financial Reportion

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 March 31, 2012 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

Index

(b) Changes in Internal Control Over Financial Reporting

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 September 30, 2011 that have materially affected, or are reasonably likely to affect, the Company’s internal control over financial reporting.

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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, ~~2010~~2011 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, ~~2010~~2011 may not be 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 6.

Exhibits

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Per Iversen, President and Chief Executive Officer.

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Relland Winand, Chief Financial Officer.

32.1

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Per Iversen, President and Chief Executive Officer.

32.2

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Relland Winand, Chief Financial Officer.

101.INS

Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

1917

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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.

		Orbit/FR, Inc.

Date: May 21, 2012		/s/ Per Iversen
	President and Chief Executive Officer

Date: November 21, 2011 /s/ Per Iversen President and Chief Executive Officer

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