<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FILED WITH THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
PART II:
REPORT OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
1994 AND DECEMBER 31, 1993
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED DECEMBER 31, 1994, FOR
THE SIX MONTHS ENDED DECEMBER 31, 1993 AND FOR THE
YEARS ENDED JUNE 30, 1993 AND JUNE 30, 1992
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1994, FOR THE SIX MONTHS
ENDED DECEMBER 31, 1993 AND FOR THE YEARS ENDED
JUNE 30, 1993 AND JUNE 30, 1992
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1994, FOR THE SIX MONTHS
ENDED DECEMBER 31, 1993 AND FOR THE YEARS ENDED
JUNE 30, 1993 AND JUNE 30, 1992
NOTES TO FINANCIAL STATEMENTS
PART IV:
SCHEDULE:
REPORT OF INDEPENDENT AUDITORS
ON SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
Other Part IV schedules are omitted because the information is
included elsewhere in the financial statements or the notes thereto,
or the conditions requiring the filing of such schedules are not
applicable.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge, New York
We have audited the accompanying consolidated balance
sheets of Orbit International Corp. and subsidiaries as at
December 31, 1994 and December 31, 1993 and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for the year ended December 31, 1994, for the
six months ended December 31, 1993 and each of the years in the
two-year period ended June 30, 1993. 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 audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes 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
provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above
present fairly, in all material respects, the financial position of
Orbit International Corp. and subsidiaries at December 31, 1994 and
December 31, 1993 and the results of their operations and their
cash flows for the year ended December 31, 1994, the six-month
period ended December 31, 1993 and each of the years in the two-
year period ended June 30, 1993 in conformity with generally
accepted accounting principles.
Attention is directed to Note J[5] with respect to a
class action complaint filed against an affiliate and the Company.
Richard A. Eisner & Company, LLP
New York, New York
March 10, 1995
With respect to Note J[5]
March 17, 1995<PAGE>
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
A S S E T S
1994
1993
(Note G)
<S>
<C>
<C>
Current assets:
Cash and cash equivalents (Note A[2]). . . . . . . . .
$ 815,000
$ 5,447,000
Investments in marketable securities (Note A[6]) . . .
9,138,000
5,699,000
Accounts receivable (less estimated doubtful accounts
of $769,000 at December 31, 1994, $882,000 at
December 31, 1993. . . . . . . . . . . . . . . . . .
5,277,000
5,258,000
Inventories (Notes A[3] and D) . . . . . . . . . . . .
21,006,000
15,181,000
Prepaid and refundable taxes . . . . . . . . . . . . .
168,000
Other current assets . . . . . . . . . . . . . . . . .
1,191,000
1,184,000
Total current assets. . . . . . . . . . . . . .
37,427,000
32,937,000
Investment in and advances to affiliate (Note N). . . . .
11,517,000
Property, plant and equipment - at cost, less accumulated
depreciation and amortization (Notes A[4] and E) . . .
3,279,000
3,690,000
Excess of cost over the fair value of assets acquired,
less accumulated amortization of $1,093,000 at
December 31, 1994, $464,000 at December 31, 1993
(Note A[5]). . . . . . . . . . . . . . . . . . . . . .
12,129,000
13,251,000
Restricted investments (Note A[6]). . . . . . . . . . . .
7,805,000
8,550,000
Other assets (Note A[7] and B). . . . . . . . . . . . . .
2,871,000
3,160,000
T O T A L . . . . . . . . . . . . . . . . . . .
$63,511,000
$ 73,105,000
L I A B I L I T I E S
Current liabilities:
Notes payable (Note G[2]). . . . . . . . . . . . . . .
$ 2,602,000
$ 1,984,000
Current portion of long-term obligations (Note G[1]) .
3,096,000
2,572,000
Accounts payable . . . . . . . . . . . . . . . . . . .
3,734,000
4,633,000
Accrued expenses . . . . . . . . . . . . . . . . . . .
2,367,000
1,302,000
Due to factor. . . . . . . . . . . . . . . . . . . . .
11,540,000
454,000
Total current liabilities . . . . . . . . . . .
23,339,000
10,945,000
Long-term obligations (less current portion) (Note G[1]).
8,909,000
10,419,000
Deferred taxes (Note K[4]). . . . . . . . . . . . . . . .
2,115,000
Total liabilities . . . . . . . . . . . . . . .
32,248,000
23,479,000
Commitments and contingencies (Notes B, F and J)
STOCKHOLDERS' EQUITY
(Notes G[3] and H)
Capital stock - $.10 par value. . . . . . . . . . . . . .
877,000
1,172,000
Additional paid-in capital. . . . . . . . . . . . . . . .
23,170,000
32,710,000
Retained earnings . . . . . . . . . . . . . . . . . . . .
18,227,000
35,222,000
Less treasury stock, at cost. . . . . . . . . . . . . . .
(9,520,000)
(18,106,000)
Less unearned portion of compensatory stock . . . . . . .
(148,000)
(442,000)
Foreign currency translation adjustment . . . . . . . . .
(1,343,000)
(930,000)
Total stockholders' equity. . . . . . . . . . .
31,263,000
49,626,000
T O T A L . . . . . . . . . . . . . . . . . . .
$63,511,000
$ 73,105,000
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.<PAGE>
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Stock
25,000,000 Shares
Unearned Portion of
Authorized
Treasury Stock
Compensatory Stock
Foreign
Number of
Additional
Number
Number
Currency
Shares
Paid-in
Retained
of
of
Translation
Issued
Amount
Capital
Earnings
Shares
Amount
Shares
Amount
Adjustment
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Balance - July 1, 1991
.
. . .
. . .
10,882,000
$1,088,000
$28,934,000
$24,830,000
5,087,000
$16,977,000
184,000
$1,178,000
$ 99,000
Exercise of stock
options
. .
. . .
832,000
83,000
2,831,000
Compensatory stock
earned. . .
. . .
(46,000)
(294,000)
Compensation
attributable
to
stock
options . . . . . .
.
. . .
. . .
231,000
Foreign currency
translation
adjustment. . . . .
.
. . .
. . .
(354,000)
Tax benefit
attributable
to
exercise
of stock options. .
.
. . .
. . .
327,000
Net earnings for the
year. . .
. . .
2,902,000
Balance - June 30,
1992.
. . .
. . .
11,714,000
1,171,000
32,323,000
27,732,000
5,087,000
16,977,000
138,000
884,000
(255,000)
Exercise of stock
options. . .
. . .
9,000
1,000
41,000
Compensatory stock
earned. . .
. . .
(46,000)
(294,000)
Compensation
attributable
to
stock
options . . . . . .
.
. . .
. . .
231,000
Foreign currency
translation
adjustment. . . . .
.
. . .
. . .
(429,000)
Net earnings for the
year. . .
. . .
11,235,000
Balance - June 30,
1993.
. . .
. . .
11,723,000
1,172,000
32,595,000
38,967,000
5,087,000
16,977,000
92,000
590,000
(684,000)
Purchases of treasury
stock. .
. . .
229,000
1,129,000
Compensatory stock
earned. . .
. . .
(23,000)
(148,000)
Compensation
attributable
to
stock
options . . . . . .
.
. . .
. . .
115,000
Foreign currency
translation
adjustment. . . . .
.
. . .
. . .
(246,000)
Net (loss) for the six
months
ended December 31,
1993 . .
. . .
(3,745,000)
Balance - December 31,
1993. .
. . .
11,723,000
1,172,000
32,710,000
35,222,000
5,316,000
18,106,000
69,000
442,000
(930,000)
Purchases of treasury
stock. .
. . .
480,000
1,480,000
Compensatory stock
earned. . .
. . .
(46,000)
(294,000)
Compensation
attributable
to
stock
options . . . . . .
.
. . .
. . .
231,000
Foreign currency
translation
adjustment. . . . .
.
. . .
. . .
(413,000)
Retirement of treasury
shares.
. . .
(2,952,000)
(295,000)
(9,771,000)
(2,952,000)
(10,066,000)
Net loss for the year
ended
December 31, 1994 .
.
. . .
. . .
(16,995,000)
BALANCE - DECEMBER 31,
1994. .
. . .
8,771,000
$ 877,000
$23,170,0000
$
18,227,000
2,844,000
$
9,520,000
23,000
$ 148,000
$(1,343,0000)0
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.<PAGE>
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months
Year Ended
Ended
December 31,
December 31,
Year Ended June 30,
1994
1993
1993
1992
<S>
<C>
<C>
<C>
<C>
Net sales (Notes A[8] and C). . . . . . . . . . . . . . .
$ 57,830,000
$42,819,000
$ 73,545,000
$95,906,000
Cost of sales . . . . . . . . . . . . . . . . . . . . . .
47,401,000
33,467,000
54,210,000
69,827,000
Gross profit. . . . . . . . . . . . . . . . . . . . . . .
10,429,000
9,352,000
19,335,000
26,079,000
Other (income), costs and expenses:
Selling, general and administrative. . . . . . . . . .
15,911,000
7,391,000
16,908,000
21,054,000
Interest . . . . . . . . . . . . . . . . . . . . . . .
1,468,000
976,000
1,064,000
2,276,000
Investment and other income. . . . . . . . . . . . . .
(2,015,000)
(1,482,000)
(1,312,000)
(940,000)
Gain arising from sale of stock by subsidiary (Note N)
(13,738,000)
Equity in (earnings) loss of and write-down/write-off
of investment in affiliate (Notes A[1] and N). . . .
13,987,000
8,386,000
(73,000)
29,351,000
15,271,000
2,849,000
22,390,000
Earnings (loss) before taxes and cumulative effect of
a change in accounting principle . . . . . . . . . . .
(18,922,000)
(5,919,000)
16,486,000
3,689,000
Taxes (benefit) on income (Notes A[9] and K). . . . . . .
(1,927,000)
(2,174,000)
5,894,000
787,000
Earnings (loss) before cumulative effect of a change
in accounting principle. . . . . . . . . . . . . . . .
(16,995,000)
(3,745,000)
10,592,000
2,902,000
Cumulative effect of a change in accounting principle
(Note O) . . . . . . . . . . . . . . . . . . . . . . .
643,000
NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . .
$(16,995,000)
$(3,745,000)
$ 11,235,000
$ 2,902,000
Earnings (loss) per share (Note L):
Earnings (loss). . . . . . . . . . . . . . . . . . . .
$(2.75)
$(.57)
$1.59
$.46
Cumulative effect of a change in accounting principle.
.10
NET EARNINGS (LOSS). . . . . . . . . . . . . . . . . .
$(2.75)
$(.57)
$1.69
$.46
Pro forma amounts assuming the new method of accounting
was applied retroactively (Note O):
Net earnings . . . . . . . . . . . . . . . . . . . .
3,250,000
Net earnings per share . . . . . . . . . . . . . . .
$.52
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.<PAGE>
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months
Year Ended
Ended
December 31,
December 31,
Year Ended June 30,
1994
1993
1993
1992
<S>
<C>
<C>
<C>
<C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . .
$(16,995,000)
$
(3,745,000)
$ 11,235,000
$ 2,902,000
Adjustments to reconcile net earnings (loss) to net cash provided by (used
in)
operating
activities:
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(85,000)
66,000
126,000
132,000
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
521,000
262,000
457,000
937,000
Cumulative effect of a change in accounting principle . . . . . . . . .
.
.
. . . . . . . .
(643,000)
Gain arising from sale of stock by subsidiary . . . . . . . . . . . . .
.
.
. . . . . . . .
(13,738,000))
Earnings of subsidiary prior to divestiture of controlling interest . .
.
.
. . . . . . . .
(1,622,000)
Equity in earnings (loss) of and writedown of investment in affiliate .
.
.
. . . . . . . .
13,987,000
8,386,000
(73,000)
Charges to affiliate. . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(1,704,000)
Amortization and write-off of goodwill. . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
671,000
337,000
56,000
250,000
Deferred tax (benefit). . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(2,115,000)
(2,796,000)
5,179,000
(12,000)
Compensatory issuance of stock and options. . . . . . . . . . . . . . .
.
.
. . . . . . . .
525,000
262,000
525,000
525,000
Change in value of marketable securities. . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(222,000)
25,000
(49,000)
Imputed interest on acquisition note. . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
274,000
Purchases of marketable trading securities. . . . . . . . . . . . . . .
.
.
. . . . . . . .
(24,594,000)
Proceeds of sales of marketable trading securities. . . . . . . . . . .
.
.
. . . . . . . .
22,122,000
Changes in operating assets and liabilities, net of effects from
acquisitions of
businesses in 1993:
(Increase) decrease in accounts receivable. . . . . . . . . . . . .
.
.
. . . . . . . .
(192,000)
(2,258,000)
412,000
(11,000)
Decrease (increase) in inventories. . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(6,036,000)
7,475,000
2,497,000
(7,930,000)
(Increase) decrease in prepaid and refundable taxes . . . . . . . .
.
.
. . . . . . . .
168,000
(168,000)
(432,000)
547,000
(Increase) in other current assets. . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(53,000)
(248,000)
(56,000)
(115,000)
Increase (decrease) in accounts payable . . . . . . . . . . . . . .
.
.
. . . . . . . .
(784,000)
482,000
(416,000)
1,094,000
(Decrease) increase in accrued expenses . . . . . . . . . . . . . .
.
.
. . . . . . . .
(1,597,000)
(344,000)
88,000
1,818,000
Increase in income taxes payable. . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
188,000
180,000
467,000
Net cash provided by (used in) operating activities . . . . . . .
.
.
. . . . . . . .
(14,217,000)
7,916,000
1,891,000
555,000
Cash flows from investing activities:
Purchases of marketable securities. . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(17,930,000)
(36,310,000)
(12,842,000)
Proceeds of sales of marketable securities. . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
15,901,000
26,030,000
22,110,000
Acquisitions of fixed assets. . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(611,000)
(96,000)
(139,000)
(1,582,000)
Purchase of net assets of acquired companies. . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(9,122,000)
(615,000)
Decrease (increase) in other assets . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
694,000
455,000
338,000
(816,000)
Proceeds on sale of fixed assets. . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
479,000
Acquisition costs related to purchase of businesses . . . . . . . . . . . .
.
.
. . . . . . . .
(27,000)
(37,000)
(198,000)
(204,000)
Proceeds from sale of business. . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
1,480,000
Repayments of affiliate advances. . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
167,000
18,380,000
Proceeds from sales of affiliates stock . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
523,000
Net cash provided by (used in) investing activities . . . . . . .
.
.
. . . . . . . .
535,000
(10,662,000)
8,009,000
8,146,000
Cash flows from financing activities:
Repayments of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(5,746,000)
(5,218,000)
(1,817,000)
(23,598,000)
Proceeds of debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
5,214,000
5,000,000
11,685,000
Net advances from (repayments to) factor. . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
11,086,000
(1,555,000)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
42,000
2,914,000
Purchase of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(1,480,000)
(1,129,000)
Net cash provided by (used in) financing activities . . . . . . .
.
.
. . . . . . . .
9,074,000
(2,902,000)
(1,775,000)
(8,999,000)
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
(24,000)
6,000
48,000
(9,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . .
.
.
. . . . . . . .
(4,632,000)
(5,642,000)
8,173,000
(307,000)
Cash and cash equivalents - beginning of period. . . . . . . . . . . . . . . .
.
.
. . . . . . . .
5,447,000
11,089,000
2,916,000
3,223,000
CASH AND CASH EQUIVALENTS - END OF PERIOD. . . . . . . . . . . . . . . . . . .
.
.
. . . . . . . .
$ 815,000
$ 5,447,000
$ 11,089,000
$ 2,916,000
(continued)
/TABLE
<PAGE>
<PAGE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Six Months
Year Ended
Ended
December
31,
December
31,
Year Ended June 30,
1994
1993
1993
1992
<S>
<C>
<C>
<C>
<C>
Supplemental disclosures of cash flow information:
Cash paid for:
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
$
1,392,000
$
708,000
$
652,000
$
1,906,000
Income taxes (net of refunds of $444,000, $24,000 and $594,000 received for
the years ended
December 31, 1994, June 30, 1993 and 1992, respectively). . . . . . . . . .
. . . . . . . .
(268,000)
436,000
538,000
(308,000)
Supplemental schedule of noncash investing and financing activities:
[1] The Company acquired fixed assets of $252,000 in the year ended June 30,
1992, pursuant to capital lease obligations.
[2] In February 1993, the Company, through a wholly owned subsidiary, Symax
Garment Co. (1993) Ltd., acquired the operating assets of
Symax Garment Co. (1989) Ltd. The fair value of the net assets as of
the date of acquisition is presented below:
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
$
158,000
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
99,000
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
84,000
Excess of cost over the fair value of assets acquired. . . . . . . . .
. . . . . . . . .
277,000
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
(3,000)
Net assets acquired. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
$
615,000
[3] In July 1993, the Company acquired substantially all of the assets and
the business of The Panda Group, Inc. The fair value of their assets
and liabilities as of the date of acquisition are presented below:
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
$
5,234,000
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
247,000
Prepaid and other current assets . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
15,000
Property, plant and equipment. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
136,000
Excess of cost over the fair value of assets acquired. . . . . . . . .
. . . . . . . . .
12,292,000
Noncompetition agreements. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
2,000,000
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
64,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
(2,306,000)
Due to factor. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
(2,009,000)
Accrued expenses and other current liabilities . . . . . . . . . . . .
. . . . . . . . .
(143,000)
Note payable to sellers at acquisition . . . . . . . . . . . . . . . .
. . . . . . . . .
(6,408,000)
Net assets acquired. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
$
9,122,000
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
<PAGE>
(NOTE A) - The Company and Summary of Significant Accounting
Policies:
[1] The consolidated financial statements include the accounts
of Orbit International Corp. and its subsidiaries (the "Company").
All significant intercompany transactions have been eliminated in
consolidation. Consolidated operations include the operations of USA
Classic, Inc. ("Classic" or "affiliate") through November 1992, at
which date Classic sold stock to the public, reducing the Company's
equity interest in Classic to less than 50%. Thereafter the Company's
investment in Classic is accounted for under the equity method
(Note N). The Company changed its fiscal year-end for financial
reporting purposes to December 31.
The Company and its subsidiaries are engaged in the import
and manufacture of men's and women's garments. It is also engaged in
the design, manufacture and sale of customized electronic components
(see Note M).
[2] For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
[3] Inventories are valued at the lower of cost (first-in,
first-out) or market price.
Cost of inventory represents the aggregate cost of direct
materials, direct labor and manufacturing overhead. The manufacturing
overhead included in the inventories is based on the ratio of
manufacturing expenses to direct labor for each period.
[4] Property, plant and equipment is stated at cost.
Depreciation and amortization of the respective assets is computed
using the straight-line method over their estimated useful lives.
Leasehold improvements are amortized using the straight-line method
over the remaining life of the lease.
[5] Excess of cost over the fair value of net assets of
businesses acquired is being amortized on a straight-line basis over
twenty years.
[6] In January 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). This
standard requires the Company to classify its investments as held-to-
maturity, available for sale, or trading. The Company classifies all
of its securities as trading securities and are carried at fair value.
The adoption of SFAS 115 had no significant impact on the Company's
financial statements at December 31, 1994 and December 31, 1993. At
December 31, 1994 and December 31, 1993 marketable securities
aggregated $16,943,000 and $14,249,000, respectively.<PAGE>
<PAGE>
(NOTE A) - The Company and Summary of Significant Accounting
Policies: (continued)
[7] Covenant not to compete, included in other assets
($2,000,000) will be amortized over a five-year period commencing in
1996 (Note B).
[8] The Company records sales upon delivery for manufacturing
contracts and upon completion of work for engineering contracts;
however, in certain instances, the Company ships products to its major
customer prior to the issuance of final purchase orders. Therefore,
certain of the prices may be subject to adjustment when the customer
has completed its review of all elements of the letter subcontract
which is issued to the Company prior to the issuance of the purchase
order. The Company provides for such adjustments, where appropriate.
[9] In the (six-month) fiscal year ended December 31, 1993, the
Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." Deferred income taxes are provided for
temporary differences between financial accounting and tax reporting.
Adoption of this statement had no material effect on the Company's
results of operations or financial position.
[10] The Company accounts for its foreign operations in
accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Assets and liabilities are translated
at period-end exchange rates. Income and expense items are translated
using average exchange rates during the period. Foreign currency
translation adjustments are not included in determining net income but
are reported as a separate component of stockholders' equity.
(NOTE B) - Acquisitions:
On July 12, 1993 the Company completed the acquisition of
substantially all of the assets and the business of The Panda Group,
Inc. ("Panda" or "East/West") which is engaged in the design,
importation and sale of women's activewear and outerwear, principally
under the label "East/West." The Company operates the acquired
business as a division of the Company (the "Division"). This
acquisition has been accounted for as a purchase.<PAGE>
<PAGE>
(NOTE B) - Acquisitions: (continued)
Pursuant to an asset purchase agreement (the "Purchase
Agreement"), dated July 12, 1993, among the Company, Panda and the
selling shareholders, the Company acquired substantially all of the
assets of Panda for (i) $7,000,000 in cash, (ii) a secured promissory
note to the sellers in the face amount of $8,000,000, (Note G[1]), and
(iii) the assumption of certain liabilities of Panda by the Company.
A portion of the purchase price for the acquisition ($5,000,000) was
financed with an acquisition term loan from the Company's primary
lender (Note G[1]). Substantially all of the assets of the Panda
division collateralize this note.
The selling shareholders also entered into a Noncompetition
Agreement for consideration of an aggregate of $2,000,000 in cash and
the Company's offer of employment under the Employment Agreements.
On February 23, 1993, the Company acquired, through a wholly
owned subsidiary Symax Garment Co. (1993) Ltd. ("Symax"), the
operating assets of Symax Garment Co. (1989) Ltd., a manufacturer of
private label men's outerwear located in Vancouver, British Columbia,
Canada. The purchase price for the assets consisted of a cash payment
of approximately US$615,000. The acquisition has been accounted for
as a purchase.
Had the acquisition of Symax been made on July 1, 1991 and the
acquisition of Panda been made on July 1, 1992 (unaudited) pro forma
sales, earnings and earnings per share from continuing operations
would have been $113,105,000, $11,583,000 and $1.74 per share for the
year ended June 30, 1993 and $96,917,000, $3,042,000 and $.48 per
share for the year ended June 30, 1992.
(NOTE C) - Major Customer:
One major customer, which, in turn, sells its products to the
United States government, accounted for approximately $8,141,000
(14%), $4,504,000 (11%) and $7,846,000 (11%) of the net consolidated
sales for the year ended December 31, 1994 and the six months ended
December 31, 1993 and the year ended June 30, 1993, respectively.
Another customer accounted for $4,245,000 (10%) of the net
consolidated sales for the six months ended December 31, 1993. No
customer accounted for more than 10% of sales for the year ended
June 30, 1992.<PAGE>
<PAGE>
(NOTE D) - Inventory:
Inventories comprise the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Raw materials. . . . . . $ 1,902,000 $ 2,173,000
Work-in-process. . . . . 5,697,000 6,956,000
Finished goods . . . . . 13,407,000 6,052,000
T o t a l. . . $21,006,000 $15,181,000
</TABLE>
(NOTE E) - Property, Plant and Equipment:
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land and building . . . . . . . . . $2,888,000 $2,727,000
Building and leasehold improvements 494,000 447,000
Machinery and equipment . . . . . . 1,940,000 2,673,000
Furniture and fixtures. . . . . . . 477,000 575,000
T o t a l . . . . . . . . 5,799,000 6,422,000
Accumulated depreciation
and amortization . . . . . . . . 2,520,000 2,732,000
B a l a n c e . . . . . . $3,279,000 $3,690,000
</TABLE>
(NOTE F) - Leasing Arrangements:
Operating leases are for office, showroom, warehouse and
manufacturing facilities and are subject to annual increases based on
changes in the Consumer Price Index and increases in real estate taxes
and certain operating expenses.<PAGE>
<PAGE>
(NOTE F) - Leasing Arrangements: (continued)
Future minimum lease payments as at December 31, 1994 under
operating lease agreements that have initial or remaining
noncancellable lease terms in excess of one year are as follows:
<TABLE>
<CATION>
Year Ending Operating
December 31, Leases
<S> <C>
1995. . . . . . . . . . . . . . . $1,009,000
1996. . . . . . . . . . . . . . . 954,000
1997. . . . . . . . . . . . . . . 944,000
1998. . . . . . . . . . . . . . . 933,000
1999. . . . . . . . . . . . . . . 780,000
Thereafter. . . . . . . . . . . . 322,000
Total minimum lease
payments . . . . . . $4,942,000
</TABLE>
Operating lease rent expense for the year ended December 31, 1994
and for the six months ended December 31, 1993 and for the years ended
June 30, 1993 and June 30, 1992 was $1,100,000, $452,000, $813,000 and
$1,144,000, respectively.
(NOTE G) - Debt:
[1] Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Term loan collateralized by $3,500,000 of treasury bills, inventories, accounts
receivable and general tangibles of the electronic subsystems division,
bearing interest at LIBOR (5.44% at December 31, 1994) plus .75%, repayable in
annual installments of $1,000,000 from January 1, 1995 through January 1, 1997. . . $ 3,000,000 $ 3,475,000
Promissory note to the sellers of the Panda Group collateralized by the operating
assets of the Company's East/West division (face amount $8,000,000) -
effective interest at 4.15% at December 31, 1994 and 6% at December 31, 1993, due
on December 31, 1998, must be prepaid to the extent of 50% of the "net profits"
(as defined) generated by the division in each calendar year commencing with the
year ending December 31, 1994 (Note B). . . . . . . . . . . . . . . . . . . . . . . 6,875,000 6,601,000
Term loan collateralized by certain real estate of the electronic subsystems division,
bearing interest at LIBOR (6.13% at December 31, 1994) plus .75% (floating),
payable in $250,000 quarterly installments through April 1, 1996. . . . . . . . . . 1,250,000 2,250,000
Term loan collateralized by certain treasury bills held by the Company bearing
interest at LIBOR (6.13% at December 31 1994) plus .75%, payable in $232,500
quarterly installments through November 1, 1995 . . . . . . . . . . . . . . . . . . 650,000
Subordinated debt (face amount $239,000 and $716,000) - imputed interest at 15%. . . . 230,000 665,000
T o t a l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,005,000 12,991,000
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,096,000 2,572,000
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,909,000 $10,419,000
<PAGE>
</TABLE>
<PAGE>
(NOTE G) - Debt: (continued)
[1] (continued)
The long-term portion of the Company's debt at December 31,
1994 is payable as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1996 . . . . . . . . . . . $ 1,500,000
1997 . . . . . . . . . . . 1,000,000
1998 . . . . . . . . . . . 6,409,000
T o t a l. . . . $ 8,909,000
</TABLE>
[2] Short-term notes payable aggregated $2,602,000 at
December 31, 1994 and $1,984,000 at December 31, 1993.
Canada Classique, Inc. ("CCI"), a subsidiary, had a
C$6,000,000 (US$4,276,000) revolving credit facility with a bank in
Canada which increases to C$12,000,000 (US$8,552,000) during peak
periods of production during the year (as defined). The interest rate
on the primary facility is at the bank's prime lending rate (8% at
December 31, 1994) plus .25% and during peak production, the prime
rate plus .50% on the first C$5,000,000 of borrowings and prime rate
plus .75% on any amounts borrowed above C$5,000,000. Borrowings under
this facility amounted to C$3,146,000 (US$2,242,000) at December 31,
1994. The facility is collateralized by substantially all the assets
of CCI.
At December 31, 1994, Winnipeg Leather, Inc. ("Winnipeg
Leather"), a subsidiary, had a C$1,600,000 (US$1,140,000) revolving
credit facility with a bank in Canada bearing interest at the bank's
prime rate (8% at December 31, 1994) plus .75% collateralized by
substantially all the assets of Winnipeg Leather. Borrowings under
this facility amounted to C$506,000 (US$360,000) at December 31, 1994.
Both of the lending facilities of CCI and Winnipeg Leather
expired on December 31, 1993. The bank continued to lend to the
companies under the same terms as the expired facilities during 1994.
The Company continues to negotiate with the bank to reach a final
agreement; the loans are due on demand.<PAGE>
<PAGE>
(NOTE G) - Debt: (continued)
[3] Under the various debt agreements, the Company and its
subsidiaries are required to comply with certain covenants which
specify minimum cash and cash equivalents to be on its balance sheet
at all times, minimum working capital, and tangible net worth
requirements and are precluded from declaring and paying any dividends
without the consent of such lenders. The Company was in default on
certain covenants which have been waived by the lender. Certain
covenants have been amended by the lender for further compliance.
[4] In February 1992, Classic entered into certain factoring and
credit arrangements. Prior to the public offering (Note N), the
Company had guaranteed Classic's obligations under these arrangements
and had pledged certain cash collateral as security for the guaranty.
As a result of the public offering, these arrangements were modified
so that all cash collateral was released and the agreement was amended
to provide a $3,000,000 limited guaranty from the Company. On
July 12, 1993, the Company was released from such guarantee relating
to transactions subsequent thereto but not from any obligations which
arose prior to July 12, 1993.
[5] In July 1993 East/West entered into a Restated and Amended
Factoring Agreement with the Company's primary lender. Advances by
the factor prior to the maturity date of receivables sold bear
interest at prime plus 1.50%. In connection with the amended
facility, the Company pledged $4,890,000 of its marketable securities.
[6] The Company is guarantor on an installment obligation of
Classic aggregating approximately $360,000 at December 31, 1994.
(NOTE H) - Capital Stock, Options and Warrants:
[1] In consideration of the principal officer's entry into an
employment agreement in a prior year, the Company sold to the officer
460,000 shares of its capital stock at $.10 per share. The unearned
shares are subject to repurchase by the Company, at the same price, in
the event of resignation or discharge for cause of the principal
officer.
The differences between the fair value of the shares at the
dates options are granted or extended, or shares issued, and the
exercise price of the options, or issue price, are charged to
operations over the term of the officer's employment agreement
terminating in 1995.<PAGE>
<PAGE>
(NOTE H) - Capital Stock, Options and Warrants: (continued)
[2] Under the Company's stock option plans, options for the
purchase of the Company's common stock may be issued to officers,
directors and key employees at prices and terms determined by the
Board of Directors. The exercise price of certain options held by
officers and employees may be paid in full or in part by shares of
stock of the Company. Certain options may be exercised with a ten-
year unsecured note and others may be exercised in part with one-year
notes.
A summary of activity related to the Company's stock option
plans is as follows:
<TABLE>
<CAPTION>
Number
Number of Option Price of Shares
Shares Per Share Exercisable
<S> <C> <C> <C>
Outstanding at July 1,
1991 . . . . . . . . 1,731,000 $3.50 - $5.50 1,731,000
Exercised . . . . . . . (832,000) $3.50
Cancelled . . . . . . . (3,000) $3.50
Outstanding at June 30,
1992 . . . . . . . . 896,000 $4.50 - $5.50 896,000
Exercised . . . . . . . (9,000) $4.50 - $5.50
Cancelled . . . . . . . (6,000) $4.50
Outstanding at June 30,
1993 . . . . . . . . 881,000 $4.50 - $5.50 881,000
Granted . . . . . . . . 50,000 $5.125
Cancelled . . . . . . . (31,000) $4.50 - $4.875
Outstanding at
December 31, 1993. . 900,000 $4.75 - $5.50 850,000
Granted . . . . . . . . 965,000 $3.125
Cancelled . . . . . . . (900,000) $4.75 - $5.50
Outstanding at
December 31, 1994. . 965,000 $3.125 - 0 -
</TABLE>
At December 31, 1994 options for the purchase of 535,000
shares were available for future grant.
(NOTE I) - Employee Benefit Plans:
A profit-sharing and incentive-savings plan provides benefits to
certain employees who meet specified minimum service and age
requirements. The plan provides for contributions by the Company
equal to one-half of employee contributions (but not more than 2% of
eligible compensation), and the Company may make additional
contributions out of current or accumulated net earnings at the sole
discretion of the Company's Board of Directors.<PAGE>
<PAGE>
(NOTE I) - Employee Benefit Plans: (continued)
The Company contributed $312,000, $96,000, $184,000 and $218,000,
to the plans for the year ended December 31, 1994 and for the six
months ended December 31, 1993 and for the years ended June 30, 1993
and June 30, 1992.
(NOTE J) - Commitments and Contingencies:
[1] Employment contracts, certain of which may be terminated by
the Company on not less than three years prior notice and others
expiring in 1996 with certain officers of the Company and its
subsidiaries provide for minimum annual compensation of $2,299,000.
In addition, certain key officers of one of the Company's divisions
are entitled to bonuses aggregating $300,000 per year based on the
division's profitability (Note B). Other key officers are entitled to
bonuses aggregating 5% of consolidated earnings before taxes, as
defined, up to $5,000,000 and 7.5% thereafter. In the event of a
change in control of the Company, certain officers have the right to
elect a lump sum payment representing future compensation due them
over the remaining years of their contracts.
[2] A substantial portion of the revenues of the electronic
subsystems division is subject to audit by U.S. government agencies.
In the opinion of management, adjustments to such revenues, if any,
will not have a material effect on the Company's financial position.
[3] At December 31, 1994, the Company had letters of credit
outstanding totalling approximately $5,537,000.
[4] Concentration of credit risk:
The Company sells the majority of its apparel products to
department stores, mass merchandisers and specialty stores. A major
customer of its electronic subsystems division sells the Company's
products to the United States Government (See Note C). The Company
maintains its cash and money market accounts principally at two banks.
The majority of the Company's investments are in United States
Treasury bills, and various municipal and corporate bonds.<PAGE>
<PAGE>
(NOTE J) - Commitments and Contingencies: (continued)
[5] Litigation:
On September 23, 1993, a class action was commenced by an
alleged shareholder of USA Classic (formerly a subsidiary of the
Company), against USA Classic and certain of its directors in the
United States District Court for the Southern District of New York.
The action was commenced on behalf of shareholders, other than the
defendants, who acquired their shares from November 20, 1992, the date
of the initial offering, through September 22, 1993, and alleges
violations of the Securities Act of 1933 in connection with the
offering as well as violations of Section 10b of the Securities
Exchange Act of 1934. The plaintiffs are seeking compensatory damages
as well as fees and expenses.
On February 1, 1994, a Consolidated Amended Complaint was
filed in the class action. The amended Complaint adds the Company as
a defendant and alleges that the Company is a "controlling person" of
USA Classic and an "aider and abetter" of the alleged violations of
the securities laws. The Amended Complaint was answered on March 21,
1994. The Company plans to vigorously defend the action.
On October 4, 1994, a Second Amended and Consolidated
Complaint was filed in the Class Action. The Second Amended and
Consolidated Complaint restated the allegations against the Company
and added Paine Webber Incorporated and Ladenburg Thalmann & Co. Inc.,
the lead underwriters in the Offering, as additional defendants. On
November 15, 1994, the Company and such underwriters moved to dismiss
certain of the allegations in the Second Amended and Consolidated
Complaint. Such motion was argued on March 17, 1995 and the parties
are awaiting the court's decision. While the dismissal motion, if
granted, will not dispose of all the claims asserted in the Second
Amended and Consolidated Complaint, the Company intends to vigorously
defend against any remaining claims.
(NOTE K) - Income Taxes:
[1] The provision (benefit) for income taxes is comprised of the
following:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31, Year Ended June 30,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . $ - 0 - $ 155,000 $ 573,000 $390,000
Foreign and state . . 188,000 467,000 142,000 409,000
Deferred:
Federal . . . . . . . (1,823,000) (2,956,000) 5,058,000 (12,000)
Foreign and state . . (292,000) 160,000 121,000
T o t a l. . . $(1,927,000) $(2,174,000) $5,894,000 $787,000
<PAGE>
</TABLE>
<PAGE>
(NOTE K) - Income Taxes: (continued)
[2] Expected tax expense (benefit) based on the statutory rate is
reconciled with actual tax expense for continuing operations as follows:
<TABLE>
<CAPTION>
Percent of Pre-Tax Earnings (Loss)
From Continuing Operations
Six Months For the Years
Year Ended Ended Ended
December 31, December 31, June 30,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
"Expected" tax expense (benefit) . (34.0)% (34.0)% 34.0 % 34.0 %
Increase (reduction) in taxes
resulting from:
Foreign and state income
tax, net of federal income
tax benefit . . . . . . . . (.3) 8.7 1.4 8.0
Nondeductible items . . . . . 1.3 1.8 .7 7.2
Tax exempt interest and
dividend income . . . . . . (.7) (.1) (2.6)
Utilization of net operating
losses. . . . . . . . . . . (14.4) (25.7)
Nonutilization of net
operating and capital loss
carryforwards and
carrybacks (Note K[4]). . . 22.1 1.5
Utilization of tax credits. . (.2) (3.3) (1.8)
Utilization of capital loss
carryforward. . . . . . . . (.4) (.2)
Other . . . . . . . . . . . . .7 2.5 1.8 2.2
(10.2)% (36.7)% 35.8 % 21.3 %
</TABLE>
[3] Deferred tax (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31, Year Ended June 30,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
State deferred tax expense
net of federal deferred
tax. . . . . . . . . . . $ (192,000) $ 160,000 $ 52,000
Utilization of the
percentage of completion
method of revenue
recognition for tax
purposes . . . . . . . . 66,000 $ (88,000)
Provision for doubtful
accounts and certain
expenses attributable
to inventory under the
Tax Reform Act of 1986 . 88,000 57,000 (153,000) 94,000
Utilization of accelerated
methods of depreciation
for tax purposes . . . . (236,000) 224,000 (340,000) 174,000
Compensation attributable
to stock options . . . . (79,000) (39,000) (79,000) (79,000)
(carried forward) . . . . . (419,000) 402,000 (454,000) 101,000
<PAGE>
</TABLE>
<PAGE>
(NOTE K) - Income Taxes: (continued)
[3] (continued)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31, Year Ended June 30,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
(brought forward) . . . . . $ (419,000) $ 402,000 $ (454,000) $ 101,000
Reversal of provision for
loss on disposal of
operations . . . . . . . 850,000
Utilization of net
operating loss
carryforward . . . . . . (164,000) (860,000)
Interest not currently
deductible for tax . . . (92,000) (269,000)
(Utilization of and
increase in) tax credits (502,000) (76,000)
Restoration of deferred
tax liability eliminated
by utilization of prior
year tax credit. . . . . 158,000
Decrease (increase) in
availability of net
operating loss and
capital losses
carryforwards. . . . . . (2,708,000) 1,132,000
Inventory (writedowns)
recovery . . . . . . . . (535,000) 68,000 (136,000) (196,000)
Rate differential due to
surtax exemptions. . . . 61,000 61,000
(Decrease) in gain arising
from sale of stock by
subsidiary . . . . . . . (1,832,000) (2,975,000) 4,807,000
Increase in valuation
reserve on deferred tax
asset. . . . . . . . . . 3,955,000
Other . . . . . . . . . . . 18,000 (77,000) (94,000) 32,000
$(2,115,000) $(2,796,000) $5,179,000 $ (12,000)
<PAGE>
</TABLE>
<PAGE>
(NOTE K) - Income Taxes: (continued)
[4] The deferred tax asset (liability) is as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Deferred tax liability:
Gain from sale of stock of subsidiary . $(2,124,000)
Other - various temporary differences . $ (314,000) (340,000)
(314,000) (2,464,000)
Deferred tax asset:
Alternative minimum tax credit
carryforward. . . . . . . . . . . . . 561,000
Net operating loss and capital loss
carryforwards (including pre-
acquisition net operating loss
carryforwards . . . . . . . . . . . . 4,287,000 1,752,000
Other - various temporary differences . 1,846,000 1,022,000
6,694,000 2,774,000
Valuation allowance on deferred asset. . . (6,380,000) (2,425,000)
Net deferred tax liability . . . . . . . . $ - 0 - $(2,115,000)
</TABLE>
A valuation allowance against deferred tax assets has been
established since there is no assurance that the tax benefits will be
realized in the future.
[5] A subsidiary whose operations were disposed of in 1991 has a
tax net operating loss carryforward approximating $5,700,000
(approximately $5,042,000 for alternative minimum tax) available to
offset future taxable income of the parent company only, through
June 30, 2001, and investment tax credits and research and development
credits aggregating approximately $603,000 to offset taxes payable of
the parent company only, through 2001. All such carryforwards arose
prior to acquisition. The aforementioned loss carryforwards and tax
credits have remained with the Company subsequent to disposal of the
operations. As at December 31, 1994, the Company has alternative
minimum tax credits of approximately $561,000 which have no limitation
on the carryforward period, net operating losses of $4,334,000 which
expire in 2009 and capital loss carryforwards of $2,079,000 which
expire in 1999.<PAGE>
<PAGE>
(NOTE L) - Earnings Per Share:
Earnings per share are based on the weighted average number of
common and common equivalent shares outstanding during each period,
utilizing the treasury stock method or modified treasury stock method
where applicable. The average number of shares and equivalent shares
outstanding for the years ended June 30, 1993 and June 30, 1992 were
6,667,000 and 6,287,000, respectively. The average number of shares
for the year ended December 31, 1994 and for the six-month period
ended December 31, 1993 were 6,169,000 and 6,520,000, respectively;
common share equivalents were not considered since their effect would
be antidilutive.
(NOTE M) - Business Segments:
The Company's business segments are electronic subsystems,
apparel - U.S. operations and apparel - Canadian operations.
Corporate assets are principally cash, cash equivalents and marketable
securities and in 1993 investment in and advances to affiliate. The
following is business segment data for the Company as at and for the
year ended December 31, 1994, the six months ended December 31, 1993
and the years ended June 30, 1993 and June 30, 1992:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31, Year Ended June 30,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
Net sales:
Electronic subsystems. . $ 12,254,000 $ 6,659,000 $14,191,000 $14,496,000
Apparel - U.S.
operations . . . . . . 28,543,000 19,821,000 35,973,000 54,977,000
Apparel - Canadian
operations . . . . . . 17,033,000 16,339,000 23,381,000 26,433,000
T o t a l . . . . $ 57,830,000 $42,819,000 $73,545,000 $95,906,000
/TABLE
<PAGE>
<PAGE>
(NOTE M) - Business Segments: (continued)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, December 31, Year Ended June 30,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
Operating income (loss):
Electronic subsystems. . $ 2,625,000 $ 2,349,000 $ 2,875,000 $ 1,721,000
Apparel - U.S.
operations . . . . . (3,217,000) 1,587,000 3,797,000 3,391,000
Apparel - Canadian
operations . . . . . (1,628,000) (59,000) (153,000) 1,726,000
Operating income
(loss) . . . . . . . (2,220,000) 3,877,000 6,519,000 6,838,000
General corporate (expense) (1,981,000) (1,007,000) (4,092,000) (1,813,000)
Interest (expense). . . . . (1,468,000) (976,000) (1,064,000) (2,276,000)
Gain arising from sale of
stock by subsidiary. . . 13,738,000
Equity in earnings (loss)
of and writedown/
write-off of investment
in affiliate . . . . . . (13,987,000) (8,386,000) 73,000
Investment and other income 734,000 573,000 1,312,000 940,000
Earnings (loss) before
taxes on income and
cumulative effect of a
change in accounting
principle. . . . . . . . $(18,922,000) $(5,919,000) $16,486,000 $ 3,689,000
Assets:
Electronic subsystems. . $ 9,522,000 $11,615,000 $13,046,000 $18,228,000
Apparel - U.S.
operations . . . . . . 27,422,000 19,526,000 34,967,000
Apparel - Canadian
operations . . . . . . 8,879,000 10,626,000 15,385,000 13,698,000
Corporate assets . . . . 17,688,000 31,338,000 43,404,000 4,837,000
T o t a l . . . . $ 63,511,000 $73,105,000 $71,835,000 $71,730,000
Capital expenditures:
Electronic subsystems. . $ 47,000 $ 26,000 $ 68,000 $ 13,000
Apparel - U.S.
operations . . . . . . 373,000 137,000 1,754,000
Apparel - Canadian
operations . . . . . . 191,000 53,000 75,000 53,000
T o t a l . . . . $ 611,000 $ 216,000 $ 143,000 $ 1,820,000
Depreciation and
amortization:
Electronic subsystems. $ 343,000 $ 190,000 $ 391,000 $ 167,000
Apparel - U.S.
operations . . . . . 55,000 24,000 660,000
Apparel - Canadian
operations . . . . . 111,000 48,000 66,000 110,000
T o t a l . . . . $ 509,000 $ 262,000 $ 457,000 $ 937,000
</TABLE> <PAGE>
<PAGE>
(NOTE N) - Investment in and Advances to Affiliate:
Classic was a wholly owned subsidiary of the Company until it
consummated a public offering of its common stock in November 1992,
reducing the Company's equity interest to 43%. As a result of the
offering, the Company recognized a gain of $13,738,000 in that year,
representing the Company's proportionate share of the increase in the
underlying equity of Classic. Approximately $18,200,000 of the net
proceeds to Classic was used to repay subordinated indebtedness owed
to the Company. The Company accounted for its 43% ownership of the
common stock of Classic using the equity method.
During the six months ended December 31, 1993 the Company wrote-
down its investment in Classic by $8,386,000. For the three-month
period ended February 28, 1994, Classic recorded a net loss of
$3,453,000 and on May 13, 1994 and May 16, 1994, Classic and its
wholly owned subsidiaries filed petitions under Chapter 11 of the
United States Bankruptcy Code. Consequently, the Company recorded a
charge of $13,987,000 which includes its 43% equity interest in
Classic and subordinated debt approximating $2,400,000 and a cash
charge of approximately $2,500,000 of related costs. See Note J[5]
with respect to related litigation.
The following represents condensed financial information of
Classic as of and for the five-month period ended November 30, 1993
and as of and for the year ended June 30, 1993:
<TABLE>
<CAPTION>
November 30, June 30,
1993 1993
(In Thousands)
<S> <C> <C>
Current assets . . . . . . . . . . . $35,185 $41,001
Noncurrent assets. . . . . . . . . . 14,777 14,604
Total assets . . . . . . . $49,962 $55,605
Current liabilities. . . . . . . . . $11,551 $ 7,784
Noncurrent liabilities . . . . . . . 5,599 6,527
Total liabilities. . . . . 17,150 14,311
Stockholders' equity . . . . . . . . 32,812 41,294
Total liabilities and
stockholders' equity . . $49,962 $55,605
Net sales. . . . . . . . . . . . . . $32,634 $79,115
Gross profit . . . . . . . . . . . . $ 596 $20,447
Income before cumulative effect of a
change in accounting principle. . $ 1,808
Net income (loss). . . . . . . . . . $(8,654) $ 2,451<PAGE>
</TABLE>
<PAGE>
(NOTE O) - Change of Accounting Principle and Fourth Quarter
Adjustments:
[1] In December 1994, the Company and certain subsidiaries
recorded inventory writedowns of approximately $2,400,000.
[2] The Company recorded tax expense of approximately $1,200,000
for the fourth quarter resulting from the lack of assurance of
realizing an anticipated tax benefit from future earnings.
[3] In June 1993, the Company's 43% owned affiliate, Classic,
adopted the accounting policy of deferring design costs that relate to
goods to be sold in future selling seasons retroactive to the
beginning of the fiscal year. In prior years, it was Classic's policy
to include design costs in overhead in the year incurred. Such change
resulted in a cumulative effect of a change in accounting principle of
$643,000 (net of taxes of $386,000) being recorded by the Company in
the fourth quarter of the fiscal year ended June 30, 1993 with a
reduction to the amount of gain recognized from the sale of stock by
Classic.
Earnings before cumulative effect of the change in
accounting principle for the year ended June 30, 1993 was increased by
approximately $180,000 as a result of the change.
(NOTE P) - Subsequent Events:
[1] On February 24, 1995, the Company's principal officer died.
Pursuant to his employment contract, the Company will pay
approximately $500,000 to the principal officer's estate in monthly
installments over the next three years. The Company is a beneficiary
of a $1,500,000 key-man policy on the life of the principal officer.
[2] Between January and March 1995, the Company opened up
standby letters of credit totaling $2,800,000 for the beneficiary of
the primary lender to its Canadian subsidiaries to secure a certain
level of borrowings of such subsidiaries until a new lending
arrangement is finalized.
[3] In March 1995, the Company pledged $1,700,000 of its
marketable securities as security for the Factoring Agreement between
East End, a wholly owned subsidiary, and its primary lender.<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge, New York
The audits referred to in our report dated March 10,
1995, included Schedule II as at December 31, 1994, for the year
ended December 31, 1994, for the six months ended December 31,
1993 and for each of the years in the two-year period ended
June 30, 1993.
In our opinion, such schedules present fairly the
information set forth therein in compliance with the applicable
accounting regulation of the Securities and Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
March 10, 1995<PAGE>
<PAGE>
SCHEDULE II
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A
Column B
Column C
Column D
Column E
Additions
(1)
(2)
Balance at
Charged to
Charged to
Balance at
beginning
cost and
other accounts -
Deductions -
end of
of period
expenses
describe
describe
period
Year ended December 31, 1994:
<TABLE>
<S>
Reserve for estimated doubtful accounts
<C>
<C>
<C>
<C>
<C>
and allowance. . . . . . . . . . . . .
$ 882,000
$ 226,000
$339,000 **
$ 769,000
Valuation allowance on deferred
tax asset. . . . . . . . . . .
$2,425,000
$3,955,000
$6,380,000
Six-month year ended December 31, 1993:
Reserve for estimated doubtful accounts
and allowance. . . . . . . . . . . . .
$ 676,000
$ 171,000
$263,000 *
$228,000 **
$ 882,000
Valuation allowance on deferred
tax asset . . . . . . . . . . .
$ - 0 -
$2,425,000
$2,425,000
Year ended June 30, 1993:
Reserve for estimated doubtful accounts.
$ 655,000
$ 563,000
$467,000 **
75,000 ***
T O T A L . . . . . . . . . . . .
$ 655,000
$ 563,000
$542,000
$ 676,000
Year ended June 30, 1992:
Reserve for estimated doubtful accounts.
$ 523,000
$ 660,000
$429,000 **
99,000 ****
T O T A L . . . . . . . . . . . .
$ 523,000
$ 660,000
$528,000
$ 655,000
</TABLE>
* Reserve of acquired division at date of acquisition.
** Amount represents write-offs.
*** Reduction from deconsolidated operations.
**** Discontinued operations.
The accompanying notes to financial statements are an integral part hereof.
