SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K/A No. 1
XX Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 for the fiscal year
ended December 31, 1996. [No Fee Required]
or
Transition report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934 for transition period from
to . [No Fee Required]
Commission File No. 0-3936
ORBIT INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-1826363
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80 Cabot Court, Hauppauge, New York 11788
(Address of principal executive offices)
Registrant's telephone number, including area code:
(516) 435-8300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $.10 par value per share
Indicate by check mark whether the Registrant has (1) 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) been subject to such filing requirements
for the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Aggregate market value of Registrant's voting stock held by non-
affiliates (based on shares held and the closing price quoted on
the Nasdaq National Market on March 19, 1997): $15,465,000
Number of shares of common stock outstanding as of the close of
the period covered by this report: 6,186,093.
Documents incorporated by reference: the Registrant's definitive
proxy statement to be filed pursuant to regulation 14A promulgated
under the Securities Exchange Act of 1934 in connection with the
Registrant's 1996 Annual Meeting of Stockholders, the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, the Registrant's Current Report on Form 8-K filed February
7, 1996 and the Registrant's Current Report on Form 8-K/A filed
July 8, 1996.
Sections amended by this Form 10K/A: Item 8, Financial Statements
and Supplementary Data, as amended to revise Note B.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to financial statements, which is a part of the financial
statements, and the financial statements and schedules included elsewhere in
this Annual Report on Form 10-K.
The following sets forth certain selected, unaudited quarterly financial data:
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Consolidated)
Year Ended
December 31, 1996
<S>
First
Quarter
<C>
Second
Quarter
<C>
Third
Quarter
<C>
Fourth
Quarter
<C>
Net Sales
$2,881,000
$4,889,000
$4,798,000
$4,403,000
Gross Profit
1,102,000
2,292,000
2,150,000
2,066,000
Income from continuing
operations
771,000
1,068,000
741,000
731,000
(Loss) from discontinued
operations
(1,541,000)
(6,460,000)
0
(799,000)
Net income (loss)
(770,000)
(5,392,000)
741,000
(68,000)
Income per share from
continuing operations
0.14
0.18
0.12
0.11
(Loss) per share from
discontinued operations
(0.28)
(1.07)
(0.12)
Net income (loss) per
share (fully diluted)
(0.14)
(0.89)
0.12
(0.01)
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
<S>
First
Quarter
<C>
Second
Quarter
<C>
Third
Quarter
<C>
Fourth
Quarter
<C>
Net Sales
$4,106,000
$4,069,000
$1,851,000
$1,737,000
Gross Profit
1,817,000
1,402,000
542,000
1,473,000
Income (loss) from
continuing operations
1,786,000
920,000
(401,000)
186,000
(Loss) from discontinued
operations
(2,099,000)
(3,053,000)
(14,887,000)
(4,705,000)
Net (loss)
(313,000)
(2,133,000)
(15,288,000)
(4,519,000)
Income (loss) per share
from continuing
operations
0.30
0.16
( 0.07)
0.03
(Loss) per share from
discontinued operations
0.36)
(0.52)
(2.53)
(0.80)
Net (loss) per share
(0.05)
(0.36)
(2.60)
(0.77)
</TABLE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunder duly authorized.
ORBIT INTERNATIONAL CORP.
Dated: April 25, 1997 By: /s/ Dennis Sunshine
Dennis Sunshine, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Dennis Sunshine
Dennis Sunshine
President, Chief Executive
Officer and Director
April 25, 1997
/s/ Mitchell Binder
Mitchell Binder
Vice President-Finance,
Chief Financial Officer
and Director
April 25, 1997
/s/ Bruce Reissman
Bruce Reissman
Executive Vice President,
Chief Operating Officer
and Director
April 25, 1997
/s/ Harlan Sylvan
Harlan Sylvan
Treasurer,
Secretary and Controller
April 25, 1997
/s/ Nathan A. Greenberg
Nathan A. Greenberg
Director
April 25, 1997
/s/ John Molloy
John Molloy
Director
April 25, 1997
/s/ Stanley Morris
Stanley Morris
Director
April 25, 1997
FORM 10-K/A - ITEM 14(a)(1) & (2)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
REPORTS OF INDEPENDENT AUDITORS
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED IN ITEM 14(d):
II - VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Orbit International Corp.
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. Our audit also included the financial
statement schedule listed in the Index at Item 14(a) for the year ended
December 31, 1996. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule
based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Orbit
International Corp. and subsidiaries at December 31, 1996 and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements as a whole, presents fairly in
all material respects the information set forth therein for the year ended
December 31, 1996.
We also audited the adjustments described in Note B that were applied to
restate the 1995 and 1994 consolidated financial statements. In our opinion,
such adjustments are appropriate and have been properly applied.
Ernst & Young LLP
New York, New York
March 12, 1997
F-2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge, New York
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and subsidiaries as at December 31, 1995 and the related
consolidated statements of operations, changes in stockholders' equity, cash
flows and Schedule II, for the years ended December 31, 1995 and December 31,
1994 prior to their restatement for the adjustments described in Note B to the
1996 consolidated financial statements. 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 misstatements. 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 described above present fairly,
in all material respects, the consolidated financial position of Orbit
International Corp. and subsidiaries at December 31, 1995 and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 1995 and December 31, 1994 prior to their restatement for
the adjustments described in Note B to the 1996 consolidated financial
statements in conformity with generally accepted accounting principles.
Further, it is our opinion that the schedule referred to above presents fairly,
in all material respects 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 21, 1996
F-3
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents.............. $ 927,000 $ 2,274,000
Investments in marketable securities... 782,000 7,495,000
Accounts receivable (less allowance for
doubtful accounts of $150,000 (1996)
and $1,576,000 (1995))................ 3,114,000 854,000
Inventories............................ 6,657,000 13,124,000
Restricted investments, related to
discontinued operations............... 2,453,000
Assets held for sale, net.............. 712,000
Other current assets................... 246,000 1,669,000
Total current assets................. 14,891,000 25,416,000
Property, plant and equipment - at cost
less accumulated depreciation and
amortization........................... 2,347,000 3,069,000
Excess of cost over the fair value of
assets acquired (less accumulated
amortization of $85,000 (1996) and
$252,000 (1995)........................ 1,019,000 834,000
Restricted investments in marketable
securities............................. 7,567,000
Investments in marketable securities.... 1,150,000 795,000
Other assets............................ 524,000 347,000
TOTAL ASSETS............................ $19,931,000 $38,028,000
See accompanying notes.
F-4
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 1,656,000 $ 2,292,000
Accounts payable.......................... 940,000 3,860,000
Accrued expenses.......................... 2,545,000 4,090,000
Notes payable............................. 65,000
Accounts payable, accrued expenses and
reserves for discontinued operations..... 2,636,000
Due to factor............................. 852,000 15,294,000
Total current liabilities............... 8,694,000 25,536,000
Long-term obligations, less current
portion................................... 4,352,000 1,097,000
Accounts payable, accrued expenses and
reserves for discontinued operations,
less current portion...................... 1,424,000
Other liabilities.......................... 315,000 2,077,000
Total liabilities....................... 14,785,000 28,710,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 907,000 877,000
Additional paid-in capital................. 23,518,000 23,285,000
Accumulated deficit........................ (9,515,000) (4,026,000)
Less treasury stock, at cost............... (9,588,000) (9,588,000)
Less deferred compensation................. (174,000)
Less cumulative translation adjustment..... (1,230,000)
Less unrealized loss on marketable
securities................................ (2,000)
Total stockholders' equity............... 5,146,000 9,318,000
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY. $19,931,000 $38,028,000
See accompanying notes.
F-5
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales.......................... $16,971,000 $11,763,000 $12,254,000
Cost of sales...................... 9,361,000 6,529,000 7,078,000
Gross profit....................... 7,610,000 5,234,000 5,176,000
Selling, general and
administrative expenses........... 5,501,000 5,274,000 4,489,000
Interest expense................... 118,000 236,000 323,000
Investment and other (income)...... (1,320,000) (2,614,000) ( 734,000)
Income from continuing operations
before income taxes............... 3,311,000 2,338,000 1,098,000
Tax (benefit)...................... (153,000) .
Income from continuing
operations......................... 3,311,000 2,491,000 1,098,000
Discontinued operations:
(Loss) from operations........... (4,200,000) (24,744,000) (18,093,000)
(Loss) from disposal............. (4,600,000) .
NET (LOSS)......................... $(5,489,000) $(22,253,000) $(16,995,000)
Income (loss) per share:
Income from continuing operations:
Primary......................... $ .53 $ .42 $ .18
Fully diluted................... .50 .42 .18
(Loss) from discontinued operations:
Primary......................... (1.42) (4.20) (2.93)
Fully diluted................... (1.32) (4.20) (2.93)
NET (LOSS):
Primary......................... ( .89) (3.78) (2.75)
Fully diluted................... ( .82) (3.78) (2.75)
</TABLE>
See accompanying notes.
F-6
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
25,000,000 Shares
Authorized
Treasury Stock
Unrealized
Number of
Additional
Retained
Number
Cumulative
loss on
Shares
Paid-in
Earnings
of
Deferred
Translation
Marketable
Issued
Amount
Capital
(Deficit)
Shares
Amount
Compensation
Adjustment
Securities
Total
<S>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
<C>
Balance - December 31, 1993 . . . . . . . . .
11,723,000
$ 1,172,000
$32,710,000
$ 35,222,000
(5,316,000)
$ (18,106,000)
$ (442,000)
$ (930,000)
$ -
$ 49,626,000
Purchase of treasury stock . . . . . . . . . . . .
(480,000)
(1,480,000)
(1,480,000)
Deferred compensation earned. . . . . . . . . .
294,000
294,000
Compensation attributable to stock options
231,000
231,000
Foreign currency translation adjustment. .
(413,000)
(413,000)
Retirement of treasury shares . . . . . . . . .
(2,952,000)
(295,000)
(9,771,000)
2,952,000
10,066,000
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
(16,995,000)
.
.
.
.
.
(16,995,000)
Balance - December 31, 1994 . . . . . . . . .
8,771,000
877,000
23,170,000
18,227,000
(2,844,000)
(9,520,000)
(148,000)
(1,343,000)
- -
31,263,000
Purchase of treasury stock . . . . . . . . . . .
(41,000)
(68,000)
(68,000)
Deferred compensation earned. . . . . . . . . .
148,000
148,000
Compensation attributable to stock options
115,000
115,000
Foreign currency translation adjustment. .
113,000
113,000
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
(22,253,000)
.
.
.
.
.
(22,253,000)
Balance - December 31, 1995 . . . . . . . . .
8,771,000
877,000
23,285,000
(4,026,000)
(2,885,000)
(9,588,000)
- -
(1,230,000)
- -
9,318,000
Issuance of compensatory stock . . . . . . .
300,000
30,000
233,000
(233,000)
30,000
Deferred compensation earned. . . . . . . . . .
59,000
59,000
Write-off of foreign currency translation
adjustment, included in discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . .
1,230,000
1,230,000
Marketable securities valuation adjustment
(2,000)
(2,000)
Net (loss). . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
(5,489,000)
.
.
.
.
.
(5,489,000)
Balance - December 31, 1996
9,071,000
$ 907,000
$23,518,000
$ (9,515,000)
(2,885,000)
$ (9,588,000)
$ (174,000)
$ - .
$ (2,000)
$ 5,146,000
See accompanying notes.
F - 7
</TABLE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
<S>
1996
<C>
1995
<C>
1994
<C>
Cash flows from operating activities:
Net (loss)........................................................................................................
$ (5,489,000)
$ (22,253,000)
$ (16,995,000)
Adjustments to reconcile net (loss) to net cash provided by (used in)
operating activities:
Inventory reserves.........................................................................................
4,500,000
Deferred compensation.................................................................................
801,000
Provision for doubtful accounts.....................................................................
798,000
(85,000)
Depreciation and amortization.......................................................................
122,000
398,000
521,000
Write-off of intangible assets........................................................................
9,780,000
Amortization and write-off of goodwill............................................................
919,000
58,000
671,000
Write-down of investment in affiliate.............................................................
13,987,000
Deferred tax (benefit)....................................................................................
(2,115,000)
Compensatory issuance of stock and options...............................................
59,000
262,000
525,000
Gain on sales of marketable securities.........................................................
(173,000)
Change in value of marketable securities......................................................
(222,000)
(222,000)
Imputed interest on acquisition note..............................................................
213,000
274,000
Purchases of marketable securities .............................................................
(24,229,000)
(24,594,000)
Proceeds of sales of marketable securities...................................................
25,710,000
22,122,000
Gain on sale of fixed assets..........................................................................
(79,000)
Write-off of fixed assets................................................................................
144,000
Write-off of foreign currency translation.......................................................
1,230,000
(Loss) on disposal of discontinued operations..............................................
4,600,000
Changes in operating assets and liabilities, excluding effect of acquisitions:
Accounts receivable.....................................................................................
(2,992,000)
3,729,000
(192,000)
Inventories...................................................................................................
914,000
3,465,000
(6,036,000)
Prepaid and refundable taxes......................................................................
168,000
Other current assets...................................................................................
985,000
(4,000)
641,000
Other assets...............................................................................................
(268,000)
Accounts payable........................................................................................
655,000
165,000
(784,000)
Accrued expenses......................................................................................
(395,000)
1,881,000
(1,597,000)
Income taxes payable..................................................................................
(245,000)
188,000
Assets held for sale....................................................................................
1,473,000
Other long term liabilities.............................................................................
3,000
.
.
Net cash provided by (used in) operating activities...................................
1,816,000
4,699,000
(13,523,000)
Cash flows from investing activities:
Purchases of marketable securities.................................................................
(17,765,000)
Proceeds of sales of marketable securities......................................................
29,237,000
Purchase of fixed assets..................................................................................
(170,000)
(455,000)
(611,000)
Purchase of net assets of acquired companies...............................................
(3,779,000)
Proceeds on sale of fixed assets.....................................................................
216,000
479,000
Acquisition costs related to purchase of businesses.......................................
.
.
(27,000)
Net cash provided by (used in) investing activities.....................................
7,523,000
(239,000)
(159,000)
(continued)
</TABLE>
F - 8
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Year Ended December 31,
<S>
1996
<C>
1995
<C>
1994
<C>
Cash flows from financing activities:
Repayments of debt.........................................................................................
(1,956,000)
(7,079,000)
(5,746,000)
Proceeds of debt..............................................................................................
2,482,000
395,000
5,214,000
Increase (decrease) in due to factor.................................................................
(11,242,000)
3,754,000
11,086,000
Purchase of treasury stock..............................................................................
(68,000)
(1,480,000)
Proceeds from issuance of performance shares.............................................
30,000
.
.
Net cash (used in) provided by financing activities....................................
(10,686,000)
(2,998,000)
9,074,000
Effect of exchange rate changes on cash.........................................................
- .
(3,000)
(24,000)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........
(1,347,000)
1,459,000
(4,632,000)
Cash and cash equivalents - beginning of year.................................................
2,274,000
815,000
5,447,000
CASH AND CASH EQUIVALENTS - END OF YEAR.....................................
$927,000
$2,274,000
$815,000
</TABLE>
Supplemental disclosures of cash flow information:
Year Ended December 31,
1996 1995 1994
Cash paid for:
Interest....................... $1,806,000 $ 2,994,000 $ 1,392,000
Income taxes (net of refunds
of $115,000 (1995) and
$444,000, (1994) respectively) $ - $ (85,000) $ (268,000)
See accompanying notes.
F-9
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies:
Organization and Business
The consolidated financial statements include the accounts of Orbit
International Corp. and its wholly-owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation.
The Company is engaged in the design, manufacture and sale of customized
electronic components and subsystems, distortion free commercial power units,
power conversion devices and electronic devices for measurement and display.
The Company discontinued its operations (see Note B) in the apparel business in
1996.
Summary of Significant Accounting Policies
Cash Equivalents
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.
Inventories
Inventories are valued at the lower of cost (first-in, first-out basis) or
market price.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation and
amortization of the respective assets are computed using the straight-line
method over their estimated useful lives ranging from 8 years to 40 years.
Leasehold improvements are amortized using the straight-line method over the
remaining life of the lease or the life of the improvement, whichever is less.
Intangible Assets
Excess of cost over the fair value of net assets acquired is being
amortized on a straight-line basis over fifteen years.
(continued)
F-10
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
Investments
The Company classifies its investments as held-to-maturity, available for
sale, or trading. The Company classified all of its securities as trading
securities until December 30, 1995 when it transferred all of its securities
from trading securities to available-for-sale securities.
Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretions of discounts to maturity.
Realized gains and losses and declines in value judged to be other than
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities are included in investment income.
Revenue Recognition
The Company records sales upon delivery for manufacturing contracts and
upon completion of performance under certain engineering contracts.
Income (Loss) Per Share
Income (loss) per share is 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 year ended
December 31, 1996 was 6,688,000 for continuing operations. The average number of
shares and equivalent shares outstanding for the year ended December 31, 1995
and December 31, 1994 were 5,886,000 and 6,169,000, respectively for continuing
operations.
Foreign Currency
Assets and liabilities of the Company's discontinued Canadian operations
are translated at the foreign currency exchange rate in effect at the balance
sheet date. Results of operations are translated using weighted average
exchange rates during the period. Stockholders' equity accounts are translated
at historical exchange rates. Prior to the discontinuance of the operations,
the accumulated gains and losses resulting from the translation of foreign
currency financial statements were included in a separate component of
stockholders' equity.
Foreign currency translation adjustments have been written-off as part of
the loss on disposal of discontinued operations during the year ended December
31, 1996.
(continued)
F-11
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the financial statements and accompany notes. Actual
results could differ from those estimates.
Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" ("SFAS 121"). The statement requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less then the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. This standard specifies when assets should be reviewed for
impairment, how to determine if an asset is impaired, how to measure an
impairment loss, and what disclosures are necessary in the financial statements.
Stock Based Compensation:
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its stock options.
Fair Value of Financial Instruments
The book values of cash and cash equivalents, accounts receivable, accounts
payable, and accrued liabilities approximate their fair values principally
because of the short-term maturities of these instruments. The fair value of
the Company's long-term obligations is estimated based on the current rates
offered to the Company for debt of similar terms and maturities. Under this
method, the Company's fair value of long-term obligations was not significantly
different than the stated value at December 31, 1996 and 1995.
(continued)
F-12
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Discontinued Operations:
On August 6, 1996, the Board of Directors of the Company adopted a plan to
dispose of its U.S. and Canadian apparel operations. The Company estimated the
loss on the discontinuance to be approximately $8,800,000, including
approximately $4,200,000 of operating losses and approximately $4,600,000 of
estimated losses on the disposal of the operations. Such estimated losses
include a $1,456,000 write-off of cumulative translation adjustments, $1,333,000
pursuant to certain operating lease agreements and $1,300,000 resulting from the
write-down of assets to net realizable value.
The U.S. apparel operations consisted of the design, importation and
manufacture of women's active-wear and outerwear, principally under the
East/West label, through the Company's East/West division and East End Apparel
Group, Ltd. subsidiary. In the fourth quarter of 1996, the Company entered into
a three-year license agreement with a third party pursuant to which the Company
granted the right to manufacture and sell ladies apparel under the "East/West"
trademark in the U.S. and Canada. The Company has otherwise ceased operations
of the East/West division. During the fourth quarter of 1996, the Company
commenced discussions with the Company's factor to convert the amounts due to
the factor from the Company's discontinued U.S. apparel operations to a term
loan from the Company. The new term loan is expected to commence on May 1, 1997
at which time the factor expects to complete its collection of all outstanding
accounts receivable. Under the terms of the new lending arrangement,
amortization of the loan would be based on a 60 month repayment period with
payments due on a monthly basis for 35 months and a final payment of
approximately $1,493,000 due April 1, 2000. The loan would have an interest
rate of prime rate plus 1%. In accordance with FASB No. 6 and management's
intent to refinance this obligation on a long-term basis, a substantial portion
of the short term amounts due to the factor have been classified as non-current
(See Note G).
Pursuant to the Company's plans to dispose of its U.S. and Canadian apparel
operations, it recorded an impairment loss of $793,000 in 1996. In 1995,
management determined that intangible assets relating to its East/West division
were impaired and accordingly recorded a write down of $13,216,000.
The Canadian apparel operations have been operated through the Company's
three wholly-owned subsidiaries in Canada; Canada Classique ("Classique"),
Winnipeg Leather (1991) Inc. ("Winnipeg Leather") and Symax Garment Co. (1993)
Ltd. ("Symax"). On March 12, 1997, the Company commenced bankruptcy proceedings
against Classique, which manufactured and sold branded and private label men's,
women's and children's outerwear in Winnipeg, Canada and Winnipeg Leather, which
manufactured and sold women's garments under private labels in Winnipeg, Canada.
Classique and Winnipeg Leather are now in Bankruptcy and Orbit has appointed a
receiver and manager for the purpose of liquidating their assets; the Company is
currently seeking buyers. On March 7, 1997, substantially all of the assets of
Symax, which manufactured and sold private label men's outerwear in Vancouver,
British Columbia, Canada, were sold to a third-party.
(continued)
F-13
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Discontinued Operations: (continued)
In July 1988 the Company, through USA Classic ("Classic"), a wholly-owned
subsidiary, acquired all of the outstanding stock of U.S. Apparel, Inc. In
November 1992, Classic completed an initial public offering (the "Offering") of
3,105,000 shares of its common stock, thereby reducing the Company's ownership
to approximately 43%. Classic designed, manufactured and marketed men's,
women's and children's active-wear, sportswear and outerwear until it, and its
subsidiaries, filed petitions under Chapter 11 of the United States Bankruptcy
Code in 1994. The Company recorded a non cash charge related to such bankruptcy
of $13,987,000, which includes its 43% equity interest in Classic, subordinated
debt owing by Classic to the Company of approximately $2,400,000 and
approximately $2,500,000 of related costs (see Note M (2)).
Amounts previously reported for the apparel segments in 1995 and 1994 have
been restated to give effect to recording of the discontinued operations in the
accompanying consolidated statements of operations. The operating results of
the discontinued operations are summarized as follows:
For the Year Ended December 31, 1996 1995 1994
Sales $26,235,000 $46,471,000 $45,576,000
(Loss) before tax benefit (8,800,000) (24,755,000) (20,020,000)
Tax benefit 11,000 1,927,000
Net (loss) (8,800,000) (24,744,000) (18,093,000)
Net (loss) per share of common stock:
Primary $(1.42) $(4.20) $(2.93)
Fully diluted $(1.32) $(4.20) $(2.93)
At December 31, 1996, the assets of the discontinued operations consist
primarily of inventories and accounts receivable. Liabilities of the
discontinued operations consist of accounts payable, accrued expenses and other
reserves. The consolidated balance sheet at December 31, 1995 has not been
restated.
(continued)
F-14
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE C) - Acquisition:
On February 6, 1996, the Company, through a wholly-owned subsidiary
acquired certain assets subject to certain liabilities of Astrosystems, Inc. and
Behlman Electronics, Inc. (collectively, "Behlman"). The assets are primarily
used in the business of manufacturing and selling various power supply and power
source products. The purchase price is subject to adjustment based upon final
valuations. The transaction was partially financed pursuant to a bridge loan in
the amount of $500,000 from the Company's primary lender which was replaced by a
term loan and revolving credit facility (See Note G).
The operations of Behlman have been included in the consolidated financial
statements from February 6, 1996. Had the acquisition been made on January 1,
1995 (unaudited) proforma sales, income and earnings per share from continuing
operations would have been $20,635,000, $1,734,000 and $.29 per share
respectively, for the year ended December 31, 1995.
The fair value of the net assets as of the date of acquisition is presented
below:
Inventory $ 2,560,000
Property, plant and equipment 115,000
Excess of cost over the fair
value of assets acquired 1,104,000
$ 3,779,000
(NOTE D) - Inventories:
Inventories consist of the following:
December 31,
1996 1995
Raw materials. . . . . . $ 2,332,000 $ 1,594,000
Work in process. . . . . 4,325,000 4,756,000
Finished goods (apparel) - 6,774,000
$ 6,657,000 $13,124,000
(continued)
F-15
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Property, Plant and Equipment:
Property, plant and equipment are as follows:
December 31,
1996 1995
Land and building. . . . . . . . . . . $ 2,688,000 $ 2,688,000
Building and leasehold improvements. . 279,000 599,000
Machinery and equipment. . . . . . . . 1,053,000 1,418,000
Furniture and fixtures . . . . . . . . 413,000 937,000
4,433,000 5,642,000
Accumulated depreciation
and amortization . . . . . . . . . . 2,086,000 2,573,000
$ 2,347,000 $ 3,069,000
(NOTE F) - Available-For-Sale Securities:
On December 30, 1995 the Company transferred its marketable securities to
the available for sale category of investments. On the date of the transfer,
all debt securities were being carried at their amortized cost which
approximated fair market value. Under the terms of certain credit facilities,
the Company's investment portfolio and certain cash balances must be maintained
at a minimum collateral value. On December 31, 1996, this collateral
requirement amounted to approximately $2,453,000 and on December 31, 1995 it was
approximately $11,647,000 of which $540,000 represents the balance in cash
accounts, $3,540,000 represents available-for-sale securities classified as
current assets and the remainder was shown as restricted investments.
The following is a summary of available-for-sale securities:
December 31, 1996
Estimated
Fair
Cost Value
U.S. Treasury bills............ $3,235,000 $3,235,000
Debt securities issued by
government agencies.......... 5,000 5,000
Corporate debt securities...... 1,147,000 1,145,000
4,387,000 4,385,000
Restricted value of portfolio
used to collateralize credit
facility (included in assets
held for sale).............. 2,453,000 2,453,000
Balance of securities
portfolio................... $1,934,000 $1,932,000
(continued)
F-16
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Available-For-Sale Securities: (continued)
December 31, 1995
Estimated
Fair
Cost Value
U.S. Treasury Bills $10,400,000 $10,400,000
Debt securities issued by
government agencies......... 2,919,000 2,919,000
Corporate debt securities..... 2,526,000 2,526,000
Total debt securities......... 15,845,000 15,845,000
Equity securities............. 12,000 12,000
15,857,000 15,857,000
Restricted value of portfolio
used to collateral credit
facility.................... 7,567,000 7,567,000
Balance of securities
portfolio (including
$3,450,000 of marketable
securities used to satisfy
outstanding debt classified
as a current obligation).... $8,290,000 $8,290,000
The amortized cost and estimated fair value of debt and marketable equity
securities at December 31, 1996 and December 31, 1995, by contractual maturity,
are shown below. Expected maturities will differ from contractual maturities
because the issuers of the securities may have the right to repay obligations
without prepayment penalties.
December 31, 1996
Estimated Fair
Cost Value
Due in one year or less............... $3,235,000 $3,235,000
Due after three years ................ 1,152,000 1,150,000
4,387,000 4,385,000
Restricted value of portfolio used to
collateralize credit facilities..... 2,453,000 2,453,000
$1,934,000 $1,932,000
(continued)
F-17
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Available-For-Sale Securities: (continued)
December 31, 1995
Estimated Fair
Cost Value
Due in one year or less............... $15,050,000 $15,050,000
Due after three years................. 795,000 795,000
15,845,000 15,845,000
Equity securities..................... 12,000 12,000
15,857,000 15,857,000
Restricted value of portfolio used to
collateralize credit facilities..... 7,567,000 7,567,000
$ 8,290,000 $ 8,290,000
(NOTE G) - Debt:
Long-term obligations consist of the following:
December 31,
1996 1995
Term loan collateralized by $1,120,000 of treasury
bills, inventories, accounts receivable and
general tangibles of the electronics division,
bearing interest at LIBOR (5.875% at December 31,
1995) plus .75%, paid in full on January 1, 1996. $1,000,000
Term loan collateralized by certain real estate of
the Company bearing interest at prime
(8.25% at December 31, 1996) plus 1.5%,
payable in monthly installments of $56,000
commencing July 1996 through June 1999........... $1,667,000
Promissory note payable to the sellers of the East/
West division (face amount $1,850,000) -
noninterest bearing, imputed interest at 6%
payable in one installment of $500,000 on March
28, 1996, two installments of $250,000 on July 1,
1996 and January 1, 1997 and twenty quarterly
installments of $42,500 commencing March 31, 2002 785,000 1,535,000
(continued)
F-18
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Debt: (continued)
December 31,
1996 1995
Term loan collateralized by certain real estate of
the electronics division, bearing interest
at LIBOR (5.875% at December 31, 1995)
plus .75% (floating), payable in $250,000
quarterly installments through April 1, 1996..... 250,000
Note due to the estate of the former principal
officer payable in monthly installments through
February 1998 (Note N)........................... 356,000 604,000
Short term debt expected to be refinanced,
collateralized by accounts receivable and
inventories of the Company, bearing
interest at prime (8.25% at December 31,
1996) plus 1%. The replacement debt is expected
to be payable in monthly payments of $53,000
commencing May 1997 with a final payment of
approximately $1,493,000 in April, 2000
(see Note B)..................................... 3,200,000 .
6,008,000 3,389,000
Less current portion.............................. 1,656,000 2,292,000
$4,352,000 $1,097,000
Payments due on the Company's long-term debt at December 31, 1996 are
as follows:
Year Ending
December 31,
1997................. $1,656,000
1998................. 1,351,000
1999................. 973,000
2000 (January through
April)......... 1,493,000
Thereafter........... 535,000
$6,008,000
(continued)
F-19
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Debt: (continued)
Short-term notes payable aggregated $65,000 at December 31, 1996. This is
in connection with the Company's revolving line of credit which bears interest
at prime (8.25% at December 31, 1996) plus 1%.
Under the various debt agreements, the Company must comply with certain
covenants which require it to maintain minimum levels of working capital,
minimum levels of debt to equity and tangible net worth at all times. The
Company is also precluded from declaring and paying dividends without the
consent of such lender.
(NOTE H) - Stock Based Compensation Plans:
The alternative fair value accounting provided for under Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), requires use of opinion valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company has a stock option plan which provides for the granting of non-
qualified or incentive options to officers, directors and key employees. The
plan authorizes granting of up to 1,500,000 shares of the Company's common
stock at the market value on the date of such grants. All options are
exercisable at times as determined by the Board of Directors not to exceed ten
years from the date of grant.
Pro forma information regarding net loss and net loss per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for its stock options granted subsequent to December
31, 1994 under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using the Black-Sholes option pricing
model with the following weighted average assumptions: risk-free interest rate
of 6%; no dividend yields; volatility factor of the expected market price of the
Company's common stock of 85.5%; and a weighted-average expected life of the
options of 3.0 years at December 31, 1996 and 1995.
The Black-Sholes option valuation model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
(continued)
F-20
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stock Based Compensation Plans:(continued)
the Company's employers stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vested period. The Company's
pro forma information follows:
1996 1995
Net earnings from
continuing operations: As Reported $ 3,311,000 $ 2,491,000
Pro Forma 2,830,000 2,325,000
Primary EPS: As Reported .53 .42
Pro Forma .46 .38
Fully Diluted EPS: As Reported .50 .42
Pro Forma .42 .35
1996 1995
Net (loss): As Reported $(5,489,000) $(22,253,000)
Pro Forma (5,970,000) (22,419,000)
Primary EPS: As Reported (.89) (3.78)
Pro Forma (.96) (3.81)
Fully Diluted EPS: As Reported (.82) (3.78)
Pro Forma (.89) (3.81)
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until 1997.
As required by Statement 123, the fair values method of accounting has not
been applied to options granted prior to January 1, 1995. As a result, the pro
forma compensation cost may not be representative of that to be expected in
future years.
(continued)
F-21
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Stock Based Compensation Plans:(continued)
Information as to options for share of common stock is as follows:
<TABLE>
<CAPTION>
1996 .
1995 .
1994 .
Weighted Average
Weighted Average
Weighted Average
Options
Exercise Price
Options
Exercise Price
Options
Exercise Price
<S>
<C>
<C>
<C>
<C>
<C>
<C>
Outstanding at the
beginning of year.............
964,000
$1.25
965,000
$3.13
900,000
$4.93
Granted...........................
332,500
0.92
1,017,000
1.25
965,000
3.13
Canceled.........................
(15,000)
0.92
(1,018,000)
2.70
(900,000)
4.93
Outstanding at the
end of year.......................
1,281,500
0.92
964,000
1.25
965,000
3.13
Exercisable at end of year.
964,000
-
-
Weighted average fair
value of options granted..
0.54
0.54
</TABLE>
The weighted average remaining contractual life of the options outstanding
is 3 years.
At December 31, 1996, 218,500 shares of common stock were reserved for
future issuance of stock options.
In consideration of an executive officer's entry into an employment
agreement during the year, the Company sold to the officer 300,000 shares of its
common stock at par value $.10 per share. The stock is subject to repurchase by
the Company, at the same price, in the event of resignation or discharge for
cause, of the officer. The difference between the fair value of the shares and
its issue price will be charged to operations over a three year period.
(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.
(continued)
F-22
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Employee Benefit Plans:
The Company contributed $117,000, $185,000 (including $24,000 applicable to
discontinued operations) and $312,000 (including $139,000 applicable to
discontinued operations) to the plans for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994, respectively.
(NOTE J) - Income Taxes:
The Company uses the liability method in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
For the year ended December 31, 1996, the Company recorded no income tax
provision. The Company has an alternative minimum tax credit of $ 564,000 with
no limitation on the carryforward period, a net operating loss carryforward of
$18,400,000 which expire in 2010 and a capital loss carryforward of $ 1,968,000
which expires in 1999. In addition, a subsidiary whose operations were disposed
of in 1991 has various income tax benefits which are available to offset future
taxable income of the parent only. These benefits consist of a net operating
loss carryforward of approximately $ 5,900,000 and certain tax credits which
amount to approximately $ 594,000 which are available through 1999.
The provision (benefit) for income taxes for the years December 31, 1995
and 1994 are as follows:
December 31,
1995 1994
Current:
Foreign and state.... $(164,000) $ 188,000
Deferred:
Federal.............. - (1,823,000)
Foreign and state.... - (292,000)
$(164,000) $(1,927,000)
(continued)
F-23
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - INCOME TAXES: (continued)
A reconciliation of the Federal statutory tax rate with the effective tax
rate is as follows:
December 31,
1996 1995 1994
Federal statutory tax rate... (34.0%) (34.0%) (34.0%)
Increase (reduction) in taxes
resulting from:
Foreign and state income
tax, net of federal
income tax benefit...... 3.3 (.3)
Nondeductible items..... 1.3 1.3
Non taxable life insurance
proceeds................. (6.7)
Nonutilization of net
operating and capital
loss carryforwards and
carrybacks............... 34.0 35.0 22.1
Other .5 .7
0% (.7%) (10.2%)
(continued)
F-24
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - INCOME TAXES: (continued)
The deferred tax assets (liability) are as follows:
December 31,
1996 1995
Deferred tax asset:
Alternative minimum
tax credit carryforward.. $ 564,000 $ 561,000
Net operating loss and
capital loss
carryforwards (including
pre-acquisition net
operating loss
carryforwards)........... 8,931,000 7,100,000
Various temporary
differences.............. 912,000 6,559,000
Total deferred tax assets 10,407,000 14,220,000
Valuation allowances on....... (10,249,000) (14,220,000)
Net deferred tax assets....... 158,000 -
Deferred tax liability:
Various temporary
differences.............. (158,000) .
Net deferred tax assets....... $ - $ - .
As the Company has had cumulative losses and there is no assurance of
future taxable income, a valuation allowance has been established to offset
deferred tax assets.
(NOTE K) - Major Customer and Concentrations of Credit Risk:
Sales to significant customers accounted for approximately 72% (28%, 15%,
17% and 12%), 79% (54%, 12% and 13%) and 77% (66% and 11%) of the Company's net
sales from continuing operations for the years ended December 31, 1996, 1995 and
1994, respectively.
Certain major customers of the Company sell the Company's products to the
United States Government. Accordingly, a substantial portion of the net sales
is subject to audit by agencies of the United States government. In the opinion
of management, adjustments to such net sales, if any, will not have a material
effect on the Company's financial position.
(continued)
F-25
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Major Customer and Concentrations of Credit Risk: (continued)
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
The Company places its cash and cash equivalents with one financial institution.
At times, cash may be in excess of FDIC insurance limits.
(NOTE L) - Leasing Arrangements:
Operating leases are for a sales office and certain equipment and vehicles
for continuing operations and office, showroom, warehouse and manufacturing
facilities for discontinued operations, and are subject to annual increases
based on changes in the Consumer Price Index and increases in real estate taxes
and certain operating expenses.
Future minimum lease payments as of December 31, 1996 under operating lease
agreements that have initial or remaining noncancellable lease terms in excess
of one year are as follows:
Year Ending Continuing Discontinued
December 31, Operations Operations Total
1997 . . . . . . . . $ 78,000 $ 901,000 $ 979,000
1998 . . . . . . . . 34,000 876,000 910,000
1999 . . . . . . . . 646,000 646,000
2000 . . . . . . . . 239,000 239,000
Total minimum
lease payments $ 112,000 $ 2,662,000 $ 2,774,000
Operating lease rent expense for the years ended December 31, 1996, 1995
and 1994 was $1,083,000, $1,170,000 and $1,100,000, respectively. Continuing
operations account for approximately $41,000 of operating lease expense for the
year ended December 31, 1996. Leasing arrangements for discontinued operations
do not include amounts owed to the Company under certain sublease agreements.
(continued)
F-26
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Commitments and Contingencies:
[1] The Company has employment agreements with its three executive
officers which may be terminated by the Company on not less than three years
prior notice and with two other principal officers, for aggregate annual
compensation of $1,099,000. In the event of a change in control of the Company,
the executive officers have the right to elect a lump sum payment representing
future compensation due them over the remaining years of their contracts. In
addition, the five officers are entitled to bonuses based on a percentage of
earnings before taxes, as defined. Total bonus compensation paid to the
executive officers was approximately $281,000 in 1996. No bonuses were earned
or paid in 1995 or 1994.
[2] 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 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 class action has been stayed
against USA Classic as a result of its filing for protection for relief under
Chapter 11 of the bankruptcy code.
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. On June 16, 1995, the motion for dismissal was denied in
its entirety. On March 8, 1995, the plaintiff's representatives filed a motion
for class certification. Since that date, the parties have been conducting
depositions and reviewing documents relevant to issues of class certification.
It is estimated that discovery in this matter will continue throughout 1997.
The Company plans to continue to vigorously defend against this action.
(continued)
F-27
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE M) - Commitments and Contingencies: (continued)
[3] The Company, in the ordinary course of business, is the subject of or
a party to various lawsuits, the outcome of which, in the opinion of management,
will not have a material adverse effect on the consolidated financial
statements.
(NOTE N) - Death of Principal Officer:
On February 24, 1995, the Company's principal officer died. Pursuant to
his employment contract, the Company owed approximately $800,000 to the
principal officer's estate, payable in monthly installments over a three year
period. During 1995, the Company received insurance proceeds aggregating
$1,500,000 on keyman policies on the life of the principal officer (see Note G).
F-28
ORBIT INTERNATIONAL CORP.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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
<S>
<C>
<C>
<C>
<C>
<C>
Year ended December 31, 1996:
Reserve for estimated doubtful
accounts and allowance...............
$1,576,000
$359,000
$(338,000)**
$(1,447,000)***
$150,000
Valuation allowance on deferred
tax asset........................................
$14,220,000
$(3,971,000)**
$10,249,000
Year ended December 31, 1995:
Reserve for estimated doubtful
accounts and allowance...............
$769,000
$887,000
$ 80,000*
$1,576,000
Valuation allowance on deferred
tax asset........................................
$6,380,000
$7,840,000
$14,220,000
Year ended December 31, 1994:
Reserve for estimated doubtful
accounts and allowance...............
$882,000
$226,000
$ 339,000*
$769,000
Valuation allowance on deferred
tax asset........................................
$2,425,000
$3,995,000
$6,380,000
TOTAL
$3,307,000
$4,181,000
$339,000
$7,149,000
*Amount represents write-offs.
**Relief of allowances
***Transfer of allowances of
apparel companies to discontinued
operations.
</TABLE>
See Accompanying notes.
F-29
