UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended to
Commission file number 0-3936
Orbit International Corp.
(Exact name of registrant as specified in its charter)
Delaware ID # 11-1826363
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) Number)
80 Cabot Court, Hauppauge, New York 11788
(Address of principal executive offices (Zip Code)
(516) 435-8300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 month (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15 (d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
June 30, 1997. 6,194,000
ORBIT INTERNATIONAL CORP.
The financial information herein is unaudited. However, in the
opinion of management, such information reflects all adjustments
(consisting only of normal recurring accruals) necessary to a fair
presentation of the results of operations for the periods being
reported. Additionally, it should be noted that the accompanying
condensed financial statements do not purport to contain complete
disclosures in conformity with generally accepted accounting
principles.
The results of operations for the six months ended June 30, 1997
are not necessarily indicative of the results of operations for the
full fiscal year ending December 31, 1997.
The consolidated balance sheet as of December 31, 1996 was
condensed from the audited consolidated balance sheet appearing in the
1996 annual report on Form 10-K.
These condensed consolidated statements should be read in
conjunction with the Company's financial statements for the fiscal year
ended December 31, 1996.
PART I - FINANCIAL INFORMATION
ITEM - I
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............... $ 310,000 $ 927,000
Investment in marketable securities..... 1,632,000 782,000
Accounts receivable (less allowance for
doubtful accounts)..................... 2,659,000 3,114,000
Inventories ............................ 7,223,000 6,657,000
Restricted investments, related to
discontinued operations................ 1,269,000 2,453,000
Assets held for sale, net............... 188,000 712,000
Other current assets.................... 243,000 246,000
Total current assets.................. 13,524,000 14,891,000
Property, plant and equipment - at cost
less accumulated depreciation and
amortization........................... 2,329,000 2,347,000
Excess of cost over the fair value of
assets acquired....................... 983,000 1,019,000
Investment in marketable securities..... 621,000 1,150,000
Other assets............................ 649,000 524,000
TOTAL ASSETS............................ $18,106,000 $19,931,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
June 30, December 31,
1997 1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 1,576,000 $ 1,656,000
Accounts payable.......................... 1,127,000 940,000
Accrued expenses.......................... 1,998,000 2,545,000
Notes payable............................. 92,000 65,000
Accounts payable, accrued expenses and
reserves for discontinued operations..... 1,207,000 2,636,000
Due to factor............................. 704,000 852,000
Total current liabilities............... 6,704,000 8,694,000
Long-term obligations, less current
portion................................... 3,815,000 4,352,000
Accounts payable, accrued expenses and
reserves for discontinued operations,
less current portion...................... 1,183,000 1,424,000
Other liabilities.......................... 315,000 315,000
Total liabilities....................... 12,017,000 14,785,000
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 908,000 907,000
Additional paid-in capital................. 23,526,000 23,518,000
Accumulated deficit........................ (8,621,000) (9,515,000)
Less treasury stock, at cost............... (9,588,000) (9,588,000)
Less deferred compensation................. (136,000) (174,000)
Less unrealized loss in marketable
securities................................ (2,000)
Total stockholders' equity................ 6,089,000 5,146,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,106,000 $19,931,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales........... $ 8,396,000 $ 7,770,000 $ 4,426,000 $ 4,889,000
Cost of sales....... 4,901,000 4,376,000 2,526,000 2,597,000
Gross profit........ 3,495,000 3,394,000 1,900,000 2,292,000
Selling, general and
administrative
expense............ 2,664,000 2,653,000 1,437,000 1,343,000
Interest expense 77,000 24,000 37,000 3,000
Investment and
other(income)...... (140,000) (1,122,000) (59,000) (122,000)
Income from
continuing
operations......... 894,000 1,839,000 485,000 1,068,000
Discontinued
operations:
(Loss)from operations (4,200,000) (2,659,000)
(Loss)from disposal (3,801,000) (3,801,000)
NET INCOME (LOSS)... $ 894,000 $(6,162,000) $ 485,000 $(5,392,000)
Income (loss) per
share:
Income from
continuing
operations:........ $ .13 $ .31 $ .07 $ .18
(Loss) from
discontinued
operations:........ ( 1.34) ( 1.07)
NET INCOME (LOSS):.. $ .13 $ ( 1.03) $ .07 $ ( .89)
</TABLE>
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income(loss)............................ $ 894,000 $(6,162,000)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization............... 68,000 59,000
Amortization of goodwill.................... 36,000 51,000
Write-off of goodwill....................... 805,000
Write-off of foreign currency translation... 1,230,000
Compensatory issuance of stock.............. 38,000 20,000
Change in value of marketable trading
securities................................. 2,000 (18,000)
Disposal of discontinued operations......... 2,996,000
Changes in operating assets and liabilities:
Accounts receivable......................... 455,000 (2,234,000)
Inventories................................. (566,000) 652,000
Other current assets........................ 3,000 1,079,000
Accounts payable............................ 187,000 730,000
Accrued expenses............................ (547,000) (161,000)
Assets held for sale........................ 524,000 1,731,000
Accounts payable, accrued expenses and
reserves for discontinued operations....... (1,670,000)
Other long term obligations................. (312,000)
Other assets................................ (125,000) (121,000)
Net cash (used in) provided by
operating activities...................... (701,000) 345,000
Cash flows from investing activities:
Acquisitions of fixed assets................ (50,000) (96,000)
Purchase of net assets of acquired company.. (3,750,000)
Change in value of marketable securities....
Purchase of marketable securities........... (3,149,000) (12,805,000)
Proceeds of sales of marketable securities.. 4,012,000 22,645,000
Net cash provided by investing activities.. 813,000 5,994,000
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
1997 1996
Cash flows from financing activities:
Proceeds from issuance of performance shares 30,000
Due to factor............................... (148,000) (5,902,000)
Repayments of debt.......................... (617,000) (2,159,000)
Proceeds of debt............................ 27,000 2,000,000
Stock option exercises...................... 9,000
Net cash (used in) financing activities...... (729,000) (6,031,000)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS................................. (617,000) 308,000
Cash and cash equivalents - January 1........ 927,000 2,274,000
CASH AND CASH EQUIVALENTS - June 30.......... $ 310,000 $ 2,582,000
Supplemental disclosures of cash flow
information:
Cash paid for:
Interest.............................. $ 328,000 $ 938,000
Taxes................................. $ 26,000 $ 0
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(NOTE 1) - Income (Loss) Per Share:
Income (loss) per share is based on the weighted average number of
common and common equivalent shares (where appropriate) outstanding
during each period. The average number of shares and equivalent shares
outstanding for the six month and three month periods ended June 30,
1997 and 1996 are as follows:
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
Primary 6,781,000 5,960,000 6,751,000 5,998,000
Fully diluted 6,781,000 5,970,000 6,751,000 6,020,000
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. The impact is expected to result in an increase in
primary earnings per share for the six months and second quarter ended
June 30, 1997 of $.02 per share and $.01 per share, respectively, and
to be immaterial for the comparable periods of the prior year. The
impact of Statement 128 on the calculation of fully diluted earnings
per share for these periods is not expected to be material.
(NOTE 2) - Cost of Sales:
For interim periods, the Company estimates its inventory and
related gross profit.
(NOTE 3) - Inventories:
Inventories are comprised of the following:
June 30, December 31,
1997 1996
Raw Materials.............. $ 2,401,000 $ 2,332,000
Work-in-process............ 4,822,000 4,325,000
Finished goods............. - -
TOTAL $ 7,223,000 $ 6,657,000
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
(NOTE 4) - Available-For-Sale Securities:
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 June 30, 1997, this collateral
requirement amounted to approximately $1,269,000.
The following is a summary of available-for-sale securities as of:
June 30, 1997
Estimated
Fair
Cost Value
U.S. Treasury bills......................... $ 2,901,000 $ 2,901,000
Debt securities issued
by other government agencies............... 5,000 5,000
Corporate debt securities................... 616,000 617,000
3,522,000 3,523,000
Restricted value of portfolio
used to collateralize credit facility...... 1,269,000 1,269,000
Balance of securities portfolio............. $ 2,253,000 $ 2,254,000
The amortized cost and estimated fair value of debt and marketable
equity securities at June 30, 1997 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.
Due in one year or less.................... $ 2,901,000 $ 2,901,000
Due after one year through three years..... 35,000 35,000
Due after three years...................... 586,000 587,000
3,522,000 3,523,000
Restricted value of portfolio used to
collateralize credit facilities........... 1,269,000 1,269,000
$ 2,253,000 $ 2,254,000
(continued)
ITEM - II
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations
Six month period ended June 30, 1997 v. June 30, 1996
In August, 1996, the Company adopted a plan to sell its apparel
segments. The plan of disposal of such segments left the Company with
solely its Electronics Segment which consists of its Orbit Instrument
Division and Behlman subsidiary.
Consolidated net sales for the six month period ended June 30,
1997 increased to $8,396,000 from $7,770,000 for the six month period
ended June 30, 1996 due principally to additional sales recorded by
the Company's Behlman subsidiary which was acquired during the first
quarter of 1996, offset by decreased sales from the Company's Orbit
Instrument division.
Income from continuing operations for the six month period ended
June 30, 1997 decreased to $894,000 from $1,839,000 for the six month
period ended June 30, 1996 due principally to the recording of $815,000
in the first quarter of 1996, which represented a portion of a one time
royalty fee received from a former affiliate. Had this royalty income
not been recorded, income from continuing operations for the six month
period ended June 30, 1997 would have decreased to $894,000 from
$1,024,000 for the six months ended June 30, 1996. This decrease is
attributed to lower sales and profitability recorded by the Orbit
Instrument division and increased selling general and administrative
costs incurred by the Behlman subsidiary.
Net income for the six month period ended June 30, 1997 increased
to $894,000 from a loss of $6,162,000 for the six month period ended
June 30, 1996 due principally to an operating loss in the prior period
of $4,200,000 incurred from the Company's discontinued apparel
operations and to the estimated loss of $3,801,000 resulting from
reserves taken on an expected loss on the disposal of such apparel
operations.
Gross profit, as a percentage of sales, for the six month period
ended June 30, 1997 decreased to 41.6% from 43.7% for the six month
period ended June 30, 1996 due principally to lower sales from the
Orbit Instrument division and weaker gross margins from the Behlman
subsidiary due to product mix.
Selling, general and administrative expenses for the six month
period ended June 30, 1997 increased slightly to $2,664,000 from
$2,653,000 for the six month period ended June 30, 1996 principally
due to higher selling, general and administrative costs incurred by the
Behlman subsidiary offset by lower corporate costs. Selling, general
and administrative expenses, as a percentage of sales for the six month
period ended June 30, 1997, decreased to 31.7% from 34.1% for the
comparable period in 1996 due to increased sales and lower corporate
costs.
Interest expense for the six month period ended June 30, 1997
increased to $77,000 from $24,000 for the six month period ended June
30, 1996 due to an increase in outstanding borrowings during the
current period.
Investment and other income for the six month period ended June
30, 1997 decreased to $140,000 from $1,122,000 for the six month period
ended June 30, 1996 due principally to $815,000 of royalty income
recorded in the prior period which represented a portion of a one time
royalty fee received from a former affiliate and due to a reduction in
available balances for investment in the current period.
The Company did not record any tax benefit on the current year's
pre-tax loss because of the uncertainty of future realization.
Three Month period ended June 30, 1997 v. June 30, 1996
Consolidated net sales for the three month period ended June 30,
1997 decreased to $4,426,000 from $4,889,000 for the three month period
ended June 30, 1996 due principally to less sales recorded by the Orbit
Instrument division which was offset, in part, by increased sales
generated by the Company's new Behlman subsidiary.
Income from continuing operations for the three months ended June
30, 1997 decreased to $485,000 from $1,068,000 for the three months
ended June 30, 1996 due principally to lower sales, a slightly lower
gross profit on sales and higher selling, general and administrative
costs.
Net income for the three month period ended June 30, 1997
increased to $485,000 from a loss of $5,392,000 for the three month
period ended June 30, 1996 due principally to an operating loss in the
prior period of $2,659,000 incurred from the Company's discontinued
apparel operations and to the estimated loss of $3,801,000 resulting
from reserves taken on an expected loss on the disposal of such apparel
operations.
Gross profit, as a percentage of sales for the three months ended
June 30, 1997 decreased to 42.9% from 46.9% from the three months ended
June 30, 1996 due to lower sales from the Orbit Instrument division in
the current period and a slight increase in overhead costs.
Selling, general and administrative expenses for the three months
ended June 30, 1997 increased to $1,437,000 from $1,343,000 for the
three months ended June 30, 1996 and increased as a percentage of sales
to 32.5% from 27.5% due principally to an increase in selling, general
and administrative costs incurred by the Company's Orbit Instrument
division and Behlman subsidiary, offset by lower corporate costs.
Interest expense for the three months ended June 30, 1997
increased to $37,000 from $3,000 in the three months ended June 30,
1996 due to an increase in outstanding borrowings during the current
period.
Investment and other income for the three months ended June 30,
1997 decreased to $59,000 from $122,000 in the three months ended June
30, 1996 due to interest earned on higher cash and marketable
securities balances in the prior period.
The Company did not record any tax benefit on the current pre-tax
loss because of the uncertainty of future realization.
Liquidity, Capital Resources and Inflation:
Working capital increased by $623,000 to $6,820,000 for the six
month period ended June 30, 1997 principally due to $894,000 of income
recorded during the period. The Company's working capital ratio at June
30, 1997 was 2.0 to 1 compared to 1.7 to 1 at December 31, 1996.
All losses and obligations of the discontinued apparel operations
have been provided for in the June 30, 1997 financial statements and,
accordingly, the Company does not anticipate using any significant
portion of its resources towards these discontinued apparel operations.
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. The new term loan is expected to commence in August 1997.
Under the proposed terms of the new lending arrangement, the loan
amortization is based on a 60 month period with payments due on a
monthly basis for 35 months and a final balloon payment due in month
thirty six. The loan will have an interest rate of prime rate plus 1%.
Under the Company's factoring arrangement for its discontinued
Canadian apparel operations, the Company has provided a standby letter
of credit as security for its guaranty under this lending facility,
collaterallized by marketable securities. As of June 30, 1997, the
Company had provided $1,150,000 in a standby letter of credit which was
reduced to $850,000 in July, 1997 due to the paydown of amounts owing
to the factor.
The Company's existing capital resources, including its bank
credit facilities, and its cash flow from operations are expected to be
adequate to cover the Company's cash requirements for the foreseeable
future.
Inflation has not materially impacted the operations of the
Company.
Certain Material Trends
Despite continued profitability from continuing operations in
1996 and through the first two quarters of 1997, the Company continues
to face a difficult business environment with continuing pressure on
the Company's prices for its sole source sales and a general reduction
in the level of funding for the defense sector. Based on current
delivery schedules and as a result of the acquisition of Behlman,
however, revenues for the Company should be sustained at the levels
recorded in 1996, although there can be no assurance that such
increased revenues will actually be achieved.
The Company continues to seek new contracts which require
incurring up-front design, engineering, prototype and preproduction
costs. While the Company attempts to negotiate contract awards for
reimbursement of product development, there is no assurance that
sufficient monies will be set aside by the government for such effort.
In addition, even if the government agrees to reimburse development
costs, there is still a significant risk of cost overrun which may not
be reimbursable. Furthermore, once the Company has completed the
design and preproduction stage, there is no assurance that funding will
be provided for future production.
The Company is heavily dependent upon military spending as a
source of revenues and income. World events have led the government of
the United States to reevaluate the level of military spending
necessary for national security. Any significant reductions in the
level of military spending by the Federal government could have a
negative impact on the Company's future revenues and earnings. In
addition, due to major consolidations in the defense industry, it has
become more difficult to avoid dependence on certain customers for
revenue and income. Behlman's line of commercial products gives the
Company some diversity.
Forward Looking Statements
Statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this
document as well as statements made in press releases and oral
statements that may be made by the Company or by officers, directors or
employees of the Company acting on the Company's behalf that are not
statements of historical or current fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the
actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by
such forward-looking statements. In addition to statements which
explicitly describe such risks and uncertainties, readers are urged to
consider statements labeled with the terms "believes", "belief",
"expects", "intends", "anticipates" or "plans" to be uncertain and
forward-looking. The forward-looking statements contained herein are
also subject generally to other risks and uncertainties that are
described from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has dully caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ORBIT INTERNATIONAL CORP.
Registrant
Dated: August 14, 1997 /s/ Dennis Sunshine
Dennis Sunshine, President, Chief
Executive officer and Director
Dated: August 14, 1997 /s/ Mitchell Binder
Mitchell Binder, Vice President-
Finance, Chief Financial Officer
and Director
PART II
OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders
An Annual Meeting of Stockholders of the Company was held on
June 24, 1997. The holders of 6,186,093 shares of Common Stock of the
Company were entitled to vote at the meeting, the holders of 5,456,704
shares of Common Stock, or approximately 88% of shares entitled to vote
at the meeting, were represented by proxy. The following action took
place:
1. The stockholders voted for the election of each of the
following persons nominated to serve as a director of the Company until
the next annual meeting and until his successor is elected and
qualified: Dennis Sunshine by 5,431,650 votes for and 25,054 against,
Bruce Reissman by 5,437,404 votes for and 19,300 against, Mitchell
Binder by 5,437,404 votes for and 19,300 against, Nathan A. Greenberg
by 5,437,291 votes for and 19,413 against, John Molloy by 5,439,904
votes for and 16,800 against and Stanley Morris by 5,437,404 votes for
and 19,300 against.
2. The stockholders voted 5,425,971 for and 4,920 against the
resolution relating to the notification of Ernst & Young LLP as the
independent auditors and accountants for the Company for the year ended
December 31, 1997(25,813 votes abstained).
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits. None
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 310,000
<SECURITIES> 1,632,000
<RECEIVABLES> 2,809,000
<ALLOWANCES> 150,000
<INVENTORY> 7,223,000
<CURRENT-ASSETS> 13,524,000
<PP&E> 4,481,000
<DEPRECIATION> 2,152,000
<TOTAL-ASSETS> 18,106,000
<CURRENT-LIABILITIES> 6,704,000
<BONDS> 3,815,000
0
0
<COMMON> 908,000
<OTHER-SE> 5,181,000
<TOTAL-LIABILITY-AND-EQUITY> 18,106,000
<SALES> 8,396,000
<TOTAL-REVENUES> 8,396,000
<CGS> 4,901,000
<TOTAL-COSTS> 4,901,000
<OTHER-EXPENSES> 2,664,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,000
<INCOME-PRETAX> 894,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 894,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894,000
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
