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 March 31, 1998
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:
March 31, 1998. 6,218,000
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 three months ended March 31,
1998 are not necessarily indicative of the results of operations for
the full fiscal year ending December 31, 1998.
The consolidated balance sheet as of December 31, 1997 was
condensed from the audited consolidated balance sheet appearing in the
1997 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, 1997.
PART I - FINANCIAL INFORMATION
ITEM - I
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,303,000 $ 1,096,000
Investment in marketable securities..... 2,595,000 2,004,000
Accounts receivable (less allowance for
doubtful accounts)..................... 3,164,000 3,045,000
Inventories ............................ 6,846,000 6,319,000
Restricted investments, related to
discontinued operations................ 83,000 451,000
Assets held for sale, net............... 110,000 265,000
Other current assets.................... 290,000 304,000
Total current assets.................. 14,391,000 13,484,000
Property, plant and equipment - at cost,
less accumulated depreciation and
amortization........................... 2,322,000 2,342,000
Excess of cost over the fair value of
assets acquired....................... 1,227,000 1,251,000
Investment in marketable securities..... 479,000 470,000
Other assets............................ 351,000 352,000
TOTAL ASSETS............................ $18,770,000 $17,899,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
March 31, December 31,
1998 1997
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 1,601,000 $1,624,000
Accounts payable.......................... 1,570,000 1,086,000
Accrued expenses.......................... 2,101,000 2,114,000
Customer advances......................... 684,000 -
Notes payable............................. 67,000 97,000
Accounts payable, accrued expenses and
reserves for discontinued operations..... 872,000 900,000
Due to factor............................. 60,000 260,000
Total current liabilities............... 6,955,000 6,081,000
Long-term obligations, less current
portion................................... 3,333,000 3,667,000
Accounts payable, accrued expenses and
reserves for discontinued operations,
less current portion...................... 698,000 864,000
Total liabilities....................... 10,986,000 10,612,000
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 910,000 909,000
Additional paid-in capital................. 23,545,000 23,538,000
Accumulated deficit........................ (7,006,000) (7,477,000)
Less treasury stock, at cost............... (9,588,000) (9,588,000)
Less deferred compensation................. ( 78,000) (97,000)
Plus unrealized gain in marketable
securities................................ 1,000 2,000
Total stockholders' equity................ 7,784,000 7,287,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,770,000 $17,899,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
1998 1997
Net sales.............................. $ 4,285,000 $ 3,970,000
Cost of sales.......................... 2,509,000 2,375,000
Gross profit........................... 1,776,000 1,595,000
Selling, general and administrative
expense............................... 1,317,000 1,227,000
Interest expense....................... 95,000 40,000
Investment and other income............ (107,000) (81,000)
Income before income taxes............. 471,000 409,000
Taxes on income........................ - -
NET INCOME............................. $ 471,000 $ 409,000
Net income per common share:
Basic............................. $.08 $.07
Diluted........................... $.07 $.06
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income.................................. $ 471,000 $ 409,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.............. 34,000 34,000
Amortization of goodwill................... 24,000 18,000
Compensatory issuance of stock............. 19,000 19,000
Changes in operating assets and liabilities:
Accounts receivable......................... (119,000) 174,000
Inventories................................. (527,000) (503,000)
Other current assets........................ 14,000 (282,000)
Accounts payable............................ 484,000 472,000
Accrued expenses............................ (13,000) (67,000)
Customer advances........................... 684,000
Assets held for sale........................ 155,000 305,000
Accounts payable, accrued expenses and
reserves for discontinued operations....... (194,000) (699,000)
Other assets................................ 1,000 22,000
Net cash provided by (used in)
operating activities...................... 1,033,000 (98,000)
Cash flows from investing activities:
Acquisitions of fixed assets................ (14,000) (26,000)
Purchase of net assets of acquired company.. (9,000)
Purchase of marketable securities........... (2,253,000) (2,307,000)
Proceeds from sales of marketable securities 2,020,000 2,074,000
Net cash (used in) investing activities...... (247,000) (268,000)
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
1998 1997
Cash flows from financing activities:
Due to factor............................... (200,000) 305,000
Repayments of debt.......................... (387,000) (429,000)
Proceeds of debt............................ 13,000
Stock option exercises...................... 8,000 ________
Net cash (used in) financing activities...... (579,000) (111,000)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 207,000 (477,000)
Cash and cash equivalents - January 1........ 1,096,000 927,000
CASH AND CASH EQUIVALENTS -March 31.......... $1,303,000 $ 450,000
Supplemental disclosures of cash flow
information:
(1) Cash paid for:
Interest.............................. $ 94,000 $ 221,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(NOTE 1) - Income Per Share:
The following table sets forth the computation of basic and
diluted income per common share:
March 31,
1998 1997
Denominator:
Denominator for basic
income (loss) per share -
weighted-average common
shares 6,111,000 5,986,000
Effect of dilutive securities:
Employee and directors
stock options 748,000 536,000
Warrants 192,000 153,000
Unearned stock award 78,000 126,000
Dilutive potential common
shares 1,018,000 815,000
Denominator for diluted
income per share -
weighted-average common
shares and assumed
conversion 7,129,000 6,801,000
The numerator for basic and diluted income per share for the three
months ended March 31, 1998 and March 31, 1997 is the net income for
each period.
(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:
March 31, December 31,
1998 1997
Raw Materials.............. $ 2,381,000 $ 2,262,000
Work-in-process............ 4,465,000 4,057,000
TOTAL $ 6,846,000 $ 6,319,000
(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 March 31, 1998, this collateral
requirement amounted to approximately $83,000.
The following is a summary of available-for-sale securities as of:
March 31, 1998
Estimated
Fair
Cost Value
U.S. Treasury bills......................... $ 2,527,000 $ 2,527,000
Corporate debt securities .................. 629,000 630,000
3,156,000 3,157,000
Restricted value of portfolio
used to collateralize credit facility...... 83,000 83,000
Balance of securities portfolio............. $ 3,073,000 $ 3,074,000
The amortized cost and estimated fair value of debt and marketable
equity securities at March 31, 1998 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.
March 31, 1998
Estimated
Fair
Cost Value
Due in one year or less.................... $ 2,678,000 $ 2,679,000
Due after one year through three years..... 374,000 375,000
Due after three years...................... 104,000 104,000
3,156,000 3,157,000
Restricted value of portfolio used to
collateralize credit facilities........... 83,000 83,000
$ 3,073,000 $ 3,074,000
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
(NOTE 5) - Business Segments:
The Company operates through two business segments. Its
Electronics Segment, through the Orbit Instrument Division, is engaged
in the design, manufacture and sale of customized electronic components
and subsystems. Its Power Units Segment, through the Behlman
Electronics, Inc. subsidiary, is engaged in the design, manufacture and
sale of distortion free commercial power units, power conversion
devices and electronic devices for measurement and display.
The Company's reportable segments are business units that offer
different products. The reportable segments are each managed
separately because they manufacture and distribute distinct products
with different production processes.
The following is business segment information for the three month
periods ended March 31, 1998 and 1997.
March 31,
1998 1997
Net sales:
Electronics........................... $ 2,708,000 $ 2,114,000
Power Units........................... 1,598,000 1,856,000
Total $ 4,306,000 $ 3,970,000
Income from operations:
Electronics........................... $ 637,000 $ 416,000
Power Units........................... 24,000 117,000
General corporate
expenses not allocated................. (202,000) (165,000)
Interest expense......................... (95,000) (40,000)
Investment and other
income................................. 107,000 81,000
Income before income taxes............... $ 471,000 $ 409,000
(continued)
ITEM - II
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations
Three month period ended March 31, 1998 v. March 31, 1997
The Company currently operates in two industry segments. Its
Orbit Instrument Division is engaged in the design and manufacture of
electronic components and subsystems (the "Electronics Segment"). Its
Behlman subsidiary is engaged in the design and manufacture of
commercial power units (the "Power Units Segment").
Consolidated net sales for the three month period ended March 31,
1998 increased to $4,285,000 from $3,970,000 for the three month period
ended March 31, 1997 due principally to increased sales from the
Company's Electronics Segment offset by decreased sales from the
Company's Power Units Segment.
Gross profit, as a percentage of sales, for the three month period
ended March 31, 1998 increased to 41.4% from 40.2% for the three month
period ended March 31, 1997 due principally to higher sales from the
Electronics Segment which has slightly higher gross margins.
Selling, general and administrative expenses for the three month
period ended March 31, 1998 increased to $1,317,000 from $1,227,000 for
the three month period ended March 31, 1997 due principally to higher
selling, general and administrative costs incurred by the Electronics
Segment due to increased selling and marketing efforts. Selling,
general and administrative expenses, as percentage of sales for the
three month period ended March 31, 1998, slightly decreased to 30.7%
from 30.9% for the comparable period in 1997.
Interest expense for the three month period ended March 31, 1998
increased to $95,000 from $40,000 for the three month period ended
March 31, 1997 due to interest recorded in the current period by the
Company related to a certain debt obligation of the discontinued
apparel operations.
Investment and other income for the three month period ended
March 31, 1998 slightly increased to $107,000 from $81,000 for the
three month period ended March 31, 1997.
Net income for the three month period ended March 31, 1998
increased to $471,000 from $409,000 for the three month period ended
March 31, 1997 due principally to higher sales and gross profit
recorded by the Company's Electronics Segment.
Liquidity, Capital Resources and Inflation:
Working capital was $7,436,000 at March 31, 1998 compared to
$7,403,000 at December 31, 1997. The ratio of current assets to current
liabilities slightly decreased to 2.1 to 1 at March 31, 1998 from 2.2
to 1 at December 31, 1997.
Net cash flows provided by operations for the three months ended
March 31, 1998 was approximately $1,033,000 primarily attributable to
the net income for the period and an increase in accounts payable and
customer advances, which was partially offset by an increase in
inventory. Cash flows used in investing activities for the three
months ended March 31, 1998 totaled approximately $247,000 primarily
attributable to the net purchases of marketable securities. Cash flows
used in financing activities for the three months ended March 31, 1998
totaled approximately $579,000 primarily attributable to repayments of
long term debt and a decrease in amounts due to factor.
All operations of the discontinued apparel companies have been
terminated. All losses and obligations of these apparel operations
have been provided for, and accordingly, the Company does not
anticipate using any significant portion of its resources towards these
discontinued apparel operations.
During the first quarter of 1998, the Company received a
commitment from a new lender for a $4,000,000 Mortgage and Term Loan
facility and a $1,000,000 line of credit. The agreement is expected to
close in July, 1998 and will replace the Company's existing asset based
lending arrangement.
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 March 31, 1998, the
Company had provided approximately $74,000 in a standby letter of
credit which was reduced to $63,000 in May, 1998 due to the paydown of
amounts owed 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 in 1997 and through the first
quarter of 1998, 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 1997.
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 its customers, including the
U. S. Government, for such effort. In addition, even if the U. S.
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 U. S.
Government to reevaluate the level of military spending necessary for
national security. Any significant reductions in the level of military
spending by the U. S. 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
and the Instrument Division is beginning to introduce certain of its
products into commercial markets.
In December 1997, the Company retained OEM Capital Corp ("OEM"),
an investment banking firm specializing in the electronics,
communications and computer industries, to assist the Company in
identifying viable acquisition opportunities. Although the Company is
committed to enhancing its sales and profitability through strategic
acquisitions as well as through internal growth, there is no guarantee
that OEM will present acquisition candidates that will ultimately
result in a transaction for the Company.
The Company has developed a plan to modify its information
technology systems to recognize the Year 2000, including the purchase
of a new manufacturing software package, and has begun converting its
critical data processing systems. The Company expects the project to
be completed by the end of 1998 and to cost between approximately
$100,000 and $150,000. This estimate includes the price of new
software and internal costs but excludes the costs to upgrade and
replace systems in the normal course of business as well as potential
costs for outside consultants to assist the Company in the
implementation of a new software package. The Company does not expect
this project to have a material effect on its operations in 1998 and
did not expend any significant amount of money on this project for the
three months ended March 31, 1998. The Company has also initiated
discussions with its significant suppliers, large customers and
financial institutions to ensure that these parties have appropriate
plans to remediate Year 2000 issues where their systems interface with
Company systems or otherwise impact its operations. The Company is
assessing the extent to which its operations are vulnerable should
these organizations fail to properly remediate their computer systems.
While the Company intends to use diligent efforts and care to
implement the plan set forth above and to take any other necessary
steps with regard to its information technology systems to prepare for
the Year 2000, there is no assurance that such steps will effectively
accomplish such goal. Furthermore, any failure on the part of the
Company's primary suppliers, service providers and customers to adapt
their respective information technology systems to recognize the Year
2000 could adversely impact the Company.
Forward Looking Statements
Statements in this Item 7 "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 duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ORBIT INTERNATIONAL CORP.
Registrant
Dated: May 15, 1998 /s/ Dennis Sunshine
Dennis Sunshine, President, Chief
Executive officer and Director
Dated: May 15, 1998 /s/ Mitchell Binder
Mitchell Binder, Vice President-
Finance, Chief Financial Officer
and Director
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Bozena M. Konefal v. Astrosystems, Inc. and Orbit International Corp.:
On April 17, 1998, Bozena Konefal, a former employee of Astrosystems,
Inc. commenced an action in United States District Court in the Eastern
District of New York, claiming sexual discrimination and creation of a
hostile work environment by the defendants. The plaintiff is seeking
recovery of lost wages and employment benefits and $1,650,000 from each
defendant for compensatory damages, punitive damages, mental anguish
and negligence. The Company has been granted an extension to June 11,
1998 to answer the complaint. Since this action is in its preliminary
stage, the Company is unable to estimate a range of loss, if any, at
the present time and accordingly, the Company cannot predict with any
certainty the impact of this action of the Company's financial
condition. The Company believes there are no merits to this claim and
intends to vigorously defend this action.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits. None
15
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