SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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, 1997. [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 .
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 16, 1998): $23,318,000
Number of shares of common stock outstanding as of the close of
the period covered by this report: 6,218,093.
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 1998 Annual Meeting of
Stockholders.
PART I
Item 1. BUSINESS
General
Orbit International Corp. (the "Company" or "Orbit")
conducts its operations through its Orbit Instrument Division
and its subsidiary, Behlman Electronics, Inc. Through its Orbit
Instrument Division, which includes its wholly-owned subsidiary,
Orbit Instrument of California, Inc., the Company is engaged in
the design, manufacture and sale of customized electronic
components and subsystems. Behlman Electronics, Inc. is engaged
in the design and manufacture of distortion free commercial
power units, power conversion devices and electronic devices for
measurement and display. In August 1996, the Company announced
that it was discontinuing operations of its apparel business.
In February 1996, the Company, through its wholly-owned
subsidiary, Cabot Court, Inc., completed the acquisition of
certain of the assets of Astrosystems, Inc. and its wholly-owned
subsidiary, Behlman Electronics, Inc., each of which were
unaffiliated third parties. Under the terms of the purchase
agreement, Orbit assumed certain liabilities relating to the
assets being acquired, including, without limitation,
obligations under the acquired contracts. Concurrently with the
purchase, Cabot Court, Inc. changed its name to Behlman
Electronics, Inc. ("Behlman").
On August 6, 1996, the Board of Directors of the Company
adopted a plan to sell and/or liquidate its remaining United
States and Canadian apparel operations. The United States
operations consisted of the design, importation and manufacture
of women's active-wear and outer-wear, principally under the
East/West label, through the Company's East/West Division and
its subsidiary, East End Apparel Group Ltd. In the fourth
quarter of 1996, the Company entered into a three-year license
agreement (the "Athco License Agreement") with Athco, Inc.
("Athco"), an unaffiliated third party, pursuant to which Orbit
granted to Athco the right to manufacture and sell ladies
apparel under the "East/West" trademark in the U.S. and Canada.
The Athco License Agreement is renewable for two additional
three-year terms at the option of Athco. Under the terms of the
Athco License Agreement, Orbit is entitled to a royalty equal to
3% of the first $5,000,000 of net sales of the articles licensed
under such agreement during each year of the term and 2% of net
sales in excess of $5,000,000 during each such year. Athco is
also required to pay annual guaranteed minimum royalties (which
are nonrefundable advances applied against actual royalties
earned by Orbit) ranging from $100,000 during the first year of
the term to $227,156 during the final year of the second renewal
term. The operations of the East/West division are limited to
servicing such license.
The Canadian apparel operations had been operated through
the Company's three wholly-owned subsidiaries in Canada: Canada
Classique Inc. ("Classique"), Winnipeg Leather (1991) Inc.
("Winnipeg Leather"), and Symax Garment Co. (1993) Ltd.
("Symax"). On March 12, 1997, Orbit commenced bankruptcy
proceedings against Classique, which manufactured branded
private label men's, women's and children's outer-wear in
Winnipeg, Manitoba, Canada, and Winnipeg Leather, which
manufactured women's garments under private labels in Winnipeg,
Manitoba, Canada. Classique and Winnipeg Leather are now in
bankruptcy. In March 1997, Orbit appointed a receiver and
manager for the purpose of liquidating their assets. All such
assets have been sold and the proceeds from such sale were used
to pay down the outstanding obligations to the secured lender of
Classique and Winnipeg Leather. On March 7, 1997, substantially
all of the assets of Symax, which manufactured label men's outer
wear in Vancouver, British Columbia, Canada were sold to 535562
B.C. Ltd., an unaffiliated third party whose name was
subsequently changed to Symax Garment Co. (1997) Ltd. The
purchase price was approximately US $79,000.
In July 1988, Orbit, through a wholly-owned subsidiary, USA
Classic, Inc. ("USA Classic"), acquired all of the outstanding
stock of U.S. Apparel, Inc. In November 1992, USA Classic
completed an initial public offering of 3,105,000 shares of its
common stock, thereby reducing Orbit's ownership to
approximately 43%. USA Classic designed, manufactured and
marketed men's, women's and children's active-wear, sportswear
and outer-wear until it, and its subsidiaries, filed petitions
under Chapter 11 of the United States Bankruptcy Code in May
1994. USA Classic ceased operations in August 1994. At such
time, all of its remaining assets were sold to unaffiliated
third parties and the proceeds from such sales were used to pay
down outstanding obligations to USA Classic's secured lender.
Financial Information about Industry Segments
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").
The following sets forth certain selected historical financial
information relating to the Company's business segments:
December 31
1997 1996
1995
Net sales:
Electronics
Power Units
$10,045,000
7,581,000
$10,092,000
6,879,000
$11,763,000
(1)
Operating Income (2):
Electronics
Power Units
2,457,000
634,000
2,581,000
659,000
1,894,000
(1)
Assets:
Electronics
Power Units
8,033,000
3,967,000
8,057,000
4,285,000
7,433,000
(1)
_______________
(1) Power Units Segment was acquired in February 1996.
(2) Exclusive of corporate overhead expenses, interest expense
and investment income which are not allocated to the business
segments.
Additional financial information relating to the business
segments in which Orbit conducts its operations is set forth in
Note N to the Consolidated Financial Statements appearing
elsewhere in this report.
Glossary of Technical Terms
"AC power sources" -- equipment that produces power that is the
same as what would be received from a public utility.
"CRT terminals" -- Cathode Ray Tube terminals.
"liquid crystal display (LCD) panel/unit"-- a color flat panel-
based display used in information systems.
"Commercial Off the Shelf" -- non-customized products produced
in anticipation of customer orders.
"computer controlled action entry panels (CCAEPS)"-- computer
input devices.
"data entry display devices" -- computer-based devices that
increase the efficiency between the human operator and the
computer system.
"distortion free commercial power units" -- power that is free
of disturbances such as "brown-outs".
"Electro Luminescent (E.L.) power supplies" -- power supplies
which power electro luminescent displays.
"frequency converters" -- equipment which converts local power
to equivalent foreign power.
"full-mil keyboards" -- keyboards designed for use in a
military environment.
"IC manufacturing" -- integrated circuit manufacturing.
"operator control trays" -- integrated panels used in
conjunction with data display consoles.
"plasma based telephonic intercommunication panels" --
programmable panels used to promote communication throughout
various military communication centers.
"(AC) plasma display panel/unit" -- technology utilizing neon
gas illuminated between electrically charged fields.
"power conversion devices" -- equipment that produces power
that is the same as what would be received from a public
utility.
"ruggedized hardware" -- hardware designed to meet severe
environmental conditions.
"ruggedized market" -- the market for ruggedized hardware.
"standard shipboard display console requirements" -- the
standard tactical display used specifically by the United States
Navy.
"subsystems" -- units produced to be integrated into larger
computer systems.
"telco-based designs" -- standard telephone interface designs.
"telecommunication superconducting amplifiers" -- amplifiers
used in cable television.
"trackballs" -- cursor control devices used in conjunction with
data display systems.
"UPS market" -- the market for uninterruptable power supplies.
"uninterruptable power supplies (UPS)" -- devices which allow a
computer to operate while utility power is lost.
"U.S. Government" -- the United States Federal Government.
SURVEILLANCE AIRCRAFT PROGRAMS:
E-2C
J/STARS (Joint Surveillance Target Attack Radar Systems)
AWACS (Lookdown Surveillance Aircraft)
SHIPBOARD PROGRAMS:
AEGIS (Guided Missile Cruisers and Destroyers)
DDG'S (Guided Missile Destroyers)
BFTT (Battle Force Tactical Training)
LSD'S (Amphibious Warfare Ships)
LHA'S (Amphibious Warfare Ships)
Description of Business
General
Orbit's Electronics Segment, which is operated through its
Orbit Instrument Division, designs, manufactures and sells
customized panels, components, and "subsystems" for contract
program requirements to prime contractors, governmental
procurement agencies and research and development ("R&D")
laboratories. The Company primarily designs and manufactures in
support of specific military programs. More recently, the
Company has focused on providing commercial, non-military
"ruggedized hardware" for prime contractor programs at cost
competitive prices. Products include a variety of custom
designed "plasma based telephonic intercommunication panels" for
secure voice airborne and shipboard program requirements, "full-
mil keyboards", "trackballs" and "data entry display devices".
The Electronics Segment's products, which in all cases are
designed for customer requirements on a firm fixed price
contract basis, have been successfully incorporated on
surveillance aircraft programs, including E-2C, J/STARS, AWACS
and P-3 requirements and shipboard programs, including AEGIS,
DDG'S, BFTT, LSD'S and LHA applications, as well as a variety of
land based guidance control programs.
On February 6, 1996, Cabot Court, Inc. ("Cabot Court"), a
wholly-owned subsidiary of Orbit, acquired for $3,706,700 (the
"Purchase Price") certain of the assets of Astrosystems, Inc.
("Astrosystems") and Astrosystems' wholly-owned subsidiary, BEI
Electronics, Inc. ("BEI"), each of which were unaffiliated third
parties. Under the terms of the purchase agreement, Orbit
assumed certain liabilities relating to the assets being
acquired including, without limitation, the acquired contracts.
The acquired assets, which included inventory, fixtures and
equipment, had been used by Astrosystems and BEI in the business
of manufacturing and selling power supplies, AC power sources,
"frequency converters", "uninterruptable power supplies
("UPS")", associated analytical equipment and other electronic
equipment. The purchase agreement provided that the Purchase
Price was subject to adjustment based upon a final inventory
valuation with no maximum or minimum adjustment. Orbit and
Astrosystems are currently engaged in a dispute with regard to
the final inventory valuation. Pursuant to the terms of the
purchase agreement, such dispute has been referred to an
independent accounting firm for resolution. Cabot Court changed
its name to Behlman Electronics, Inc. ("Behlman") on February 7,
1996.
Orbit's Power Units Segment is operated through its Behlman
subsidiary. The military division of Behlman designs and
manufactures "power conversion devices" and electronic products
for measurement and display. The commercial products division
produces high quality, "distortion free commercial power units"
and low noise UPS.
Products
Electronics Segment
Intercommunication Panels
The Orbit Instrument Division recently completed design and
development of a complement of display panels for rugged mission
critical applications. The display panels provide customers
with potential program solutions that include Electro
Luminescent (E.L.), AC Plasma and Liquid Crystal Display (LCD)
technologies. Prime contractors which require command, combat
communications or display systems have requested these panels to
support a number of console applications. The Instrument
Division has also recently completed land-based and shipboard
secure voice "telco-based designs", and has been awarded a Basic
Ordering Agreement from Naval Surface Warfare Center in Crane,
Indiana. The Basic Ordering Agreement establishes firm fixed
prices for six Orbit panel configurations. The Agreement
enables the U.S.Government to procure each of the panel
configurations in indefinite quantities, increasing by an agreed
upon escalation for each of the next 60 months.
Graphic Display Terminal
The Instrument Division's family of graphic terminals
enables the operator to monitor and control radar systems for
shipboard and airborne applications. These terminals are used
throughout a ship or surveillance plane as adjuncts to larger
console displays. The modular design of the terminals
facilitates applications for surface ship, submarine, aircraft
and land based requirements.
Operator Control Trays
The Instrument Division designs and manufactures a variety
of "operator control trays" that help organize and process data
created by interactive communications systems, making such data
more manageable for operator consumption. These trays are
presently used to support patrol and surveillance airborne
aircraft programs, "standard shipboard display console
requirements" and shore land based defense systems applications.
Data Entry, Keyboards, and Display Systems
The Instrument Division has designed and manufactures a
variety of "computer controlled action entry panels (CCAEPS)",
which provide a console operator with multiple displays of
computer generated data. The Instrument Division has designed a
number of custom keyboards to meet full military specifications.
These keyboards have been designed for shipboard, airborne, sub-
surface and land based program requirements.
Power Units Segment
Power Sources
Behlman's "AC power sources" are used in the production of
various types of equipment such as ballasts for fluorescent
lighting, "CRT terminals", hair dryers and hospital beds, and
are used in test labs to meet European Community required
testing, aircraft testing and simulators. Other uses include
powering equipment for oil and gas exploration.
Behlman's frequency converters are used to convert local
power frequency (e.g., 60HZ in the U.S.) to local frequencies
elsewhere (e.g., 50 HZ in Europe).
Behlman's UPS products are used for backup power when local
power is lost. Behlman only competes in the "ruggedized
market", as opposed to the commercial "UPS market".
Behlman's military division has certified value-engineering
personnel who are capable of reconfiguring obsolete or hard-to-
maintain U.S. Government equipment. After the value-engineering
is completed, in most instances, Behlman will be contracted to
build the equipment, but in the event the component is
contracted to be built elsewhere but is based upon the Behlman's
engineering design, Behlman will receive a percentage of the
U.S. Government's savings over the life of the program.
Behlman also performs reverse engineering of analog systems
for the U.S. Government or U.S. Government contractors to enable
them to have a new contractor with high quality capabilities at
a competitive price.
Behlman's railroad signaling power supply has been sold to
railway passenger lines in northeastern United States. It is
seeking to expand its business base in this area.
Behlman also operates as a qualified repair depot for many
United States Air Force and Navy programs.
Proposed Products
Electronics Segment
The Instrument Division is currently expanding its
design and development resources to update hardware previously
used for full military program requirements. The Instrument
Division believes its wide variety of components, controls,
subsystems and plasma secure voice and intercommunication panels
that have supported the military for aircraft, shipboard,
subsurface and land based program requirements have alternative
uses. It is the intent of the Company to update the electrical
and mechanical functionality of these units and subsystems and
provide ruggedized and commercial equivalent hardware at cost
competitive prices.
The Instrument Division has completed its initial
production of color liquid crystal display (LCD) panels for
testing, integration and customer acceptance. The panel is
designed as a high speed, windows-based display which provides
the operator with crisp color resolution to be used in a full
military combat environment. As of the date hereof, the color
LCD panel has been selected for integration and use for an
airborne surveillance program requirement.
The Instrument Division has recently completed its
initial design, test, and integration of several high resolution
color LCD displays for "mission critical" trading floor and
brokerage firm applications. The Instrument Division has
received orders and supplied initial evaluation quantities of
both 18.0 inch and 20.1 inch color LCD displays for trading
floor requirements.
The Instrument Division also has recently completed
its initial prototype keyboard for "mission critical" cost
sensitive trading floor and brokerage firm applications.
Power Units Segment
Behlman is currently developing power supplies and
control systems for the cooling systems used in high speed
computers, "IC manufacturing", cellular telephones and
"telecommunication superconducting amplifiers". Behlman is
currently working with the manufacturers in this area.
Behlman has developed a strategic relationship with a
manufacturer of high voltage power supply modules. It has
received prototype orders for power supplies utilizing these
modules.
Behlman is also looking at various ways to reconfigure
its commercial hardware to meet military specifications so that
its hardware may be considered "Commercial Off the Shelf" for
military requirements. It is currently bidding on two military
programs for its units.
Behlman has introduced the "power passport" which is
the lowest priced VA, AC power source to be used in the export
market.
The products described above are presently being
developed by the Company. However, there can be no assurance
that such development efforts will result in any marketable
products.
Sales and Marketing
Products of the Electronics Segment are marketed by
Orbit Instrument Division's sales personnel and management.
Military products of the Power Units Segment are marketed by
Behlman's program managers and other management personnel.
Commercial products of the Power Units Segment are sold by
regional sales managers, manufacturer's representatives and non-
exclusive distributors.
Competition
The Electronics Segment's competitive position within
the electronics industry is, in management's view, predicated
upon the Orbit Instrument Division's manufacturing techniques,
its ability to design and manufacture products which will meet
the specific needs of its customers and its long-standing
successful relationship with its major customers. There are
numerous companies (many of which are substantially larger than
the Company) capable of producing substantially all of the
Company's products. However, to the Company's knowledge, none
of such competitors currently produce all of the products that
the Segment produces. (See - "Substantial Customers").
Competition in the markets for the Power Units
Segment's commercial and military products depends on such
factors as price, product reliability and performance,
engineering and production. In particular, due primarily to
budgetary restraints and program cutbacks, competition in
Behlman's U.S. Government markets has been increasingly severe
and price has become the major overriding factor in contract and
subcontract awards. (See - "Substantial Customers"). To the
Company's knowledge, some of Behlman's regular competitors
include larger companies with substantially greater capital
resources and far larger engineering, administrative, sales and
production staffs than Behlman.
Significant Customers
Various agencies of the U.S. Government and General
Motors Hughes Electronics Corporation ("GMHEC") accounted for
approximately 33% and 17% respectively, of net sales of the
Company for the year ended December 31, 1997. The loss of
either of these customers would have a material adverse effect
on the net sales and earnings of the Company. The Company does
not have any significant long-term contracts with either of the
above-mentioned customers.
The major customers of the Electronics Segment are
various agencies of the U.S. Government, GMHEC and Northrop
Grumman, accounting for approximately 38%, 29% and 17%,
respectively, of the net sales of the Electronics Segment for
the year ended December 31, 1997. The loss of any of these
customers would have a material adverse effect on the net sales
and earnings of the Electronics Segment.
The Power Units Segment's major customers are the U.S.
Government and Western Atlas, accounting for approximately 27%
and 17%, respectively, of the net sales of the Power Units
Segment for the year ended December 31, 1997. The loss of
either of these customers would have a material adverse effect
on the net sales and earnings of the Power Units Segment.
Since a significant amount of all of the products
which the Company manufactures are used in military
applications, any substantial reduction in overall military
spending by the U.S. Government could have a materially adverse
effect on the Company's sales and earnings.
Backlog
As of December 31, 1997 and 1996 the Company's backlog
was as follows:
1997
1996
Electronics
$14,000,000
$14,000,000
Power Units
2,000,000
3,000,000
Total
$16,000,000
$17,000,000
Of the backlog for the year ended December 31, 1997,
approximately $3,000,000 represents backlog under
contracts which will not be shipped during 1998. Approximately
$4,000,000 of the backlog for December 31, 1996 will be shipped
during the current year.
A significant amount of the Company's contracts are subject
to termination at the convenience of the U.S. Government. The
backlog is not influenced by seasonality.
Special Features of U.S. Government Contracts
Orders under U.S. Government prime contracts or
subcontracts are customarily subject to termination at the
convenience of the U.S. Government, in which event the
contractor is normally entitled to reimbursement for allowable
costs and to a reasonable allowance for profits, unless the
termination of a contract was due to a default on the part of
the contractor. No material terminations of contracts of either
the Electronics Segment or the Power Units Segment at the
convenience of the U.S. Government occurred during the year
ended December 31, 1997.
A significant portion of the Company's revenues are subject
to audit under the Vinson-Trammel Act of 1934 and other federal
statutes since they are derived from sales under U.S. Government
contracts. The Company believes that adjustments to such
revenues, if any, will not have a material effect on the
Company's financial position.
Research and Development
The Company incurred approximately $795,000 of research and
development expenses during the year ended December 31, 1997, as
compared with $710,000 of such expenses during the comparable
period of the prior year.
Patents
The Company does not own any patents which it believes are
of material significance to its operations.
Employees
As of March 17, 1998, the Company employed 128 persons on a
full-time basis. Of these, the Electronics Segment employed 66
people, consisting of 11 in engineering and drafting, 3 in sales
and marketing, 13 in direct and corporate administration and the
balance in production. The Power Units Segment employed 62
people, consisting of 12 in engineering and drafting, 5 in
sales, 4 in direct and corporate administration and the balance
in production.
Item 2. PROPERTIES
The Company owns its plant and executive offices, located
at 80 Cabot Court, Hauppauge, New York, which consists of 60,000
square feet (of which approximately 50,000 square feet are
utilized for manufacturing operations) in a two-story,
sprinklered, brick building which was completed in October 1982
and expanded in 1985.
Behlman leases 1700 square feet in Ventura, California
which is used for sales. The lease expires in December 1999.
As part of its discontinued apparel operations, the Company
has leases for showroom and office space in New York, warehouse
space in New Jersey and showroom, office and manufacturing space
in Winnipeg, Manitoba, Canada. The Company has subleased its
showroom and office space in New York and its warehouse space in
New Jersey.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the
Company, other than routine litigation incidental to the
Company's business, except as described below.
In re USA Classic Securities Litigation: On September 23,
1993, a class action (the "Class Action") was commenced by an
alleged shareholder of USA Classic 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
public offering of common stock of USA Classic (the "Offering"),
through September 22, 1993, and alleges violations of the
Securities Act of 1933, as amended (the "Securities Act") in
connection with the Offering as well as violations of Section
10(b) of the Securities Exchange Act of 1934. Specifically, the
complaint alleges that false and misleading statements were made
in the registration statement (including the prospectus and the
financial statements therein) filed in connection with the
Offering and in certain financial statements of USA Classic
filed subsequent to the Offering in violation of Sections 11 and
12 (2) of the Securities Act. The complaint further alleges
"control person" liability under Section 15 of the Securities
Act. The plaintiffs are seeking compensatory damages as well as
fees and expenses.
On February 1, 1994, a First Amended and Consolidated
Complaint was filed in the Class Action. The First Amended and
Consolidated Complaint added the Company as a defendant and
alleged that the Company is a "controlling person" of USA
Classic and an "aider and abetter" of the alleged violations of
the securities laws. The Company answered the First Amended and
Consolidated Complaint on March 21, 1994. The Class Action has
been stayed as against USA Classic as a result of USA Classic's
filing of a petition for reorganization under Chapter 11 of the
United States 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 ("Paine Webber") and
Ladenburg Thalmann & Co. Inc., the lead underwriters in the
Offering (collectively, the "Underwriters"), as additional
defendants. On November 15, 1994, the Company and the
Underwriters moved to dismiss certain of the allegations in the
Second Amended and Consolidated Complaint. On or about June 16,
1995, the Honorable John S. Martin, Jr. denied the dismissal
motion in its entirety.
The original complaint, the First Amended and Consolidated
Complaint and the Second Amended and Consolidated Complaint each
fail to quantify any category of damages sought by the
plaintiffs.
On March 8, 1995, the plaintiffs' representatives filed a
motion for class certification. Since that date, the parties
have been conducting depositions and reviewing documents
relevant to the class certification issue. The defendants'
response to the class certification motion has been adjourned
without a future date pending completion of discovery into that
issue. On or about February 6, 1996, the Underwriters moved the
court to stay all substantive discovery until the court rules
upon the class certification motion. The Company joined in said
motion. On March 7, 1996, the court denied the motion to stay
substantive discovery. Depositions and documentary discovery
are continuing. It is estimated that discovery in this matter
will continue throughout 1998. The Company is unable to
estimate a range of loss with regard to this action at the
present time and, accordingly, cannot predict with any certainty
the impact of this action on the Company's financial condition.
The Company currently has available, through its own coverage
and through USA Classic's coverage, approximately $7 million of
directors' and officers' liability insurance coverage in
connection with this matter. Legal fees of approximately $1.2
million incurred to date have been charged to expense. While
the Company plans to continue to vigorously defend this action,
in September 1997, all parties began participating in supervised
settlement negotiations. These negotiations are still ongoing.
On March 17, 1998, Paine Webber asserted, in New York
Supreme Court, a claim against the Company for indemnification
pursuant to its underwriting arrangements with the Company and
USA Classic. The Company believes this claim to be without
merit and intends to vigorously defend this action.
Sandra Lakritz v. Orbit International Corp.: On July 7,
1995, Sandra Lakritz, a former employee of the Company's
East/West division commenced an action in Supreme Court, New
York County, claiming employment discrimination based upon age
and disability. On December 4, 1995, the Company answered the
complaint and denied the allegations set forth therein.
Simultaneously with its answer, the Company served upon
plaintiff's counsel numerous discovery requests. To date,
plaintiff has only partially responded to the discovery
requests. Additionally, the plaintiff has requested certain
discovery from the Company. Although the Company has offered to
make that information available to the plaintiff, the plaintiff
has failed to follow up on these requests. The plaintiff is
seeking $5 million in compensatory damages and $5 million in
punitive damages. The Company believes that there is no merit to
the claims made by the plaintiff. Since this action is in its
preliminary stage, with only minimal discovery having been
completed, the Company is unable to estimate a range of loss at
the present time and, accordingly, the Company cannot predict
with any certainty the impact of this action on the Company's
financial condition. The Company intends to vigorously defend
this action.
Astrosystems, Inc. v. Orbit International Corp. On February
20, 1997, Astrosystems, Inc. served an arbitration demand on the
Company, which demand seeks recovery of approximately $1,000,000
in damages allegedly arising from the Company's breach of an
Asset Purchase Agreement, dated as of January 11, 1996, between
Astrosystems, Inc., the Company and other related entities.
While the Company vigorously contests all of the claims set
forth in the demand on the merits, on March 12, 1997 the Company
moved to partially stay arbitration on the grounds that some of
the claims asserted in Astrosystems' demand are not arbitrable
under the Asset Purchase Agreement. The Supreme Court, Suffolk
County entered a temporary restraining order staying all
arbitral proceedings until the Company's motion can be heard.
On July 31, 1997, the Court entered an order granting the relief
sought by the Company. The parties are proceeding to
arbitration and to the utilization of the other dispute
resolution mechanism set forth in the Asset Purchase Agreement.
Bankruptcy and Liquidation of Canadian Subsidiaries: On
March 12, 1997, Orbit commenced bankruptcy proceedings against
Classique, which manufactured branded private label men's,
women's and children's outer-wear in Winnipeg, Manitoba, Canada
and Winnipeg Leather, which manufactured and sold women's
garments under private labels in Winnipeg, Manitoba, Canada.
Classique and Winnipeg Leather are now in bankruptcy and Orbit
appointed a receiver and manager who has sold off all of the
assets. The proceeds of such sales were used to pay down the
outstanding obligations to the secured lender of Classique and
Winnipeg Leather.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S CAPITAL STOCK AND RELATED
SECURITY HOLDER MATTERS
As of March 16, 1998 the Company had 680 shareholders of
record. The Company's stock is traded on the Nasdaq National
Market (Nasdaq symbol ORBT).
The quarterly closing prices for the period January 1, 1996
through December 31, 1997, as reported by Nasdaq, were as
follows:
CLOSE
High
Low
1996:
First Quarter
1
47/64
Second Quarter
15/16
7/8
Third Quarter
13/4
3/4
Fourth Quarter
23/4
19/16
1997:
First Quarter
25/8
2
Second Quarter
27/16
13/4
Third Quarter
33/16
129/32
Fourth Quarter
313/16
25/16
The Company has not declared any dividends during the
aforesaid period.
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Twelve Month period ended December 31,
Six Month
Period
Ended
December
31,**
1993
(unaudited
)
Twelve Month
Period Ended
June 30,
<S>
1997
<C>
1996
<C>
1995
<C>
1994
<C>
<C>
1993
<C>
Net sales
$17,626,000
$16,971,000
$11,763,000
$12,254,000
$6,659,000
$14,191,000
Income
(loss)
from
continuing
operations
2,038,000
3,311,000
2,491,000
1,098,000
1,642,000
( 707,000)
Income
(loss)
from
discontinue
d
operations
- --
( 8,800,000)
(24,744,000)
(18,093,000)
4,277,000
11,942,000
Income
(loss) per
share
from
continuing
operations:
***
Basic
Diluted
.34
.30
.56
.53
.42
.42
.18
.18
.25
.25
(.11)
(.11)
Income
(loss) per
share
from
discontinue
d
operations:
***
Basic
Diluted
- --
- --
( 1.48)
( 1.42)
( 4.20)
( 4.17)
( 2.93)
( 2.92)
.66
.65
1.82
1.82
Total
assets at
year-end
17,899,000
19,931,000
38,028,000
63,511,000
73,105,000
71,835,000
Long-term
obligations
3,287,000
3,817,000
1,097,000
8,909,000
10,419,000
2,451,000
Total
stockholder
s' equity
7,287,000
5,146,000
9,318,000
31,263,000
49,626,000
54,483,000
_________________
** In 1993, the Company opted to change its fiscal year end from June 30 to
December 31.
*** The income per share amounts prior to 1997 have been restated to comply
with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (see notes A and O to the Consolidated
Financial Statements).
See "Item 7. Management's discussion and Analysis of Financial Condition and
Results of Operations."
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Year Ended December 31, 1997 v. Year Ended December 31, 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 its Electronics and Power Units Segments (its
Orbit Instrument Division and Behlman subsidiary, respectively.)
Consolidated net sales for the year ended December 31, 1997
increased to $17,626,000 from $16,971,000 for the prior year due
principally to additional sales recorded by Orbit's Behlman
subsidiary which was acquired during the first quarter of 1996.
Sales for the Orbit Instrument Division did not materially
change from 1996 to 1997.
Income from continuing operations for the year ended
December 31, 1997 decreased to $2,038,000 from $3,311,000 for
the prior year due principally to the recording, in the first
quarter of 1996, of $815,000 which represented a portion of a
one-time royalty fee received from a former affiliate. Had this
royalty income not been recorded in 1996, income from continuing
operations for the year ended December 31, 1997 would have
decreased to $2,038,000 from $2,496,000 for the prior year.
This decrease in income from continuing operations was primarily
attributable to an increase in interest expense and a decrease
in investment and other income during the current year.
Net income for the year ended December 31, 1997 increased
to $2,038,000 from a loss of $5,489,000 for the year ended
December 31, 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
$4,600,000 resulting from the expected loss on the disposal of
such apparel operations.
Gross profit, as a percentage of sales, for the year ended
December 31, 1997 decreased to 43.1% from 44.8% for the prior
year due to lower margins realized both from the Instrument
Division and Behlman due to slightly higher production overhead
costs and to the product mix of units sold.
Selling, general and administrative expenses for the year
ended December 31, 1997 increased slightly to $5,596,000 from
$5,501,000 for the prior year due principally to a full year of
selling, general and administrative costs incurred by Behlman
which was acquired in February 1996 offset by lower corporate
costs. Selling, general and administrative expenses as a
percentage of sales for the year ended December 31, 1997
decreased slightly to 31.7% from 32.4% for the prior year due to
lower corporate costs and increased sales from Behlman which
increased at a greater rate than costs for that Segment.
Interest expense for the year ended December 31, 1997
increased to $253,000 from $118,000 for the prior year due to
interest recorded in the current year by the Company related to
a certain debt obligation of the discontinued apparel
operations.
Investment and other income for the year ended December 31,
1997 decreased to $284,000 from $1,320,000 for the prior year.
Such decrease is due principally to $815,000 of royalty income
recorded in 1996 which represented a portion of a one-time
royalty fee received from a former affiliate and a reduction in
available balances for investment in 1997.
Year Ended December 31, 1996 v. Year Ended December 31, 1995
In August 1996, the Company adopted a plan to sell its
apparel businesses. The Company estimated the loss on the
disposal to be approximately $4,600,000 and charged 1996
operations with such amount. Such loss included a write-off of
foreign currency translation adjustments, accruals for amounts
pursuant to operating lease agreements, the write-down of assets
to net realizable value offset by the reduction in liabilities
due to the bankruptcy of two of the companies and the balance
for professional fees and other contractual obligations.
Consolidated net sales for the year ended December 31, 1996
increased to $16,971,000 from $11,763,000 for the prior year due
principally to $6,879,000 of revenues recorded by the Company's
new Behlman subsidiary which was acquired in February 1996,
offset by a decrease in the number of units shipped by the Orbit
Instrument Division.
Income from continuing operations for the year ended
December 31, 1996 increased to $3,311,000 from $2,491,000 for
the period due principally to earnings recorded during the
period by the Company's new Behlman subsidiary, increased
earnings from the Orbit Instrument Division offset by a decrease
in investment and other income.
The net loss for the year ended December 31, 1996 decreased
to $5,489,000 from $22,253,000 for the prior year. The loss for
the current year is principally due to operating losses from the
Company's discontinued apparel operations of $4,200,000 and the
estimated loss of $4,600,000 on the disposal of such operations.
The loss in the prior year was principally due to non-cash
charges of $9,780,000 reflecting the Company's write-off of
goodwill and other intangible costs related to its U.S. apparel
businesses as well as $12,192,000 of operating losses from all
of the Company's apparel businesses.
Gross profit, as a percentage of sales, for the year ended
December 31, 1996 increased to 44.8% from 44.5% for the prior
year.
Selling, general and administrative expenses for the year
ended December 31, 1996 increased to $5,501,000 from $5,274,000
for the prior year principally due to selling, general and
administrative expenses incurred by the Company's new Behlman
subsidiary and offset by lower corporate expenses and lower
selling, general and administrative expenses incurred by the
Orbit Instrument Division. Selling, general and administrative
expenses, as a percentage of sales, decreased to 32.4% for the
year ended December 31, 1996 from 44.8% for the prior year due
to additional sales and greater efficiencies derived from the
Behlman acquisition and lower corporate expenses.
Interest expense for the year ended December 31, 1996
decreased to $118,000 from $236,000 for the prior comparable
period due to a reduction in the average amounts owed during the
current year.
Investment and other income for the year ended December 31,
1996 decreased to $1,320,000 from $2,614,000 for the prior year
due principally to interest earned on higher cash balances in
the prior year. The current year included non-recurring income
resulting from the realization of approximately $800,000
representing the payment of royalty income from Orbit
Semiconductor, Inc., a former affiliate. The prior year
included non-recurring income of $1,000,000 resulting from the
partial realization of royalty income from Orbit Semiconductor,
Inc., as well as $869,000 of insurance proceeds realized upon
the death of the Company's former chief executive officer, net
of accrued costs to the officer's estate. Orbit earned a one-
time royalty payment from Orbit Semiconductor, Inc. pursuant to
a Stock Purchase Agreement executed in November 1991, which was
realized partially in fiscal year 1996 and partially in fiscal
year 1995.
Liquidity, Capital Resources and Inflation
Working capital was $7,403,000 at December 31, 1997
compared to $6,197,000 at December 31 1996, an increase of
$1,206,000. The ratio of current assets to current liabilities
increased from 1.7 to 1 at December 31, 1996 to 2.2 to 1 at
December 31, 1997. The increase in working capital and the
improvement in the ratio of current assets to current
liabilities was primarily attributable to the net income for the
year ended December 31, 1997 and the current maturity of certain
investments.
Net cash flows provided by operations for 1997 was
approximately $413,000 primarily attributable to the net income
for the period which was offset by a reduction in accounts
payable, accrued expenses and reserves for the discontinued
operations. Cash flows provided by investing activities for
1997 totaled approximately $1,413,000 primarily attributable to
the net proceeds from sales of marketable securities. Cash
flows used in financing activities totaled approximately
$1,657,000 for 1997 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 fourth quarter of 1996, the Company commenced
discussions with its factor to convert the amounts due to the
factor from the Company's discontinued U.S. apparel operations
to a term loan. This new term loan was finalized in September,
1997. Under the terms of the new lending arrangement, the loan
amortization is based on a 60-month period with payments
commencing in October 1997 with a final balloon payment due
September 2000. The loan has an interest rate of prime rate
plus 1%.
Under the Company's factoring arrangement for its
discontinued apparel operations, the Company has provided a
standby letter of credit as security for its guaranty under this
lending facility, collateralized by marketable securities. As of
December 31, 1997, the Company had provided approximately
$402,000 in a standby letter of credit which was reduced to
approximately $161,000 in March, 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. However, the Company has been
meeting with various lenders to negotiate a new lending facility
for the Company which would contain more favorable terms and
conditions than its present arrangement and have recently signed
a commitment letter with one such lender for a new facility.
Inflation has not materially impacted the operations of the
Company.
Certain Material Trends
Despite continued profitability in its continuing
operations in 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 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 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 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.
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 the
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
year ended December 31, 1997. 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.
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. The 1996 and first three quarters of 1997 income per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings Per Share":
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Consolidated)
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
<S>
Net sales
<C>
$3,970,000
<C>
$4,426,000
<C>
$4,651,000
<C>
$4,579,000
Gross profit
1,595,000
1,900,000
1,926,000
2,182,000
Income from
continuing
operations
409,000
485,000
672,000
472,000
(Loss) from
discontinued
operations
- --
- --
- --
- --
Net income (loss)
409,000
485,000
672,000
472,000
Basic income per
share:
Income per
share from
continuing
operations
.07
.08
.11
.08
(Loss) per
share from
discontinued
operations
- --
- --
- --
- --
Net income per
share
.07
.08
.11
.08
Diluted income per
share:
Income per
share from
continuing
operations
.06
.07
.10
.07
(Loss) per
share from
discontinued
operations
- --
- --
- --
- --
Net income
(loss) per
share
</TABLE>
$ .06
$ .07
$ .10
$ .07
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
<S>
<C>
<C>
<C>
<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)
- --
(799,000)
Net income (loss)
(770,000)
(5,392,000)
741,000
(68,000)
Basic income per
share:
Income (loss)
per share from
continuing
operations
0.13
0.18
0.12
0.12
(Loss) per
share from
discontinued
operations
(0.26)
(1.09)
- --
(0.13)
Net income
(loss) per share
(0.13)
(0.91)
0.12
(0.01)
Diluted income per
share:
Income per
share from
continuing
operations
.13
.18
.12
.11
(Loss) per
share from
discontinued
operations
(.26)
(1.06)
- --
(.12)
Net income
(loss) per share
$ (.13)
$ (.89)
$ .12
$ (.01)
</TABLE>
Item 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the remaining members of the
Board of Directors is incorporated by reference to the Company's
definitive proxy statement to be filed pursuant to regulation
14A promulgated under the Securities Exchange Act of 1934 in
connection with the Company's 1998 Annual Meeting of
Stockholders.
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to regulation 14A
promulgated under the Securities Exchange Act of 1934 in
connection with the Company's 1998 Annual Meeting of
Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to regulation 14A
promulgated under the Securities Exchange Act of 1934 in
connection with the Company's 1998 Annual Meeting of
Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to regulation 14A
promulgated under the Securities Exchange Act of 1934 in
connection with the Company's 1998 Annual Meeting of
Stockholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents are filed as part of
this Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
1.& 2. Financial Statements and Schedule:
The index to the financial statements and
schedule is incorporated by reference to the index to financial
statements attached as an exhibit to this Annual Report on Form
10-K.
3. Exhibits:
Exhibit No. Description of Exhibit
3 (a) Certification of Incorporation, as amended.
Incorporated by reference to Exhibit 3(a) to
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1991.
3 (b) By-Laws, as amended. Incorporated by reference
to Exhibit 3(b) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1988.
4 (a) Orbit International Corp. 1995 Employee Stock
Option Plan. Incorporated by reference to Exhibit 4(a)
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
4 (b) Orbit International Corp. 1995 Stock Option Plan
for Non-Employee Directors. Incorporated by reference
to Exhibit 4(b) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
10 (a) Employment Agreement, dated July 1, 1996 between
Registrant and Mitchell Binder. Incorporated by
reference to Exhibit 10(a) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996.
10 (b) Employment Agreement dated July 1, 1996 between
Registrant and Bruce Reissman. Incorporated by
reference to Exhibit 10(b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996.
10 (c) Employment Agreement dated July 1, 1996 between
Registrant and Dennis Sunshine. Incorporated by
reference to Exhibit 10(c) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1996.
10 (d) Form of Indemnification Agreement between the Company
and each of its Directors. Incorporated by reference
to Exhibit 10(e) to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1988.
10 (e) Asset Purchase Agreement, dated July 12, 1993, among
The Panda Group, Inc., Kenneth Freedman, Frederick
Meyers and Registrant. Incorporated by reference to
Exhibit 1 to Registrant's Current Report on Form 8-K
dated July 12, 1993.
10 (f) Asset Purchase Agreement, dated as of January 11,
1996, by and among Astrosystems, Inc., and BEI
Electronics, Inc., Orbit International Corp. and
Cabot Court, Inc. Incorporated by reference to the
Registrant's Current Report on Form 8-K dated February 7,
1996
10 (g) Form of Agreement among Kenneth Freedman, Frederick
Meyers, The Panda Group, Inc. and Orbit International
Corp. dated March 28, 1996; Form of Amendment
Promissory Note dated March 28, 1996; and Form of
Warrant to purchase 125,000 shares of Orbit
International Corp. Common Stock. Incorporated by
reference to Exhibit 10(g) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995.
21 Subsidiaries of Registrant. Incorporated by reference
to Exhibit 21 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the
last quarter of the period covered by this report.
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: March 31, 1998 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
March 31, 1998
/s/ Mitchell Binder
Mitchell Binder
Vice President-
Finance, Chief
Financial Officer and
Director
March 31, 1998
/s/ Bruce Reissman
Bruce Reissman
Executive Vice
President, Chief
Operating Officer and
Director
March 31, 1998
/s/ Harlan Sylvan
Harlan Sylvan
Treasurer,
Secretary and
Controller
March 31, 1998
/s/ Mark Pfefferle
Mark Pfefferle
Director
March 31, 1998
/s/ John Molloy
John Molloy
Director
March 31, 1998
/s/ Stanley Morris
Stanley Morris
Director
March 31, 1998
20
FORM 10-K - ITEM 14(a)(1) & (2)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
REPORTS OF INDEPENDENT AUDITORS............................. F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996. F-4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995.../............. F-6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995.. F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995................. F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-10
THE FOLLOWING FINANCIAL STATEMENT SCHEDULE IS INCLUDED IN ITEM 14(d):
II - VALUATION AND QUALIFYING ACCOUNTS.................. S-1
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 sheets of
Orbit International Corp. and subsidiaries as of December 31, 1997
and 1996 and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the years then
ended. Our audits also included the financial statement schedule
listed in the Index at Item 14(a) for the years ended December 31,
1997 and 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Orbit International Corp. and subsidiaries at December
31, 1997 and 1996 and the consolidated results of their operations
and their cash flows for the years 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 taken as a whole,
presents fairly in all material respects the information set forth
therein for the years ended December 31, 1997 and 1996.
We also audited the adjustments described in Note B that were
applied to restate the 1995 consolidated financial statements. In
our opinion, such adjustments are appropriate and have been properly
applied.
Ernst & Young LLP
New York, New York
March 5, 1998
F-2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Orbit International Corp.
Hauppauge, New York
We have audited the accompanying consolidated statement of
operations, changes in stockholders' equity, and cash flows and
Schedule II, of Orbit International Corp., for the year ended
December 31, 1995 prior to their restatement for the adjustments
described in Note B to the 1997 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 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 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements described above
present fairly, in all material respects, the consolidated results
of operations and the consolidated cash flows of Orbit International
Corp. and subsidiaries for the year ended December 31, 1995 prior to
their restatement for the adjustments described in Note B to the
1997 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,
1997 1996
ASSETS
Current assets:
Cash and cash equivalents.............. $ 1,096,000 $ 927,000
Investments in marketable securities... 2,004,000 782,000
Accounts receivable (less allowance for
doubtful accounts of $203,000 (1997)
and $150,000 (1996)).................. 3,045,000 3,114,000
Inventories............................ 6,319,000 6,657,000
Restricted investments, related to
discontinued operations............... 451,000 2,453,000
Assets held for sale, net.............. 265,000 712,000
Other current assets................... 304,000 246,000
Total current assets................. 13,484,000 14,891,000
Property, plant and equipment - at cost
less accumulated depreciation and
amortization........................... 2,342,000 2,347,000
Excess of cost over the fair value of
assets acquired (less accumulated
amortization of $157,000(1997) and
$85,000 (1996)......................... 1,251,000 1,019,000
Investments in marketable securities.... 470,000 1,150,000
Other assets............................ 352,000 524,000
TOTAL ASSETS............................ $17,899,000 $19,931,000
See accompanying notes.
F-4
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 1,624,000 $ 1,656,000
Accounts payable.......................... 1,086,000 940,000
Accrued expenses.......................... 2,114,000 2,545,000
Notes payable............................. 97,000 65,000
Accounts payable, accrued expenses and
reserves applicable to discontinued
operations............................... 900,000 2,636,000
Due to factor............................. 260,000 852,000
Total current liabilities............... 6,081,000 8,694,000
Long-term obligations, less current
portion................................... 3,667,000 4,667,000
Accounts payable, accrued expenses and
reserves applicable to discontinued
operations, less current portion.......... 864,000 1,424,000
Total liabilities....................... 10,612,000 14,785,000
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 909,000 907,000
Additional paid-in capital................. 23,538,000 23,518,000
Accumulated deficit........................ (7,477,000) (9,515,000)
Treasury stock, at cost.................... (9,588,000) (9,588,000)
Deferred compensation...................... (97,000) (174,000)
Unrealized gain (loss)on marketable
securities................................ 2,000 (2,000)
Total stockholders' equity............... 7,287,000 5,146,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $17,899,000 $19,931,000
See accompanying notes.
F-5
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales.......................... $17,626,000 $16,971,000 $11,763,000
Cost of sales...................... 10,023,000 9,361,000 6,529,000
Gross profit....................... 7,603,000 7,610,000 5,234,000
Selling, general and
administrative expenses........... 5,596,000 5,501,000 5,274,000
Interest expense................... 253,000 118,000 236,000
Investment and other income........ (284,000) (1,320,000) (2,614,000)
Income from continuing operations
before income taxes............... 2,038,000 3,311,000 2,338,000
Tax benefit........................ - - (153,000)
Income from continuing
operations........................ 2,038,000 3,311,000 2,491,000
Discontinued operations:
Loss from operations............. - (4,200,000) (24,744,000)
Loss from disposal............... - (4,600,000) - .
NET INCOME(LOSS)................... $ 2,038,000 $(5,489,000) $(22,253,000)
Income (loss) per common share:
Income from continuing operations:
Basic........................... $ .34 $ .56 $ .42
Diluted......................... $ .30 $ .53 $ .42
(Loss) from discontinued operations:
Basic........................... - $ (1.48) $ (4.20)
Diluted......................... - $ (1.42) $ (4.17)
NET INCOME(LOSS):
Basic........................... $ .34 $ (.92) $ (3.78)
Diluted......................... $ .30 $ (.89) $ (3.75)
</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
Unrealized
Authorized .
Treasury Stock .
Gain
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, 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
Deferred compensation earned. . . . . . . . . .
77,000
77,000
Exercises of stock options. . . . . . . . . . . .
22,000
2,000
20,000
22,000
Marketable securities valuation adjustment
4,000
4,000
Net income. . . . . . . . . . . . . . . . . . . . . . . . .
________
_______
__________
2,038,000
_________
__________
________
________
________
2,038,000
Balance-December 31, 1997
9,093,000
$909,000
$23,538,000
$(7,477,000)
(2,885,000)
$(9,588,000)
$(97,000)
$ - .
$2,000
$7,287,000
</TABLE>
See
accompanying notes.
F - 7
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
<S>
1997
<C>
1996
<C>
1995
<C>
Cash flows from operating activities:
Net income (loss)............................................................................................
$2,038,000
$ (5,489,000)
$ (22,253,000)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Inventory reserves.........................................................................................
4,500,000
Deferred compensation.................................................................................
801,000
Provision for doubtful accounts.....................................................................
53,000
798,000
Depreciation and amortization.......................................................................
143,000
122,000
398,000
Write-off of intangible assets........................................................................
9,780,000
Amortization and write-off of goodwill............................................................
72,000
919,000
58,000
Compensatory issuance of stock and options...............................................
77,000
59,000
262,000
Gain on sales of marketable securities.........................................................
(173,000)
Change in value of marketable securities......................................................
(222,000)
Imputed interest on acquisition note..............................................................
213,000
Purchases of marketable securities .............................................................
(24,229,000)
Proceeds of sales of marketable securities...................................................
25,710,000
Gain on sale of fixed assets..........................................................................
(79,000)
Deferred tax asset.........................................................................................
(1,260,000)
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....................................................................................
16,000
(2,992,000)
3,729,000
Inventories.................................................................................................
338,000
914,000
3,465,000
Other current assets...................................................................................
(58,000)
985,000
(4,000)
Other assets...............................................................................................
(132,000)
(268,000)
Accounts payable........................................................................................
146,000
655,000
165,000
Accrued expenses......................................................................................
(431,000)
(395,000)
1,881,000
Income taxes payable.................................................................................
(245,000)
Assets held for sale, net..............................................................................
447,000
1,473,000
Accounts payable, accrued expenses and
reserves applicable to discontinued operations......... (2,296,000)
Other long term liabilities.............................. 3,000
Net cash provided by operating activities................ 413,000
1,816,000
4,699,000
Cash flows from investing activities:
Purchases of marketable securities............................ (4,899,000)
(17,765,000)
Proceeds of sales of marketable securities................... 6,363,000
29,237,000
Purchase of property, plant and equipment....................
( 51,000)
(170,000)
(455,000)
Proceeds on sale of property, plant and equipment.........................................
216,000
Puchase of net assets of acquired company...................................................
________
(3,779,000)
_______
Net cash provided by (used in) investing activities.....................................
1,413,000
7,523,000
(239,000)
</TABLE>
F - 8
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Year Ended December 31,
<S>
1997
<C>
1996
<C>
1995
<C>
Cash flows from financing activities:
Repayments of debt.........................................................................................
(1,203,000)
(1,956,000)
(7,079,000)
Proceeds from debt..........................................................................................
116,000
2,482,000
395,000
Increase (decrease) in due to factor.................................................................
(592,000)
(11,242,000)
3,754,000
Proceeds from exercise of stock options.........................................................
22,000
Purchase of treasury stock..............................................................................
(68,000)
Proceeds from issuance of performance shares.............................................
___________
30,000
_________
Net cash (used in) financing activities.......................................................
(1,657,000)
(10,686,000)
(2,998,000)
Effect of exchange rate changes on cash.........................................................
_____-____
______-____
(3,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......
169,000
(1,347,000)
1,459,000
Cash and cash equivalents - beginning of year.................................................
927,000
2,274,000
815,000
CASH AND CASH EQUIVALENTS - END OF YEAR.....................................
$1,096,000
$927,000
$2,274,000
</TABLE>
Supplemental disclosures of cash flow information:
Year Ended December 31,
1997 1996 1995
[1] Cash paid for:
Interest.... $497,000 $1,806,000 $2,994,000
Income taxes -
net of refund
of $115,000
(1995)..... $ - $ - $ (85,000)
[2] The Company acquired fixed assets of $87,000 in the year ended
December 31, 1997 pursuant to a capital lease obligation.
See accompanying notes.
F-9
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(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 has two reportable segments: (a) the Orbit Instrument
division (Electronics Segment) is engaged in the design, manufacture
and sale of customized electronic components and subsystems, and (b)the
Behlman Electronics subsidiary (Power Units Segment)is engaged in the
design and manufacture of distortion free commercial power units, power
conversion devices and electronic devices for measurement and display.
The Company discontinued its operations in the apparel business in 1996
(see Note B).
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.
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 CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
Investments In Marketable Securities
The Company classifies its investments in marketable securities 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, reported in a separate component of
stockholders' equity. The amortized cost of marketable 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
Substantially all of the Company's revenues are recognized from
the sale of tangible products. The Company records sales upon delivery
of the units under its manufacturing contracts. The Company also
records revenue from engineering services which is included in product
line sales. Such revenue, which is not material, is recorded upon
completion of performance under certain engineering contracts.
Orbit earned a one-time royalty payment from a former affiliate
pursuant to a Stock Purchase Agreement executed in November 1991, which
was realized partially in fiscal year 1996 and partially in fiscal year
1995. Such amounts have been included in Investment and other income
in the accompanying Consolidated Statements of Operations.
Income (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("Statement 128"). Statement 128
replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully
diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform
to the Statement 128 requirements.
(continued)
F-11
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
Foreign Currency
Assets and liabilities of the Company's discontinued Canadian
apparel 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 such operations, the accumulated
gains and losses resulting from the translation of foreign currency
financial statements were included in a separate component of
stockholders' equity.
Cumulative translation adjustments have been written-off as part
of the loss on disposal of discontinued operations during the year
ended December 31, 1996.
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
When impairment indicators are present, the Company reviews the
carrying value of its long-lived assets in determining the ultimate
recoverability of their unamortized values using future undiscounted
cash flow analyses. (See Note B - Discontinued Operations for
impairment losses recorded in 1996 and 1995).
Stock Based Compensation
The Company has elected to continue 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.
(continued)
F-12
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE A) - Organization, Business and Summary of Significant Accounting
Policies: (continued)
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, 1997 and 1996.
Segment Disclosures
As of December 31, 1997, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("Statement 131"). Statement 131 superseded FASB
Statement No. 14, Financial Reporting for Segments of a Business
Enterprise. Statement 131 establishes standards for the way that
public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises
report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. The adoption of Statement 131 did not affect results
of operations or financial position (see Note N).
Research and Development Expenses
The Company has incurred approximately $795,000, $710,000 and
$420,000 of research and development expenses for the years ended
December 31, 1997, 1996 and 1995, respectively. Such expenses have
been included in selling, general and administrative expenses for the
respective years.
(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.
(continued)
F-13
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE B) - Discontinued Operations: (continued)
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 and the Company's
East End Apparel Group, Ltd. subsidiary. Accordingly, the Company
completed the disposal of its U.S. Apparel operations in December 1996.
Pursuant to the Company's plans to dispose of its U.S. and
Canadian apparel operations, it recorded an impairment loss of $793,000
related to the Canadian apparel operations in 1996. In 1995,
management, in its continuing review of operations, wrote off all of
the goodwill relating to its East/West Division upon determining that
cash flows from future operations of the Division would not be
sufficient to support any carrying amount of goodwill and accordingly
recorded a write down of $13,216,000.
The Canadian apparel operations had 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 and Winnipeg
Leather. Classique and Winnipeg Leather are now in Bankruptcy and Orbit
appointed a receiver and manager for the purpose of liquidating their
assets. All assets have been sold and the proceeds from the sale of
such assets were used to pay down the outstanding obligations to its
secured lender. Consequently, all operations of the Canadian apparel
operations were terminated in 1997. 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.
Amounts previously reported for the apparel segments in 1996 and
1995 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:
Year Ended December 31,
1996 1995
Sales $26,235,000 $46,471,000
Loss before tax benefit (8,800,000) (24,755,000)
Tax benefit 11,000
Net loss (8,800,000) (24,744,000)
Net loss per common share:
Basic $(1.48) $(4.20)
Diluted $(1.42) $(4.17)
(continued)
F-14
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE B) - Discontinued Operations: (continued)
At December 31, 1997 and 1996, the assets of the discontinued
operations consist primarily of accounts receivable and inventories and
liabilities consist of accounts payable, accrued expenses and other
reserves.
(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 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, as
adjusted, is as follows:
Inventory $ 2,256,000
Property, plant and equipment 115,000
Excess of cost over the fair
value of assets acquired 1,408,000
$ 3,779,000
(NOTE D) - Inventories:
Inventories consist of the following:
December 31,
1997 1996
Raw materials. . . . . . $2,262,000 $ 2,332,000
Work in process. . . . . 4,057,000 4,325,000
$6,319,000 $ 6,657,000
(continued)
F-15
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE E) - Property, Plant and Equipment:
Property, plant and equipment are as follows:
December 31,
1997 1996
Land and building. . . . . . . . . . $2,688,000 $ 2,688,000
Building and leasehold improvements. 288,000 279,000
Machinery and equipment. . . . . . . 1,079,000 1,053,000
Furniture and fixtures . . . . . . . 515,000 413,000
4,570,000 4,433,000
Accumulated depreciation
and amortization . . . . . . . . . 2,228,000 2,086,000
$2,342,000 $ 2,347,000
(NOTE F) - Available-For-Sale Securities:
The following is a summary of available-for-sale securities:
December 31, 1997
Estimated
Fair
Cost Value
U.S. Treasury bills............ $2,455,000 $2,455,000
Corporate debt securities...... 468,000 470,000
2,923,000 2,925,000
Restricted value of portfolio
used to collateralize credit
facility ................... 451,000 451,000
Balance of securities
portfolio................... $2,472,000 $2,474,000
(continued)
F-16
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE F) - Available-For-Sale Securities: (continued)
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 ................... 2,453,000 2,453,000
Balance of securities
portfolio................... $1,934,000 $1,932,000
Under the terms of certain credit facilities, the Company's
investment portfolio and certain cash balances must be maintained at a
minimum collateral value. At December 31, 1997 and 1996, such
collateral requirement amounted to approximately $451,000 and
$2,453,000, respectively.
The amortized cost and estimated fair value of marketable debt
securities at December 31, 1997 and 1996 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, 1997
Estimated Fair
Cost Value
Due in one year or less............... $2,455,000 $2,455,000
Due after one year through three years 15,000 15,000
Due after three years ................ 453,000 455,000
2,923,000 2,925,000
Restricted value of portfolio used to
collateralize credit facilities..... 451,000 451,000
$2,472,000 $2,474,000
(continued)
F-17
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE F) - Available-For-Sale Securities: (continued)
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
(NOTE G) - Debt:
Long-term obligations consist of the following:
December 31,
1997 1996
Term loan - collateralized by certain real
estate of the Company, interest at prime
(8.50% at December 31, 1997) plus 1.5%,
payable in monthly installments of $56,000
through June 1999........................... $1,000,000 $1,667,000
Promissory note payable to the sellers of the East/
West division - noninterest bearing, imputed
interest at 6%, payable $250,000 in 1997 and
20 quarterly installments of $42,500, including
interest, commencing March 31, 2002........ 850,000 1,100,000
(continued)
F-18
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE G) - Debt: (continued)
December 31,
1997 1996
Note due to the estate of the former principal
officer, non-interest bearing, payable in
monthly installments through 1998
(See Note P).............................. 289,000 356,000
Capitalized lease obligation - collateralized by
certain computer software, payable in monthly
installments of $1,804 and interest at 10%... 87,000
Term loan - collateralized by accounts receivable
and inventories, interest at prime (8.50% at
December 31, 1997) plus 1%, payable in monthly
installments of $54,000 commencing October 1997,
with a final payment of approximately $1,343,000
in September 2000......................... 3,065,000 3,200,000
5,291,000 6,323,000
Less current portion........................ 1,624,000 1,656,000
$3,667,000 $4,667,000
Payments due on the Company's long-term debt at December 31,
1997 are as follows:
Year Ending
December 31,
1998................. $ 1,624,000
1999................. 1,001,000
2000................. 1,794,000
2001................. 22,000
2002................. 170,000
Thereafter........... 680,000
$ 5,291,000
(continued)
F-19
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE G) - Debt: (continued)
Short-term notes payable aggregated $97,000 and $65,000 at
December 31, 1997 and 1996, respectively. This is in connection with
the Company's revolving line of credit which bears interest at prime
(8.50% at December 31, 1997) 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, all as defined. 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 option 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 stock option plans which provide for the granting
of non-qualified or incentive stock options to officers and key
employees and non-employee directors. The plans authorize granting of
up to 1,500,000 shares to officers and key employees and 150,000 shares
to non-employee directors, respectively, 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 income (loss) and net income
(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 for the years
ended December 31, 1997, 1996 and 1995: risk-free interest rate of 6%;
no dividend yield; volatility factors of the expected market price of
the Company's common stock of 59.4% for 1997 and 85.5% for 1996 and
1995; and a weighted-average expected life of the options of 3.0 years
for 1997, 1996 and 1995.
The Black-Sholes option valuation model was developed for use in
estimating the 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.
(continued) F-20
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE H) - Stock Based Compensation Plans:(continued)
Because the Company's employees 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' vesting period.
The Company's pro forma information follows:
1997 1996 1995
Income from continuing
operations:As Reported $ 2,038,000 $ 3,311,000 $ 2,491,000
Pro Forma 1,971,000 2,830,000 2,325,000
Basic EPS: As Reported .34 .56 .42
Pro Forma .32 .46 .38
Diluted EPS:As Reported .30 .53 .42
Pro Forma .29 .42 .35
1997 1996 1995
Net income (loss):
As Reported $ 2,038,000 $(5,489,000) $(22,253,000)
Pro Forma 1,971,000 (5,970,000) (22,419,000)
Basic EPS: As Reported .34 (.92) (3.78)
Pro Forma .32 (.96) (3.81)
Diluted EPS:As Reported .30 (.89) (3.75)
Pro Forma .29 (.89) (3.81)
As required by Statement 123, the fair value 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 CONSOLIDATED FINANCIAL STATEMENTS
(NOTE H) - Stock Based Compensation Plans:(continued)
The following table summarizes activity in stock options:
<TABLE>
<CAPTION>
1997 .
1996 .
1995 .
Shares under
Weighted -Average
Shares under
Weighted -Average
Shares under
Weighted -Average
Option
Exercise Price
Option
Exercise Price
Option
Exercise Price
<S>
<C>
<C>
<C>
<C>
<C>
<C>
Outstanding at the
beginning of year.............
1,282,000
$.92
964,000
$1.25
965,000
$3.13
Granted...........................
179,000
2.44
333,000
0.92
1,017,000
1.25
Canceled.........................
(180,000)
1.21
( 15,000)
0.92
(1,018,000)
2.70
Exercised.........................
(22,000)
1.01
- .
- .
Outstanding at the
end of year.......................
1,259,000
1.34
1,282,000
0.92
964,000
1.25
Exercisable at end of year.
1,080,000
964,000
-
Weighted average fair
value of options granted..
1.09
0.54
0.54
</TABLE>
The weighted average remaining contractual life of the options
outstanding is 3 years.
At December 31, 1997, 240,000 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 ended December 31, 1996, 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 CONSOLIDATED FINANCIAL STATEMENTS
(NOTE I) - Employee Benefit Plans:
The Company contributed $178,000, $117,000 and $185,000 (including
$24,000 applicable to discontinued operations) to the plans for the
years ended December 31, 1997, 1996 and 1995, 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, 1997 and 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 $20,948,000 which
expires in 2011 and a capital loss carryforward of $2,005,000 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 $
541,000 which are available through 1999.
The tax benefit for the year ended December 31, 1995 is as
follows:
Current:
Foreign and state.... $(153,000)
_________
$(153,000)
(continued)
F-23
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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,
1997 1996 1995
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...... 7.0 3.3
Nondeductible items...... 1.3
Non taxable life insurance
proceeds................. (6.7)
Net operating and capital
loss carryforwards and
carrybacks............... (41.0) 34.0 35.0
Other .5
0% 0% (.6%)
(continued)
F-24
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE J) - INCOME TAXES: (continued)
Deferred tax assets and liabilities are as follows:
December 31,
1997 1996
Deferred tax asset:
Alternative minimum
tax credit carryforward.. $ 564,000 $ 564,000
Net operating loss and
capital loss
carryforwards (including
pre-acquisition net
operating loss
carryforwards)........... 9,810,000 8,931,000
Various temporary
differences.............. 745,000 912,000
Total deferred tax assets 11,119,000 10,407,000
Valuation allowance........... (10,977,000) (10,249,000)
Net deferred tax assets....... 1,402,000 158,000
Deferred tax liability:
Various temporary
differences.............. (142,000) (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 net deferred tax assets.
(NOTE K) - Major Customer and Concentrations of Credit Risk:
Sales to significant customers accounted for approximately 50%
(33% and 17%), 72% (28%, 15%, 17% and 12%)and 79% (54%, 12% and 13%) of
the Company's net sales from continuing operations for the years ended
December 31, 1997, 1996 and 1995, respectively. Sales for the Company
in 1995 consist only of its Electronics Segment.
Major customers of the Electronics Segment accounted for
approximately 84% (38%, 29% and 17%) and 85% (43%, 25% and 17%) of the
segment's sales for the years ended December 31, 1997 and 1996,
respectively. Major customers of the
(continued)
F-25
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE K) - Major Customer and Concentrations of Credit Risk:
(continued)
Power Units Segment accounted for approximately 44% (27% and 17%) and
45% (29% and 16%) of the segment's sales for the years ended December
31, 1997 and 1996, 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.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade
receivables. At times, cash at financial institutions 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, 1997 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
1998 . . . . . 58,000 988,000 1,046,000
1999 . . . . . 32,000 697,000 729,000
2000 . . . . . 14,000 246,000 260,000
2001 . . . . . 3,000 3,000
Total minimum
lease payments $ 107,000 $ 1,931,000 $ 2,038,000
Rent expense for operating leases was approximately $13,000 and
$41,000 for the years ended December 31, 1997 and 1996, respectively.
Leasing arrangements for discontinued operations do not include amounts
owed to the Company under certain sublease agreements aggregating
approximately $1,013,000. The Company is currently contesting the
validity of its guarantee on the leases for its discontinued Canadian
apparel operations.
(continued)
F-26
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 $1,138,000. 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 expense was
approximately $202,000 and $281,000 in 1997 and 1996, respectively. No
bonus was earned or paid in 1995.
[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. The defendant's response to the class
certification motion has
(continued)
F-27
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE M) - Commitments and Contingencies: (continued)
been adjourned without a future date pending completion of discovery
into that issue. On or about February 6, 1996, the Underwriters moved
the court to stay all substantive discovery until the court rules upon
the class certification motion. The Company joined in said motion. On
March 7, 1996, the court denied the motion to stay substantive
discovery. Depositions and documentary discovery are continuing. It
is estimated that discovery in this matter will continue throughout
1998. The Company is unable to estimate a range of loss at the present
time and consequently, cannot determine the impact of the action on the
financial condition, income or cash flows of the Company. The Company
currently has available, through its own coverage and through USA
Classic's coverage, approximately $7 million of directors' and
officers' liability insurance coverage in connection with this matter.
Legal fees of approximately $1,200,000 incurred to date, have been
charged to expense. While the Company plans to continue to vigorously
defend this action, in September 1997, all parties began participating
in supervised settlement negotiations. These negotiations are still
ongoing.
On March 17, 1998, PaineWebber Incorporated asserted, in New York
Supreme Court, a claim against the Company for indemnification pursuant
to its underwriting arrangements with the Company and USA Classic. The
Company believes this claim to be without merit and intends to
vigorously defend this action.
[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 position, income or cash flows of the Company.
(NOTE N) - 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.
(continued)
F-28
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE N) - Business Segments: (continued)
The following is business segment information as of and for
the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Net sales:
Electronics $10,045,000 $10,092,000 $11,763,000
Power Units (1) 7,581,000 6,879,000 .
Total $17,626,000 $16,971,000 $11,763,000
Income from continuing
operations:
Electronics $ 2,457,000 $ 2,581,000 $ 1,894,000
Power Units 634,000 659,000
General corporate
expenses not allocated (1,083,000) (1,131,000) (1,934,000)
Interest expense ( 253,000) ( 118,000) ( 236,000)
Investment and other
income 283,000 1,320,000 2,614,000
Income from continuing
operations before
income taxes $ 2,038,000 $ 3,311,000 $ 2,338,000
Assets:
Electronics $ 8,033,000 $ 8,057,000 $ 7,433,000
Power Units 3,967,000 4,285,000
General corporate
assets not allocated 5,634,000 6,877,000 19,594,000
Assets held for sale 265,000 712,000 11,001,000
Total assets $17,899,000 $19,931,000 $38,028,000
</TABLE>
(1) The Power Units segment was acquired on February 6, 1996.
(continued)
F-29
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(NOTE O) - Income (Loss) Per Common Share:
The following table sets forth the computation of basic and
diluted income (loss) per common share:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
Denominator:
Denominator for basic
income (loss) per share -
weighted-average common
shares 6,070,000 5,961,000 5,886,000
Effect of dilutive securities:
Employee and directors
stock options 558,000 89,000 54,000
Warrants 157,000 58,000 -
Unearned stock award 81,000 77,000 - .
Dilutive potential common
shares 796,000 224,000 54,000
Denominator for diluted
income (loss) per share -
weighted-average common
shares and assumed
conversion 6,886,000 6,185,000 5,940,000
</TABLE>
The numerator for basic and diluted income (loss) per share
for the years ended December 31, 1997, 1996 and 1995 is the income from
continuing operations and net income (loss) for all such years.
(NOTE P) - 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. 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-30
<TABLE>
<CAPTION>
ORBIT INTERNATIONAL CORP.
VALUATION AND QUALIFYING ACCOUNTS
Column A
Column B
Column C
Column D
Column E
Additions
(1)
(2)
Balance at
Charged to
Charged to
Balance at
Beginning
Cost
Other accounts -
Deductions -
end of
of Period
and Expense
describe
describe
period
<S>
Year ended December 31, 1997:
Reserve for estimated doubtful
accounts and allowance...............
Valuation allowance on deferred
tax asset.......................................
Year ended December 31, 1996:
<C>
$150,000
$10,249,000
<C>
$53,000
<C>
$728,000 (b)
<C>
<C>
$203,000
$10,977,000
Reserve for estimated doubtful
accounts and allowance...............
$150,000 (c)
$150,000
Valuation allowance on deferred
tax asset........................................
$14,220,000
$(3,971,000) (a)
$10,249,000
Year ended December 31, 1995:
Reserve for estimated doubtful
accounts and allowance...............
$150,000 (c)
$150 ,000
Valuation allowance on deferred
tax asset........................................
$6,380,000
$7,840,000
$14,220,000
TOTAL
(a) Reduction in allowances
(b) Increase to reserve
(c) Restated to exclude all activity
related to discontinued operations
</TABLE>
S-1
Exhibit 23 - Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-25979) pertaining to the Orbit International Corporation
1995 Employee Stock Option Plan and the Orbit International Corporation 1995
Stock Option Plan for Non-Employee Directors of our report dated March 5,
1998, with respect to the consolidated financial statements and schedule of
Orbit International Corp. included in the annual Report (Form 10-K) for the
year ended December 31, 1997.
/s/ Ernst & Young LLP
New York, New York
March 30, 1998
2
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,096,000
<SECURITIES> 2,004,000
<RECEIVABLES> 3,248,000
<ALLOWANCES> 203,000
<INVENTORY> 6,319,000
<CURRENT-ASSETS> 13,484,000
<PP&E> 4,570,000
<DEPRECIATION> 2,228,000
<TOTAL-ASSETS> 17,899,000
<CURRENT-LIABILITIES> 6,081,000
<BONDS> 3,667,000
0
0
<COMMON> 909,000
<OTHER-SE> 6,378,000
<TOTAL-LIABILITY-AND-EQUITY> 17,899,000
<SALES> 17,626,000
<TOTAL-REVENUES> 17,626,000
<CGS> 10,023,000
<TOTAL-COSTS> 10,023,000
<OTHER-EXPENSES> 5,596,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253,000
<INCOME-PRETAX> 2,038,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,038,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,038,000
<EPS-PRIMARY> .34
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