UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended to
Commission file number 0-3936
Orbit International Corp.
(Exact name of registrant as specified in its charter)
Delaware ID # 11-1826363
(State or other jurisdiction (I.R.S. Employer
Identification
incorporation or organization) Number)
80 Cabot Court, Hauppauge, New York
11788
(Address of principal executive offices (Zip
Code)
(516) 435-8300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if
changed
since last report)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or
15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by
Sections 12, 13 or 15 (d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a
plan confirmed by a court.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date:
March 31, 1999.
6,078,000
ORBIT INTERNATIONAL CORP.
The financial information herein is unaudited.
However, in the opinion of management, such information
reflects all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of
the results of operations for the periods being reported.
Additionally, it should be noted that the accompanying
condensed financial statements do not purport to contain
complete disclosures in conformity with generally accepted
accounting principles.
The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the
results of operations for the full fiscal year ending
December 31, 1999.
The consolidated balance sheet as of December 31, 1998
was condensed from the audited consolidated balance sheet
appearing in the 1998 annual report on Form 10-K.
These condensed consolidated statements should be read
in conjunction with the Company's financial statements for
the fiscal year ended December 31, 1998.
PART I - FINANCIAL INFORMATION
ITEM - I
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
December 31,
1999
1998
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,703,000 $
438,000
Investment in marketable securities..... 1,970,000
3,230,000
Accounts receivable (less allowance for
doubtful accounts)..................... 1,577,000
2,345,000
Inventories ............................ 6,646,000
7,089,000
Restricted investments, related to
discontinued operations................ -
26,000
Assets held for sale, net............... 68,000
80,000
Other current assets.................... 128,000
140,000
Deferred tax assets..................... 276,000
276,000
Total current assets.................. 12,368,000
13,624,000
Property, plant and equipment - at cost,
less accumulated depreciation and
amortization........................... 2,229,000
2,267,000
Excess of cost over the fair value of
assets acquired........................ 1,131,000
1,155,000
Investment in marketable securities..... 289,000
517,000
Other assets............................ 575,000
658,000
Deferred tax assets..................... 924,000
924,000
TOTAL ASSETS............................ $17,516,000
$19,145,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
March 31,
December 31,
1999
1998
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 749,000
$ 593,000
Accounts payable.......................... 814,000
1,189,000
Accrued expenses.......................... 1,323,000
2,432,000
Customer advances......................... 461,000
785,000
Accounts payable, accrued expenses and
reserves for discontinued operations..... 621,000
669,000
Due to factor............................. -
15,000
Total current liabilities............... 3,968,000
5,683,000
Long-term obligations, less current
portion................................... 4,077,000
3,881,000
Accounts payable, accrued expenses and
reserves for discontinued operations,
less current portion...................... 467,000
522,000
Total liabilities....................... 8,512,000
10,086,000
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 912,000
912,000
Additional paid-in capital................. 23,557,000
23,555,000
Accumulated deficit........................ (5,614,000)
(5,596,000)
Deferred compensation...................... -
(19,000)
Accumulated other comprehensive income..... (1,000)
9,000
18,854,000
18,861,000
Treasury stock, at cost.................... (9,850,000)
(9,802,000)
Total stockholders' equity................ 9,004,000
9,059,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,516,000
$19,145,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three
Months Ended
March 31,
1999
1998
Net sales.............................. $ 3,409,000
$ 4,285,000
Cost of sales.......................... 2,057,000
2,509,000
Gross profit........................... 1,352,000
1,776,000
Selling, general and administrative
expense............................... 1,354,000
1,317,000
Interest expense....................... 81,000
95,000
Investment and other income............ (65,000)
(107,000)
Income (loss) before income taxes (benefit) (18,000)
471,000
Taxes (benefit) on income (loss)....... -
- -
NET INCOME (LOSS)...................... $ (18,000)
$ 471,000
Net income (loss)per common share:
Basic............................ $.00
$.08
Diluted.......................... $.00
$.07
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three
Months Ended
March 31,
1999
1998
Cash flows from operating activities:
Net income (loss).......................... $ (18,000)
$ 471,000
Adjustments to reconcile net income(loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization.............. 43,000
34,000
Amortization of goodwill................... 24,000
24,000
Compensatory issuance of stock............. 19,000
19,000
Change in value of marketable trading
securities................................. (10,000)
-
Changes in operating assets and liabilities:
Accounts receivable......................... 768,000
(119,000)
Inventories................................. 443,000
(527,000)
Other current assets........................ 12,000
14,000
Accounts payable............................ (375,000)
484,000
Accrued expenses............................ (109,000)
(13,000)
Customer advances........................... (324,000)
684,000
Assets held for sale........................ 12,000
155,000
Accounts payable, accrued expenses and
reserves for discontinued operations....... (103,000)
(194,000)
Other assets................................ 78,000
1,000
Payment for settlement of class action
litigation (1,000,000)
-
Net cash provided by (used in)
operating activities...................... (540,000)
1,033,000
Cash flows from investing activities:
Acquisitions of fixed assets................ -
(14,000)
Purchase of marketable securities........... (196,000)
(2,253,000)
Proceeds from sales of marketable securities 1,710,000
2,020,000
Net cash provided by (used in)
investing activities...................... 1,514,000
(247,000)
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three
Months Ended
March 31,
1999
1998
Cash flows from financing activities:
Due to factor............................... (15,000)
(200,000)
Repayments of debt.......................... (148,000)
(387,000)
Proceeds of debt............................ 500,000
- -
Proceeds from stock option exercises........ 2,000
8,000
Treasury stock purchases.................... (48,000)
-___
Net cash provided by (used in)
financing activities........................ 291,000
(579,000)
NET INCREASE IN CASH AND CASH
EQUIVALENTS................................. 1,265,000
207,000
Cash and cash equivalents - January 1........ 438,000
1,096,000
CASH AND CASH EQUIVALENTS - March 31...........$1,703,000
$ 1,303,000
Supplemental disclosures of cash flow
information:
(1) Cash paid for:
Interest.............................. $ 81,000
$ 221,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(NOTE 1) - Income Per Share:
The following table sets forth the computation of
basic and diluted income per common share:
March 31,
1999 1998
Denominator: (a)
Denominator for basic
income (loss) per share -
weighted-average common
shares 6,077,000 6,111,000
Effect of dilutive securities:
Employee and directors
stock options 748,000
Warrants 192,000
Unearned stock award 78,000
Dilutive potential common
shares 1,018,000
Denominator for diluted
income per share -
weighted-average common
shares and assumed
conversion 6,077,000 7,129,000
(a) For the three months ended March 31, 1999, the
denominator for both basic and diluted income per
share is the weighted-average common shares due
to a loss recorded for that period.
The numerator for basic and diluted income (loss) per
share for
the three months ended March 31, 1999 and March 31, 1998 is
the net income (loss) for each period.
(NOTE 2) - Cost of Sales:
For interim periods, the Company estimates its
inventory and related gross profit.
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
(NOTE 3) - Inventories:
Inventories are comprised of the following:
March 31, December
31,
1999 1998
Raw Materials.............. $ 2,470,000 $
2,609,000
Work-in-process............ 4,176,000
4,480,000
TOTAL $ 6,646,000 $
7,089,000
(NOTE 4) - Available-For-Sale Securities:
The following is a summary of available-for-sale
securities as of:
March
31, 1999
Estimated
Fair
Cost
Value
U.S. Treasury bills......................... $ 1,600,000
$ 1,600,000
Corporate debt securities .................. 660,000
659,000
Securities portfolio........................ $ 2,260,000
$ 2,259,000
The amortized cost and estimated fair value of debt
and marketable equity securities at March 31, 1999 by
contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because the issuers
of the securities may have the right to repay obligations
without prepayment penalties.
March
31,1999
Estimated
Fair
Cost
Value
Due in one year or less.................... $ 1,971,000
$ 1,970,000
Due after one year through three years..... 100,000
101,000
Due after three years...................... 189,000
188,000
$ 2,260,000
$ 2,259,000
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
(NOTE 5) - Business Segments:
The Company operates through two business segments.
Its Electronics Segment, through the Orbit Instrument
Division, is engaged in the design, manufacture and sale of
customized electronic components and subsystems. Its Power
Units Segment, through the Behlman Electronics, Inc.
subsidiary, is engaged in the design, manufacture and sale
of distortion free commercial power units, power conversion
devices and electronic devices for measurement and display.
The Company's reportable segments are business units
that offer different products. The reportable segments are
each managed separately because they manufacture and
distribute distinct products with different production
processes.
The following is business segment information for the
three month periods ended March 31, 1999 and 1998.
March
31,
1999
1998
Net sales:
Electronics........................... $ 2,286,000 $
2,708,000
Power Units...........................
Domestic............................ 969,000
1,397,000
Foreign............................. 154,000
180,000
Total Power Units..................... 1,123,000
1,577,000
Total net sales.......................... $ 3,409,000 $
4,285,000
Income (loss) from operations:
Electronics........................... $ 528,000 $
637,000
Power Units........................... (272,000)
24,000
General corporate
expenses not allocated................. (258,000)
(202,000)
Interest expense......................... (81,000)
(95,000)
Investment and other
income................................. 65,000
107,000
Income (loss) before income taxes........ $ (18,000) $
471,000
(continued)
ITEM - II
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations
Three month period ended March 31, 1999 v. March 31, 1998
The Company currently operates in two industry
segments. Its Orbit Instrument Division is engaged in the
design and manufacture of electronic components and
subsystems (the "Electronics Segment"). Its Behlman
subsidiary is engaged in the design and manufacture of
commercial power units (the "Power Units Segment").
Consolidated net sales for the three month period
ended March 31, 1999 decreased to $3,409,000 from
$4,285,000 for the three month period ended March 31, 1998
principally due to decreased sales from both the
Electronics Segment and the Power Units Segment.
Gross profit, as a percentage of sales, for the three
month period ended March 31, 1999 decreased to 39.7% from
41.4% for the three month period ended March 31, 1998
principally due to lower gross profits realized by the
Company's Power Unit Segment. This reduction was partially
offset by higher gross profits realized by the Company's
Electronics Segment.
Selling, general and administrative expenses for the
three month period ended March 31, 1999 increased to
$1,354,000 from $1,317,000 for the three month period
ended March 31, 1998 principally due to approximately
$163,000 of costs expensed during the current period
related to an acquisition opportunity which the Company
terminated during the period. Excluding these costs,
selling, general and administrative expenses for the three
month period ended March 31, 1999 decreased to $1,191,000
from $1,317,000 for the three month period ended March 31,
1998 principally due to several cost cutting initiatives
taken by the Company during the period. Selling, general
and administrative expenses, exclusive of the costs
described above, as a percentage of sales, for the three
month period ended March 31, 1999 increased to 34.9% from
30.7% for the comparable period in 1998, principally due to
certain fixed costs of the Company's industry segments
which did not decrease with the reduction in the Company's
sales.
Interest expense for the three month period ended
March 31, 1999 decreased to $81,000 from $95,000 for the
three month period ended March 31, 1998 due to a
reduction in amounts borrowed during the period and a lower
interest rate.
Investment and other income for the three month period
ended March 31, 1999 decreased to $65,000 from
$107,000 for the three month period ended March 31, 1998
due to a decrease in funds available for investment in the
current period.
Net income for the three month period ended March 31,
1999 decreased to a loss of $18,000 from income of $471,000
for the three month period ended March 31, 1998. Included
in the current period's loss was $163,000 of costs related
to an acquisition opportunity which was terminated during
the period. Excluding the impact of such costs, net income
for the three month period ended March 31, 1999 decreased
to $145,000 from $471,000 for the prior period principally
due to lower sales recorded by both of the Company's
industry segments.
Liquidity, Capital Resources and Inflation:
Working capital increased to $8,400,000 at March 31,
1999 compared to $7,941,000 at December 31, 1998. The ratio
of current assets to current liabilities increased to 3.1
to 1 at March 31, 1999 from 2.4 to 1 at December 31, 1998.
Net cash flows used in operations for the three
months ended March 31, 1999 was approximately $540,000,
primarily attributable to the payment related to the
settlement of the class action litigation, a decrease in
accounts payable and customer advances partially offset by
a decrease in accounts receivable and inventories. Cash
flows provided by investing activities for the three months
ended March 31, 1999 was approximately $1,514,000,
primarily attributable to the net sales of marketable
securities. Cash flows provided by financing activities
was approximately $291,000, primarily attributable to
proceeds received from bank borrowings partially offset by
repayments of debt and treasury share repurchases.
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.
In August 1998, the Company closed on a new $4,000,000
credit facility with a new lender, secured by real property
and other assets of the Company. The Company used
$3,500,000 of the proceeds to replace its existing asset
based lending arrangement and the remaining $500,000 was
borrowed in January, 1999 to partially fund a class action
securities litigation settlement of $1,000,000.
In September 1998, the Company's Board of Directors
authorized a stock repurchase program for the repurchase of
up to 250,000 shares of its common stock in the open market
or in privately negotiated transactions. Through May 5,
1999, the Company repurchased approximately 157,000 shares
at an average price of $1.67 per share.
The Company's existing capital resources, including
its bank credit facilities and cash flow from operations,
are expected to be adequate to cover its cash requirements
for the foreseeable future.
Inflation has not materially impacted the operations
of the Company.
Certain Material Trends
Despite continued profitability in 1998, the Company
continues to face a very difficult business environment
with continuing pressure on the Company's prices for its
sole source sales and a general reduction in the level of
funding for the defense sector. The Company continues to
pursue many business opportunities, including programs in
which it has long participated but, due to industry-wide
funding and pricing pressures, the Company has encountered
delays in the awards of these contracts. The delay in
receiving these awards will shift a portion of shipments
anticipated for 1999 into the year 2000. Consequently, the
Company projects that the revenue of the Company's
Electronics Segment in 1999 will not match 1998 levels.
The Company continues to seek new contracts which
require incurring up-front design, engineering, prototype
and preproduction costs. While the Company attempts to
negotiate contract awards for reimbursement of product
development, there is no assurance that sufficient monies
will be set aside by its customers, including the
United States Government, for such effort. In addition,
even if the United States 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, particularly the Department of the Navy, as a
source of revenues and income. The United States Navy
fleet has been significantly reduced in the past several
years thereby impacting the procurement of equipment. Any
further reductions in the level of military spending by the
United States Government and/or further reductions to the
United States fleet could have a negative impact on the
Company's future revenues and earnings. In addition, due
to major consolidations in the defense industry, it has
become more difficult to avoid dependence on certain
customers for revenue and income. Behlman's line of
commercial products gives the Company some diversity and
the Orbit Instrument Division is beginning to introduce
certain of its products into commercial and foreign
markets.
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.
Year 2000
In accordance with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the
Company notes that certain statments contained in the
following discussion concerning the change over to the year
2000 are forward-looking in nature and are subject to many
risks and uncertainties. These forward-looking statements
include such matters as the Company's projected state of
readiness, the Company's projected cost of remediation, the
expected date of completion of remediation and the expected
contingency plans associated with any worst case scenarios.
Such statements also constitute Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Information
and Readiness Disclosure Act.
The Year 2000 issue is the result of computer programs
using two digits rather than four to define the applicable
year. Such software may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in
system failures or miscalculations leading to disruptions
in the Company's activities and operations.
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
cost between approximately $100,000 and $150,000. This
estimate includes the price of new software and internal
costs but excludes the costs to upgrade and replace systems
in the normal course of business as well as potential costs
for outside consultants to assist the Company in the
implementation of a new software package. The Company does
not expect this project to have a material effect on its
operations in 1999. 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. However, the Company is currently
uncertain as to the impact on its operations, liquidity and
financial conditions 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.
Furthermore, the United States Government has been a
significant customer of the Company for many years. There
have recently been several press reports concerning whether
certain departments of the United States Government will be
Year 2000 compliant on a timely basis. To the extent
problems are identified, the Company will implement
corrective procedures where necessary to avoid any adverse
effect on the Company's cash flow and financial condition.
The failure to correct a material Year 2000 problem
could result in an interruption or failure of certain
important business operations. The failure of the
Company's sales and billing systems could result in the
Company's inability to timely post and record sales revenue
and expenses. In addition, the aging of the Company's
accounts payable would be inaccurate.
The Company has prepared contingency plans for certain
critical applications and it working on plans for others.
These contingency plans involve, among other actions,
manual workarounds, increase of inventories, and protective
cash management procedures.
The financial impact of any or all of the above worst-
case scenarios has not been and cannot be estimated by the
Company due to the numerous uncertainties and variables
associated with such scenarios. Management believes,
however, that its Year 2000 program will significantly
reduce the Company's risks associated with the change over
to the year 2000.
Forward Looking Statements
Statements in this Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
and elsewhere in this document as well as statements made
in press releases and oral statements that may be made by
the Company or by officers, directors or employees of the
Company acting on the Company's behalf that are not
statements of historical or current fact constitute
"forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties
and other factors that could cause the actual results of
the Company to be materially different from the historical
results or from any future results expressed or implied by
such forward-looking statements. In addition to statements
which explicitly describe such risks and uncertainties,
readers are urged to consider statements labeled with the
terms "believes", "belief", "expects", "intends",
"anticipates" or "plans" to be uncertain and forward-
looking. The forward-looking statements contained herein
are also subject generally to other risks and uncertainties
that are described from time to time in the Company's
reports and registration statements filed with the
Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of
1934, the registrant has duly caused this report to be
signed on its
behalf by the undersigned thereunto duly authorized.
ORBIT INTERNATIONAL CORP.
Registrant
Dated: May 12, 1999 /s/ Dennis Sunshine
Dennis Sunshine,
President, Chief Executive
officer and Director
Dated: May 12, 1999 /s/ Mitchell Binder
Mitchell Binder, Vice
President-
Finance, Chief Financial
Officer
and Director
PART II
OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits. None
23
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<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,703,000
<SECURITIES> 1,970,000
<RECEIVABLES> 1,577,000
<ALLOWANCES> (178,000)
<INVENTORY> 6,646,000
<CURRENT-ASSETS> 12,368,000
<PP&E> 4,637,000
<DEPRECIATION> (2,408,000)
<TOTAL-ASSETS> 17,516,000
<CURRENT-LIABILITIES> 3,968,000
<BONDS> 4,077,000
0
0
<COMMON> 912,000
<OTHER-SE> 8,092,000
<TOTAL-LIABILITY-AND-EQUITY> 17,516,000
<SALES> 3,409,000
<TOTAL-REVENUES> 3,409,000
<CGS> 2,057,000
<TOTAL-COSTS> 2,057,000
<OTHER-EXPENSES> 1,354,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,000
<INCOME-PRETAX> (18,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,000)
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