SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the 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) (Zip Code)
Registrant=s telephone number, including area code: (631) 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 Name of Each Exchange on Which
Registered
Common Stock, $.10 par value per share Nasdaq SmallCap Market
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 SmallCap Market on March 22, 2000): $4,494,886
Number of shares of common stock outstanding as of March 22, 2000: 2,025,864
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 2000 Annual Meeting of
Stockholders. The Registrant's proxy statement filed on September 1, 1999
pursuant to regulation 14A promulgated under the
Securities Exchange Act of 1934 in connection with a Special Meeting of the
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.
DISCONTINUED APPAREL OPERATIONS
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
United States and
Canada. Under the terms of the Athco License Agreement, Orbit was 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
was also required to pay certain annual guaranteed minimum royalties. In May,
1999 the Athco
License Agreement was amended whereby the minimum royalty for 1999 was reduced
from
$150,000 to $140,000 payable in sixteen equal installments. The Company has
the right to
terminate the Agreement upon 30 days written notice. The operations of the
East/West division
are limited to servicing such license.
The Canadian apparel operations had been operated through three
wholly-owned subsidiaries
of the Company. In March 1997, Orbit commenced bankruptcy proceedings against
two of the
three subsidiaries, which proceedings are still pending, and sold
substantially all of the assets of the
third subsidiary. In March 1997, Orbit also appointed a receiver and manager
for the purpose of
liquidating the assets of the two subsidiaries in bankruptcy. All such assets
were subsequently sold
and the proceeds from such sale were used to pay down the outstanding
obligations to the secured
lender of the subsidiaries.
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:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Net sales:
Electronics $ 6,975,000 $10,250,000 $10,045,000
Power Units
Domestic 4,438,000 817,000 (10,000) 5,245,000
5,245,000 6,397,000 1,200,000
(16,000)
Foreign 7,581,000
Intercompany sales 935,000
Total Power Units (79,000) 6,101,000
Operating income
(loss) (1):
Electronics 615,000 2,412,000 2,457,000
Power Units (461,000) 634,000
(810,000)
Assets:
Electronics 6,156,000 7,863,000 8,033,000
Power Units 3,303,000 3,964,000 3,967,000
</TABLE>
_______________
(1) 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 16 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.
"BL series" -- Cold Cathode Fluorescent Tubes.
"CRT terminals" -- Cathode Ray Tube terminals.
"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.
"liquid crystal display (LCD) panel/unit"-- a color flat panel-based display
used in information
systems.
"NAVICP" -- Naval Inventory Control Point, providing program and supply
support for the
United States Navy in order to keep weapons systems mission-ready.
"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.
"P series"
"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.
"T&D" -- utility transmission and distribution.
"telco-based designs" -- standard telephone interface designs.
"telecommunication superconducting amplifiers" -- amplifiers used in cable
television.
"TFT" -- thin film transistor.
"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.
"VGA"-- video graphics array.
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'S applications, as well as a variety of land-based
guidance
control programs.
Orbit's Power Units Segment is operated through its Behlman subsidiary
and is 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 military division of Behlman designs and
manufactures "power
conversion devices" and electronic products for measurement and display.
PRODUCTS
Electronics Segment
Intercommunication Panels
The Orbit Instrument Division has designed and developed 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 Orbit Instrument Division has also 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 United
States Government
to procure each of the panel configurations in indefinite quantities, with the
price therefore
increasing by an agreed upon escalation for subsequent periods.
Graphic Display Terminal
The Orbit 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 Orbit 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 Orbit 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 Orbit 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.
Color Liquid Crystal Displays (LCD's)
The Orbit Instrument Division has developed a family of 18.1" and 20.1"
color LCD
display panels for military and rugged commercial opportunities. The display
is manufactured
using Super Fine TFT (thin film transistor) active matrix technology. The
display is backlit with
Cold Cathode Fluorescent Tubes (CCFT), and is driven by an integral inverter.
The Company
has adapted this technology for high brightness and full-color imaging
requirements. The
Company is positioning this technology for surface ship and trading floor
opportunities.
Color Liquid Crystal Display Computers
The Orbit Instrument Division has completed a design configuration for a
Thin Film
Transistor (TFT) color LCD with an integral touch screen for input from the
operator. The unit
is powered by an ultra-compact high-performance 486 processor. The airborne
and land-based
display configurations also include up to 32 mega-bits of RAM, with wide angle
(640x480)
technology. The VGA single board computer includes a serial port (RS-232/422)
and expansion
capabilities through a PC/104 carrier module.
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,
electroluminescent panels, furnace igniters, vacuum cleaner motors,
compressors and paint spray
equipment 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 United States) 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 and industrial market" as opposed to the
commercial "UPS
market". Behlman is a manufacturer and value added reseller of these products
and has recently
added a new line of high power UPS systems.
Behlman's military division has value-engineering personnel who are
capable of
reconfiguring obsolete or hard-to-maintain United States 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
United States
Government's savings over the life of the program.
Behlman also performs reverse engineering of analog systems for the
United States
Government or United States Government contractors to enable them to have a
new contractor
with high quality capabilities at a competitive price.
Behlman is recognized by the Source Development Department of the NAVICP
and has
been given the opportunity to compete against prime contractors. Behlman has
recently received
an order for a set of power sources as a result of such competition program.
Behlman's railroad signaling power supply has been sold to railway
passenger lines in
northeastern United States. The railroad industry buys frequency converters
and inverters.
Behlman has set up a representative organization and strategic advertising
campaign along with
training programs for representatives and has been meeting with different
railroad organizations
for the purpose of promoting its products and gaining an understanding of the
needs of the
industry.
Behlman's Power Passport PS1350 is a low cost basic instrument for use in
the
import/export and aerospace markets. The P series has fewer features but is
priced below
Behlman's BL series. Another version, the P1351, was introduced in the second
quarter of 1999
as an intermediary version between the P1350 and the BL1350 in terms of cost
and function.
Behlman also operates as a qualified repair depot for many United States
Air Force and
Navy programs.
PROPOSED PRODUCTS
Electronics Segment
The Orbit Instrument Division is currently expanding its design and
development
resources to update hardware previously used for full military program
requirements. The Orbit
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.
Orbit Instrument has recently received an order for prototype keyboards
from one of its
major customers to be used by air traffic controllers. These prototype
keyboards will be
delivered to various air traffic control centers for evaluation by air traffic
controllers.
The Orbit Instrument Division also has recently completed a prototype
keyboard for
"mission critical" cost sensitive trading floor and brokerage firm applications.
The Orbit Instrument Division has recently completed a pre-production
order for a new
Electroluminescent (EL) Display Terminal. The Data Entry Display combines a
high bright EL
Display module with an ultra-compact single board computer. The unit was
specifically
designed as a high speed AT compatible computer which will mechanically fit
into limited space
applications. This EL technology based Data Entry Display Panel is being
implemented on
various army and marine programs such as the Fire Finder Program as well as
several foreign
military programs. Orbit has received pre-production orders for these units
for four different
programs.
The Orbit Instrument Division has finalized a design for a shipboard
console to be used
primarily for foreign sales opportunities. The upgraded console incorporates
a 20.1" color LCD
display together with a package of man/machine-interface solutions. Initial
prototype consoles
have included newly designed trackballs, keyboards and data display devices,
qualified to meet
shipboard applications.
Power Units Segment
Behlman has developed a strategic relationship with a manufacturer of
DC/DC converter
modules. These modules will be sold under the Behlman name and will be used
in value added
equipment sales.
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 and aircraft manufacturers' requirements. Behlman is currently under
order for several
units of this hardware.
Behlman has entered the Utility Transmission and Distribution ("T&D")
industry. The
utility industry is facing competition, resulting in pressure to cut costs in
their substations
through automation. In the event of a power outage, the computers and other
critical equipment
must be powered with AC power sources utilizing the substation batteries.
Behlman has
received orders for this equipment and has been advertising in industry
periodicals. An offshoot
of the T&D market is the telecommunications market where batteries are
generally used to keep
the system running. This market is being investigated and Behlman plans to
enter it in much the
same way as it entered the T&D market. Behlman has developed two new products
to supply
this market. They are a sine wave inverter and a modified version of the same
unit. These have
been introduced and will be in production in the first quarter of 2000.
The products and programs 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. (See "-
term contracts with either of the above-mentioned customers.
The major customers of the Electronics Segment are Raytheon Company and
various
agencies of the United States Government, accounting for approximately 46% and
18%,
respectively, of the net sales of the Electronics Segment for the year ended
December 31, 1999.
The loss of any of these customers would have a material adverse effect on the
net sales and
earnings of the Electronics Segment.
The major customer of the Power Units Segment is the United States
Government,
accounting for approximately 28% of the net sales of the Power Units Segment
for the year
ended December 31, 1999. The loss of this customer 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 United
States Government could have a materially adverse effect on the Company's
sales and earnings.
BACKLOG
As of December 31, 1999 and 1998 the Company's backlog was as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Electronics $3,000,000 $7,000,000
Power Units 3,000,000 2,000,000
Total $6,000,000 $9,000,000
</TABLE>
Of the backlog at December 31, 1999, approximately $500,000 represents
backlog under
contracts which will not be shipped during 2000.
A significant amount of the Company's contracts are subject to
termination at the
convenience of the United States Government. The backlog is not influenced by
seasonality.
SPECIAL FEATURES OF UNITED STATES GOVERNMENT CONTRACTS
Orders under United States Government prime contracts or subcontracts are
customarily
subject to termination at the convenience of the United States Government, in
which event the
contractor is normally entitled to reimbursement for allowable costs and 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 United States Government
occurred during the
year ended December 31, 1999.
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 United
States 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 $731,000, $793,000 and $795,000 of
research and
development expenses during the years ended December 31, 1999, 1998 and 1997,
respectively.
PATENTS
The Company does not own any patents which it believes are of material
significance to
its operations.
EMPLOYEES
As of March 23, 1999, the Company employed 92 persons on a full-time
basis. Of these,
the Electronics Segment employed 49 people, consisting of 10 in engineering
and drafting, 5 in
sales and marketing, 10 in direct and corporate administration and the balance
in production.
The Power Units Segment employed 43 people, consisting of 11 in engineering
and drafting, 4 in
sales, 2 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 1,700 square feet in Ventura, California which is used for
sales. The lease
expires in December 2000.
As a residual 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.
The leases
and subleases thereon expired in January, 2000 and June, 1999, respectively.
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.
Bankruptcy and Liquidation of Canadian Subsidiaries: On March 12, 1997,
Orbit
commenced bankruptcy proceedings against two of its subsidiaries, Canada
Classique, Inc. and
Winnipeg Leather (1991) Inc., which operated its Canadian apparel operation.
Such bankruptcy
proceedings are still pending. Orbit has appointed a receiver and manager who
has liquidated all
of the assets of these subsidiaries. The proceeds of such sales were used to
pay down the
outstanding obligations to the secured lender of the two subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders was held on October 1, 1999 to approve an
amendment to the Company's Certificate of Incorporation to effect a
one-for-three reverse stock
split of the Company's outstanding stock. The approval of the reverse stock
split was necessary
to meet the requirements for listing on the Nasdaq SmallCap Market. See Item 4
of the
Company's Report on Form 10-Q filed November 15, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of March 9, 2000, the Company had 322 shareholders of record. The
Company's
stock is traded on the Nasdaq SmallCap Market (Nasdaq symbol ORBT).
The quarterly closing prices for the period January 1, 1998 through
December 31, 1999,
as reported by Nasdaq, were as follows. The prices set forth below have been
adjusted to give
effect to the one-for-three reverse stock split effective October 4, 1999.
<TABLE>
<S> <C>
CLOSE
</TABLE>
<TABLE>
<S> <C> <C>
HIGH LOW
1998:
First Quarter: 13.50 9.56
8.63
Second Quarter: 12.38
9.75
Third Quarter: 5.44
4.50
Fourth Quarter: 6.375
1999:
6.56 3.00
First Quarter:
Second Quarter: 4.50 3.00
Third Quarter: 3.38 1.50
1.00
Fourth Quarter: 1.88
</TABLE>
The Company has not declared any dividends during the
aforesaid period.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<S> <C> <C> <C>
Year ended December 31,
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Net sales $12,220,000 $16,351,000 $16,971,000$11,763,000
$17,626,000
Income (1,375,000) 1,881,000 3,311,000 2,491,000
from continuingoperations 2,038,000
Income (loss)
from --
discontinued -- -- (8,800,000)(24,744,000)
operations
Income per sharefrom continuingoperations: (a) Basic
Diluted
(.68) .90 1.02 1.68 1.26
.81 .90 1.59 1.26
(.68)
Income
(loss) per
share ( 4.44) ( 12.60)
from -- -- -- ( 4.26) ( 12.51)
discontinued -- -- --
operations: (a) Basic
Diluted
Total assets 14,948,000 19,145,000 17,899,000 19,931,000 38,028,000
at year-end
Long-term obligations3,666,0003,881,000 3,667,000 3,817,000 1,097,000
Total stockholders' Equity7,648,0009,059,000 7,287,000 5,146,000 9,318,000
</TABLE>
After giving effect to the one-for-three reverse stock split effective
October 4, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Year Ended December 31, 1999 v. Year Ended December 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 year ended December 31, 1999 decreased to
$12,220,000
from $16,351,000 for the prior year due to decreased sales from both the
Electronics Segment and
the Power Units Segment.
Gross profit, as a percentage of sales, for the year ended December 31,
1999 decreased to
33.4% from 41.8% for the prior year due to lower gross profits realized by
both the Electronics
Segment and the Power Units Segment principally due to the reduction in sales
and the write-down
of certain inventory items due to the vast uncertainty facing the defense
industry.
Selling, general and administrative expenses for the year ended December
31, 1999
decreased to $4,952,000 from $5,719,000 for the year ended December 31, 1998
principally due
to several cost cutting initiatives taken by the Company during the first
quarter of 1999. Selling,
general and administrative expenses, as a percentage of sales, for the year
ended December 31, 1999
increased to 40.5% from 35.0% for the prior year principally due to decreased
sales during the
current year.
In July 1998, the Company reached a settlement with respect to the USA
Classic class action
securities litigation pursuant to an executed "Stipulation of Settlement" by
each of the parties and
the approval of such by the court. The Company's portion of the Settlement
was $1,000,000 of
which $500,000 had been previously accrued. Accordingly, the Company recorded
an additional
charge of $500,000 during 1998. In January 1999, the Company paid $1,000,000
to the plaintiffs
in complete satisfaction of its obligations under the settlement agreement.
Interest expense for the year ended December 31, 1999 was $334,000 and
did not materially
change from $328,000 recorded for the year ended December 31, 1998.
Investment and other income for the year ended December 31, 1999
decreased to $278,000
from $393,000 for the prior year principally due to a decrease in funds
available for investment in
the current period.
In connection with related uncertainties surrounding the defense
industry, pursuant to
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes", the
Company adjusted its valuation allowance against its deferred tax asset
thereby taking a charge of
$450,000 to income for the year ended December 31, 1999. In the prior year,
in connection with
the resolution of the USA Classic class action securities litigation, the
Company reduced its
valuation allowance against its existing deferred tax asset by $1,200,000 for
the year ended
December 31, 1998.
For the year ended December 31, 1999, the Company recorded a net loss of
$1,375,000
compared to net income of $1,881,000 for the year ended December 31, 1998.
Excluding the
charge for the settlement of the class action securities litigation in the
prior year and the adjustments
to the Company's deferred tax asset in both the current and prior year, the
net loss for the year
ended December 31, 1999 was $925,000 compared to net income of $1,181,000 for
the year ended
December 31, 1998.
Year Ended December 31, 1998 v. Year Ended December 31, 1997
Consolidated net sales for the year ended December 31, 1998 decreased to
$16,351,000
from $17,626,000 for the prior year, principally due to decreased sales of
$1,480,000 in the
Company's Power Units Segment which were partially offset by increased sales
of $205,000 in the
Company's Electronics Segment.
Gross profit, as a percentage of net sales, for the year ended December
31, 1998 decreased
to 41.8% from 43.1% for the prior year due to lower gross profits realized by
the Company's Power
Unit Segment primarily due to a reduction in the Segment's sales.
Selling, general and administrative expenses for the year ended December
31, 1998 increased
to $5,719,000 from $5,596,000 for the year ended December 31, 1997,
principally due to a charge
of $236,000 in 1998, resulting from the final determination of an inventory
dispute related to the
1996 Behlman acquisition. Excluding this charge, selling general and
administrative expenses for
the year ended December 31, 1998 decreased to $5,483,000 from $5,596,000 for
the prior year.
This decrease was principally due to a reduction in corporate expenses which
were partially offset
by higher selling, general and administrative costs incurred by the
Electronics Segment resulting
from increased selling and marketing efforts. Selling, general and
administrative expenses, as a
percentage of sales, for the year ended December 31, 1998 increased to 35.0%
from 31.7% for the
prior year due to higher selling, general and administrative costs incurred by
the Electronics Segment
and certain fixed costs of the Power Unit segment which did not decrease
despite the reduction in
the Segment's sales.
In July 1998, the Company reached a settlement with respect to the USA
Classic class action
securities litigation pursuant to an executed "Stipulation of Settlement" by
each of the parties and
the approval of such by the court. The Company's portion of the settlement
was $1,000,000 of
which $500,000 had been previously accrued. Accordingly, the Company recorded
an additional
charge of $500,000 during 1998.
Interest expense for the year ended December 31, 1998 increased to
$328,000 from
$253,000 for the prior year, principally due to interest recorded in the
current period by the
Company related to a debt obligation of the discontinued apparel operations.
Such interest expense
was recorded as part of the discontinued apparel operations for a portion of
the prior period.
Investment and other income for the year ended December 31, 1998
increased to $393,000
from $284,000 for the prior year, principally due to an increase in funds
available for investment
during 1998.
In connection with the resolution of the USA Classic class action
securities litigation and its
related uncertainties and consistent with Financial Accounting Standards No.
109, "Accounting for
Income Taxes", the Company recorded additional deferred tax assets and reduced
its valuation
allowance against its existing deferred tax assets by $1,200,000 during the
year ended December
31, 1998.
Net income for the year ended December 31, 1998 decreased to $1,881,000
from
$2,038,000 for the prior year. Included in the current year's net income was
the reduction of a
valuation allowance against existing deferred tax assets of $1,200,000 and
charges of $500,000,
recorded in connection with the settlement of the class action securities
litigation and $236,000
resulting from the final determination of an inventory valuation dispute
related to the 1996 Behlman
acquisition. Excluding the impact of the income tax benefit, the settlement
of the class action
litigation and the resolution of the dispute, net income for the year ended
December 31, 1998
decreased to $1,417,000 from $2,038,000 from the prior year. This decrease
was principally due
to lower profits recorded by the Company's Power Units Segment resulting from
a decrease in the
Segment's sales.
Liquidity, Capital Resources and Inflation
Working capital decreased to $7,161,000 at December 31, 1999 compared to
$7,941,000
at December 31, 1998. The ratio of current assets to current liabilities
increased to 3.2 to 1 at
December 31, 1999 from 2.4 to 1 at December 31, 1998.
Net cash flows used in operations for the year ended December 31, 1999
was $1,102,000,
primarily attributable to the net loss for the period, the payment related to
the settlement of the class
action litigation and a decrease in accrued expenses and customer advances
that was partially offset
by the non cash flow effect of the reduction of the deferred tax asset and a
decrease in accounts
receivable and inventories. Cash flows provided by investing activities for
the year ended December
31, 1999 was $3,770,000, primarily attributable to the net sales of marketable
securities. Cash flows
used in financing activities for the year ended December 31, 1999 was
$131,000, primarily
attributable to repayments of long-term debt and the purchase of treasury
stock partially offset by
the proceeds of long term debt.
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. The amount owed under this credit facility at December 31, 1999
was approximately
$3,322,000 at an interest rate of 1.25 above the prime rate of interest.
On September 1, 1999 the Board of Directors authorized a 1 for 3 reverse
stock split thereby
decreasing the number of issued and outstanding shares of the Company's stock.
This reverse stock
split was approved by the shareholders on October 1, 1999 and the effective
date was October 4,
1999. All per share data and numbers of common shares have been retroactively
restated to reflect
this reverse stock split. The purpose of the reverse stock split was to put
the Company into
compliance with the requirements of a small cap listing in order to effectuate
the transfer of the
Company's listing from the Nasdaq National Market to the Small Cap Market. See
the Company's
Report on Form 8-K, filed October 6, 1999. In September 1998, the Company's
Board of Directors
authorized a stock repurchase program for the repurchase of up to 83,333
shares of its common
stock in the open market or in privately negotiated transactions. The Company
repurchased
approximately 52,000 shares at an average price of $5.01 per share. The
Company has not made
any repurchases since the first quarter of 1999.
The Company's existing capital resources, including its bank credit
facilities, and its cash
flow from operations are expected to be adequate to cover the Company's cash
requirements for
the foreseeable future.
Inflation has not materially impacted the operations of the Company.
Certain Material Trends
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 shifted a portion of shipments anticipated for 1999
into the year 2000.
However, the Company continues to experience delays in contract awards and
because of this
uncertainty, does not see any improvement to revenue levels in the year 2000.
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 U.S. 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
U.S. 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 as well as to
other Departments of
Defense.
Year 2000
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. There was concern that this could result in system
failures or miscalculations
leading to disruptions in the Company's activities and operations.
In response to the Year 2000 issue, the Company developed a plan to
modify its information
technology systems to recognize the year 2000, including the purchase of a new
manufacturing
software package, and proceeded to convert its critical data processing
systems. The Company
spent approximately $125,000, funded by cash from operations, on its Year 2000
compliance. The
expenses primarily included the price of new software as well as
implementation of the new software
package. The Company also spent resources to communicate with its significant
suppliers, large
customers and financial institutions to ensure that those parties had
appropriate plans to remediate
Year 2000 issues where their systems interface with Company systems or
otherwise impact its
operations, and to prepare contingency plans including manual workarounds,
increase of inventories
and protective cash management proceeds.
As of March 2000, the Company has experienced no disruptions in
operations as a result of
the Year 2000 issue and does not anticipate additional material expenses
related to the Year 2000
issue. Additionally, the Company has not been notified or become aware of any
significant Year
2000 related incidents which would materially impact operations. However, the
Company will
continue to monitor the Year 2000 issue in the event such incidents become
evident.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
The Company is exposed to market risk related to changes in interest
rates. Most of the
Company's debt is at a variable rate of interest and is not hedged by any
derivative instruments.
That debt which is subject to a variable rate of interest amounted to
approximately $3,322,000 at
December 31, 1999. If market interest rates increase by five percent from
levels at December 31,
1999, the effect on the Company's results of operations would be approximately
$165,000.
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.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Consolidated)
<TABLE>
<S> <C> <C> <C> <C>
Year Ended First Quarter Second QuarterThird QuarterFourth Quarter
December 31, 1999
Net sales $3,409,000 $3,609,000 $2,773,000 $2,429,000
Gross profit 1,352,000 1,380,000 1,162,000 189,000
Net income (18,000) 204,000 8,000 (1,569,000)
Basic income per $(.01) $.10 $.00 $(.77)
common share (a)
Diluted income per
common share (a) $(.01) $.10 $.00 $(.77)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Year Ended First Quarter Second QuarterThird QuarterFourth Quarter
December 31, 1998
Net sales $4,285,000 $4,235,000 $3,826,000 $4,005,000
Gross profit 1,776,000 1,863,000 1,490,000 1,706,000
Net income 471,000 1,110,000 293,000 7,000
Basic income per $.23 $.54 $.14 $.00
common share(a)
Diluted income per $.21 $.48 $.12 $.00
common share (a)
</TABLE>
(a) After giving effect to the one-for-three reverse stock split
effective October 4, 1999.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On February 4, 2000, the Board of Directors of the Company approved
the engagement
of Goldstein Golub Kessler LLP as its independent auditors for the fiscal year
ended December 31,
1999 to replace the firm of Ernst & Young LLP. The Company determined to
change its
independent auditors on the basis of the significant savings in the amount of
fees paid and not as
a result of a dispute or disagreement with Ernst & Young LLP. See the
Company's Report on
Form 8-K/A filed February 17, 2000.
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 2000 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 2000 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 2000 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 2000 Annual Meeting of Stockholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT 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, 1998.
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) Amended and Restated Employment Agreement, dated as of
February 15,
1999, between Registrant and Mitchell Binder. Incorporated by
reference to
Exhibit 10(a) to Registrant's Annual Report on Form 10-K for the
fiscal year ended
December 31, 1998.
10 (b) Amended and Restated Employment Agreement, dated as of
February 15,
1999, between Registrant and Bruce Reissman. Incorporated by
reference to
Exhibit 10(b) to Registrant's Annual Report on Form 10-K for the
fiscal year ended
December 31, 1998.
10 (c) Amended and Restated Employment Agreement, dated as of
February 15,
1999 between Registrant and Dennis Sunshine. Incorporated by
reference to
Exhibit 10(c) to Registrant's Annual Report on Form 10-K for the
fiscal year ended
December 31, 1998.
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.
10 (h) Credit Agreement between the Company and The Chase Manhattan Bank
dated
August 4, 1998 including exhibits thereto. Incorporated by
reference to Exhibit
10(h) to Registrant's Annual Report on Form 10-K for the fiscal
year ended
December 31, 1998.
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 Goldstein Golub Kessler LLP.
23.1* Consent of Ernst & Young LLP.
27* Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on October 6, 1999.
__________
* Filed herewith.
SIGNATURES
Pursuant to the requirements 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,
thereto duly authorized.
ORBIT INTERNATIONAL CORP.
Dated: March 30, 2000 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.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ Dennis Sunshine President, Chief ExecutiveOfficer and DirectorMarch
30, 2000
Dennis Sunshine
/s/ Mitchell Binder Vice March 30, 2000
Mitchell Binder President-Finance, ChiefFinancial Officer and Director
/s/ Bruce Reissman Executive Vice President,Chief Operating March 30, 2000
Bruce Reissman Officer and
Director
/s/ Harlan Sylvan Treasurer, March 30, 2000
Harlan Sylvan Secretary and Controller
/s/ Marc Pfefferle Director March 30, 2000
Marc Pfefferle
/s/ John Molloy Director March 30, 2000
John Molloy
/s/ Stanley Morris Director March 30, 2000
Stanley Morris
</TABLE>
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Orbit International Corp.
We hereby consent to incorporation by reference in the Registration Statement
on Form S-8
(Registration Number 333-25979) of our report dated February 25, 2000, except
for Note 18, as
to which the date is March 1, 2000, on the consolidated financial statements
of Orbit International
Corp. and Subsidiaries as of December 31, 1999, which appear in the Annual
Report on Form 10-
K of Orbit International Corp. for the year ended December 31, 1999.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 30, 2000
Exhibit 23.1
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, 1999, except for the reverse stock
split described in
Note 3 as to which the date is October 4, 1999 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, 1998.
/s/ Ernst & Young LLP
New York, New York
March 30, 2000
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
FORM 10K-ITEM 14(A)(1)&(2)
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULE
INDEPENDENT AUDITOR'S REPORT
F-1
INDEPENDENT AUDITOR'S REPORT
F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1999 and 1998
F-3
Statements of Operations for the Years ended December 31, 1999, 1998 and 1997
F-4
Statements of Stockholders' Equity for the Years ended December 31, 1999,
1998
and 1997
F-5 - F-6
Statements of Cash Flows for the Years ended December 31, 1999, 1998 and 1997
F-7
Notes to Consolidated Financial Statements
F-8 - F-20
The following financial statement schedule is included in Item 14(d):
Schedule II-Valuation and Qualifying Accounts
F-21
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.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Orbit International Corp.
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and
Subsidiaries as of December 31, 1999 and the related consolidated statements
of operations,
stockholders' equity, and cash flows for the year then ended. Our audit also
included the financial
statement schedule listed in the Index at Item 14(d). These financial
statements and schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these
consolidated financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our
opinion.
IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE
PRESENT FAIRLY, IN ALL
MATERIAL RESPECTS, THE FINANCIAL POSITION OF ORBIT INTERNATIONAL CORP. AND
SUBSIDIARIES AS OF
DECEMBER 31, 1999, AND THE RESULTS OF THEIR OPERATIONS AND THEIR CASH FLOWS
FOR THE YEAR THEN
ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. ALSO, IN
OUR OPINION, THE
RELATED FINANCIAL STATEMENT SCHEDULE, WHEN CONSIDERED IN RELATION TO THE BASIC
CONSOLIDATED
FINANCIAL STATEMENTS TAKEN AS A WHOLE, PRESENTS FAIRLY IN ALL MATERIAL
RESPECTS THE INFORMATION SET
FORTH THEREIN.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
February 25, 2000, except for Note 18,
as to which the date is March 1, 2000
Report of Independent Auditors
Stockholders and Board of Directors
Orbit International Corp.
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and
subsidiaries as of December 31, 1998 and the related statements of operations,
stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1998.
These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial
statements of 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, 1998, and
the consolidated results of their operations and their cash flows for each of
the two years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/Ernst & Young LLP
New York, New York
March 5, 1999, except for the reverse
stock split described in Note 3 as to
which the date is October 4, 1999
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1999 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 2,975,000
$ 438,000
Investments in marketable securities 3,000
3,230,000
Accounts receivable, less allowance for doubtful accounts of
$166,000 in 1999 and $178,000 in 1998 1,391,000
2,345,000
Inventories 5,804,000
7,089,000
Restricted investments related to discontinued operations
26,000
Assets held for sale - discontinued operations41,000
80,000
Other current assets 136,000
140,000
Deferred tax assets 75,000 276,000
TOTAL CURRENT ASSETS 10,425,000 13,624,000
Property, plant and equipment, at cost, less accumulated
depreciation and amortization 2,128,000
2,267,000
Excess of cost over the fair value of assets acquired, less
accumulated amortization of $330,000 in 1999 and
$234,000 in 1998 1,059,000
1,155,000
Investments in marketable securities -
517,000
Other assets 661,000
658,000
Deferred tax assets 675,000
924,000
TOTAL ASSETS $14,948,000 $19,145,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations$ 738,000
$ 593,000
Accounts payable 1,143,000
1,189,000
Accrued expenses 884,000
2,432,000
Accounts payable, accrued expenses and reserves applicable
to discontinued operations 499,000
669,000
Due to factor -
15,000
Customer advances - 785,000
TOTAL CURRENT LIABILITIES 3,264,000 5,683,000
Long-term obligations 3,666,000
3,881,000
Accounts payable, accrued expenses and reserves applicable to
discontinued operations, less current portion370,000
522,000
TOTAL LIABILITIES 7,300,000 10,086,000
Commitments and Contingencies
Stockholders' Equity:
Common stock - $.10 par value 304,000
304,000
Additional paid-in capital 24,165,000
24,163,000
Accumulated deficit (6,971,000)
(5,596,000)
Deferred compensation -
(19,000)
Accumulated other comprehensive income - 9,000
17,498,000 18,861,000
Treasury stock, at cost (9,850,000)
(9,802,000)
STOCKHOLDERS' EQUITY 7,648,000 9,059,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$14,948,000 $19,145,000
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 1998 1997
Net sales $12,220,000$16,351,000 $17,626,000
Cost of sales 8,137,000 9,516,000 10,023,000
Gross profit 4,083,000 6,835,000 7,603,000
Selling, general and administrative expenses 4,952,000 5,719,0005,596,000
Class action litigation settlement - 500,000 -
Interest expense 334,000 328,000 253,000
Investment and other income, net (278,000) (393,000) (284,000)
Total expenses 5,008,000 6,154,000 5,565,000
Income (loss) before income tax provision (benefit)(925,000)681,0002,038,000
Income tax provision (benefit) 450,000(1,200,000) -
Net income (loss) $(1,375,000)$ 1,881,000 $ 2,038,000
Net income (loss) per common share:
Basic $ (0.68)$ 0.91
$ 1.01
Diluted $ (0.68)$ 0.81$
0.89
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
COMMON STOCKOTHER
25,000,000 SHARESCOMPRE-
AUTHORIZEDADDITIONALHENSIVE
SHARES PAID-INACCUMULATED TREASURY
STOCKDEFERREDINCOME
ISSUED AMOUNT CAPITAL DEFICIT SHARES
AMOUNTCOMPENSATION(LOSS) TOTAL
Balance at December 31, 1996 3,023,000$ 302,000 $24,123,000
$(9,515,000)(961,000)$(9,588,000)$(174,000) $(2,000)
$ 5,146,000
Deferred compensation earned- - - - - -
77,000
- 77,000
Exercises of stock options7,000 1,000 21,000 - - -
- -
- 22,000
Comprehensive income:
Net income - - - 2,038,000 - - -
- 2,038,000
Unrealized gain on marketable
securities - - - - - - -
4,00
4,000
Comprehensive income- - - 2,038,000- - -
4,000 2,042,000
Balance at December 31,
19973,030,000303,00024,144,000(7,477,000)(961,000)(9,588,000) (97,000)
2,0007,287,000
(continued)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
COMMON STOCKOTHER
25,000,000 SHARESCOMPRE-
AUTHORIZEDADDITIONALHENSIVE
SHARES PAID-INACCUMULATED TREASURY
STOCKDEFERRED INCOME
ISSUED AMOUNT CAPITAL DEFICIT SHARES
AMOUNTCOMPENSATION(LOSS) TOTAL
Balance at December 31, 19973,030,000$ 303,000$24,144,000$(7,477,000)
(961,000)$(9,588,000 )$ (97,000)
$ 2,000 $ 7,287,000
Deferred compensation earned- - - - - -
78,000
- 78,000
Exercises of stock options9,0001,000 19,000 - - -
- -
- 20,000
Purchase of treasury stock- - - - (42,000)(214,000)
- -
- (214,000)
Comprehensive income:
Net income - - - 1,881,000 - - -
- 1,881,000
Unrealized gain on marketable
securities - - - - - - -
7,000 7,000
Comprehensive income - - - 1,881,000 - -
- -
7,000 1,888,000
Balance December 31,
19983,039,000304,00024,163,000(5,596,000)(1,003,000)(9,802,000)(19,000)
9,000 9,059,000
Deferred compensation earned- - - - - -
19,000
- 19,000
Exercise of stock options 1,000 - 2,000 - - -
- -
- 2,000
Purchase of treasury stock- - - - (11,000) (48,000)
- -
- (48,000)
Comprehensive loss:
Net loss - - - (1,375,000)- - -
- (1,375,000)
Adjustment for gain on marketable
securities included in net income- - - - -
- -
-
(9,000) (9,000)
Comprehensive loss- - - (1,375,000)- - -
(9,000)(1,384,000)
Balance at December 31, 19993,040,000$
304,000$24,165,000$(6,971,000)(1,014,000)$(9,850,000)$ - 0 -$ - 0 -$
7,648,000
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1999
1998
1997
Cash flows from operating activities:
Net income (loss) $(1,375,000)
$ 1,881,000 $ 2,038,000
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Provision (credit) for doubtful accounts -
(25,000) 53,000
Depreciation and amortization 156,000
139,000 143,000
Amortization of goodwill 96,000
96,000 72,000
Compensation related to issuance of stock and options 19,000
78,000 77,000
Deferred tax provision (benefit) 450,000
(1,200,000) -
Loss on sale of fixed assets -
8,000 -
Change in value of marketable securities (9,000)
- -
Changes in operating assets and liabilities, excluding effect of
acquisition:
Accounts receivable 954,000
725,000 16,000
Inventories 1,285,000
(770,000) 338,000
Other current assets 4,000
164,000 (58,000)
Other assets (20,000)
(62,000) (132,000)
Accounts payable (46,000)
103,000 146,000
Accrued expenses (548,000)
318,000 (431,000)
Customer advances (785,000)
785,000 -
Assets held for sale, discontinued operations39,000
185,000 447,000
Accounts payable, accrued expenses and reserves applicable to
discontinued operations (322,000)
(573,000) (2,296,000)
Payment for settlement of class action securities litigation (1,000,000)
- -
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES (1,102,000) 1,852,000 413,000
Cash flows from investing activities:
Purchases of marketable securities (1,966,000)
(5,876,000) (4,899,000)
Proceeds from sales of marketable securities5,736,000
5,035,0006,363,000
Purchase of property, plant and equipment-
(72,000)(51,000)
Payment of deferred transaction costs -
(78,000)-
NET CASH PROVIDED BY (USED
IN) INVESTING ACTIVITIES 3,770,000 (991,000) 1,413,000
Cash flows from financing activities
Repayments of long-term debt (570,000)
(4,414,000)(1,203,000)
Proceeds from long-term debt 500,000
3,500,000116,000
Deferred financing costs -
(166,000)-
Decrease in due to factor (15,000)
(245,000)(592,000)
Proceeds from exercise of stock options 2,000
20,00022,000
Purchase of treasury stock (48,000)
(214,000)-
NET CASH USED IN FINANCING
ACTIVITIES(131,000) (1,519,000)(1,657,000)
Net increase (decrease) in cash and cash equivalents2,537,000
(658,000)169,000
Cash and cash equivalents at beginning of year438,000
1,096,000927,000
Cash and cash equivalents at end of year$ 2,975,000$ 438,000
$ 1,096,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 334,000$ 328,000$ 497,000
THE COMPANY ACQUIRED PROPERTY, PLANT AND EQUIPMENT OF APPROXIMATELY $87,000
DURING THE YEAR ENDED DECEMBER 31,
1997 PURSUANT TO VARIOUS CAPITAL LEASES.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
1.ORGANIZATION The consolidated financial statements include
AND BUSINESS: 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. On August 6, 1996, the
board of directors of the Company
adopted a plan to dispose of its U.S. and
Canadian apparel operations. At December
31, 1999 and 1998, the assets and liabilities of
the discontinued operations consisted
primarily of certain current assets, accrued
expenses and other reserves.
2.SUMMARY OF The Company considers all highly liquid
SIGNIFICANT investments with a maturity of three months
ACCOUNTING or less when purchased to be cash equivalents.
POLICIES:
Inventories are priced at the lower of cost
(first-in, first-out basis) or market.
Property, plant and equipment is recorded at
cost. Depreciation and amortization of
the respective assets are computed using the
straight-line method over their estimated
useful lives ranging from 5 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.
Excess of cost over the fair value of net assets
acquired is being amortized on a
straight-line basis over 15 years.
The Company's investment in available-for-sale
securities is stated at fair value
with the unrealized gains and losses, net of
tax, reported in other
comprehensive income.
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 such securities are
included in investment income.
Substantially all of the Company's revenue
is recognized from the sale of
tangible products. The Company records sales
upon delivery of the units under its
manufacturing contracts.
The preparation of the consolidated financial
statements in conformity with
generally accepted accounting principles
requires management to make estimates
and assumptions that affect the consolidated
financial statements and
accompanying notes. Actual results could differ
from those estimates.
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.
The Company measures stock-based compensation
cost using APB Opinion No.
25 as is permitted by Statement of Financial
Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation.
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.
Using this method, the Company's fair value of
long-term obligations was not significantly
different than the stated value at December 31,
1999 and 1998.
As of January 1, 1998, the SFAS No. 130,
Reporting Comprehensive Income.
Statement 130 establishes new rules for the
reporting and display of comprehensive income
and its components; however, the adoption of
this statement had no impact on the Company's
net income or stockholders' equity. SFAS 130
requires unrealized gains or losses on the
Company's available-for-sale securities, which
prior to adoption was reported separately in
stockholders' equity, to be included in other
comprehensive income. The related tax effect on
comprehensive income is not material for the
periods presented.
Research and development costs are expensed when
incurred. The Company expensed approximately
$731,000, $793,000 and $795,000 for research and
development during the years ended December 31,
1999, 1998 and 1997, respectively. Such
expenses are included in selling, general and
administrative expenses.
3.REVERSE On September 1, 1999, the board of directors
STOCK SPLIT: authorized a 1-for-3 reverse
stock split thereby decreasing the number of
issued and outstanding shares of
the Company's stock. This reverse split was
approved by the stockholders on
October 1, 1999 and the effective date was
October 4, 1999. All per share
data and numbers of common shares have been
retroactively restated to reflect
this reverse stock split.
4.INVENTORIES: Inventories consist of the following:
</TABLE>
December 31,19991998
Raw materials $2,943,000 $2,609,000
Work-in-progress 2,861,000 4,480,000
$5,804,000 $7,089,000
<TABLE>
<S> <C>
1.PROPERTY, Property, plant and equipment consists of:
PLANT AND
EQUIPMENT:
December 31,19991998
</TABLE>
Land
and building$2,688,000 $2,688,000
Building and leasehold improvements293,000 293,000
Machinery and equipment 1,113,000 1,113,000
Furniture and fixtures 543,000 543,000
4,637,0004,637,000
Accumulated depreciation and amortization 2,509,0002,370,000
$2,128,000 $2,267,000
<TABLE>
<S> <C>
6.AVAILABLE-FOR-SALE SECURITIES:The following is a summary of available-for-
sale securities:
At December 31, 1999, the Company had corporate
debt securities with a cost and
estimated fair value of approximately $3,000.
</TABLE>
December 31, 1998
Estimated
Cost Fair
Value
U.S. Treasury bills $2,883,000 $2,883,000
Corporate debt securities 881,000 890,000
3,764,000 3,773,000
Restricted value of portfolio used to
collateralize credit facility 26,000 26,000
Balance of securities portfolio$3,738,000 $3,747,000
Under the terms of a credit facility, the Company's investment
portfolio and certain
cash balances must be maintained at a minimum collateral
value. At December 31,
1998, such collateral requirement amounted to approximately
$26,000. The credit
facility was fully paid in March 1999.
The corporate debt securities owned by the Company at December
31, 1999 have
a contractual maturity greater than three years. The
amortized cost and estimated
fair value of marketable debt securities at December 31, 1998
by contractual
maturity are shown below. Expected maturities will differ
from contractual
maturities because the issuers of the securities may have the
right to repay
obligations without prepayment penalties.
December 31, 1998
Estimated
Cost Fair
Value
Due in one year or less $3,255,000 $3,256,000
Due after one year through three years204,000 208,000
Due after three years 305,000 309,000
3,764,0003,773,000
Restricted value of portfolio used to
collateralize credit facility 26,000 26,000
$3,738,000 $3,747,000
<TABLE>
<S> <C>
7.DEBT: On August 4, 1998, the Company entered into an
agreement with a bank that
provided for a $950,000 term loan, a $2,550,000
mortgage and a $500,000
settlement loan, (collectively, the
"Agreement"). The Company received the
proceeds under the term loan and mortgage during
the year ended December
31, 1998 and used such proceeds to repay amounts
outstanding under its
previous credit agreements. The Company
received the proceeds under the
settlement loan during the year ended December
31, 1999 and used such
proceeds to partially fund the class action
securities litigation settlement of
$1,000,000 (see Note 14). The Company's
long-term debt obligations are as
follows:
</TABLE>
December 31, 1999 1998
Mortgage note collateralized by certain real estate of the
Company, interest at prime (8.5% at December 31, 1999)
plus 1.25%, payable in monthly installments of $14,167
with a final payment of $850,000 in September 2008
$2,323,000$2,493,000
Term loan collateralized by accounts receivable, inventories
and machinery and equipment, interest at prime (8.5% at
December 31, 1999) plus 1.25%, payable in 20 quarterly
installments of $47,500 through June 2003665,000855,000
(continued)
December 31, 1999 1998
Promissory note payable to the sellers of a discontinued
apparel division, noninterest-bearing, imputed interest at
6%, payable in 20 quarterly installments of $42,500,
including interest, commencing March 31, 2002 (see Note
17)$ 850,000$ 850,000
Note due to the estate of the former principal officer,
noninterest-bearing, payable in monthly installments of
through 2000189,000212,000
Capitalized lease obligation collateralized by certain
computer software, interest at 10%, payable in monthly
installments of $1,80443,00064,000
Settlement loan collateralized by accounts receivable,
inventories and machinery and equipment, interest at prime
(8.5% at December 31, 1999) plus 1.25%, payable in
quarterly installments of $41,667 through December 2001
334,000 -
4,404,000 4,474,000
Less current portion 738,000 593,000
$3,666,000 $3,881,000
<TABLE>
<S> <C>
Payments due on the Company's long-term debt are
as follows:
</TABLE>
Year
ending December 31,
2000 $ 738,000
2001 548,000
2002 530,000
2003 435,000
2004 170,000
Thereafter 1,983,000
$4,404,000
<TABLE>
<S> <C>
Pursuant to the terms of the Agreement, the
Company must comply with, among other
matters, certain financial covenants which
include minimum levels of working capital,
debt-to-equity ratios, debt service coverage and
tangible net worth, all as defined. The
Company is also precluded from declaring and
paying dividends without the consent
of the lender. At December 31, 1999, the Company
was in default of two financial
covenants which were waived by the bank.
8.ACQUISITION: On February 6, 1996, the Company 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 operations of Behlman
have been included in the consolidated financial
statements from the date of
acquisition. During 1998, the final
determination of an inventory valuation dispute
resulted in a charge to the Company's operations
of approximately $236,000.
9.COMMON STOCK In September 1998, the Company's board of
REPURCHASE directors authorized a stock repurchase
PROGRAM: program for the repurchase of up to 83,333
shares of its common stock in the open
market or in privately negotiated transactions.
During the year ended December 31,
1998 , the Company repurchased
41,600 shares for approximately
$214,000. During the quarter ended March 31,
1999 , the Company repurchased
10,733 shares for approximately
$48,000.The Company has not made
any repurchases since the first quarter of 1999.
10.STOCK-BASED The Company has stock option plans which
COMPENSATION provide for the granting of nonqualified
PLANS: or incentive stock options to officers, key
employees and nonemployee directors. The
plans authorize the granting to officers
and key employees options to acquire up
to 500,000 common shares. Additionally, the
plans authorize the granting to
nonemployee directors of the Company options to
acquire up to 50,000 common
shares. Both plans grant options at the market
value of the Company's stock on the
date of such grant. All options are exercisable
at times as determined by the board
of directors, not to exceed 10 years from the
date of grant.
Pro forma information regarding net income
(loss) and net income (loss) per share is
required by SFAS No. 123 and has been determined
as if the Company had accounted
for its stock options granted using the fair
value method of SFAS No. 123. The fair
value for these options was estimated at the
date of grant using the Black-Scholes
option pricing model with the following
weighted-average assumptions for the years
ended December 31, 1999, 1998 and 1997:
risk-free interest rates of 6%; no dividend
yield; volatility factors of the expected market
price of the Company's common stock
of 100.2%, 47.4% and 59.4% and a
weighted-average expected life of the options of
3.0 years.
The Black-Scholes 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. Because the
Company's employee 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.
</TABLE>
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:
December 31, 1999 1998 1997
Net income (loss):
As reported $(1,375,000) $1,881,000 $2,038,000
Pro forma (1,442,000) 1,711,000 1,971,000
Basic EPS:
As reported$ (.68)$ .91$
1.01
Pro forma$ (.71)$ .81$
.96
Diluted EPS:
As reported$ (.68)$ .81$
.89
Pro forma$ (.71)$ .75$
.87
<TABLE>
<S> <C>
The following table summarizes activity in stock options:
</TABLE>
December 31,199919981997
Weighted Weighted
Weighted
Average Average
Average
Exercise Exercise
Exercise
OptionsPrice OptionsPriceOptions Price
Outstanding at beginning
of year 375,000 $3.68419,000$4.02426,000
$2.76
Granted 28,000 2.7930,000 6.4260,000
7.30
Forfeited (8,000) 4.09(66,000)7.26(60,000)
3.63
Exercised (1,000) 3.24 (8,000) 2.44 (7,000)
3.03
Outstanding at end of year 394,000 3.62375,000 3.68419,000
4.02
Exercisable at end of year 367,000 352,000 360,000
Weighted-average fair
value of options granted
during the year $2.43 $4.02
$3.27
<TABLE>
<S> <C>
The weighted-average remaining contractual life
of the options outstanding is
approximately six years.
At December 31, 1999, 140,000 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 100,000 shares
of its common stock at the par value of $.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
issuance price was charged to operations over a
three-year period.
11.EMPLOYEE A profit-sharing and incentive-savings plan
BENEFIT PLANS: 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.
The Company contributed approximately $142,000,
$208,000 and $178,000 to the
plan during the years ended December 31, 1999,
1998 and 1997, respectively.
12.INCOME TAXES: During the year ended December 31, 1999, the
Company adjusted the valuation
allowance against its deferred tax asset,
resulting in a deferred tax asset of $750,000,
of which $75,000 is classified as current.
During the year ended December 31, 1998,
the Company recorded a current year deferred tax
asset and reduced the valuation
allowance against its deferred tax assets by
$1,200,000 based on its actual and
projected operating results, of which $276,000
is classified as current. During the
year ended December 31, 1997, the Company had
cumulative taxable losses and there
was no assurance of future taxable income,
therefore, a valuation allowance had been
established to offset the full amount of net
deferred tax assets.
FOR THE YEAR ENDED DECEMBER 31, 1997, THE
COMPANY RECORDED NO NET INCOME TAX
PROVISION. AT DECEMBER 31, 1999, THE COMPANY HAS
AN ALTERNATIVE MINIMUM TAX
CREDIT OF APPROXIMATELY $564,000 WITH NO
LIMITATION ON THE CARRYFORWARD PERIOD
AND NET OPERATING LOSS CARRYFORWARDS OF
APPROXIMATELY $26,005,000 WHICH
EXPIRE THROUGH 2019.
</TABLE>
The reconciliation of income tax computed at the U.S. federal
statutory tax rates to
income tax expense is as follows:
Tax (benefit) at U.S. statutory rates (34.0)% 34.0 %
34.0 %
Foreign and state income taxes,
net of federal tax benefit-7.07.0
Deferred tax asset - (176.2) -
Increase in valuation allowance 82.6 - -
Net operating and capital loss carryforwards
and carrybacks - (41.0)
(41.0)
48.6 %(176.2)%- 0 -
%
Deferred tax assets are comprised of the following:
December 31, 1999 1998
Deferred tax
assets:
Alternative minimum tax credit carryforward$ 564,000$
564,000
Net operating loss and capital loss carryforwards
(including pre-acquisition net operating loss
carryforwards) 9,564,000 9,917,000
Various temporary differences 884,000 979,000
Total deferred tax assets11,012,000 11,460,000
Valuation allowances(10,262,000) (10,260,000)
Net deferred tax assets $ 750,000 $ 1,200,000
<TABLE>
<S> <C>
13.SIGNIFICANT Sales to significant customers accounted for
CUSTOMERS AND approximately 49% (27% and 22%),
CONCENTRATIONS 48% (21% and 27%) and 50% (17% and 33%) of the
OF CREDIT RISK: Company's net sales for the
years ended December 31, 1999, 1998 and 1997,
respectively.
Significant customers of the Company's
Electronics Segment accounted for
approximately 64% (46%, and 18%), 80% (32%, 34%
and 14%) and 84% (29%,
38% and 17%) of the Electronics Segment's net
sales for the years ended December
31, 1999, 1998 and 1997, respectively.
Significant customers of the Company's Power
Units Segment accounted for
approximately 28% (28%), 29% (16% and 13%) and
44% (27% and 17%) of the
Power Units Segment's net sales for the years
ended December 31, 1999, 1998 and
1997, respectively.
Certain significant customers of the Company
sell the Company's products to the U.S.
government. Accordingly, a substantial portion
of the net sales is subject to audit by
agencies of the U.S. 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
or results of operations.
Financial instruments which potentially subject
the Company to concentrations of
credit risk consist principally of cash and
trade receivables from its customers. The
Company performs credit evaluations on its
customers and collateral is generally not
required. Credit losses are provided for in the
consolidated financial statements during
the period in which an impairment has been
determined. At times, cash at financial
institutions may be in excess of FDIC insurance limits.
14.LEASING Operating leases are for a sales office and
ARRANGEMENTS: certain equipment and vehicles for
continuing operations and office, showroom 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,
1999 under operating lease
agreements that have initial or remaining
noncancelable lease terms in excess of one
year are as follows:
</TABLE>
Year ended December 31, Total
2000$ 65,000
2001 38,000
2002 24,000
2003 6,000
Total future minimum lease payments$133,000
Rent expense for operating leases was approximately $14,000,
$14,000 and
$13,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Lease commitments attributed to the discontinued operations
amounted to
approximately $448,000, prior to sublease agreements of
approximately $22,000.
<TABLE>
<S> <C>
15.COMMITMENTS (a)The Company has employment agreements with
AND its three executive officers which
CONTINGENCIES: may be terminated by the Company with not less
than three years prior notice and
with two other principal officers, for aggregate
annual compensation of
$1,023,000. 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 agreements. 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 $53,000 and $202,000 during the
years ended December 31, 1998
and 1997, respectively.
There was no bonus compensation for the year
ended December 31, 1999.
(b)In September 1993, a class action securities
litigation was commenced by an
alleged stockholder of USA Classic (formerly a
subsidiary of the Company),
against USA Classic and certain of its directors
in the U.S. District Court for the
Southern District of New York.
In August 1998, the Company and the Defendants
entered into a Stipulation and
Agreement of Settlement (the "Settlement
Agreement") of the class action.
Pursuant to the terms of the Settlement
Agreement and in complete satisfaction
of its obligations thereunder, the Company paid
$1,000,000 in January 1999 as
its portion to settle the Class Action, of which
$500,000 was accrued for at
December 31, 1997 and $500,000 was charged to
the Company's operations
during the year ended December 31, 1998.
(c)In the ordinary course of business, the
Company is 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, results of
operations or cash flows of the Company.
16. BUSINESS The Company operates through two business
SEGMENTS: 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 Company's reportable segments are each
managed separately as they
manufacture and distribute distinct products
with different production processes.
</TABLE>
The following is the Company's business segment
information as of and for
the years ended December 31, 1999, 1998 and 1997:
December 31, 1999 1998 1997
Net sales:
Electronics $ 6,975,000$10,250,000 $10,045,000
Power Units:
Domestic 4,438,000 5,245,000 6,397,000
Foreign 817,000 935,000 1,200,000
Intercompany sales (10,000) (79,000) (16,000)
Total Power Units 5,245,000 6,101,000 7,581,000
Total net
sales12,220,00016,351,00017,626,000
Income (loss) from continuing
operations:
Electronics 615,000 2,412,000 2,457,000
Power Units (810,000) (461,000) 634,000
General corporate expenses
not allocated (674,000)(1,335,000) (a)(1,083,000)
Interest expense (334,000) (328,000) (253,000)
Investment and other income, net278,000 393,000283,000
Income (loss) from continuing
operations before income taxes
(benefit) $ (925,000)$ 681,000 $ 2,038,000
Assets:
Electronics $ 6,156,000$ 7,863,000
Power Units 3,303,000 3,964,000
General corporate assets not
allocated 5,448,000 7,238,000
Assets held for sale - discontinued
operations 41,000 80,000
Total assets $14,948,000$19,145,000
(a) Includes $500,000 charge for the
class action securities litigation settlement
(see Note 14).
<TABLE>
<S> <C>
17.INCOME The following table sets forth the computation
(LOSS) of basic and diluted income (loss) per
PER COMMON SHARE:common share:
December 31,199919981997
</TABLE>
Denominator:
Denominator for basic income
(loss) per share - weighted-average
common shares 2,026,0002,061,000 2,023,000
Effect of dilutive securities:
Employee and director stock options (a) 206,000186,000
Warrants (a) 57,000 52,000
Unearned stock award (a) 6,000 27,000
Dilutive potential common
shares 269,000265,000
Denominator for diluted income
(loss) per share - weighted-average
common shares and assumed
conversions 2,026,0002,330,000 2,288,000
The numerator for basic and diluted income (loss) per share
for the years ended
December 31, 1999, 1998 and 1997 is the net income (loss) for
all such years.
(a) There is no effect of common stock equivalents
as such effect would
be
antidilutive.
<TABLE>
<S> <C>
18.SUBSEQUENT In March 2000, the Company reached an agreement
EVENTS: with the sellers of a discontinued
apparel division whereby the Company would
commence making payments on the promissory note
payable to such sellers in 2000 rather than in
2002, as scheduled in consideration for a
reduction in the promissory note from $850,000
to $660,000.
</TABLE>
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
CHARGED TO
CHARGED TO
BALANCE AT COSTS
OTHER
BALANCE AT
BEGINNING AND COSTS
ACCOUNTS-DEDUCTIONS-
END OF
of Period Expenses
Describe Describe
Period
Year ended December 31, 1999:
Reserves and allowances deducted from asset accounts:
Reserve for estimated doubtful accounts and allowance$ 178,000 -
- $ 12,000 (a)
$ 166,000
Valuation allowance on deferred tax asset10,260,000$ 2,000
- -
10,262,000
Year ended December 31, 1998:
Reserves and allowances deducted from asset accounts:
Reserve for estimated doubtful accounts and allowance203,000-
- 25,000 (a)
178,000
Valuation allowance on deferred tax asset10,977,000-
- 717,000 (c)
10,260,000
Year ended December 31, 1997:
Reserves and allowances deducted from asset accounts:
Reserve for estimated doubtful accounts and allowance150,00053,000
- -
203,000
Valuation allowance on deferred tax asset10,249,000-
$728,000 (b) -
10,977,000
(a) Reduction in allowances
(b) Increase to allowance
(c) Reduction in valuation allowance for deferred tax assets
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,975,000
<SECURITIES> 3,000
<RECEIVABLES> 1,391,000
<ALLOWANCES> (166,000)
<INVENTORY> 5,804,000
<CURRENT-ASSETS> 10,425,000
<PP&E> 4,636,000
<DEPRECIATION> (2,509,000)
<TOTAL-ASSETS> 14,948,000
<CURRENT-LIABILITIES> 3,264,000
<BONDS> 3,666,000
0
0
<COMMON> 304,000
<OTHER-SE> 7,344,000
<TOTAL-LIABILITY-AND-EQUITY> 14,948,000
<SALES> 12,220,000
<TOTAL-REVENUES> 12,220,000
<CGS> 8,137,000
<TOTAL-COSTS> 8,137,000
<OTHER-EXPENSES> 4,952,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 334,000
<INCOME-PRETAX> (925,000)
<INCOME-TAX> 450,000
<INCOME-CONTINUING> (1,375,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,375,000)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
</TABLE>
