10QSB 1 form10q32001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 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 number 0-3936 Orbit International Corp. (Exact name of small business issuer as specified in its charter) Delaware ID # 11-1826363 (State or other jurisdiction (I.R.S. Employer Identification incorporation or organization) Number) 80 Cabot Court, Hauppauge, New York 11788 (Address of principal executive offices (Zip Code) (631) 435-8300 (Issuer's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS: Check whether the issuer filed all documents and reports required to be filed by Sections 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ___ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: May 14, 2001 2,025,864 Transitional Small Business Disclosure Format (check one): Yes___ No_X_ INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors Orbit International Corporation We have reviewed the accompanying consolidated balance sheet of Orbit International Corporation and subsidiaries as of March 31, 2001, and the related consolidated statements of operations and cash flows for the three-month periods ended March 31, 2001 and 2000. These financial statements are the responsibility of the company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. GOLDSTEIN GOLUB KESSLER LLP New York, New York May 11, 2001 PART I - FINANCIAL INFORMATION ITEM - I ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 2001 2000 (unaudited) ASSETS Current assets: Cash and cash equivalents............... $ 1,418,000 $ 1,102,000 Investments in marketable securities.... 3,000 3,000 Accounts receivable (less allowance for doubtful accounts)..................... 2,010,000 2,137,000 Inventories ............................ 6,903,000 6,654,000 Other current assets.................... 98,000 104,000 Deferred tax assets..................... 75,000 75,000 Total current assets.................. 10,507,000 10,075,000 Property, plant and equipment - at cost, less accumulated depreciation and amortization........................... 238,000 2,024,000 Excess of cost over the fair value of assets acquired....................... 940,000 963,000 Other assets............................ 722,000 758,000 Deferred tax assets..................... 275,000 675,000 TOTAL ASSETS............................ $12,682,000 $14,495,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) March 31, December 31, 2001 2000 (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations.. $ 291,000 $ 841,000 Accounts payable.......................... 1,347,000 1,486,000 Accrued expenses.......................... 733,000 858,000 Notes payable............................. 959,000 - Deferred income........................... 85,000 - Customer advances....................... 608,000 670,000 Accounts payable, accrued expenses and reserves applicable to discontinued operations............................... 739,000 758,000 Total current liabilities........ 4,762,000 4,613,000 Deferred income........................... 918,000 Long-term obligations...................... 369,000 2,664,000 Total liabilities....................... 6,049,000 7,277,000 STOCKHOLDERS' EQUITY Common stock - $.10 par value.............. 304,000 304,000 Additional paid-in capital................. 24,165,000 24,165,000 Accumulated deficit........................ (7,986,000) (7,401,000) 16,483,000 17,068,000 Treasury stock, at cost.................... (9,850,000) (9,850,000) Total stockholders' equity.............. 6,663,000 7,218,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,682,000 $14,495,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, 2001 2000 Net sales........ $ 3,180,000 $ 2,753,000 Cost of sales.... 2,032,000 1,831,000 Gross profit..... 1,148,000 922,000 Selling, general and administrative expenses........ 1,308,000 1,242,000 Interest expense...... 92,000 83,000 Investment and other income, net.... (67,000) (54,000) Loss before income tax and extraordinary item...... (185,000) (349,000) Income tax .... ....... 400,000 - Net loss before extraordinary item ........ (585,000) (349,000) Extraordinary item - 190,000 NET (LOSS) $(585,000) $(159,000) Net loss per common share: Loss before extraordinary item Basic........ $(.29) $(.17) Diluted...... $(.29) $(.17) Extraordinary item Basic $ - $ .09 Diluted $ - $ .09 Net (loss) Basic $(.29) $(.08) Diluted $(.29) $(.08) See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, 2001 2000 Cash flows from operating activities: Net (loss) ................................ $(585,000) $(159,000) Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization............. 64,000 40,000 Amortization of goodwill.................. 24,000 24,000 Forgiveness of debt....................... (190,000) Deferred income........................... (21,000) Deferred tax asset........................ 400,000 Changes in operating assets and liabilities: Accounts receivable....................... 127,000 (384,000) Inventories............................... (249,000) (187,000) Other current assets...................... 6,000 15,000 Other assets.............................. 1,000 - Accounts payable.......................... (139,000) 127,000 Accrued expenses............................ (125,000) (5,000) Customer advances........................... (62,000) Assets held for sale, net................... - 28,000 Accounts payable, accrued expenses and reserves applicable to discontinued operations................................. (19,000) (72,000) Net cash (used in) operating activities...................... (578,000) (763,000) Cash flows from investing activities: Purchases of property, plant and equipment.. (3,000) (31,000) Proceeds from sales of property, plant and equipment........ ..................... 2,783,000 - Net cash (used in) provided by investing activities...................... 2,780,000 (31,000) (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued) Three Months Ended March 31, 2001 2000 Cash flows from financing activities: Repayments of debt.......................... (2,845,000) (156,000) Proceeds from debt.......................... 1,000,000 - Net repayments of note payable ............. (41,000) - Net cash (used in) financing activities................................. (1,886,000) (156,000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. 316,000 (950,000) Cash and cash equivalents - January 1........ 1,102,000 2,975,000 CASH AND CASH EQUIVALENTS (1) Cash paid for: Interest.............................. $92,000 $ 83,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) (NOTE 1) The results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results of operations for the full fiscal year ending December 31, 2001. These condensed consolidated statements should be read in conjunction with the Company's financial statements for the fiscal year ended December 31, 2000 condensed in the Company's Form 10-KSB. (NOTE 2) -leaseback Transaction: In March 2001, the Company entered into a sale-leaseback of its operating facility whereby it received proceeds of $3,000,000 and entered into an operating lease with an initial term expiring in 2013. The lease may be extended by the Company at its option through February 2025. The Company used the proceeds from the sale to pay off the amount outstanding under its existing mortgage with the remainder used for working capital. (NOTE 3) In January 2001, the Company entered into an agreement with an asset- based lender that provided a $1,000,000 loan, collateralized by the Company's accounts receivable, inventory and machinery and equipment, at an interest rate of prime plus 1.75%. The Company used the proceeds to pay off all amounts outstanding under its existing term loans, a portion of the amount outstanding under its existing mortgage and the remainder will be used for working capital. 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 and tangible net worth, as defined. (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) (NOTE 4) - Income Per Share: For the three month periods ended March 31, 2001 and March 31, 2000, the denominator for both basic and diluted loss per common share is the weighted-average common shares. Due to a loss recorded for those periods, there is no effect of common share equivalents as such effect would be anti-dilutive. The numerator for basic and diluted loss per share for the three month periods ended March 31, 2001 and March 31, 2000 is the net loss for each period. (NOTE 5) - Cost of Sales: For interim periods, the Company estimates its inventory and related gross profit. (NOTE 6) - Inventories: Inventories are comprised of the following: March 31, December 31, 2001 2000 Raw Materials.............. $ 3,302,000 $ 3,231,000 Work-in-process............ 2,912,000 2,857,000 Finished goods............. 689,000 566,000 TOTAL $ 6,903,000 $ 6,654,000 (NOTE 7) - Business Segments: The Company operates through two business segments. Its Electronics Segment, through the Orbit Instrument Division, is engaged in the design, manufacture and sale of customized electronic components and subsystems. Its Power Units Segment, through the Behlman Electronics, Inc. subsidiary, is engaged in the design, manufacture and sale of distortion free commercial power units, power conversion devices and electronic devices for measurement and display. The Company's reportable segments are business units that offer different products. The reportable segments are each managed separately as they manufacture and distribute distinct products with different production processes. (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) The following is business segment information for the three month periods ended March 31, 2001 and March 31, 2000. Three Months Ended March 31, 2001 2000 Net sales: Electronics....... $ 1,848,000 $ 1,247,000 Power Units....... Domestic........ 1,057,000 1,198,000 Foreign......... 275,000 308,000 Total Power Units.... 1,332,000 1,506,000 Total $ 3,180,000 $ 2,753,000 Income (loss) from operations: Electronics....... $ 86,000 $ (134,000) Power Units....... (89,000) (51,000) General corporate expenses not allocated......... (157,000) (135,000) Interest expense..... (92,000) (83,000) Investment and other income............. 67,000 54,000 (Loss) before income taxes........ $ (185,000) $(349,000) (continued) Item 2. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS Material Changes in Results of Operations Three month period ended March 31, 2001 v. March 31, 2000 The Company currently operates in two industry segments. Its Orbit Instrument Division is engaged in the design, manufacture and sale of electronic components and subsystems (the "Electronics Segment"). Its Behlman subsidiary is engaged in the design, manufacture and sale of commercial power units (the "Power Units Segment"). Consolidated net sales for the three month period ended March 31, 2001 increased to $3,180,000 from $2,753,000, or 15.5%, for the three month period ended March 31, 2000 principally due to higher sales recorded from its Electronics Segment that was partially offset by lower sales recorded by its Power Units Segment. Gross profit, as a percentage of sales, for the three months ended March 31, 2001 increased to 36.1% from 33.5% for the three month period ended March 31, 2000 due to a higher gross profit realized by the Electronics Segment principally due to an increase in this Segment's sales. The gross profit from the Company's Power Units Segment did not materially change from the prior period. Selling, general and administrative expenses for the three month period ended March 31, 2001 increased to $1,308,000 from $1,242,000, or 5.3%, for the three month period ended March 31, 2000 principally due to the write-off of $103,000 of bank financing costs resulting from the pay off of the outstanding balance under its credit facility. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended March 31, 2001 decreased to 41.1% from 45.1% for the three month period ended March 31, 2000 principally due to increased sales during the current period. Interest expense for the three month period ended March 31, 2001 was $92,000 and did not materially change from the $83,000 recorded for the three month period ended March 31, 2000. Investment and other income for the three month period ended March 31, 2001 increased to $67,000 from $54,000 for the three month period ended March 31, 2000 principally due to the amortization of deferred income realized on the sale-leaseback of the Company's operating facility that was completed during the period. The net loss before income tax and extraordinary item for the three month period ended March 31, 2001 decreased to $185,000 from the $349,000 loss recorded for the three month period ended March 31, 2000. This reduced loss was principally due to the increase in sales from the Company's Electronics Segment. During the period, the Company completed the sale-leaseback of its operating facility. For tax purposes, the Company will be able to offset the capital gain realized on the sale of the facility with its net operating loss carryforward. As a result of the transaction and pursuant to Statement of Financial Statements No. 109 "Accounting for Income Taxes", the Company adjusted its valuation allowance against its deferred tax asset thereby taking a charge of $400,000 to income for the three months ended March 31, 2001. The net loss before extraordinary item for the three month period ended March 31, 2001 was $585,000 compared to a loss of $349,000 for the three month period ended March 31, 2000. In March 2000, the Company reached an agreement with the sellers of a discontinued apparel division whereby the Company agreed to commence making payments on a promissory note payable to such sellers in 2000 rather than in 2002 as scheduled. The agreement resulted in an extraordinary gain of $190,000 net of income taxes. As a result of the foregoing, the net loss for the three month period ended March 31, 2001 was $585,000 compared to a loss of $159,000 for the three month period ended March 31, 2000. Material Change in Financial Condition Working capital increased to $5,745,000 at March 31, 2001 compared to $5,462,000 at December 31, 2000. The ratio of current assets to current liabilities remained at 2.2 to 1 at March 31, 2001 from December 31, 2000. Net cash used in operations for the three month period ended March 31, 2001 was $578,000, primarily attributable to the net loss for the period, an increase in inventories and a reduction in accounts payable and accrued expenses that was partially offset by the non-cash flow effect of the reduction in the deferred tax asset and a decrease in accounts receivable. Cash flows provided by investing activities for the three month period ended March 31, 2001 was $2,780,000, primarily attributable to the proceeds from the sale of property, plant and equipment. Cash flows used in financing activities for the three month period ended March 31, 2001 was $1,886,000, primarily attributable to repayments of long-term debt that was partially offset by the proceeds from 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 January, 2001, the Company closed on a new $1,000,000 credit facility with an asset based lender secured by accounts receivable, inventory and machinery and equipment of the Company. The agreement shall continue until January 31, 2003 and from year to year thereafter unless sooner terminated. Loans will bear interest at the prime rate of the Chase Manhattan Bank plus 1.75% per annum. In March, 2001, the Company completed a sale-leaseback of its New York operating facility whereby it received proceeds of $3,000,000 and entered into a net operating lease with an initial term expiring in 2013. The proceeds of the loan and the sale-leaseback were used to pay off the outstanding balance under its existing credit facility (approximately $2,756,000 at an interest rate of 1.75 above the prime rate of interest) and the remainder of the proceeds will be used for working capital. 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. These contract delays adversely affected revenue levels for 1999 and 2000. However, the Company did realize an improvement in bookings in 2000 and consequently, expects some improvement to revenue levels in 2001. 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. Navy 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. Forward Looking Statements Statements in this Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this document are certain statements which are not historical or current fact and constitute "forward-looking statements" within the meaning of such term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual financial or operating 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. Such forward looking statements are based on our best estimates of future results, performance or achievements, based on current conditions and the most recent results of the Company. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "may", "will", "potential", "opportunity", "believes", "belief", "expects", "intends", "estimates", "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. PART II- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on 8-K No reports were filed for the three month period ended March 31, 2001. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORBIT INTERNATIONAL CORP. Registrant Dated: May 14, 2001 /s/ Dennis Sunshine Dennis Sunshine, President, Chief Executive officer and Director Dated: May 14, 2001 /s/ Mitchell Binder Mitchell Binder, Vice President- Finance, Chief Financial Officer and Director