10QSB 1 form10qsb32002.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, 2002 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, 2002 2,109,196 Transitional Small Business Disclosure Format (check one): Yes___ No_X_ INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors Orbit International Corp. We have reviewed the accompanying consolidated balance sheet of Orbit International Corp. and Subsidiaries as of March 31, 2002, and the related consolidated statements of operations and cash flows for the three-month periods ended March 31, 2002 and 2001. 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 2, 2002 PART I - FINANCIAL INFORMATION ITEM - I ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, December 31, 2002 2001 (unaudited) ASSETS Current assets: Cash and cash equivalents............... $ 732,000 $ 745,000 Investments in marketable securities.... 3,000 3,000 Accounts receivable (less allowance for doubtful accounts)..................... 2,088,000 2,088,000 Inventories ............................ 7,633,000 7,213,000 Other current assets.................... 126,000 80,000 Deferred tax assets..................... 75,000 75,000 Total current assets.................. 10,657,000 10,204,000 Property, plant and equipment - at cost, less accumulated depreciation and amortization........................... 210,000 220,000 Goodwill................................. 868,000 868,000 Other assets............................ 751,000 757,000 Deferred tax assets..................... 275,000 275,000 TOTAL ASSETS............................ $12,761,000 $12,324,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) March 31, December 31, 2002 2001 (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations.. $ 228,000 $ 243,000 Accounts payable.......................... 1,556,000 1,335,000 Accrued expenses.......................... 791,000 814,000 Notes payable............................. 963,000 938,000 Deferred income........................... 85,000 85,000 Customer advances..................... Accounts payable, accrued expenses and reserves applicable to discontinued operations............................... 590,000 594,000 Total current liabilities........ 4,393,000 4,166,000 Deferred income........................... 833,000 854,000 Long-term obligations...................... 228,000 264,000 Total liabilities....................... 5,454,000 5,284,000 STOCKHOLDERS' EQUITY Common stock - $.10 par value.............. 312,000 312,000 Additional paid-in capital................. 24,165,000 24,165,000 Accumulated deficit....................... (7,320,000) (7,587,000) 17,157,000 16,890,000 Treasury stock, at cost.................... (9,850,000) (9,850,000) Total stockholders' equity.............. 7,307,000 7,040,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,761,000 $12,324,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended March 31, 2002 2001 Net sales........... $ 4,088,000 $ 3,180,000 Cost of sales....... 2,531,000 2,032,000 Gross profit........ 1,557,000 1,148,000 Selling, general and administrative expenses........... 1,305,000 1,308,000 Interest expense.... 21,000 92,000 Investment and other income, net.. ( 36,000) ( 67,000) Income (loss) before income tax 267,000 (185,000) Income tax 0 400,000 NET INCOME (LOSS)... $ 267,000 $(585,000) Net income (loss) per common share: Basic............. $ .13 $ (.29) Diluted........... $ .12 $ (.29) See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, 2002 2001 Cash flows from operating activities: Net income (loss) ......................... $ 267,000 $(585,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............... 18,000 64,000 Amortization of goodwill.................... 0 24,000 Deferred income............................. (21,000) (21,000) Deferred tax asset.......................... 0 400,000 Changes in operating assets and liabilities: Accounts receivable........................ 0 127,000 Inventories................................ (420,000) (249,000) Other current assets........................ (46,000) 6,000 Other assets................................ 6,000 1,000 Accounts payable............................ 221,000 (139,000) Accrued expenses............................ (23,000) (125,000) Customer advances........................... 23,000 (62,000) Accounts payable, accrued expenses and reserves applicable to discontinued operations................................. (4,000) (19,000) Net cash provided by (used in) operating activities......................... 21,000 (578,000) Cash flows (used in) investing activities: Purchases of property, plant and equipment.. (8,000) (3,000) Proceeds from sales of property, plant and equipment............................. 0 2,783,000 Net cash (used in) provided by investing activities...................... (8,000) 2,780,000 (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued) Three Months Ended March 31, 2002 2001 Cash flows from financing activities: Repayments of debt.......................... (51,000) (2,845,000) Proceeds from debt.......................... 0 1,000,000 Net borrowings (repayments) of note payable. 25,000 (41,000) Net cash (used in) financing activities..... (26,000) (1,886,000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ (13,000) 316,000 Cash and cash equivalents - January 1........ 745,000 1,102,000 CASH AND CASH EQUIVALENTS Supplemental cash flow information: Cash paid for: Interest.............................. $ 21,000 $ 92,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (NOTE 1) The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results of operations for the full fiscal year ending December 31, 2002. These consolidated statements should be read in conjunction with the Company's financial statements for the fiscal year ended December 31, 2001 contained 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 credit facility, collateralized by the Company's accounts receivable, inventory and machinery and equipment, at an interest rate of prime plus 1.75%. In October 2001, the credit facility was increased to $1,500,000. 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 CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) (NOTE 4) - Income Per Share: The following table sets forth the computation of basic and diluted income (loss) per common share: Three Months Ended March 31, 2002 2001 Denominator: Denominator for basic income (loss) per share - weighted-average common shares 2,109,000 2,026,000 Effect of dilutive securities: Employee and directors stock options 108,000 0 Denominator for diluted income (loss) per share - weighted-average common shares and assumed conversion 2,217,000 2,026,000 Due to a loss recorded for the three month period ended March 31, 2001, the denominator for both basic and diluted loss per common share is the weighted-average common shares. There is no effect of common share equivalents as such effect would be antidilutive. The numerator for basic and diluted income (loss) per share for the three month periods ended March 31, 2002 and March 31, 2001 is the net income (loss). (NOTE 5) - Cost of Sales: For interim periods, the Company estimates its inventory and related gross profit. (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) (NOTE 6) - Inventories: Inventories are comprised of the following: March 31, December 31, 2002 2001 Raw Materials.............. $ 3,785,000 $ 3,559,000 Work-in-process............ 3,288,000 3,133,000 Finished goods............. 560,000 521,000 TOTAL $ 7,633,000 $ 7,213,000 (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. The following is the Company's business segment information for the three month periods ended March 31, 2002 and 2001. Three Months Ended March 31, 2002 2001 Net sales: Electronics........ $ 2,920,000 $1,848,000 Power Units........ Domestic......... 1,110,000 1,057,000 Foreign.......... 58,000 275,000 Total Power Units... 1,168,000 1,332,000 Total $ 4,088,000 $3,180,000 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) Three Months Ended March 31, 2002 2001 Income (loss) from operations: Electronics......... $ 726,000 $ 86,000 Power Units......... (252,000) (89,000) General corporate expenses not allocated ........ (222,000) (157,000) Interest expense....... (21,000) (92,000) Investment and other income............... 36,000 67,000 Income (loss) before income taxes ...... $ 267,000 $(185,000) (NOTE 8) - Goodwill and Other Intangible Assets: Effective January 1, 2002, Orbit adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that an intangible asset with a definite life be amortized over its useful life and that goodwill and other intangible assets with indefinite lives not be amortized but evaluated for impairment. The Company concluded that there was no impairment to goodwill and, pursuant to SFAS 142, goodwill is no longer being amortized. The following pro-forma information reconciles net income (loss) reported for the periods ending March 31, 2002 and 2001 to adjusted net income (loss) reflecting the adoption of SFAS 142: Three Months Ended March 31, 2002 2001 Reported net income (loss) $ 267,000 $(585,000) Addback: Goodwill amortization - 24,000 Adjusted net income $ 267,000 $(561,000) Basic income (loss) per share: Reported net income (loss) $.13 $(.29) Addback: Goodwill amortization - .01 Adjusted net income (loss) $.13 $(.28) Diluted income (loss) per share: Reported net income (loss) $.12 $(.29) Addback: Goodwill amortization - .01 Adjusted net income (loss) $.12 $(.28) (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, 2002 v. March 31, 2001 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, 2002 increased by 28.6% to $4,088,000 from $3,180,000 for the three month period ended March 31, 2001 principally due to 58% higher sales recorded from its Electronics Segment that was partially offset by 12% lower sales recorded by its Power Units Segment. Gross profit, as a percentage of sales, for the three months ended March 31, 2002 increased to 38.1% from 36.1% for the three month period ended March 31, 2001. This increase resulted from a higher gross profit realized by the Electronics Segment due principally to an increase in this segment's sales that was partially offset by a lower gross profit from the Company's Power Units Segment due principally to a decrease in the Segment's sales for the quarter. Selling, general and administrative expenses were $1,305,000 for the three month period ended March 31, 2002 and did not materially change from $1,308,000 recorded for the three month period ended March 31, 2001. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended March 31, 2002 decreased to 31.9% from 41.1% for the three month period ended March 31, 2001 principally due to increased sales during the current period. Interest expense for the three month period ended March 31, 2002 decreased to $21,000 from $92,000 for the three months ended March 31, 2001 principally due to the payoff of the outstanding balance under the Company's credit facility in the first quarter of 2001 and due to lower interest rates. Investment and other income for the three month period ended March 31, 2002 decreased to $36,000 from $67,000 for the three month period ended March 31, 2001 principally due to a decrease in funds available for investment during the current period and due to lower interest rates. Income before income tax for the three month period ended March 31, 2002 was $267,000 compared to a loss of $185,000 recorded for the three month period ended March 31, 2001 principally due to the increase in sales from the Company's Electronics Segment. During the period ended March 31, 2001, the Company completed the sale- leaseback of its operating facility. For tax purposes, the Company was able to offset the capital gain realized on the sale of the facility with its net operating loss carry-forward. 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. Net income for the three month period ended March 31, 2002 was $267,000 compared to a loss of $585,000 for the three month period ended March 31, 2001. Material Change in Financial Condition Working capital increased to $6,264,000 at March 31, 2002 compared to $6,038,000 at December 31, 2001. The ratio of current assets to current liabilities slightly decreased to 2.43 to 1 at March 31, 2002 from 2.45 to 1 at December 31, 2001. Net cash provided by operations for the three month period ended March 31, 2002 was $21,000, primarily attributable to the net income for the period and an increase in accounts payable that was partially offset by the increase in inventories. 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 used in investing activities for the three month period ended March 31, 2002 was $8,000, primarily attributable to the purchases of property, plant and equipment. Cash flows provided by investing activities for the three month period ended March 31, 2001 was $2,780,000, primarily attributable to the sale-leaseback of its operating facility. Cash flows used in financing activities for the three month period ended March 31, 2002 was $26,000, primarily attributable to repayments of long-term debt that was partially offset by the proceeds from debt. 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 resulting from the sale-leaseback of its operating facility 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. In October 2001, the credit facility from the asset-based lender was increased to $1,500,000. The agreement shall continue until January 31, 2003 and from year to year thereafter unless sooner terminated for an event of default including compliance with certain financial covenants. 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 and the remainder of the proceeds were used for working capital. The Company's contractual obligations and commitments are summarized as follows: Less than 1-3 4-5 After 5 Obligation Total 1 Year Years Years Years Long-term debt $1,419,000 $1,191,000 $228,000 0 0 Operating leases 4,725,000 416,000 1,202,000 835,000 2,272,000 Other long-term obligations 590,000 590,000 0 0 0 Total contractual Obligations $6,734,000 $2,197,000 $1,430,000 $835,000 $2,272,000 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 Up until the beginning of 2001, the Company faced a very difficult business environment encountering significant delays in the award of new contracts from the U.S. Government and its prime contractors as well as industry wide funding and pricing pressures. In addition, due to major consolidations in the defense industry, it became more difficult to avoid dependence on certain customers for revenue and income. Contract delays adversely affected revenue levels for 1999 and 2000. However, the Company realized an increase in bookings in 2000 and 2001 and consequently, has experienced an improvement to revenue levels in 2001 and thus far in 2002. Due to the events of September 11, 2001, the Company may be requested to increase production of its existing product lines as well as realize new business opportunities stemming from the deployment of assets by the Department of Defense for the current military campaign. 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, 2002. 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 15, 2002 _/s/ Dennis Sunshine______ Dennis Sunshine, President, Chief Executive officer and Director Dated: May 15, 2002 __/s/ Mitchell Binder_______ Mitchell Binder, Vice President- Finance, Chief Financial Officer and Director