10QSB 1 form10qsb92002c.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 September 30, 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 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: November 13, 2002 2,110,196 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 September 30, 2002, and the related consolidated statements of operations for the nine-month and three-month periods ended September 30, 2002 and cash flows for the nine-month period ended September 30, 2002. These financial statements are the responsibility of the Company's management. We conducted our review 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 in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements in order for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet as of December 31, 2001, and the related consolidated statements of operations, cash flows, and changes in stockholders= equity for the year then ended (not presented herein); and in our report dated March 8, 2002, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. GOLDSTEIN GOLUB KESSLER LLP New York, New York October 31, 2002 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, December 31, 2002 2001 (unaudited) ASSETS Current assets: Cash and cash equivalents............... $ 1,556,000 $ 745,000 Investments in marketable securities.... 3,000 3,000 Accounts receivable (less allowance for doubtful accounts)..................... 1,601,000 2,088,000 Inventories ............................ 7,195,000 7,213,000 Other current assets.................... 157,000 80,000 Deferred tax assets..................... 75,000 75,000 Total current assets.................. 10,587,000 10,204,000 Property, plant and equipment - at cost, less accumulated depreciation and amortization........................... 195,000 220,000 Goodwill................................. 868,000 868,000 Other assets............................ 853,000 757,000 Deferred tax assets..................... 275,000 275,000 TOTAL ASSETS............................ $12,778,000 $12,324,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) September 30, December 31, 2002 2001 (unaudited) LIABILITIES AND STOCKHOLDERS= EQUITY Current liabilities: Current portion of long-term obligations.. $ 202,000 $ 243,000 Accounts payable.......................... 1,056,000 1,335,000 Accrued expenses.......................... 872,000 814,000 Notes payable............................. 876,000 938,000 Deferred income........................... 85,000 85,000 Customer advances.....................Y... 325,000 157,000 Accounts payable, accrued expenses and reserves applicable to discontinued operations............................... 569,000 594,000 Total current liabilities........ 3,985,000 4,166,000 Deferred income........................... 790,000 854,000 Long-term obligations...................... 165,000 264,000 Total liabilities....................... 4,940,000 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....................... (6,789,000) (7,587,000) 17,688,000 16,890,000 Treasury stock, at cost.................... (9,850,000) (9,850,000) Total stockholders= equity.............. 7,838,000 7,040,000 TOTAL LIABILITIES AND STOCKHOLDERS= EQUITY $12,778,000 $12,324,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Nine Months Ended Three Months Ended September 30, September 30, 2002 2001 2002 2001 Net sales........... $12,309,000 $10,534,000 $ 4,213,000 $ 3,751,000 Cost of sales....... 7,472,000 6,692,000 2,554,000 2,434,000 Gross profit........ 4,837,000 3,842,000 1,659,000 1,317,000 Selling, general and administrative expenses........... 4,089,000 3,889,000 1,361,000 1,292,000 Interest expense.... 57,000 128,000 18,000 16,000 Investment and other income, net.. ( 107,000) ( 163,000) ( 37,000) ( 42,000) Income (loss) before income tax 798,000 ( 12,000) 317,000 51,000 Income tax 0 400,000 0 0 NET INCOME (LOSS)... $ 798,000 $( 412,000) $ 317,000 $ 51,000 Net income (loss) per common share: Net income (loss) Basic.............$ .38 $ (.20) $ .15 $ .02 Diluted...........$ .35 $ (.20) $ .14 $ .02 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 2002 2001 Cash flows from operating activities: Net income (loss) ......................... $ 798,000 $ (412,000) Adjustments to reconcile net income to net cash (used in) operating activities: Depreciation and amortization............... 54,000 107,000 Amortization of goodwill.................... 0 71,000 Deferred income............................. (64,000) (64,000) Deferred tax asset.......................... 400,000 Changes in operating assets and liabilities: Accounts receivable........................ 487,000 (313,000) Inventories................................ 18,000 (687,000) Other current assets........................ (77,000) (4,000) Other assets................................ (96,000) (55,000) Accounts payable............................ (279,000) 33,000 Accrued expenses............................ 58,000 (168,000) Customer advances........................... 168,000 39,000 Accounts payable, accrued expenses and reserves applicable to discontinued operations................................. (25,000) (36,000) Net cash (used in) operating activities...... 1,042,000 (1,089,000) Cash flows from investing activities: Purchases of property, plant and equipment.. (29,000) (19,000) Proceeds from sales of property, plant and equipment............................. 0 2,783,000 Net cash provided by (used in) investing activities............ (29,000) 2,764,000 (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued) Nine Months Ended September 30, 2002 2001 Cash flows from financing activities: Repayments of debt.......................... (140,000) (2,949,000) Proceeds from debt.......................... 1,000,000 Net repayments of note payable.............. (62,000) (89,000) Proceeds from exercise of warrants.......... 0 8,000 Net cash (used in) financing activities..... (202,000) (2,030,000) NET (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 811,000 (355,000) Cash and cash equivalents - January 1........ 745,000 1,102,000 CASH AND CASH EQUIVALENTS B September 30..... $ 1,556,000 $ 747,000 Supplemental cash flow information: Cash paid for: Interest.............................. $ 57,000 $ 128,000 See accompanying notes. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (NOTE 1) B Basis of Presentation: The financial information herein is unaudited. However, in the opinion of management, such information reflects all adjustments (consisting only of normal recurring accruals) necessary to a fair presentation of the results of operations for the periods being reported. Additionally, it should be noted that the accompanying consolidated financial statements do not purport to contain complete disclosures required for annual financial statements in conformity with generally accepted accounting principles. The results of operations for the nine and three months ended September 30, 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) B Sale-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) B Financing Arrangement: 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: Nine Months Ended Three Months Ended September 30, September 30, 2002 2001 2002 2001 Denominator: Denominator for basic income (loss) per share - weighted-average common shares 2,110,000 2,054,000 2,110,000 2,109,000 Effect of dilutive securities: Employee and directors stock options 144,000 0 154,000 18,000 Denominator for diluted income (loss) per share - weighted-average common shares and assumed conversion 2,254,000 2,054,000 2,264,000 2,127,000 Due to a loss recorded for the nine month period ended September 30, 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 nine and three month periods ended September 30, 2002 and September 30, 2001 is the net income (loss) for each period. For the nine months ended September 30, 2002, an additional 24,827 stock options were outstanding with exercise prices ranging from $4.50 to $9.00 per share and for the three months ended September 30, 2002, 293,820 stock options were outstanding with exercise prices ranging from $3.75 to $9.00 per share. These options, for the respective periods, were not included in the computation of diluted earnings per share because the options= exercise prices were greater than the average market price of the common shares for those periods. (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: September 30, December 31, 2002 2001 Raw Materials.............. $ 3,591,000 $ 3,559,000 Work-in-process............ 3,028,000 3,133,000 Finished goods............. 576,000 521,000 TOTAL $ 7,195,000 $ 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 nine and three month periods ended September 30, 2002 and 2001. Nine Months Ended Three Months Ended September 30, September 30, 2002 2001 2002 2001 Net sales: Electronics......$ 8,745,000 $6,149,000 $2,780,000 $2,412,000 Power Units...... Domestic...... 3,222,000 3,790,000 1,252,000 1,104,000 Foreign........ 342,000 595,000 181,000 235,000 Total Power Units. 3,564,000 4,385,000 1,433,000 1,339,000 Total $12,309,000 $10,534,000 $4,213,000 $ 3,751,000 (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) Nine Months Ended Three Months Ended September 30, September 30, 2002 2001 2002 2001 Income (loss) from operations: Electronics.....$ 2,122,000 $ 667,000 $ 654,000 $ 373,000 Power Units..... (718,000) (161,000) (117,000) (106,000) General corporate expenses not allocated .... (656,000) (553,000) (239,000) (242,000) Interest expense... (57,000) (128,000) (18,000) (16,000) Investment and other income............ 107,000 163,000 37,000 42,000 Income (loss) before income taxesYYYY..$ 798,000 $( 12,000) $ 317,000 $ 51,000 (NOTE 8) - Goodwill and Other Intangible Assets: Effective January 1, 2002, Orbit adopted Statement of Financial Accounting Standards (ASFAS@) 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, as of March 31, 2002, 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 nine and three month periods ended September 30, 2002 and 2001 to adjusted net income (loss) reflecting the adoption of SFAS 142: Nine Months Ended Three Months Ended September 30, September 30, 2002 2001 2002 2001 Reported net income (loss) $798,000 $(412,000) $ 317,000 $ 51,000 Addback: Goodwill amortization - 71,000 ____-___ 23,000 Adjusted net income $798,000 $(341,000) $ 317,000 $ 74,000 Basic income (loss) per share: Reported net income (loss) $.38 $ (.20) $.15 $.02 Addback: Goodwill amortization - .03 - .01 Adjusted net income (loss) $.38 (.17) $.15 $.03 Diluted income (loss) per share: Reported net income (loss) $.35 $ (.20) $.14 $.02 Addback: Goodwill amortization - .03 - .01 Adjusted net income (loss) $.35 $ (.17) $.14 $.03 Item 2. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES MANAGEMENT=S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS Critical Accounting Policies The discussion and analysis of the Company=s financial condition and the results of its operations are based on the Company=s financial statements and the data used to prepare them. The Company=s financial statements have been prepared based on accounting principles generally accepted in the United States of America. On an on- going basis, we re-evaluate our judgments and estimates including those related to inventory valuation, the valuation allowance on the Company=s deferred tax asset and goodwill impairment. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect more significant judgments and estimates in the preparation of the consolidated financial statements. Inventories Inventory is valued at the lower of cost (first in, first out basis) or market. Inventory items are reviewed regularly for excess and obsolete inventory based on an estimated forecast of product demand. Demand for the Company=s products can be forecasted based on current backlog, customer options to reorder under existing contracts, the need to retrofit older units and parts needed for general repairs. Although the Company makes every effort to insure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in its inventory and operating results could be affected, accordingly. Deferred tax asset At December 31, 2001, the Company had an alternative minimum tax credit of approximately $564,000 with no limitation on the carry-forward period and net operating loss carry-forwards of approximately $27,000,000 that expire through 2021. The Company places a valuation allowance to reduce its deferred tax asset when it is more likely than not that a portion of the amount may not be realized. The Company estimates its valuation allowance based on an estimated forecast of its future profitability. Any significant changes in future profitability resulting from variations in future revenues or expenses could affect the valuation allowance on its deferred tax asset and operating results could be affected, accordingly. Impairment of Goodwill The Company has significant intangible assets related to goodwill and other acquired intangibles. In determining the recoverability of goodwill and other intangibles, assumptions must be made regarding estimated future cash flows and other factors to determine the fair value of the assets. If these estimates or their related assumptions change in the future, the company may be required to record impairment charges for those assets not previously recorded. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, AGoodwill and Other Intangible Assets@. Under the provisions of SFAS 142, the cost of certain intangibles will no longer be subject to amortization but was reviewed for potential impairment during the first quarter of 2002 and then on an annual basis thereafter. During the first quarter, the Company determined that there was no impairment to its goodwill and other intangible assets. Material Changes in Results of Operations Three month period ended September 30, 2002 v. September 30, 2001 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 AElectronics Segment@). Its Behlman subsidiary is engaged in the design and manufacture of commercial and custom power units (the APower Units Segment@). Consolidated net sales for the three month period ended September 30, 2002 increased by 12.3% to $4,213,000 from $3,751,000 for the three month period ended September 30, 2001 principally due to 15.3% and 7.0% higher sales recorded from its Electronics Segment and Power Units Segment, respectively. Gross profit, as a percentage of sales, for the three months ended September 30, 2002 increased to 39.4% from 35.1% for the three months ended September 30, 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 approximately $45,000 taken in inventory reserves for obsolescence for the quarter. Selling, general and administrative expenses for the three month period ended September 30, 2002 increased to $1,361,000 from $1,292,000, or 5.3%, for the three month period ended September 30, 2001 principally due to higher selling costs incurred by both the Electronics and Power Unit Segments and to slightly higher corporate administrative costs. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended September 30, 2002 decreased to 32.3% from 34.4% for the three month period ended September 30, 2001 principally due to increased sales during the current period. Interest expense for the three month period ended September 30, 2002 did not materially change from interest expense for the three month period ended September 30, 2001. Investment and other income for the three month period ended September 30, 2002 decreased to $37,000 from $42,000 for the three month period ended September 30, 2001 principally due to a decrease in funds available for investment during the current period and due to lower interest rates. Net income for the three month period ended September 30, 2002 was $317,000 compared to net income of $51,000 for the three month period ended September 30, 2001 principally due to the increase in sales from the Company=s Electronics Segment. Nine month period ended September 30, 2002 v. September 30, 2001 Consolidated net sales for the nine month period ended September 30, 2002 increased by 16.9% to $12,309,000 from $10,534,000 for the nine month period ended September 30, 2001 principally due to 42.2% higher sales recorded from its Electronics Segment that was partially offset by 18.7% lower sales recorded by its Power Units Segment. Gross profit, as a percentage of sales, for the nine months ended September 30, 2002 increased to 39.3% from 36.5% for the nine month period ended September 30, 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 Unit Segment due principally to a decrease in the Segment=s sales for the period. Selling, general and administrative expenses for the nine month period ended September 30, 2002 increased to $4,089,000 from $3,889,000, or 5.1%, for the nine month period ended September 30, 2001 principally due to higher selling costs incurred by both its Electronics and Power Units Segments and to higher corporate administrative costs. Selling, general and administrative expenses, as a percentage of sales, for the nine month period ended September 30, 2002 decreased to 33.2% from 36.9% for the nine month period ended September 30, 2001 principally due to increased sales during the current period. Interest expense for the nine month period ended September 30, 2002 decreased to $57,000 from $128,000 for the nine month period ended September 30, 2001 principally due to the pay off of the outstanding balance under the Company=s credit facility in the first quarter of 2001 and to lower interest rates. Investment and other income for the nine month period ended September 30, 2002 decreased to $107,000 from $163,000 for the nine month period ended September 30, 2001 principally due to a decrease in funds available for investment during the current period and to lower interest rates. Net income before income tax for the nine month period ended September 30, 2002 increased to $798,000 from the $12,000 loss recorded for the nine month period ended September 30, 2001 principally due to higher sales recorded by the Company=s Electronics Segment. During the first quarter of 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 carryforward. As a result of the transaction and pursuant to Statement of Financial Statements No. 109 AAccounting 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 six months ended June 30, 2001. As a result of the foregoing, the net income for the nine month period ended September 30, 2002 was $798,000 compared to a net loss of $412,000 for the nine month period ended September 30, 2001. Material Change in Financial Condition Working capital increased to $6,602,000 at September 30, 2002 compared to $6,038,000 at December 31, 2001. The ratio of current assets to current liabilities slightly increased to 2.66 to 1 at September 30, 2002 from 2.45 to 1 at December 31, 2001. Net cash provided by operations for the nine month period ended September 30, 2002 was $1,042,000, primarily attributable to the net income for the period, a decrease in accounts receivable and an increase in customer advances that was partially offset by a decrease in accounts payable. Net cash used in operations for the nine month period ended September 30, 2001 was $1,089,000, primarily attributable to the net loss for the period, the increase in accounts receivable and inventory and the decrease in accrued expenses that was partially offset by the non-cash flow effect of the reduction in the deferred tax asset. Cash flows used in investing activities for the nine month period ended September 30, 2002 was $29,000, primarily attributable to the purchases of property, plant and equipment. Cash flows provided by investing activities for the nine month period ended September 30, 2001 was $2,764,000, primarily attributable to the sale-leaseback of its operating facility. Cash flows used in financing activities for the nine month period ended September 30, 2002 was $202,000, primarily attributable to the repayments of long-term debt. Cash flows used in financing activities for the nine month period ended September 30, 2001 was $2,030,000, 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. 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 redit 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. Loans will bear interest at the prime rate of the Chase Manhattan Bank (4.75% at September 30, 2002) 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. Less than 1-3 4-5 After 5 Obligation Total 1 Year Years Years Years Long-term debt $1,243,000 $1,078,000 $165,000 0 0 Operating leases 4,547,000 410,000 1,228,000 855,000 2,054,000 Other obligations 569,000 569,000 0 0 0 Total contractual Obligations $6,359,000 $2,057,000 $1,393,000 $855,000 $2,054,000 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 The Company=s Electronics Segment and the Custom Division of its Power Units Segment are heavily dependent on military spending. The events of September 11, 2001 have put a tremendous emphasis on defense and homeland security spending and the Company has seen improvement in bookings and revenue levels in 2001 and into 2002. The Company has realized a significant increase to the backlog of the Custom Division of its Power Unit Segment and shipments of these orders commenced in the current quarter and are expected to continue for the remainder of this year and into 2003. However, the Company has experienced a slowdown in its commercial division of its Power Units Segment due to a reduction in capital spending as a result of current economic conditions. Despite the increase in military spending, the Company still faces a challenging environment. The government is emphasizing the engineering of new and improved weaponry and it continues to be our challenge to work with each of our prime contractors so that we can participate on these new programs. In addition, these new contracts which require incurring up-front design, engineering, prototype and pre-production 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 pre-production stage, there is no assurance that funding will be provided for future production. In such event, even if the Company is reimbursed its development costs it will not generate any significant profits. 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 customer list for its custom division and its 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 besides the U.S. Navy. Forward Looking Statements Statements in this Item 2 AManagement=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 Aforward- 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 Amay@, Awill@, Apotential@, Aopportunity@, Abelieves@, Abelief@, Aexpects@, Aintends@, Aestimates@, Aanticipates@ or Aplans @ 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 3. CONTROLS AND PROCEDURES Within the 90 days prior to the filing of this report, the Company=s management, including the Company=s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design of the Company=s disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company=s disclosure controls and procedures are effective. There have been no significant changes (including corrective actions with regard to significant deficiencies and material weaknesses) in the Company=s internal controls or in other factors that could significantly affect these controls subsequent to the date of Management=s evaluation. 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 An Annual Meeting of Stockholders of the Company was held on June 28, 2002. The holders of 2,109,196 shares of Common Stock of the Company were entitled to vote at the meeting, the holders of 2,036,761 shares of Common Stock, or approximately 97% of shares entitled to vote at the meeting, were represented by proxy. Proposal #2, to adopt the Company=s 2002 Employee Stock Incentive Plan was postponed to allow for additional time for stockholders to vote on the proposal. As of November 6, 2002, the stockholders voted 947,247 for and 110,088 against the resolution to adopt the 2002 Employee Stock Incentive Plan (2,623 votes abstained) which did not constitute the needed votes for passage. Accordingly, the Company has terminated proxy solicitations for this proposal. Item 5. Other Information None Item 6. Exhibits and Reports on form 8-K (a) Exhibits None (b) Reports on 8-K None 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: November 13, 2002 _/s/ Dennis Sunshine __ Dennis Sunshine, President, Chief Executive Officer and Director Dated: November 13, 2002 _/s/ Mitchell Binder __ Mitchell Binder, Vice President-Finance, Chief Financial Officer and Director CERTIFICATION I, Dennis Sunshine, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Orbit International Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant=s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) Evaluated the effectiveness of the registrant=s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the AEvaluation Date@); and (c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant=s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant=s auditors and the audit committee of registrant=s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant=s ability to record, process, summarize and report financial data and have identified for the registrant=s auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant=s internal controls; and 6. The registrant=s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 _/s/_Dennis Sunshine__ Dennis Sunshine Chief Executive Officer CERTIFICATION I, Mitchell Binder, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Orbit International Corp. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant=s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant=s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the AEvaluation Date@); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant=s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant=s auditors and the audit committee of registrant=s board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant=s ability to record, process, summarize and report financial data and have identified for the registrant=s auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant=s internal controls; and 6. The registrant=s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 /s/ Mitchell Binder Mitchell Binder Chief Financial Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Dennis Sunshine, Chief Executive Officer of Orbit International Corp., certify, pursuant to 18 U.S.C. ' 1350, as enacted by ' 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2002 (the APeriodic Report@) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Orbit International Corp. Dated: November 13, 2002 /s/ Dennis Sunshine Dennis Sunshine Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Mitchell Binder, Chief Financial Officer of Orbit International Corp., certify, pursuant to 18 U.S.C. ' 1350, as enacted by ' 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2002 (the APeriodic Report@) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Orbit International Corp. Dated: November 13, 2002 /s/ Mitchell Binder Mitchell Binder Chief Financial Officer