-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwMJxKGZoMLT6JhwD2WPsMsH/8SE7L2wWitbV+rdPv37Klgbr6its4wYhcQwAiZO Hpl7cF1IrBIAmMR8hEhwBg== 0000074818-07-000012.txt : 20070514 0000074818-07-000012.hdr.sgml : 20070514 20070514155312 ACCESSION NUMBER: 0000074818-07-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070331 FILED AS OF DATE: 20070514 DATE AS OF CHANGE: 20070514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORBIT INTERNATIONAL CORP CENTRAL INDEX KEY: 0000074818 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 111826363 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03936 FILM NUMBER: 07846325 BUSINESS ADDRESS: STREET 1: 80 CABOT COURT CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 7136675601 MAIL ADDRESS: STREET 1: 80 CABOT COURT CITY: HAUPPAUGE STATE: NY ZIP: 11788 FORMER COMPANY: FORMER CONFORMED NAME: ORBIT INSTRUMENT CORP DATE OF NAME CHANGE: 19911015 10-Q 1 form10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 2007 OR [ ] TRANSITION REPORT UNDER 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 business issuer as specified in its charter) DELAWARE 11-1826363 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification 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 formal fiscal year, if changed since last report) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ___ - Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.(Check one): Large Accelerated Filer ___ Accelerated Filer ___ Non-accelerated Filer X -- Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act): Yes___ No X -- The number of shares outstanding of registrant's Common Stock, par value $.10, as of May 10, 2007 was 4,595,571. --------- INDEX Page No. -------- Report of Independent Registered Public Accounting Firm 3 Part I. Financial Information: Item 1 - Financial Statements: Condensed Consolidated Balance Sheet - March 31, 2007(unaudited) and December 31, 2006 4-5 Condensed Consolidated Statement of Operations (unaudited) Three Months Ended March 31, 2007 and 2006 6 Condensed Consolidated Statement of Cash Flows (unaudited) Three Months Ended March 31, 2007 and 2006 7 Notes to Condensed Consolidated Financial Statements 8-13 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 14-21 Item 3. - Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. - Controls and Procedures 21 Part II. Other Information: Item 6 - Exhibits 22 Signatures 23 Exhibits 24-29 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Orbit International Corp. We have reviewed the accompanying condensed consolidated balance sheet of Orbit International Corp. and Subsidiaries as of March 31, 2007, and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 2007 and 2006. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with the standards of the Public Company Accounting Oversight Board, 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 condensed consolidated financial statements referred to above in order for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet as of December 31, 2006, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated March 27, 2007, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. GOLDSTEIN GOLUB KESSLER LLP New York, New York May 10, 2007
PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET March 31, December 31, 2007 2006 ------------ ------------- (unaudited) ASSETS - --------------------------- Current assets: Cash and cash equivalents $ 3,028,000 $ 3,935,000 Investments in marketable securities 4,580,000 4,062,000 Accounts receivable (less allowance for doubtful accounts) 3,813,000 3,712,000 Inventories 9,445,000 8,992,000 Deferred tax asset 722,000 717,000 Other current assets 163,000 145,000 --------- ---------- Total current assets 21,751,000 21,563,000 Property and equipment, net 407,000 414,000 Goodwill 6,135,000 6,135,000 Intangible assets, net 1,095,000 1,204,000 Deferred tax asset 1,333,000 1,333,000 Other assets 568,000 566,000 ---------- ---------- TOTAL ASSETS $ 31,289,000 $31,215,000 ========== =========== See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (continued) March 31, December 31, 2007 2006 ------------ ------------- (unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------ Current liabilities: Current portion of long-term obligations $ 1,121,000 $ 1,124,000 Accounts payable 1,304,000 1,028,000 Accrued expenses 1,184,000 1,353,000 Customer advances 528,000 797,000 Deferred income 85,000 85,000 -------------- ------------ Total current liabilities 4,222,000 4,387,000 Deferred income 406,000 427,000 Long-term obligations, net of current maturities 3,776,000 4,105,000 -------------- ------------ Total liabilities 8,404,000 8,919,000 -------------- ----------- STOCKHOLDERS' EQUITY Common stock - $.10 par value, 10,000,000 shares authorized, 4,588,000 shares issued and outstanding at 2007 and 2006, respectively 459,000 459,000 Additional paid-in capital 19,586,000 19,536,000 Accumulated other comprehensive (loss) gain, net of tax (4,000) 5,000 Retained earnings 2,844,000 2,296,000 ----------- ---------- Total stockholders' equity 22,885,000 22,296,000 ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,289,000 $31,215,000 =============== =========== See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Three Months Ended March 31, 2007 2006 ---------- ------------- Net sales $6,220,000 $ 6,629,000 Cost of sales 3,475,000 3,732,000 ----------- ------------ Gross profit 2,745,000 2,897,000 ----------- ------------ Selling, general and administrative expenses 2,221,000 2,146,000 Interest expense 95,000 116,000 Investment and other income, net (129,000) ( 67,000) ----------- ------------ Income before provision for income taxes 558,000 702,000 Provision for income taxes 10,000 10,000 ----------- ------------ NET INCOME $ 548,000 $ 692,000 =========== ============ Net income per common share: Basic $ .13 $.16 Diluted $ .12 $.15 See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Three Months Ended March 31, 2007 2006 ---------- ----------- Cash flows from operating activities: Net income $ 548,000 $ 692,000 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Stock-based compensation expense 50,000 51,000 Amortization of intangible assets 109,000 109,000 Depreciation and amortization 30,000 38,000 Gain on sale of marketable securities (8,000) - Bond premium amortization 4,000 13,000 Deferred income. (21,000) (22,000) Changes in operating assets and liabilities: Accounts receivable (101,000) (451,000) Inventories (453,000) (75,000) Other current assets (18,000) (62,000) Other assets (2,000) (22,000) Accounts payable 276,000 803,000 Accrued expenses (169,000) (363,000) Customer advances (269,000) (244,000) ------------ ------------ Net cash (used in) provided by operating activities (24,000) 467,000 Cash flows from investing activities: Cash paid for direct costs relating to Tulip acquisition - (5,000) Purchases of property and equipment (23,000) (51,000) Sale of marketable securities 320,000 - Purchase of marketable securities (848,000) (1,882,000) ------------ ------------ Net cash used in investing activities (551,000) (1,938,000) Cash flows from financing activities: Repayments of long-term debt (332,000) (282,000) Proceeds from exercise of stock options - 15,000 ------------ ------------ Net cash used in financing activities (332,000) (267,000) NET DECREASE IN CASH AND CASH EQUIVALENTS (907,000) (1,738,000) Cash and cash equivalents - January 1 3,935,000 3,933,000 ---------- ----------- CASH AND CASH EQUIVALENTS - March 31 $3,028,000 $ 2,195,000 ========== =========== Supplemental cash flow information: Cash paid for interest $ 100,000 $ 117,000 See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (NOTE 1) - 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 for 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 three months ended March 31, 2007, are not necessarily indicative of the results of operations for the full fiscal year ending December 31, 2007. These condensed consolidated statements should be read in conjunction with the Company's consolidated financial statements for the fiscal year ended December 31, 2006 contained in the Company's Form 10-KSB. For comparability, certain 2006 amounts have been reclassified, where appropriate, to conform to the financial statements presentation in 2007. Effective January 1, 2006, the Company began recognizing share-based compensation, under Statement of Financial Accounting Standards ("SFAS") No. 123 (R), Share Based Payment, for all awards granted after January 1, 2006 and for the unvested portion of previous award grants based on each award's grant date fair value. At March 31, 2007, the Company has various stock-based employee compensation plans. These plans provide for the granting of nonqualified and incentive stock options as well as restricted stock awards to officers, key employees and nonemployee directors. The terms and vesting schedules of stock-based awards vary by type of grant and generally, the awards vest based upon time-based conditions. Share-based compensation expense for the three months ended March 31, 2007 and 2006 was $50,000 and $51,000, respectively. The Company's stock-based employee compensation plans allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned stock-based compensation related to restricted stock granted is being amortized to compensation expense over the vesting period. The share based expense for these awards was determined based on the market price of the Company' stock at the date of grant applied to the total number of shares that were anticipated to vest. As of March 31, 2007, the Company has unearned compensation of $1,122,000 associated with these awards. (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) Stock option activity during the three months ended March 31, 2007, under all our stock option plans is as follows: Average Weighted Remaining Average Contractual Number of Exercise Term Shares Price (in years) ------ ----- ----------- Options outstanding, January 1, 2007 607,000 $3.03 5 Granted - - - Forfeited - - - Exercised - - - ------ ----- ------ Options outstanding, March 31, 2007 (Vested and expected to vest) 607,000 $3.03 5 ======= ===== === Outstanding exercisable at March 31, 2007 600,000 $2.97 5 ======= ===== === At March 31, 2007 the aggregate intrinsic value of options outstanding was $2,865,000 and the aggregate intrinsic value of options exercisable was $2,862,000. The following table summarizes the Company's nonvested stock option activity for the nine months ended March 31, 2007: Number of Weighted-Average Shares Grant-Date Fair Value ------ ----------------------- Nonvested stock options at January 1, 2007 7,000 $4.31 Granted - - Vested - - Forfeited - - ----- ---- Nonvested stock options at March 31, 2007 7,000 $4.31 ===== ===== At March 31, 2007, there was approximately $5,000 of unearned compensation cost related to the above non-vested stock options. The cost is expected to be recognized over the next three months. (ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) (NOTE 2) - Financing Arrangements: - -------- ----------------------- In April 2005, the Company entered into an amended $2,500,000 credit facility with a commercial lender secured by accounts receivable, inventory and machinery and equipment. In April 2006, the interest rate was reduced. The agreement will continue from year to year thereafter unless sooner terminated for an event of default including non-compliance with financial covenants. Loans under the facility will bear interest equal to the sum of 1.50% plus the one-month London Inter-bank offer rate (LIBOR) (5.32% at March 31, 2007). No amounts have been borrowed under the credit facility. In April 2005, the Company entered into a five-year $5,000,000 Term Loan Agreement with the same aforementioned lender to finance the acquisition of Tulip. In April 2006, the interest rate was reduced. The Term Loan will have monthly principal payments of approximately $60,000 and bear interest equal to the sum of 1.50% plus the one-month LIBOR. The loan's unpaid balance at March 31, 2007 was approximately $3,690,000. In April 2005, the Company entered into a five year $2,000,000 Promissory Note with the selling shareholders of Tulip at an interest rate of prime plus 2.00% (8.25% at March 31, 2007). Principal payments of $100,000 were made on a quarterly basis along with accrued interest. In October 2006, pursuant to permission from its primary lenders, the Company increased quarterly principal payments to $150,000. The note's unpaid balance at March 31, 2007 was approximately $1,200,000. (NOTE 3) - Income Per Share: ------ ---------------- The following table sets forth the computation of basic and diluted income per common share: Three Months Ended March 31, 2007 2006 ---- ---- Denominator: Denominator for basic income per share - weighted-average common shares 4,307,000 4,338,000 Effect of dilutive securities: Employee and directors stock options 225,000 272,000 Unearned portion of restricted stock awards 102,000 79,000 ------- ------ Denominator for diluted income per share - weighted-average common shares and assumed conversion 4,634,000 4,689,000 ========= ========= (continued) ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) The numerator for basic and diluted income per share for three month periods ended March 31, 2007 and 2006 is net income. Options to purchase 6,000 shares of common stock were outstanding during the three months ended March 31, 2007, but were not included in the computation of diluted earnings per share. The inclusion of these options would have been anti-dilutive due to the options' exercise prices being greater than the average market price of the Company's common shares during the respective period. Approximately 281,000 and 242,000 shares of common stock were outstanding during the three months ended March 31, 2007 and 2006, respectively, but were not included in the computation of basic earnings per share. These shares were excluded because they represent the unvested portion of restricted stock awards. (NOTE 4) - Cost of Sales: ------- --------------- For interim periods, the Company estimates its inventory and related gross profit. (NOTE 5) - Inventories: - ------- ----------- Inventories are comprised of the following: March 31, December 31, 2007 2006 ------- ---------- Raw Materials $ 5,478,000 $ 5,245,000 Work-in-process 3,306,000 3,138,000 Finished goods 661,000 609,000 ----------- ---------- TOTAL $ 9,445,000 $ 8,992,000 =========== =========== (NOTE 6) - Comprehensive Income: - ------- -------------------- For the three months ended March 31, 2007 and 2006, total comprehensive income, net of tax was $539,000 and $689,000, respectively. Comprehensive income consists of net income and unrealized gains and losses on marketable securities. (NOTE 7) - Business Segments: - -------- ----------------- The Company operates through two business segments. The Electronics Segment is comprised of the Orbit Instrument Division and Tulip Subsidiary. The Electronics Segment is engaged in the design, manufacture and sale of customized electronic components and subsystems. The Company's 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 the Company's business segment information for the three month periods ended March 31, 2007 and 2006: Three Months Ended March 31, 2007 2006 ---- ---- Net sales: Electronics Domestic $ 3,901,000 $ 3,936,000 Foreign 299,000 325,000 --------- ---------- Total Electronics 4,200,000 4,261,000 Power Units Domestic 1,855,000 2,254,000 Foreign 165,000 114,000 --------- --------- Total Power Units 2,020,000 2,368,000 --------- --------- Total $ 6,220,000 $ 6,629,000 =========== =========== Income from operations: Electronics $ 759,000 $ 815,000 Power Units 111,000 233,000 General corporate expenses not allocated (346,000) (297,000) Interest expense (95,000) (116,000) Investment and other income 129,000 67,000 ----------- ----------- Income before income taxes $ 558,000 $ 702,000 =========== =========== (NOTE 8) - Goodwill and Other Intangible Assets: - -------- ------------------------------------- The Company applies Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that an intangible asset with a finite 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, 2007, that there was no impairment to goodwill and, pursuant to SFAS 142, goodwill is no longer being amortized. Intangible assets with finite lives are being amortized over three and five years. Amortization expense for the remainder of 2007 and for the next three years is as follows: 2007 $ 326,000 2008 356,000 2009 330,000 2010 83,000 ---------- Total $1,095,000 ========== ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) (NOTE 9) - Income Taxes - --------- ------------- For the three months ended March 31, 2007 and 2006, the Company utilized net operating loss carryforwards to offset income taxes except for a $10,000 state income tax expense in Pennsylvania. On January 1, 2007, the Company adopted Financial Accounting Standards Board("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - - an interpretation of FASB Statement No. 109"("FIN 48"). This interpretation provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is "more likely that not that the position is sustainable based on its technical merits. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. There was no impact to the Company's consolidated financial position, results of operations or cash flows for the three month period ended March 31, 2007. Item 2. ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Executive Overview - ------------------- The Company recorded a decrease in operating results for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006. Revenues decreased by 6.2% and due to higher selling, general and administrative expenses and despite slightly higher gross margins, lower interest expense and increased investment and other income during the current period, the Company recorded a 20.8% decrease in net income for the three months ended March 31, 2007. Our backlog at March 31, 2007 was approximately $16,000,000 compared to $14,300,000 at March 31, 2006, an increase of 12.1%. and strong bookings continued in the month of April 2007. There is no seasonality to the Company's business. Our shipping schedules are generally determined by the shipping schedules outlined in the purchase orders received from our customers. Both of our operating segments are pursuing a significant amount of business opportunities and our confidence level remains high with respect to receiving many of the orders we are pursuing although timing is always an uncertainty. Nevertheless, we remain very encouraged by our business environment and we expect our strong operating results to continue in 2007. Our success of the past few years has significantly strengthened our balance sheet evidenced by our 5.2 to 1 current ratio at March 31, 2007. We currently have a $2,500,000 credit facility in place that we have not used to date, and the Company is currently exploring acquisition opportunities that are compatible with our existing operations. We also have several financing alternatives available to us, if needed, in order to fund any potential acquisitions. 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 (specific, average and 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. However, world events have forced our country into various situations of conflict whereby equipment is used and parts may be needed for repair. This could lead to increased product demand as well as the use of some older inventory items that the Company had previously determined obsolete. Deferred tax asset - -------------------- At December 31, 2006, the Company had an alternative minimum tax credit of approximately $573,000 with no limitation on the carry-forward period and federal and state net operating loss carry-forwards of approximately $22,000,000 and $7,000,000, respectively, that expire through 2025. In addition, the Company receives a tax deduction when their employees exercise their non-qualified stock options thereby increasing the Company's deferred tax asset. The Company records 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. The Company applies Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under the provisions of SFAS 142, the cost of certain intangible assets are no longer subject to amortization. These costs are reviewed for potential impairment on an annual basis. During the first quarter of 2007, the Company determined that there was no impairment to its goodwill and other intangible assets. Share-Based Compensation ------------------------- Effective January 1, 2006, the Company began recognizing share-based compensation under SFAS No. 123(R), which requires the measurement at fair value and recognition of compensation expense for all share-based awards. Total share based compensation expense was $50,000 for the three months ended March 31, 2007 compared to $51,000 from the prior year period. The estimated fair value of stock options granted since January 1, 2006 were calculated using the Black-Scholes model. This model requires the use of input assumptions. These assumptions include expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. Results of Operations - ----------------------- Three month period ended March 31, 2007 v. March 31, 2006 - ------------------------------------------------------------------- The Company currently operates in two industry segments. Its Orbit Instrument Division and its Tulip subsidiary are engaged in the design and manufacture of electronic components and subsystems (the "Electronics Group"). Its Behlman subsidiary is engaged in the design and manufacture of commercial power units (the "Power Group"). Consolidated net sales for the three month period ended March 31, 2007 decreased by 6.2% to $6,220,000 from $6,629,000 for the three month period ended March 31, 2006 principally due to a 14.7% and 1.4% decrease in sales recorded by the Power Group and Electronics Group, respectively. The decrease in sales from the Power Group was principally due to deliveries under certain contracts that are not due until the second half of 2007. Gross profit, as a percentage of sales, for the three months ended March 31, 2007 slightly increased to 44.1% from 43.7% for the three month period ended March 31, 2006. This increase resulted from a higher gross profit from both the Company's Electronics and Power Groups and was principally due to product mix. Selling, general and administrative expenses increased by 3.5% to $2,221,000 for the three month period ended March 31, 2007 from $2,146,000 for the three month period ended March 31, 2006 principally due to higher selling costs incurred by the Electronics Group and higher corporate costs. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended March 31, 2007 increased to 35.7% from 32.4% for the three month period ended March 31, 2006 principally due to an increase in the aforementioned costs as well as a decrease in sales. Interest expense for the three months ended March 31, 2007 decreased to $95,000 from $116,000 for the three months ended March 31, 2006 due to a decrease in the amounts owed to lenders in the current period. Investment and other income for the three month period ended March 31, 2007 increased to $129,000 from $67,000 for the three-month period ended March 31, 2006 principally due to an increase in the amounts invested during the current period and to an increase in interest rates. Net income before income tax provision was $558,000 for the three months ended March 31, 2007 compared to $702,000 for the three months ended March 31, 2006. The decrease in income was principally due to the decrease in sales from both the Company's operating groups and the increase in selling, general and administrative expenses as a percentage of sales; despite the increase in gross profit, the decrease in interest expense and the increase in investment and other income. Income taxes for both the three months ended March 31, 2007 and the comparable prior period consist of $10,000 in state income taxes that cannot be offset by any state net operating loss carry-forwards. As a result of the foregoing, net income for the three months ended March 31, 2007 was $548,000 compared to $692,000 for the three months ended March 31, 2006, a decrease of 20.8%. Earnings before interest, taxes, depreciation and amortization, and stock based compensation (EBITDA) for the three months ended March 31, 2007 decreased by 17.1% to $842,000 from $1,016,000 for three months ended March 31, 2006. Listed below is the EBITDA reconciliation to net income: Three months ended March 31, ---------- 2007 2006 ---- ---- Net income $548,000 $692,000 Interest expense 95,000 116,000 Income tax expense 10,000 10,000 Depreciation and amortization 139,000 147,000 Stock based compensation 50,000 51,000 ------- -------- EBITDA $842,000 $1,016,000 ======== ========== Material Change in Financial Condition - ------------------------------------------ Working capital increased to $17,529,000 at March 31, 2007 compared to $17,176,000 at December 31, 2006. The ratio of current assets to current liabilities was 5.2 to 1 at March 31, 2007 compared to 4.9 to 1 at December 31, 2005. Net cash used in operations for the three month period ended March 31, 2007 was $24,000, primarily attributable to the increase in accounts receivable and inventories, the decrease in accrued expenses and customer advances that was partially offset by net income for the period, the non-cash amortization of intangible assets and an increase in accounts payable. Net cash provided by operations for the three month period ended March 31, 2006 was $467,000, primarily attributable to net income for the period, the non-cash amortization of intangible assets and stock based compensation and an increase in accounts payable that was partially offset by an increase in accounts receivable and a decrease in accrued expenses and customer advances. Cash flows used in investing activities for the three month period ended March 31, 2007 was $551,000, primarily attributable to the net purchases of marketable securities and property and equipment. Cash flows used in investing activities for the three month period ended March 31, 2006 was $1,938,000, primarily attributable to the purchases of marketable securities and property and equipment. Cash flows used in financing activities was $332,000, attributable to the repayment of long term debt. Cash flows used in financing activities was $267,000, attributable to the repayment of long term debt that was partially offset by the proceeds from stock option exercises. In April 2005, the Company entered into a $2,500,000 credit facility with a commercial lender secured by accounts receivable, inventory, and property and equipment. Also in April 2005, the Company entered into a five-year $5,000,000 Term Loan Agreement to finance the acquisition of Tulip and its manufacturing affiliate. In April 2006, the interest rates on both the Term Loan Agreement and the credit facility were reduced. The credit facility will continue from year to year unless sooner terminated for an event of default including non-compliance with certain financial covenants. Loans prior to the renewal, under the facility, bore interest equal to the sum of 2.00% plus the one-month LIBOR (5.32% at March 31, 2007) and the Term Loan did bear interest equal to the sum of 2.25% plus the one-month LIBOR. Pursuant to the renewal, both the credit facility and the Term Loan bear interest equal to the sum of 1.50% plus the one-month LIBOR. Monthly principal payments under the Term Loan, of approximately $60,000 per month, commenced in June 2005. In April 2005, the Company entered into a five year $2,000,000 Promissory Note with the selling shareholders of Tulip at an interest rate of prime plus 2.00% (8.25% at March 31, 2007). Principal payments of $100,000 were made on a quarterly basis along with accrued interest. In October 2006, pursuant to permission from its primary lender, the Company increased its quarterly principal payment to $150,000 along with accrued interest and intends to continue to make quarterly principal payments of $150,000 until the loan is repaid in full. 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 $4,890,000 $1,114,000 $2,943,000 $833,000 $ - Capital lease Obligations 7,000 7,000 - - - Operating leases 3,147,000 610,000 1,619,000 918,000 - ---------- --------- -------- -------- ------- Total contractual Obligations $8,044,000 $1,731,000 $4,562,000 $1,751,000 $ - 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 - ------------------------- In April 2005, the Company completed the acquisition of Tulip and its operations became part of the Company's Electronics Group. The Company's Electronics Group and the Custom Division of its Power Group 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 since 2001. Both of the Company's business segments had strong bookings in 2004 and 2005 that continued into the first quarter of 2006. During the second quarter of 2006, the Company began to experience a slowdown in its bookings due to program funding delays. However, the Company began to receive some of the expected follow-on awards during the end of the third and fourth quarters of 2006. Strong bookings continued during the first quarter of 2007 and the Company remains confident that it will continue to receive follow-on orders and option quantities that have been affected by these previous program funding delays, although the timing of their release remains uncertain. Although the Electronics Group and the Custom Division of the Power Group are pursuing several opportunities for reorders, as well as new contract awards, the Company has normally found it difficult to predict the timing of such awards. There is no seasonality to the Company's business. The Company's revenues are generally determined by the shipping schedules outlined in the purchase orders received from its customers. The Company stratifies all the opportunities it is pursuing by various confidence levels. The Company generally realizes a very high success rate with those opportunities to which it applies a high confidence level. The Company currently has a significant amount of potential contract awards to which it has applied a high confidence level. However, because it is difficult to predict the timing of awards for most of the opportunities the Company is pursuing, it is also difficult to predict when the Company will commence shipping under these contracts. A delay in the receipt of any contract from its customer ultimately causes a corresponding delay in shipments under that contract. 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 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 that 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 as a source of revenues and income. However, even increased military spending does not necessarily guarantee the Company of increased revenues, particularly, when the allocation of budget dollars may vary depending on what may be needed for specific military conflicts. Any future reductions in the level of military spending by the United States Government due to budget constraints or for any other reason, 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 addition of Tulip provide the Electronics Segment a more diversified customer base. The Company's business strategy is to expand its operations through strategic, accretive acquisitions. In April 2005, it completed the acquisition of Tulip. Since that time, the Company reviewed various potential acquisitions and in January 2007, hired Cove Partners LLC, an investment banking firm located in La Jolla, CA, that specializes in mergers and acquisitions and strategic advisory services. The Company has received offers from several financial institutions that have expressed an interest in helping the Company with acquisition financing. However, there can be no assurance it will obtain the necessary financing to complete additional acquisitions and even if it does, there can be no assurance that we will have sufficient income from operations of such acquired companies to satisfy the interest payments, in which case, we will be required to pay them out of Orbit's operations which may be adversely affected. The Company continues to review acquisition candidates but none have progressed beyond a preliminary due diligence stage. 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. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Part II, Item 6A "Quantitative and Qualitative Disclosures About Market Risk", of the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 for a discussion of the Company's exposure to market risk. There have been no material changes to the Company's market risk exposures since December 31, 2006. Item 4. CONTROLS AND PROCEDURES 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-15(e) or 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this report. 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 has been no changes to our internal control over financial reporting during the three months ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II- OTHER INFORMATION Item 1. Legal Proceedings None Item 1A. Risk Factors None Item 2. Unregistered Sales of Equity 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 Exhibit Number Description -------------- ----------- 31.1* Certification of the Chief Executive Officer Required by Rule 13a-14 (a) or Rule 15d-14(a). 31.2* Certification of the Chief Financial Officer Required by Rule 13a-14 (a) or Rule 15d-14(a). 32.1* Certification of the Chief Executive Officer Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. 32.2* Certification of the Chief Financial Officer Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. _________________ *Filed with this report. (b) Reports on 8-K On March 8, 2007, the Company filed a current report on Form 8-K under Item 2.02 Results of Operations and Financial Condition relating to its press release issued on March 8, 2007, announcing the Company's operating results for the three months and year ended December 31, 2006. 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, 2007 /s/ Dennis Sunshine ------------------- Dennis Sunshine, President, Chief Executive Officer and Director Dated: May 14, 2007 /s/Mitchell Binder ------------------ Mitchell Binder, Executive Vice President, Chief Financial Officer and Director EX-31.1 2 certificationofceo.txt CERTIFICATION OF CEO EXHIBIT 31.1 I, Dennis Sunshine, certify that: 1. I have reviewed this report on Form 10-Q of Orbit International Corp.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the business issuer as of, and for, the periods presented in this report; 4. The business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) *; (c) Evaluated the effectiveness of the business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the business issuer's internal control over financial reporting that occurred during the business issuer's most recent fiscal quarter (the business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the business issuer's internal control over financial reporting; and 5. The business issuer's other certifying officer I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the business issuer's auditors and the audit committee of business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the business issuers internal control over financial reporting. Date: May 14, 2007 /s/ Dennis Sunshine ------------------- Dennis Sunshine Chief Executive Officer * Indicates material omitted in accordance with SEC Release Nos. 33-8238 and 34-47986 EX-31.2 3 certificationofcfo.txt CERTIFICATION OF CFO EXHIBIT 31.2 I, Mitchell Binder, certify that: 1. I have reviewed this report on Form 10-Q of Orbit International Corp.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the business issuer as of, and for, the periods presented in this report; 4. The business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) *; (c) Evaluated the effectiveness of the business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the business issuer's internal control over financial reporting that occurred during the business issuer's most recent fiscal quarter (the business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the business issuer's internal control over financial reporting; and 5. The business issuer's other certifying officer I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the business issuer's auditors and the audit committee of business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the business issuers internal control over financial reporting. Date: May 14, 2007 /s/ Mitchell Binder ------------------- Mitchell Binder Chief Financial Officer * Indicates material omitted in accordance with SEC Release Nos. 33-8238 and 34-47986 EX-32.1 4 certificationofceo906.txt 906 CERTIFICATION OF CEO EXHIBIT 32.1 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-Q for the quarterly period ended March 31, 2007 (the "Periodic 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: May 14, 2007 /s/ Dennis Sunshine ------------------- Dennis Sunshine Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Orbit International Corp. and will be retained by Orbit International Corp. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 5 certificationofcfo906.txt 906 CERTIFICATION OF CFO EXHIBIT 32.2 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-Q for the quarterly period ended March 31, 2007 (the "Periodic 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: May 14, 2007 /s/ Mitchell Binder ------------------- Mitchell Binder Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Orbit International Corp. and will be retained by Orbit International Corp. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----