0000074818-11-000010.txt : 20110331
0000074818-11-000010.hdr.sgml : 20110331
20110331170903
ACCESSION NUMBER: 0000074818-11-000010
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20101231
FILED AS OF DATE: 20110331
DATE AS OF CHANGE: 20110331
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-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-03936
FILM NUMBER: 11727394
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-K
1
form10k.txt
FORM 10-K DECEMBER 31,2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
= ACT OF 1934 for the fiscal year ended December 31, 2010
or
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to ____
Commission File No. 0-3936
ORBIT INTERNATIONAL CORP.
(Name of registrant as specified in its charter)
DELAWARE 11-1826363
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
80 CABOT COURT, HAUPPAUGE, NEW YORK 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 435-8300
Securities registered pursuant to Section 12(b) of the Exchange Act:
COMMON STOCK, $.10 PAR VALUE PER SHARE NASDAQ CAPITAL MARKET
-------------------------------------- ---------------------
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ___ No X
===
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ___ No X
===
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.
Yes X No ___
===
Indicate by check mark whether Registrant has submitted electronically and
posted on its Corporate Website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T( 232.405 of this
Chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and posted such files).
Yes ___ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K( 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
===
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ___ Accelerated Filer ___
Non-accelerated filer ___ Smaller reporting company X
===
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act).Yes __ No X
===
Aggregate market value of Registrant's voting and non-voting common equity held
by non-affiliates (based on shares held and the closing price quoted on the
Nasdaq Capital Market on June 30, 2010): $11,055,899
Number of shares of common stock outstanding as of March 30, 2011: 4,734,220
Documents incorporated by reference: The Registrant's definitive proxy statement
to be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934 in connection with the Registrant's 2011 Annual Meeting of
Stockholders.
------
PART I
------
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K which are not statements
of historical or current fact 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 (the "Exchange Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause our actual financial or operating results to be
materially different from the historical results or from any future results
express 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 our most recent results. In
addition to statements which explicitly describe any risks and uncertainties
(including factors noted in Item 7 below - "Management's Discussion and Analysis
of Financial Condition and Results of Operations"), 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 our reports and
registration statements filed with the Securities and Exchange Commission.
While we may elect to update forward-looking statements at some point in the
future, we specifically disclaim any obligation to do so, even if our estimates
change.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Orbit International Corp. (the "Company" or "Orbit") was incorporated under
the laws of the State of New York on April 4, 1957 as Orbit Instrument Corp. In
December 1986, the state of incorporation was changed from New York to Delaware
and in July 1991, the name was changed to Orbit International Corp. We conduct
our operations through our Orbit Instrument Division ("Orbit Instrument") and
our wholly owned subsidiaries, Behlman Electronics, Inc. ("Behlman"), TDL
Development Laboratory, Inc. ("TDL") and Integrated Consulting Services, Inc.,
d/b/a Integrated Combat Systems ("ICS"). Through our Orbit Instrument Division,
which includes our wholly owned subsidiaries, Orbit Instrument of California,
Inc. and TDL, we are engaged in the design, manufacture and sale of customized
electronic components and subsystems. ICS, based in Louisville, Kentucky,
performs systems integration for gun weapons systems and fire control interface,
as well as logistics support and documentation. Behlman is engaged in the design
and manufacture of high quality commercial power units, AC power, frequency
converters, uninterruptible power supplies and commercial-off-the-shelf ("COTS")
power solutions.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
We currently operate in two industry segments. Our Electronics Group is
comprised of our Orbit Instrument Division, our TDL subsidiary, and our ICS
subsidiary. Orbit Instrument and TDL are engaged in the design and manufacture
of electronic components and subsystems. ICS performs system integration for gun
weapons systems and fire control interface as well as logistics support and
documentation. Our Power Group is comprised of our Behlman subsidiary and is
engaged in the design and manufacture of commercial power units.
The following sets forth certain selected historical financial information
relating to our business segments:
December 31,
------------
2010 2009
------------- ------------
Net sales (1):
----------------------------------------------
Electronics Group
Domestic $15,798,000 $15,380,000
Foreign 1,031,000 1,331,000
------------ ------------
Total Electronics Group $16,829,000 $16,711,000
Power Group
Domestic $ 8,908,000 $ 9,014,000
Foreign 1,179,000 1,170,000
------------ ------------
Total Power Group $10,087,000 $10,184,000
----------------------------------------------
Income (loss) before income tax provision (2):
----------------------------------------------
Electronics Group $(2,986,000) $(1,569,000)
Power Group $ 1,437,000 $ 1,509,000
---------------------------------------------- ------------ ------------
Assets:
----------------------------------------------
Electronics Group $12,297,000 $12,629,000
Power Group $ 6,089,000 $ 5,916,000
---------------------------------------------- ------------ ------------
(1) Includes intersegment sales.
(2) Exclusive of corporate overhead expenses, interest expense, and
investment and other income- net, which are not allocated to the business
segments. Includes goodwill and intangible assets impairment charges of $924,000
and $2,048,000 in 2010 and 2009, respectively.
Additional financial information relating to the business segments in which
Orbit conducts its operations is set forth in Note 16 to the Consolidated
Financial Statements appearing elsewhere in this report.
DESCRIPTION OF BUSINESS
GENERAL
Our Electronics Group designs, manufactures and sells customized panels,
components, and subsystems for contract program requirements to prime
contractors, governmental procurement agencies and research and development
("R&D") laboratories, primarily in support of specific military programs. More
recently, we have focused on providing commercial, non-military "ruggedized
hardware" (hardware designed to meet severe environmental conditions) for prime
contractor programs at cost competitive prices. Products include a variety of
custom designed "plasma based telephonic intercommunication panels" for secure
voice airborne and shipboard program requirements, "full-mil keyboards",
trackballs and data entry display devices. Our Electronics Group's products,
which in all cases are designed for customer requirements on a firm, fixed-price
contract basis, have been successfully incorporated into systems deployed on
surveillance aircraft, including E-2C, E-2D, Joint Surveillance Target Attack
Radar Systems (J/STARS), Lookdown Surveillance Aircraft (AWACS) and P-3
(anti-submarine warfare) requirements, and shipboard programs, including AEGIS
(Guided Missile Cruisers and Destroyers), DDG'S (Guided Missile Destroyers),
BFTT (Battle Force Tactical Training), LSD'S (Amphibious Warfare Ships) and
LHA'S (Amphibious Warfare Ships) applications, as well as a variety of land
based guidance control programs, including the TAD (Towed Artillery
Digitization) fire control system. Through ICS, the Electronics Group also
performs (i) analysis and evaluation of medium and major caliber Naval Gun
Weapon Systems performance, including interoperability and compatibility with
combat systems, interface systems, ammunition, subsystems and components, (ii)
engineering requirements, such as the design, integration and production of
medium and major caliber Naval Gun Weapon Systems' components and (iii)
engineering supplies and services in support of medium and major caliber Naval
Gun Weapon Systems initiatives, including the development of test plans, test
equipment, test articles/units, analyses, trouble shooting, repair, maintenance
and reporting.
Our Power Group manufactures and sells power supplies, AC power sources
(equipment that produces power that is the same as what would be received from a
public utility), "frequency converters" (equipment that converts local power to
equivalent foreign power), "uninterruptible power supplies ("UPS")" (devices
that allow a computer to operate while utility power is lost), associated
analytical equipment and other electronic equipment. The military division of
our Behlman subsidiary designs and manufactures power solutions that use COTS
power modules to meet customer specifications.
PRODUCTS
Electronics Group
IFF- Identification Friend or Foe
Our Orbit Instrument Division has designed and developed a remote control
unit ("RCU") that has supported the Common Transponder ("CXP") program for both
the U.S. Navy and U.S. Army. Our RCU has been fully qualified for shipboard,
aircraft and ground based programs, which are now functional and supporting U.S.
forces in air, sea and ground battlefield conditions. Orbit's RCU now has
embedded proprietary software code for Mode S, Enhanced Traffic Alert and
Collision Avoidance Systems ("ETCAS"), and Mode 5 IFF combat applications.
After shipping more than 3,000 units in support of U.S. Army and U.S. Navy
CXP program requirements, our Orbit Instrument division has designed and
qualified a new Integrated Remote Control Unit ("IRCU") which has been qualified
to support U.S. Air Force retrofit programs.
Intercommunication Panels
Our Orbit Instrument division has designed and developed various types of
shipboard communication terminals. These communication terminals support
existing shipboard secure and non-secure voice communication switches. The
panels contained within the terminals have recently been upgraded with
state-of-the-art color LCD displays, including options for touch screens. In
addition, Orbit Instrument has upgraded the communications terminals with
"telco-based" capability. The upgraded communication terminals have been
successfully embedded within combat information center ("CIC") consoles on a
number of U.S. Naval ship configurations.
Orbit Instrument has designed and developed the next generation color LCD flat
panel technology with a touch screen based computer controlled Action Entry
Panel for the AEGIS class ships. The new Color Entry Panel (CEP) is currently
replacing our existing, functional yet aging Plasma Entry Panel (PEP) that now
exceeded decades of 24/7 critical useful life naval service. The CEP continues
to be deployed as a form fit replacement display for the previously designed
PEP.
Displays
Our Electronics Group, through Orbit Instrument and TDL, has designed,
developed, qualified and successfully supported a number of critical programs
for prime contractors and government procurement agencies. Our Electronics Group
has designed displays using electroluminescent ("EL"), plasma, and LCD
technologies for military and rugged environments.
Displays designed by our Electronics Group allow one or more operators to
monitor and control radar systems for aircraft, helicopter, shipboard,
ground-based, and tracked vehicles systems. Our unique modular design technique
allows our displays to provide "smart technology", in the form of high-speed
graphics to operators in the most severe combat conditions. TDL and Orbit
Instrument displays are readable under both sunlight and night vision conditions
("NVIS"), and continues to operate in nuclear, biological and chemical ("NBC")
environments.
Both our Orbit Instrument division and our TDL subsidiary have penetrated a
niche defense electronics marketplace by providing avionic displays and
keyboards for a number of Air Force jet fighter, bomber, surveillance and tanker
refueling programs. Displays may vary from four (4) inches, up to forty five
(45) inches long, incorporating multiple inputs and outputs.
With years of prime contractor and procurement agency support, both TDL and
Orbit Instrument have designed and embedded displays for U.S. Army programs,
providing multiple display systems supporting commander, fire control and GPS
driver requirements for the Abrams, Bradley, and Challenger programs.
Our TDL subsidiary has developed a number of color LCD displays that have
been qualified and currently support a number of helicopter, jet fighter,
bomber, tracked vehicle and armored vehicle programs.
Working together with prime contractors, TDL has designed a number of display
configurations to support retrofit and upgrade programs for B-52 aircraft, V-22
Osprey cockpit, as well as the latest fleet upgrade for domestic and foreign
military aircraft.
Orbit has successfully designed and qualified an input device assembly
("IDA"), which includes a fully integrated keyboard, trackball and display
assembly that is worn (via velcro), on the co-pilot's thigh during flight
missions. This unique wearable system provides co-pilots with additional
information that is easy to access, and does not require additional space within
the cockpit environment. This allows the aircraft to actually have four bullnose
systems, the last being the Orbit designed IDA thigh pad.
By focusing on the avionics market, TDL has designed, qualified and delivered
displays for mission support in the HH-60 helicopter, providing real time data
to the operator. This program opportunity will support both current and retrofit
programs
Our Orbit Instrument Division has supported programs that include displays,
keyboards and track balls to form complete operator systems on "trays". These
trays are qualified for sub-surface, shipboard, aircraft and tracked vehicle
program opportunities.
Orbit Instrument has successfully designed and qualified a display tablet
in support of an ongoing Chinook Helicopter upgrade program. The initial
quantity of production tablets will enhance and upgrade mission avionics and
control capabilities in the Chinook helicopter. These tablets are currently
scheduled for delivery in 2012.
Orbit Instrument has designed and developed a 6.5" display, as well as a
sunlight readable 20.1" display for the U.S. Navy's Carrier Machinery Control
System ("MCS") programs. The qualification phase of these displays will be
second quarter 2010. Production of these displays commenced during the fourth
quarter 2010 for delivery and installation on the Navy's CVN-78 aircraft
carrier.
Orbit Instrument designed, developed and delivered pre-production 12.1" display
units, for the maintenance panel of the Littoral Combat Ships. The
pre-production phase has been completed and the production phase is expected to
start in the next couple of years.
Keyboards, Keypads and Pointing Devices
Orbit Instrument and TDL have designed a number of custom backlit keyboards
and keypads to meet military specifications. These keyboards and keypads have
been designed for shipboard, airborne, sub-surface and land-based program
requirements, as well as for the Federal Aviation Administration. The keyboards
include various microprocessor-based serial interfaces, such as RS-232, RS-422,
PS/2, USB and SUN type interfaces. Depending on the requirement, some of the
backlit keyboards are night vision goggle compatible and designed for NVIS Green
A or Green B night vision requirements.
Orbit Instrument designed/developed pointing devices, trackballs and force
sticks. It manufactures various militarized trackballs in various sizes for
airborne, shipboard, Army and FAA requirements. The trackballs and the force
sticks include various microprocessor based serial interfaces such as RS-232,
RS-422, PS/2, USB and SUN type interfaces.
Operator Control Trays
Our Orbit Instrument division designs and manufactures a variety of
"operator control trays" that help organize and process data created by
interactive communications systems, making such data more manageable for
operator consumption. These trays are presently used to support patrol and
surveillance aircraft programs, standard shipboard display console requirements
and land-based defense systems applications. The operator trays are integrated
with Orbit designed/developed keyboards, flat panel technology-based computer
controlled action entry panels, switch panels and pointing devices.
Command Display Units (CDU'S)
Our Orbit Instrument division currently has orders for command display panels
that are being utilized in vehicular, shipboard and sheltered platform
requirements. The display panels are flat panel technology based and include a
Pentium based single board computer. We have designed/developed several models
of the CDU to be used by U.S. Navy, U.S. Army and U.S. Marines, and the South
Korean and Canadian armies.
MK 119 Gun Computer System Cabinet (GCSC)
ICS remains under a multi-year contract for the production of the MK 119
GCSC, an unmanned environmentally isolated shipboard enclosure that houses a
standard 19-inch electronics rack containing processors, electronic devices and
cooling and power conditioning equipment that performs processing, interfacing
and data extraction functions. It is anticipated that the MK119 GCSC product
line will be supplanted with increased orders for the MK110 Signal Data
Converter.
MK 437 Gun Mount Control Panel (GMCP)
ICS is also under contract to provide the GMCP, a manned control panel
located shipboard in the gun loader room. The GMCP consists of an interactive
operator control/display terminal that permits the operator to control the Gun
Mount and the GCSC. The operator is able to enter ammunition and environmental
pre-engagement data and to monitor the Gun Mount status and operation. In the
event of a loss of the Gun Console (GC) the GMCP can serve as a casualty mode of
system operation.
MK 110 Serial Data Converter
The MK 119 GCSC designed and built exclusively by ICS has been adapted for
use on the DDG-51 modernization (Backfit) program. The redesigned enclosure has
been provided with the nomenclature - MK 110 Serial Data Converter (SDC). The
SDC will allow the newly modernized DDG-51 Class Combat Management System to
easily interface with legacy Gun System hardware. ICS is currently under
contract for three prototype SDC units. These prototype units are being built
to the ICS design baseline.
Harness Assemblies
ICS is leveraging its core competencies in electronics enclosure assembly
into a cable harness assembly Manufacturing Center of Excellence (MCoE). The
MCoE will support the organic Orbit International Corp. CCA requirements as well
as afford a stable base for enhanced harness assembly sales. While no
additional training or certification is required to support this elevated
capability ICS will migrate from ISO 9001 certification to AS-9100 certification
during calendar year 2011.
Selected Products
ICS builds a wide range of system integration products, including fiber optic
cables, specialty enclosures, traditional shipboard cable sets (low smoke and
non-low smoke) and training devices.
Power Group
Our Behlman subsidiary's Commercial Power Supply Division designs and
manufactures AC power sources. These products are used for clean regulated
power and for frequency and voltage conversion applications. Behlman's AC power
supplies are used on production lines, in engineering labs, for oil and gas
exploration, on aircraft and ships (both manned and unmanned), and on related
ground support systems.
Behlman's frequency converters are used to convert power from one frequency to
another. They are used to test products to be exported to foreign countries
from the point of origin (e.g., in the U.S., 60 Hz. is converted to 50 Hz) and
to test products requiring the supply of 400 Hz for aircraft and ship power.
These frequency converters are also used in rugged applications such as on
airplanes to supply the 60 Hz. required by standard equipment, such as
computers, from the 400 Hz. available on the aircraft. In addition, Behlman's
products are used for railroad signaling. Its frequency converters are
manufactured for most of the passenger railroads in the United States.
Behlman's power sources have power levels from 100 VA to 120,000 VA.
Behlman's Uninterruptible Power Supply ("UPS") products are used for backup
power when local power is lost. Behlman only competes in the "ruggedized",
industrial and military markets. Behlman is now producing its UPS units for
DDG-51-class Aegis destroyers, LHD Wasp-class ships and military aircraft.
Behlman's inverters which convert system battery power to AC are being used in
electric, gas and water transmission systems and in utility substations.
Behlman's COTS Division designs and manufactures power supplies that use COTS
power modules to meet its customers' environmental specifications. This
technique requires less engineering resources and produces a more reliable unit
in much less time. Customers include the U.S. and NATO military services and
their prime contractors, and nuclear power plant control systems manufacturers.
Behlman also performs reverse engineering of analog systems for the United
States Government or United States Government contractors to enable them to have
a new supplier when the old manufacturer cannot or will not supply the
equipment.
Behlman is a long time supplier to the Source Development Department of the
Navel Inventory Control Point ("NAVICP") and has been given the opportunity to
compete against prime contractors. Behlman has supplied power supplies used on
a broad array of equipment including submarines, surface ships, aircraft and
ground support equipment.
Behlman also operates as a qualified repair depot for many United States
Air Force and Navy programs.
PROPOSED PRODUCTS
Electronics Group
Our Electronics Group continues to identify new program opportunities,
which require new hardware and software designs to support prime contractors and
defense procurement agency land, sea and air solutions.
TDL continues to be a leading supplier of display and keyboard designs,
supporting defense electronics and industrial program requirements. TDL has
developed a second LCD display configuration, which is supporting transit
authority communication directly with the driver. This device is typically
mounted within a bus and allows the driver to input and receive information
throughout the intended route. TDL continues to support this transportation
display requirement and can provide solutions to each transit authority as new
awards are released.
Our Electronics Group has developed several new color smart displays for
use on helicopters. Given the critical requirements of helicopter missions, each
configuration has been designed as sunlight readable and night vision qualified,
and provides the crew with real time data under extreme environmental and combat
requirements.
Our Electronics Group continues to provide a family of state of the art
display configurations which combine various stand alone switch panels and data
input devices onto a single display. These displays provide an operator with a
single source of easy to access information that supports naval consoles,
aircraft cockpits, armor vehicle suites and helicopter cockpit requirements.
Orbit Instrument has designed and developed a 6.5" display, as well as a
sunlight readable 20.1" display for the U.S. Navy's Carrier MCS programs. Orbit
Instrument also has designed and developed an 8" display for U.S. Navy ships as
part of the Nuclear, Biological and Chemical ("NBC") detection program.
Orbit Instrument continues to develop new GPS Control Display Unit ("CDU")
panels that support U.S. Army land navigation system requirements. A number of
CDU panels have been designed as a total solution for customer requirements. As
each foreign country procures this Fire Finder system from the prime contractor,
critical country mapping and targeting code is written by the division segment,
and embedded into the CDU as an operational requirement.
Our Electronics Group continues to target ongoing retrofit programs, which
are intended to extend the life cycle of ships, aircraft, and armored vehicles.
To that extent, Orbit Instrument and TDL have designed state-of-the art LED
switch panels, keyboards, and communication panels that are form fit and
replaceable for units that have exceeded their intended operational usage. In
all cases, the new technological designs supporting the switch panels,
keyboards, and communication panels are intended to replace units which have
been operational in combat mode for decades. As the Electronics Group continues
to receive new contract awards for program opportunities, developing new
hardware to replace our previously designed units will continue to be a
significant part of our Electronics Group's business strategy.
Orbit Instrument is developing a voice over IP ("VOIP") version of its
Secure Audio System ("SAS") used on LSD-class ships. The new SAS panel will
include a color LCD panel and a VOIP interface. It has provided the plasma
display version of the SAS Panel in the past. The new LCD display based SAS
panel will be developed to work with Common Enterprise Display System ("CEDS")
and target retrofit opportunities.
Orbit Instrument is in the process of design and development of color LCD
display version of the Radio Frequency Transmission Line Test Set ("RFTLTS"). It
has supported the RTFLTS with an Electro Luminescent ("EL") display in the past,
and the new color LCD version will target retrofit opportunities.
We have recognized the timing and availability opportunity to strategically
penetrate the armored vehicle defense electronics market, at the prime vehicle
manufacture level, in conjunction with prime electronics contractors. We have
designed displays that now support the Bradley Vehicle, the Abrams Tank, the
Stryker Vehicle, and displays supporting the M777 towed howitzer.
Given the visibility of displays designed by TDL for these critical program
requirements, we have been contacted by several major prime contractors to
support additional Mine Resistant Ambush Protected ("MRAP") armored vehicle
programs.
Working under an exclusive Supplier Partner Agreement ("SPA"), with
Synexxus, TDL has delivered a quantity of displays that have been deployed in
various configurations of MRAP vehicles, which are currently deployed in Iraq
and Afghanistan theaters of operations.
In response to market-based influences, ICS is planning to develop a family
of shock-isolated cabinets to house both custom and COTS components. This
family of cabinets will be qualified to the full spectrum of environmental
criteria mandated by our Department of Defense customer base.
Future modifications of the GCSC will incorporate touch sensitive displays,
detailed built-in-test capabilities and a robust graphic interface.
Littoral Combat Ship
With the ability to maneuver in shallow waters inaccessible to other
surface combatants, the Littoral Combat Ship ("LCS") is a new class of warship
meant to facilitate U.S. Navy access to, and operations in the littorals, which
are waters close to the shore. The Navy has selected two contractors, Lockheed
Martin and Austal USA to build differently designed hulls (or seaframes). ICS
worked diligently to support both prime contractors as they prepared their bid
responses. ICS is currently in discussions with first-tier subcontractors to
both successful LCS bidders to provide a number of required components including
cable assemblies, consoles and various interconnecting panels. However, we
believe the potential new business from this program will be less than initially
expected.
Circuit Card Assemblies
ICS is in the process of developing an organic pick-and-place Circuit Card
Assembly ("CCA") capability. Once fully mature, this capability will support
the organic Orbit International Corp. CCA requirements as well as afford a
stable base for enhanced CCA sales.
Naval Fire Control System
On U.S. Navy ships, the Naval Fire Control System (NFCS - also designated
the AN/SYQ-27) is a system to plan gunfire support of friendly forces ashore.
Since the forces requesting support may be from any branch of the military, NFCS
operates with the Army's Advanced Field Artillery Tactical Data System (AFATDS)
as well as the Navy's Global Command and Control System and existing Naval Gun
Fire Control Systems. NFCS has been installed aboard the USS Arleigh Burke
Class Destroyers DDG-81 through DDG-90 and is planned for introduction onto the
remaining USS Arleigh Burke Class Destroyers as well as the Ticonderoga Class
Cruisers.
ICS is the OEM for the Navy's signature Gun Fire Control System - the MK
160 Gun Fire Control System. ICS is continually exploring opportunities to add
NFCS related products to its portfolio.
Electronic Cabinetry
In response to market-based influences ICS is developing a family of
shock-isolated cabinets to house both custom and COTS components. This family
of cabinets will be qualified to the full spectrum of environmental criteria
mandated by the Department of Defense customer base.
Power Group
In an effort to expand our Power Group's product base, Behlman is
developing new, higher power inverters. These products are designed to expand
our presence in the utility market and to establish a presence in the military
inverter market where the inverter can be used on vehicles such as Hummers.
Behlman is expanding its high power BL series to be used on new aircraft that
utilize "wild frequency" systems, which will include CE mark for European sales.
Behlman is expanding its "P" series of low cost AC power supplies to add power
factor corrected input and CE marking in order to enhance its sales to the
European Community.
Behlman has developed a new line of ruggedized UPS to be used in military and
high end industrial applications.
In response to customer requests, Behlman is has developed and continues to
expand its line of COTS power supplies to be used in applications such as
satellite, nuclear power plant control, sonar and fire control optics. Behlman
continues to be the company of choice by certain divisions of military
procurement to replace obsolete power equipment with modern COTS versions.
SALES AND MARKETING
Products of our Electronics Group are primarily marketed by the sales
personnel and management of the respective operating units. Manufactures
representatives have recently been added as well. The COTS division's products
of our Power Group are marketed by Behlman's sales and program managers and
other management personnel. Commercial products of our Power Group are sold by
regional sales managers, manufacturer's representatives and non-exclusive
distributors.
COMPETITION
Many of our competitors are well established, have reputations for success
in the development and sale of their products and services and have
significantly greater financial, marketing, distribution, personnel and other
resources than us, thereby permitting them to implement extensive advertising
and promotional campaigns, both in general and in response to efforts by
additional competitors to enter into new markets and introduce new products and
services.
The electronics industry is characterized by frequent introduction of new
products and services and is subject to changing consumer preferences and
industry trends, which may adversely affect our ability to plan for future
design, development and marketing of our products and services. The markets for
electronic products, components and related services are also characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. We are constantly required
to expend more funds for research and development of new technologies.
Our Electronics Group's competitive position within the electronics
industry is, in management's view, predicated upon our manufacturing techniques,
our ability to design and manufacture products which will meet the specific
needs of our customers and our long-standing relationship with our major
customers. (See "Major Customers" below). There are numerous companies, many of
which have greater resources than us, which are capable of producing
substantially all of our products.
Competition in the markets for our Power Group's commercial and military
products depends on such factors as price, product reliability and performance,
engineering and production. In particular, due primarily to budgetary
restraints and program cutbacks, competition in Behlman's United States
Government markets has been increasingly severe and price has become the major
overriding factor in contract and subcontract awards. To our knowledge, some of
Behlman's regular competitors include companies with substantially greater
capital resources and larger engineering, administrative, sales and production
staffs than Behlman's.
SOURCES AND AVAILABILITY OF RAW MATERIALS
We use multiple sources for our procurement of raw materials and are not
dependent on any specific suppliers for such procurement. We continuously
update our delivery schedules and evaluate availability of components so that
they are received on a "just-in-time schedule". Occasionally, in the production
of certain military units, we will be faced with procuring certain components
that are either obsolete or difficult to procure. However, we have access to
worldwide brokers using the Internet to assure component availability.
Nevertheless, there can be no assurance that such components will be available
and, even if so, at reasonable prices.
MAJOR CUSTOMERS
Various agencies of the United States Government and BAE Systems accounted
for approximately 24% and 12%, respectively, of our consolidated net sales for
the year ended December 31, 2010. The loss of any of these customers would have
a material adverse effect our net sales and earnings. We do not have any
significant long-term contracts with any of the above-mentioned customers.
The major customers of our Electronics Group are various agencies of the
United States Government, BAE Systems and Raytheon Company, accounting for
approximately 31%, 19% and 13%, respectively, of the net sales of such segment
for the year ended December 31, 2010. The loss of any of these customers would
have a material adverse effect on the net sales and earnings of our Electronics
Group.
The major customers of our Power Group are Telephonics and various agencies of
the United States Government, both accounting for approximately 21% and 13%
respectively, of the net sales of such segment for the year ended December 31,
2010. The loss of these customers would have a material adverse effect on the
net sales and earnings of our Power Group.
Since a significant amount of all of the products which we manufacture are
used in military applications, any substantial reduction in overall military
spending by the United States Government could have a materially adverse effect
on our sales and earnings.
BACKLOG
As of December 31, 2010 and 2009 our backlog was as follows:
2010 2009
---- ----
Electronics Group $ 14,000,000 $12,000,000
Power Group 6,000,000 6,000,000
----------- -----------
Total $20,000,000 $18,000,000
=========== ===========
All but approximately $941,000 of the backlog at December 31, 2010,
represents backlog under contracts that are expected to be shipped during 2011.
A significant amount of our contracts are subject to termination at the
convenience of the United States Government. The backlog is not influenced by
seasonality.
SPECIAL FEATURES OF UNITED STATES GOVERNMENT CONTRACTS
Orders under United States Government prime contracts or subcontracts are
customarily subject to termination at the convenience of the U.S. Government, in
which event the contractor is normally entitled to reimbursement for allowable
costs and a reasonable allowance for profits, unless the termination of a
contract was due to a default on the part of the contractor.
No material terminations of contracts of either our Electronics Group or the
Power Group at the convenience of the U.S. Government occurred during the years
ended December 31, 2010 and 2009.
A significant portion of our revenues are subject to audit under the
Vinson-Trammel Act of 1934 and other federal statutes since they are derived
from sales under United States Government contracts. We believe that
adjustments to such revenues, if any, will not have a material adverse effect on
our financial position or results of operations.
RESEARCH AND DEVELOPMENT
We incurred approximately $1,412,000 and $1,446,000 of research and
development expenses during the years ended December 31, 2010 and 2009,
respectively. During the years ended December 31, 2010 and 2009, we recognized
revenue of approximately $701,000 and $987,000, respectively, for customer
funded research and development.
PATENTS
We do not own any patents which we believe are of material significance to
our operations.
EMPLOYEES
As of March 17, 2011, we employed 139 persons, all on a full-time basis.
Of these, our Electronics Group employed 87 people, consisting of 24 in
engineering and drafting, 4 in sales and marketing, 16 in direct and corporate
administration and the balance in production. Our Power Group employed 52
people, consisting of 14 in engineering and drafting, 6 in sales, 4 in direct
and corporate administration and the balance in production.
ITEM 1A. RISK FACTORS
Not applicable, as we are a smaller reporting company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable, as we are a smaller reporting company.
ITEM 2. PROPERTIES
Our plant and executive offices are located at 80 Cabot Court, Hauppauge,
New York. This facility which consists of approximately 60,000 square feet (of
which approximately 50,000 square feet are available for manufacturing
operations) in a two-story, brick building, was completed in October 1982 and
expanded in 1985. We are currently operating this facility at approximately 70%
of capacity. In March 2001, we completed a sale leaseback transaction whereby we
sold our land and building for $3,000,000 and entered into a twelve-year net
lease with the buyer of the property. Effective January 1, 2011, we entered
into an amendment to the lease. The amendment extended the lease expiration date
to December 31, 2019 and modified the monthly lease payment as follows;
approximately $32,500 for January 2011 through December 2013, approximately
$35,400 for January 2014 through December 2016, and approximately $38,600 for
January 2017 through December 2019. Our landlord agreed, at its sole expense, to
make certain improvements to the facility.
In December 2007, our Behlman subsidiary entered into a new lease for a
2,000 square foot facility at 2363 Teller Road, Unit 108, Newbury Park,
California, which is used as a selling office for all of the Company's operating
units. The five year lease provides for monthly payments of approximately $2,100
with annual increases of approximately 3%. The lease provides for an option to
renew for an additional five years at a monthly rent equal to the rent charged
for comparable space in the geographical area.
In April 2009, our TDL subsidiary entered into a five-year lease for 50,000
square feet at 300 Commerce Boulevard, Quakertown, Pennsylvania which is used
for manufacturing, engineering and administration. The facility is currently
operating at 60% of capacity. TDL only paid certain operating expenses, from
April through October 2009 and lease payments commenced November 1, 2009. The
lease provides for monthly lease payments of approximately $15,300 for the first
two years of the lease and approximately $16,600, $17,200 and $17,800 for years
three, four and five, respectively. The lease includes one five-year option
based on the CPI Index (Philadelphia, PA area) and a second five-year option
based on fair market value rent. In connection with the new facility, TDL
incurred approximately $537,000 in leasehold improvements in 2009. In August
2009, TDL entered into a sublease with the landlord on a month-to-month basis
for 15,000 square feet which is being utilized for storage. The sublease
provides for TDL to receive $1,250 per month.
On April 5, 2005, TDL entered into a five-year lease for 19,000 square feet at
1765 Walnut Drive, Quakertown, Pennsylvania which was used for manufacturing,
engineering and administration. The facility had been operating at full
capacity. TDL vacated the facility in October 2009 but continued to make lease
payments through January 2010 at which time the facility was sold by the lessor
to an unrelated third party. The lessor of this facility was a limited
partnership, the ownership of which was controlled by the former shareholders of
TDL.
Our ICS subsidiary operates out of two facilities in Louisville, KY, one of
which is used for engineering, logistics and administration and the other for
manufacturing. In December 2008, ICS entered into a new lease for engineering,
logistics and administration for approximately 14,000 square feet and provides
for monthly payments of approximately $6,800 per month from April 2009 through
March 2014 and includes an option to extend the lease for an additional five
years at approximately $8,400 per month. The facility is currently operating at
approximately 65% of capacity. The lease for manufacturing space is for
approximately 13,000 square feet and provides for monthly payments of
approximately $5,000 pursuant to an option in the lease that was exercised in
April 2009. The facility is currently operating at approximately 70% of
capacity.
ITEM 3. LEGAL PROCEEDINGS
In March 2011, in connection with the non-renewal of his employment
agreement, our former chief executive officer filed for an arbitration hearing
in the City of New York to settle a claim regarding certain disputed contractual
obligations. At December 31, 2010, we recorded an expense of $2,000,000 for
estimated costs associated with such non-renewal. Included in the recorded
expense is $312,000 of stock compensation expense relating to the accelerated
vesting of restricted stock issued to such officer. We are committed to paying
the amount that we believe is owed to our former chief executive officer
pursuant to his employment contract. We believe any amount over what we believe
is contractually owed to him is without merit and will be vigorously defended by
us.
From time to time, we may become a party to litigation or other legal
proceedings that we consider to be a part of the ordinary course of our
business. We are not currently involved in any other legal proceedings that
could reasonably be expected to have a material adverse effect on our business,
prospects, financial condition or results of operations. We could become
involved in material legal proceedings in the future.
ITEM 4. REMOVED AND RESERVED
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the Nasdaq Capital Market under the symbol
"ORBT".
The following table sets forth the high and low sales prices of our common stock
for each quarter from January 1, 2009 through its fiscal year ended December 31,
2010, as reported on the Nasdaq Capital Market.
HIGH LOW
----- -----
2009:
First Quarter: $2.60 $1.68
----------------- ----- -----
Second Quarter: 3.66 2.27
----------------- ----- -----
Third Quarter: 3.78 3.07
----------------- ----- -----
Fourth Quarter: 4.10 3.60
----------------- ----- -----
2010:
First Quarter: $3.83 $3.12
----------------- ----- -----
Second Quarter: 3.95 3.05
----------------- ----- -----
Third Quarter: 3.55 2.82
----------------- ----- -----
Fourth Quarter: 3.94 3.26
----------------- ----- -----
HOLDERS
As of March 18, 2011, the Company had 174 stockholders of record.
DIVIDENDS
We have not paid or declared any cash dividends to date and do not
anticipate paying any in the foreseeable future. We intend to retain earnings,
if any, to support the growth of the business.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth, as of December 31, 2010:
- the number of shares of our common stock issuable upon exercise of
outstanding options, warrants and rights, separately identified by those granted
under equity incentive plans approved by our stockholders and those granted
under plans, including individual compensation contracts, not approved by our
stockholders (column a),
- the weighted average exercise price of such options, warrants and rights,
also as separately identified (column b), and
- the number of shares remaining available for future issuance under such
plans, other than those shares issuable upon exercise of outstanding options,
warrants and rights (column c).
EQUITY COMPENSATION PLAN INFORMATION TABLE
(a) (b) (c)
Plan Category Number of securities to Weighted-average Number of securities
be issued upon exercise of exercise price of remaining available for
outstanding options, outstanding options, future issuance under
warrants and rights warrants and rights equity compensation
plans(excluding
securities reflected in
column (a))
-------------------- -------------------------- ------------------- ----------------------
Equity compensation
plans approved by
security holders 314,000 $ 4.24 12,000
Equity compensation
plans not approved by
security holders -0- N/A -0-
------- ------ -------
Total 314,000 $ 4.24 12,000
======== ====== =======
Additional information relating to the Issuer's purchase of equity securities is
provided in Item 7.-Management's Discussion and Analysis of Financial Condition
and Results of Operations.
RECENT SALES OF UNREGISTERED SECURITIES
During 2010 and 2009, we issued, respectively, 47,553 and 83,825 shares of
restricted stock to management, key employees and directors.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
In August 2008, our Board of Directors authorized a stock repurchase
program through December 2010, allowing us to purchase up to $3.0 million of our
outstanding shares of common stock in open market or privately negotiated
transactions. During the period from August 2008 through December 31, 2009, we
repurchased approximately 368,000 shares at an average price of $2.48 per share.
Total consideration for the repurchased stock was approximately $913,000. From
August 2008 through May 2010, we purchased approximately 369,000 shares of our
common stock for total cash consideration of $915,000 representing an average
price of $2.48 per share. In May 2010, in connection with an amendment to our
Credit Agreement, we suspended our stock repurchase program.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------------------
Not applicable, as we are a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial statements and related notes contained elsewhere in this report.
This discussion contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from
those anticipated in these forward-looking statements as a result of a variety
of factors discussed in this report and those discussed in other documents we
file with the SEC. In light of these risks, uncertainties and assumptions,
readers are cautioned not to place undue reliance on such forward-looking
statements. These forward-looking statements represent beliefs and assumptions
only as of the date of this report. While we may elect to update forward-looking
statements at some point in the future, we specifically disclaim any obligation
to do so, even if our estimates change.
Executive Overview
------------------
For the year ended December 31, 2010, our sales slightly increased to
$26,749,000 compared to $26,518,000 during the same period in 2009. Despite the
slight increase in sales, our net loss increased during 2010 to $3,025,000 from
a net loss of $1,607,000 in 2009. The increase in net loss in the current year
was mainly attributable to $2,000,000 of costs associated with the non-renewal
of our former chief executive officer's contract and lower gross margins at our
Electronics Group. The lower gross margins at our Electronics Group were
principally due to higher than expected labor and material costs on our MK119
contact that was completed by June 30, 2010 and inventory write-downs and
disposals. Despite the increase in net loss in 2010 compared to 2009, our
selling, general and administrative expenses decreased to $9,614,000 in 2010
compared to $10,248,000 in 2009. In addition, after completing our impairment
testing of goodwill and other intangible assets, we concluded impairment charges
of $795,000 and $129,000 should be taken in connection with the goodwill and
recorded intangible assets, respectively, arising from the ICS acquisition in
2007. In 2009, we recorded impairment charges of $1,622,000 and $426,000 for
recorded intangible assets and goodwill, respectively, relating to the ICS
acquisition in 2007. All goodwill and intangible assets related to our
acquisition of ICS have been written off at December 31, 2010.
Our backlog at December 31, 2010 was approximately $20,100,000 compared to
$18,400,000 at December 31, 2009. There is no seasonality to our 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 we are
confident that we will receive many of the orders we are pursuing, although
timing is always an uncertainty.
Despite our weak 2010 operating results, our balance sheet remains strong as
evidenced by our 4.3 to 1 current ratio at December 31, 2010. In March 2010, we
entered into a new credit agreement with a new commercial lender pursuant to
which we (a) established a line of credit up to $3,000,000 and (b) entered into
a term loan in the amount of approximately $4,700,000. These new facilities were
used to pay off in full our obligations to our former primary lender pursuant to
a prior credit facility and to provide us general working capital needs. The new
credit facilities are secured by a first priority lien and security interest in
substantially all of our assets. As a result of our first quarter loss due to
shipping delays, we were not in compliance with one of our financial covenants
at March 31, 2010. In addition, as a result of our fourth quarter loss due
mainly to costs associated with the non-renewal of our former chief executive
officer's employment contract, we were not in compliance with one of our
financial covenants at December 31, 2010. However, we did negotiate amendments
to our Credit Agreement in May 2010 and March 2011 and we were in compliance
with our financial covenants at June 30, 2010 and September 30, 2010.
In August 2008, our Board of Directors authorized a stock repurchase
program through December 2010, allowing us to purchase up to $3.0 million of our
outstanding shares of common stock in open market or privately negotiated
transactions. During the period from August 2008 through December 31, 2009, we
repurchased approximately 368,000 shares at an average price of $2.48 per share.
Total consideration for the repurchased stock was approximately $913,000. From
August 2008 through May 2010, we purchased approximately 369,000 shares of our
common stock for total cash consideration of $915,000 representing an average
price of $2.48 per share. In May 2010, in connection with an amendment to our
Credit Agreement, we suspended our stock repurchase program.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and the results of
operations are based on our financial statements and the data used to prepare
them. Our 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 our deferred tax asset, goodwill
impairment, valuation of share-based compensation, revenue and cost recognition
on long-term contracts accounted for under the percentage-of-completion method
and other than temporary impairment on marketable securities. 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. We believe 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 our 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 we make every effort to insure the
accuracy of our 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 our 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 we had previously determined obsolete.
Deferred Tax Asset
--------------------
At December 31, 2010, we 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 $8,000,000,
respectively that expire through 2030. Approximately, $15,000,000 of federal net
operating loss carry-forwards expire between 2011-2012. In addition, we receive
a tax deduction when our employees exercise their non-qualified stock options
thereby increasing our deferred tax asset. We record a valuation allowance to
reduce our deferred tax asset when it is more likely than not that a portion of
the amount may not be realized. We estimate our valuation allowance based on an
estimated forecast of our 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
------------------------
We have a significant amount of goodwill and had a significant amount of
acquired intangible assets. In determining the recoverability of goodwill and
intangible assets, assumptions are made regarding estimated future cash flows
and other factors to determine the fair value of the assets. After completing
the impairment testing of goodwill and intangible assets, we concluded an
impairment charge should be taken at December 31, 2010 for the remaining
carrying value of goodwill and intangible assets in connection with the
acquisition of ICS in 2007. An impairment charge was also taken at December 31,
2009 in connection with the recorded goodwill and intangible assets arising from
our ICS acquisition. As of December 31, 2010, all acquired intangible assets
have either been fully amortized or written off.
Our analysis employed the use of both a market and income approach.
Significant assumptions used in the income approach include growth and discount
rates, margins and our weighted average cost of capital. We used historical
performance and management estimates of future performance to determine margins
and growth rates. Discount rates selected for each reporting unit varied. Our
weighted average cost of capital included a review and assessment of market and
capital structure assumptions. The balance of our goodwill for each of our
operating units as of December 31, 2010 is as follows: TDL $820,000 and Behlman
$868,000. After the impairment charge taken on the remaining carrying value of
ICS' goodwill and intangible assets at December 31, 2010, of the two reporting
units with goodwill, TDL and Behlman have a fair value that is in excess of
their carrying value by approximately 23% and 27%, respectively. Considerable
management judgment is necessary to evaluate the impact of operating changes and
to estimate future cash flows. Changes in our actual results and/or estimates or
any of our other assumptions used in our analysis could result in a different
conclusion.
Share-Based Compensation
-------------------------
We account for share-based compensation awards by recording compensation
based on the fair value of the awards on the date of grant and expensing such
compensation over the vesting periods of the awards, which is generally one to
ten years. Total share-based compensation expense was $656,000 for the year
ended December 31, 2010. During 2010, 47,553 shares of restricted stock and no
stock options were granted. The estimated fair value of stock options granted in
2009 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.
Revenue and Cost Recognition
-------------------------------
Revenue and costs under larger, long-term contracts are reported on the
percentage-of-completion method. For projects where materials have been
purchased, but have not been placed in production, the costs of such materials
are excluded from costs incurred for the purpose of measuring the extent of
progress toward completion. The amount of earnings recognized at the financial
statement date is based on an efforts-expended method, which measures the degree
of completion on a contract based on the amount of labor dollars incurred
compared to the total labor dollars expected to complete the contract. When an
ultimate loss is indicated on a contract, the entire estimated loss is recorded
in the period. Assets related to these contracts are included in current assets
as they will be liquidated in the normal course of contract completion, although
this may require more than one year.
Marketable Securities
----------------------
We currently have approximately $146,000 invested primarily in corporate
bonds. We treat our investments as available-for-sale which requires us to
assess our portfolio each reporting period to determine whether declines in fair
value below book value are considered to be other than temporary. We must first
determine that we have both the intent and ability to hold a security for a
period of time sufficient to allow for an anticipated recovery in its fair value
to its amortized cost. In assessing whether the entire amortized cost basis of
the security will be recovered, we compare the present value of future cash
flows expected to be collected from the security (determination of fair value)
with the amortized cost basis of the security. If the impairment is determined
to be other than temporary, the investment is written down to its fair value and
the write-down is included in earnings as a realized loss, and a new cost is
established for the security. Any further impairment of the security related
to all other factors is recognized in other comprehensive income. Any subsequent
recovery in fair value is not recognized until the security either is sold or
matures.
We use several factors in our determination of the cash flows expected to be
collected including i) the length of time and extent to which market value has
been less than cost; ii) the financial condition and near term prospects of the
issuer; iii) whether a decline in fair value is attributable to adverse
conditions specifically related to the security or specific conditions in an
industry; iv) whether interest payments continue to be made and v) any changes
to the rating of the security by a rating agency. Although we received all our
interest payments during the current year, we recorded an other than temporary
impairment write-down of $39,000 for the three months ended March 31, 2009
consisting of bonds held in two separate issuers in which we determined the
decline in fair value was due to adverse conditions specifically related to the
security or specific conditions in an industry. We did not take any additional
other than temporary impairment charges for the remainder of 2009 or 2010.
RESULTS OF OPERATIONS:
Year Ended December 31, 2010 vs. Year Ended December 31, 2009
-----------------------------------------------------------------------
We currently operate in two industry segments, our Electronics Group and
our Power Group. The Electronics Group includes our Orbit Instrument Division
and our TDL subsidiary which are engaged in the design and manufacture of
electronic components and subsystems and our ICS subsidiary which performs
system integration for Gun Weapons Systems and Fire Control Interface as well as
logistics support and documentation. The Power Group includes our Behlman
subsidiary which is engaged in the design and manufacture of commercial power
units and COTS power solutions.
Consolidated net sales for the year ended December 31, 2010 increased
slightly by 0.1% to $26,749,000 from $26,518,000 for the year ended December 31,
2009 due to a slight increase in sales from our Electronics Group which was
partially offset by a slight decrease in sales from our Power Group. Sales from
our Electronics Group increased 0.1% which was primarily due to an increase in
sales from our Orbit Instrument Division and TDL subsidiary which was partially
offset by a decrease in sales from ICS. The increase in sales from our Orbit
Instrument Division of 5.1% was primarily attributable to an increase in
bookings in 2010 compared to 2009. Sales from our Power Group slightly decreased
by 0.1% for the current year due to decreased sales from its COTS division and
despite increased sales from its commercial division.
Gross profit, as a percentage of net sales, for the year ended December 31, 2010
decreased to 35.4% from 40.5% for the prior year. This decrease resulted mainly
from a lower gross profit from our Electronics Group (28.9% v. 36.4%). The
decrease in the Electronics Group was due to a lower gross profit at ICS due to
higher than expected labor and material costs associated with the MK119 contract
which was completed by June 30, 2010. The decrease in the Electronics Group was
also due to inventory disposals and write-downs taken by our Orbit Instrument
Division and TDL subsidiary despite an increase in sales at both divisions. The
decrease in gross profit (45.2% v. 46.4%) from our Power Group was principally
due to product mix and a slight decrease in sales.
Selling, general and administrative expenses decreased by 6.2% to $9,614,000 for
the year ended December 31, 2010 from $10,248,000 for the year ended December
31, 2009 due to a decrease in selling, general and administrative expenses from
both our Electronics Group and Power Group and lower corporate costs. Selling,
general and administrative expenses, as a percentage of sales, for the year
ended December 31, 2010 decreased to 35.9% from 38.6% for the year ended
December 31, 2009 principally due to a decrease in expenses and a slight
increase in sales.
During the fourth quarter of 2010, we decided not to renew the contract of
one of our former senior officers effectively terminating his employment as of
December 31, 2010. As a result, we recorded an expense of $2,000,000 for
estimated costs associated with the contract non-renewal. Included in the
recorded expense is $312,000 of stock compensation expense relating to the
accelerated vesting of restricted stock issued to such officer.
During September 2010, ICS received an award for fewer MK 119's than ordered
during the prior year. In addition, during the fourth quarter of 2010, we
learned that the award for potential new business on the U.S. Navy's new
Littoral Combat Ship will be less than expected. Consequently, we determined
that future cash flows for ICS are projected to decrease. As a result, we
determined the undiscounted future cash flows for certain of our intangible
assets were less than their carrying value. Therefore, we recorded an impairment
charge for the full remaining carrying value ($129,000) of ICS' intangible
assets in the year ended December 31, 2010. In the prior year, after completing
our impairment testing, we concluded an impairment charge of $1,622,000 should
be taken relating to certain of our intangible assets. Also during the fourth
quarter 2010, after completing the annual impairment testing of goodwill
pursuant to ASC 350, we concluded an impairment charge of $795,000, representing
the remaining carrying value of goodwill arising from the acquisition of ICS in
2007, should be taken. In the prior year, after completing our impairment
testing, we concluded an impairment charge of $426,000 should be taken in
connection with the recorded goodwill arising from the ICS acquisition.
Interest expense for the year ended December 31, 2010 increased to $225,000
from $208,000 for the year ended December 31, 2009 due to an increase in the
interest rate paid on balances outstanding on our term loan and credit facility
and despite a decrease in the amounts owed to lenders in the current period due
to the pay down of our debt.
Investment and other income for the year ended December 31, 2010 increased
to $275,000 from $208,000 from the prior year principally due to recorded gains
of $139,000 on corporate bonds sold, one of which an other than temporary
impairment charge was taken in the prior period and despite a decrease in the
amounts invested during the period.
Loss before income tax provision was $3,012,000 for the year ended December 31,
2010 compared to a loss of $1,568,000 for the year ended December 31, 2009. The
increase in loss during the current year was principally due to $2,000,000 of
costs related to the non-renewal of the contract of our former chief executive
officer and lower gross profit and despite a slight increase in sales, a
decrease in selling, general and administrative expenses and goodwill and
intangible asset impairment charges.
Income taxes for the year ended December 31, 2010 was $13,000 consisting of
state income and Federal minimum taxes that cannot be offset by any state or
Federal net operating loss carry-forwards that was offset by the reversal of
certain state income taxes previously accrued. Income taxes for the year ended
December 31, 2009 was $39,000 consisting of state and Federal minimum taxes that
cannot be offset by any state or Federal net operating loss carry-forwards.
As a result of the foregoing, net loss for the year ended December 31, 2010 was
$3,025,000 compared to a loss of $1,607,000 for the year ended December 31,
2009.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
the year ended December 31, 2010 decreased to a loss of $1,487,000 compared to
$1,427,000 for the year ended December 31, 2009. Listed below is the EBITDA
reconciliation to net loss:
Year ended
December 31,
-------------
2010 2009
---- ----
Net loss $(3,025,000) $(1,607,000)
Interest expense 225,000 208,000
Income tax expense 13,000 39,000
Goodwill and intangible asset impairment 924,000 2,048,000
Depreciation and amortization 376,000 739,000
------------- ------------
EBITDA $(1,487,000) $ 1,427,000
============ ============
EBITDA is a non-GAAP financial measure and should not be construed as an
alternative to net income. An element of our growth strategy has been through
strategic acquisitions which have been substantially funded through the issuance
of debt. This has resulted in significant interest expense and amortization
expense. EBITDA is presented as additional information because we believe it is
useful to our investors and management as a measure of cash generated by our
business operations that will be used to service our debt and fund future
acquisitions as well as provide an additional element of operating performance.
Liquidity, Capital Resources and Inflation
----------------------------------------------
Working capital decreased to $15,006,000 at December 31, 2010 as compared
to $16,558,000 at December 31, 2009. The ratio of current assets to current
liabilities was 4.3 to 1 at December 31, 2010 compared to 4.8 to 1 at December
31, 2009. The reduction in working capital was principally due to the repayment
of debt and to the liability associated with our former chief executive officer.
Net cash provided by operating activities for the year ended December 31, 2010
was $431,000, primarily attributable to the liability associated with our former
chief executive officer, the non-cash intangible asset and goodwill impairment
charges, amortization of intangible assets, depreciation and amortization, stock
based compensation, the decrease in cost and earnings in excess of billings and
other assets that was partially offset by the net loss for the year, the gain on
the sale of marketable securities, and the increase in current assets. Net cash
provided by operating activities for the year ended December 31, 2009 was
$2,174,000, primarily attributable to the non-cash intangible asset and goodwill
impairment charges, amortization of intangible assets, depreciation and stock
based compensation and the decrease in accounts receivable that was partially
offset by the net loss for the year, an increase in cost and estimated earnings
in excess of billings and a decrease in accounts payable.
Cash flows provided by investing activities for the year ended December 31, 2010
was $724,000, attributable to the sale of marketable securities that was offset
by the purchase of fixed assets. Cash flows used in investing activities for the
year ended December 31, 2009 was $445,000, attributable to the purchase of fixed
assets ($537,000 incurred by TDL in connection with its new operating facility)
that was partially offset by the sale of marketable securities and fixed assets.
Cash flows used in financing activities for the year ended December 31, 2010 was
$1,512,000, attributable to the repayments of long term debt and purchase of
treasury stock that was partially offset by loan proceeds from our line of
credit and stock option exercises. Cash flows used in financing activities for
the year ended December 31, 2009 was $1,488,000, was primarily attributable to
the repayments of long term debt and purchase of treasury stock that was
partially offset from loan proceeds from our line of credit and stock option
exercises.
In April 2005, we entered into a five-year $5,000,000 term loan agreement to
finance the acquisition of TDL and its manufacturing affiliate ("TDL Term
Loan"). In December 2007, we entered into a five-year $4,500,000 term loan
agreement to finance the acquisition of ICS ("ICS Term Loan"). Principal
payments under the two term loan facilities were approximately $113,000 per
month. In December 2007, we also amended an existing $3,000,000 line of credit
facility with a commercial lender secured by accounts receivable, inventory and
property and equipment. The line of credit facility was to continue from year
to year unless sooner terminated for an event of default including
non-compliance with certain financial covenants.
In April 2005, we entered into a five year $2,000,000 promissory note with
the selling shareholders of TDL ("TDL Shareholder Note") at an interest rate of
prime plus 2.00. Principal payments of $100,000 were made on a quarterly basis
along with accrued interest. In June 2007, we refinanced the $1,050,000 balance
due on the TDL Shareholder Note with our primary commercial lender. Under the
terms of the new term loan entered into with our primary commercial lender ("TDL
Refinanced Shareholder Loan"), monthly payments of $35,000 were made over a
thirty-month period (through January 2010) along with accrued interest pursuant
to the interest terms described below. The TDL Refinanced Shareholder Loan was
paid off in January 2010.
As a result of decreased revenue and profitability due to the customer
contract delay for the MK 119 that is recorded under the percentage of
completion method, we were not in compliance with two of our financial covenant
ratios as of June 30, 2009. In August 2009, our primary lender agreed to waive
these covenant defaults. The lender, in consideration of such waiver, assessed
a waiver fee of $10,000 and increased the interest rate on all term debt,
including the TDL Term Loan, TDL Refinanced Shareholder Loan and ICS Term Loan,
and the line of credit equal to the sum of 3.50% plus the one month LIBOR. In
addition, we agreed to reduce our line of credit from $3,000,000 to $2,500,000
until October 31, 2009, at which time it was further reduced to $2,000,000.
As a result of the customer contract delay for the MK 119 and capital
expenditures made for our new TDL operating facility, we were not in compliance
with two of our financial covenant ratios at September 30, 2009. In November
2009, our primary lender agreed to waive the covenant defaults as of September
30, 2009 and to amend the requirement for two of the financial ratios at
December 31, 2009 and for one of the financial ratios at March 31, 2010. Our
lender, in consideration of such waiver, assessed a waiver fee of $15,000 and
increased the interest rate on all term debt, including the TDL Term Loan, TDL
Refinanced Shareholder Loan and ICS Term Loan, and the Line of Credit to the sum
of 4.00% plus the one month LIBOR. In addition, we agreed to reduce our Line of
Credit from $2,000,000 to $1,500,000 at December 31, 2009. We were in compliance
with all financial covenants at December 31, 2009.
On March 10, 2010, we entered into a new credit agreement (the "Credit
Agreement") with a new commercial lender pursuant to which we (a) established a
new line of credit of up to $3,000,000, and (b) entered into a term loan in the
amount of approximately $4,655,000. These new credit facilities were used to
pay off all of our obligations to our former primary lender and to provide for
our general working capital needs. The new credit facilities are secured by a
first priority security interest in substantially all of our assets.
The term loan is payable in 60 consecutive monthly installments of principal and
interest and matures on March 1, 2015. The expiration date on the line of
credit was extended to August 15, 2011. Payment of interest on all loans is due
at a rate per annum (at our option) as follows: (1) for a prime rate loan under
the line of credit at a rate equal to the Prime Rate established by the Bank
plus 0%, (2) for a prime rate loan under the term loan at a rate equal to the
Prime Rate established by the Bank plus 0.5%, (3) for a LIBOR loan under the
line of credit at a rate equal to LIBOR plus 2% and (4) for a LIBOR loan under
the term loan at a rate equal to LIBOR plus 3%.
The Credit Agreement contains customary affirmative and negative covenants and
certain financial covenants. Available borrowings under the line of credit are
subject to a borrowing base of eligible accounts receivable, inventory and, for
the term loan facility only, cash and marketable securities. The Credit
Agreement also contains customary events of default such as non-payment,
bankruptcy and material adverse change.
As a result of our first quarter loss, primarily due to shipping schedule
delays, we were not in compliance with one of our financial covenants at March
31, 2010. In May 2010, our lender agreed to (i) waive the covenant default; and
(ii) to amend the financial covenant ratio in question for the remainder of 2010
and replace it with a new covenant related to the Company's operating
profitability. The lender, in consideration of such waiver and amendment,
assessed a waiver fee of $25,000 plus legal fees and increased the interest rate
on our line of credit and term debt to the prime rate of interest plus 1% and
the prime rate of interest plus 1.5%, respectively. In addition, we agreed to
enhanced reporting and monitoring requirements, to suspend our stock repurchase
program, and all future borrowings to be on a prime rate basis only and not on a
LIBOR basis.
As a result of our fourth quarter loss, primarily due to the costs associated
with the non-renewal of our former chief executive officer's employment
contract, we were not in compliance with one of our financial covenants at
December 31, 2010. In March 2011, we and our lender agreed to (i) waive the
covenant default; (ii) replace a financial covenant ratio for the first two
quarters of 2011 with a new covenant related to the our operating profitability;
(iii) modify the definition of a financial covenant; (iv) institute a new
covenant related to the Company's liquidity; and (v) extend the expiration date
of our line of credit to August 15, 2011. The lender, in consideration of such
waiver and amendment, assessed a waiver fee of $10,000 plus legal fees but did
not change the interest rate on our line of credit or term debt.
Our existing capital resources, including our bank credit facilities and our
cash flow from operations, is expected to be adequate to cover our cash
requirements for the foreseeable future.
In August 2008, our Board of Directors authorized a stock repurchase
program through December 2010, allowing us to purchase up to $3.0 million of our
outstanding shares of common stock in open market or privately negotiated
transactions. During the period from August 2008 through May 2010, we
repurchased approximately 369,000 shares at an average price of $2.48 per share.
Total consideration for the repurchased stock was approximately $915,000. In
May 2010, in connection with the amendment to our credit agreement, we suspended
our stock repurchase program.
Inflation has not materially impacted the operations of our Company.
Off-Balance Sheet Arrangements
None.
Certain Material Trends
-------------------------
During the first quarter of 2010, our revenue and profitability was
adversely affected by approximately $2.8 million in production orders contained
in the backlog of our Orbit Instrument Division and TDL subsidiary, some of
which was scheduled for delivery in the first quarter, that were delayed due to
technical issues at the prime contractor level that was unrelated to our
hardware. Shipments on the orders for our Orbit Instrument Division,
approximating $800,000, commenced in the fourth quarter and have continued into
the first quarter of 2011. Shipment for the $2,000,000 in orders for our TDL
subsidiary was initially postponed until 2011; however, in November 2010, TDL
received notification that its prime contractor was terminated by the U.S.
Government. TDL does not have any significant termination claim on this
contract.
During the third quarter of 2010 and during the fourth quarter, our Orbit
Instrument Division received several new follow-on contract awards for its
legacy hardware. Based on these awards, our Orbit Instrument Division, in 2010,
recorded bookings of over $11,000,000, its highest level in many years. In
addition, the Division was recently notified by its prime contractor on a
program that it provides one of its products related to Federal Aviation
Administration air traffic control towers that it is seeking to procure a
significant amount of units which could approximate $4,400,000. Delivery
schedules for these units have not yet been determined although it is currently
expected that the concentration of deliveries will be in 2013. Nevertheless, we
expect initial orders under this contract to be received during 2011. Due to
its increasing backlog and this latest opportunity, our Orbit Instrument
Division appears well positioned for increased revenue and profitability in
2011.
ICS experienced a delay in the award for its MK 119 Gun Console System which
affected its first and second quarter shipments in 2009. This award was finally
received by ICS at the end of September 2009. ICS had commenced the procurement
process of material and labor resources were allocated to the job beginning in
the second quarter. As a result, certain cabinets were delivered by the end of
2009 but due to the delay in the receipt of the award, other cabinets were not
delivered until the second quarter of 2010 and due to inefficient production
resulting from the delay, profitability was adversely affected. We experienced
a similar delay in the award of the MK 119 Gun Console System to ICS for 2010.
Shipment delays related to contracting, funding and engineering issues are
commonplace in our industry and could, in the future, have an adverse effect on
our financial performance.
The commercial division of our Power Group has historically been vulnerable
to a weak economy. Bookings in the commercial division were weak during most of
2009 due to the severe recession resulting from the financial crisis. However,
bookings from the COTS division remained fairly strong. However, as economic
conditions started to improve into 2010, bookings from our commercial division
started to improve along with continued strength from our COTS division. As a
result, our Power Group had another strong year of revenue and profitability for
2010 and improved economic conditions has our Power Group well positioned for
increased revenue and profitability for 2011.
In April 2005, we completed the acquisition of TDL and its operations became
part of our Electronics Group. In December 2007, we completed the acquisition
of ICS which also became part of our Electronics Group. Our Electronics Group
and the COTS Division of our Power Group are heavily dependent on military
spending. Although we are heavily dependent upon military spending as a source
of revenues and income, increased military spending does not necessarily
guarantee us increased revenues, particularly, when the allocation of budget
dollars may vary depending on what may be needed for specific military
conflicts. Due to budget constraints, government spending is coming under
intense pressure and the defense budget, usually immune from such pressures, is
also under review.
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
our future revenues and earnings. However, we believe that any future cuts in
defense spending will be in certain areas of the defense budget that will not
affect us. In fact, we believe that defense budget dollars that are allocated
to modernization and refurbishment of military equipment will remain the same or
increase which will generally benefit us.
Although our Electronics Group and our COTS Division of our Power Group are
pursuing several opportunities for reorders, as well as new contract awards, we
have normally found it difficult to predict the timing of such awards. In
addition, we have an unprecedented amount of new opportunities that are in the
prototype or pre-production stage. These opportunities generally move to a
production stage at a later date but the timing of such is also uncertain.
However, once initial production is received, we believe we are generally well
positioned to receive follow-on orders depending on government needs and funding
requirements.
There is no seasonality to our business. Our revenues are generally
determined by the shipping schedules outlined in the purchase orders received
from our customers. We stratify all the opportunities we are pursuing by
various confidence levels. We generally realize a very high success rate with
those opportunities to which we apply a high confidence level. We currently
have a significant amount of potential contract awards to which we have applied
a high confidence level. However, because it is difficult to predict the timing
of awards for most of the opportunities we are pursuing, it is also difficult to
predict when we will commence shipping under these contracts. A delay in the
receipt of any contract from our customer ultimately causes a corresponding
delay in shipments under that contract.
Despite the expected increase in military refurbishment and modernization, we
still face 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 we attempt to negotiate
contract awards for reimbursement of product development, there is no assurance
that sufficient monies will be set aside by our 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 we have
completed the design and pre-production stage, there is no assurance that
funding will be provided for future production. In such event, even if we are
reimbursed for our development costs, it will not generate any significant
profits.
In May 2009, we hired an investment banker to pursue strategic
alternatives to enhance shareholder value. Those investment banker's activities
were primarily focused on a potential sale of the Company. In January 2011, we
terminated the services with such investment banker and we are no longer
actively pursuing a sale of the Company.
In March 2011, we hired a new investment banker to help us expand our
operations and achieve better utilization of our existing facilities through
strategic, accretive acquisitions. Through the past several years, we reviewed
various potential acquisitions and believe there are numerous opportunities
presently available, particularly to integrate into our current operating
facilities. However, there is no assurance that any future acquisition will be
accomplished. In addition, due to current economic conditions and tightening of
credit markets, there can be no assurance that we will obtain the necessary
financing to complete additional acquisitions and even if we do, 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 our existing operations which may be adversely affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable, as we are a smaller reporting company.
ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this Item appears in Item 15 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our filings under the Exchange Act
is recorded, processed, summarized and reported within the periods specified in
the rules and forms of the SEC. Our management, including our Acting Chief
Executive Officer and Acting Chief Financial Officer, evaluated the
effectiveness of the design of our disclosure controls and procedures, as
defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act as of the end of
the period covered by this report. Based on that evaluation, the Acting Chief
Executive Officer and the Acting Chief Financial Officer concluded that our
disclosure controls and procedures are effective.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a - 15(f) of the
Exchange Act.
Our management conducted an evaluation of the effectiveness of its internal
control over financial reporting, as of December 31, 2010, based on the
framework and criteria established in Internal Control - Integrated Framework,
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
This evaluation included review of the documentation of controls, evaluation of
the design effectiveness of controls, testing of the operating effectiveness of
controls and a conclusion on this evaluation. Based on this evaluation,
management concluded that the Company's internal control over financial
reporting was effective as of December 31, 2010.
There have been no changes in our internal control over financial reporting
during the three months ended December 31, 2010, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
We believe that a controls system, no matter how well designed and
operated, can not provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.
ITEM 9B. OTHER INFORMATION
There have not been any other material changes in our affairs which have
not been described in a report on Form 8-K during the fourth quarter ended
December 31, 2010.
PART III
---------
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Incorporated by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Exchange Act in connection with
our 2011 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Exchange Act in connection with
our 2011 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Exchange Act in connection with
our 2011 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS, AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Incorporated by reference to our definitive proxy statement to be filed
pursuant to Regulation 14A promulgated under the Exchange Act in connection with
our 2011 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference to our definitive proxy statement to be
filed pursuant to Regulation 14A promulgated under the Exchange Act in
connection with our 2011 Annual Meeting of Shareholders.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form
10-K for the fiscal year ended December 31, 2010.
1. Financial Statements
2. Schedules-
None.
3. Exhibits:
Exhibit No. Description of Exhibit
------------ ------------------------
2.1 Stock Purchase Agreement, dated December 13, 2004, by and among
Orbit International Corp., TDL Development Laboratory, TDL Manufacturing, Inc.
and the respective Shareholders of TDL Development Laboratory, Inc. and TDL
Manufacturing, Inc. Incorporated by reference to Exhibit 2.1 to Registrant's
Current Report on Form 8-K for December 13, 2004.
2.2 Stock Purchase Agreement, dated December 19, 2007, by and among Orbit
International Corp., Integrated Consulting Services, Inc. and the respective
shareholders of Integrated Consulting Services, Inc. Incorporated by reference
to Exhibit 2.1 to Registrant's Current Report on Form 8-K for December 19, 2007.
3.1 Certification of Incorporation, as amended. Incorporated by reference
to Exhibit 3(a) to Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1991.
3.2 By-Laws, as amended. Incorporated by reference to Exhibit 3(b) to
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988.
4.1 Orbit International Corp. 2003 Stock Incentive Plan. Incorporated by
reference to Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002.
10.1 Employment Agreement, dated as of December 14, 2007, between Registrant
and Mitchell Binder. Incorporated by reference to Registrant's Current Report
on Form 8-K for December 11, 2007.
10.2 Amendment to Employment Agreement dated December 22, 2009 between
Registrant and Mitchell Binder. Incorporated by reference to Registrant's
Current Report on Form 8-K for December 23, 2009.
10.3 Employment Agreement, dated as of December 14, 2007, between Registrant
and Bruce Reissman. Incorporated by reference to Registrant's Current Report on
Form 8-K for December 11, 2007.
10.4 Employment Agreement, dated as of December 14, 2007, between Registrant
and Dennis Sunshine. Incorporated by reference to Registrant's Current Report
on Form 8-K for December 11, 2007.
10.5 Amendment to Employment Agreement dated February 25, 2011 between
Registrant and Bruce Reissman. Incorporated by reference to Registrant's Current
Report on Form 8-K for February 25, 2011.
10.6 Form of Indemnification Agreement between the Company and each of its
Directors dated as of September 10, 2001. Incorporated by reference to Exhibit
10(d) to Registrant's Annual Report on Form 10-KSB for the year ended December
31, 2001.
10.7 Purchase and Sale Agreement between the Company and 80 Cabot Realty LLC
dated February 26, 2001. Incorporated by reference to Exhibit 4(b) to
Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000.
10.8 First Amendment to Lease between the Company and 80 Cabot Realty, LLC
dated as of January 1, 2011. Incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K for February 22, 2011.
10.9 Credit Agreement dated as of March 10, 2010 between Registrant and its
subsidiaries Behlman Electronics, Inc, Tulip Development Laboratory Inc. and
Integrated Consulting Services, Inc. and Capital One, N.A. Incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K for March
16, 2010.
10.10 Security Agreement dated as of March 10, 2010 between Registrant and
its subsidiaries Behlman Electronics, Inc, Tulip Development Laboratory Inc. and
Integrated Consulting Services, Inc. and Capital One, N.A. Incorporated by
reference to Exhibit 10.2 to Registrant's Current Report on Form 8-K for March
16, 2010.
10.11 Term Loan and Security Agreement dated as of December 19, 2007,
between Orbit International Corp. and Merrill Lynch Business Financial Services
Inc. ("MLBFS"). Incorporated by reference to Exhibit 10.6 to Registrant's
Current Report on Form 8-K for December 19, 2007.
10.12 Net lease dated as of April 4, 2005 by and between Rudy's
Thermo-Nuclear Devices, as Landlord, and TDL Manufacturing, Inc. and TDL
Development Laboratory, Inc. Incorporated by reference to Registrant's Current
Report on Form 8-K for April 4, 2005.
10.13 Term Loan and Security Agreement dated as of April 4, 2005 between the
Company and Merrill Lynch Financial Business Services Inc. Incorporated by
reference to Registrant's Current Report on Form 8-K for April 4, 2005.
10.14 Collateral Installment Note to Merrill Lynch Financial Business
Services Inc. dated as of April 4, 2005, from the Company. Incorporated by
reference to Registrant's Current Report on Form 8-K for April 4, 2005.
10.15 Employment Agreement, dated December 19, 2007, between Integrated
Consulting Services, Inc. and Kenneth J. Ice. Incorporated by reference to
Registrant's Current Report on Form 8-K for December 19, 2007.
10.16 Employment Agreement, dated December 19, 2007, between Integrated
Consulting Services, Inc. and Michael R. Rhudy. Incorporated by reference to
Registrant's Current Report on Form 8-K for December 19, 2007.
10.17 Employment Agreement, dated December 19, 2007, between Integrated
Consulting Services, Inc. and Julie A. McDearman. Incorporated by reference to
Registrant's Current Report on Form 8-K for December 19, 2007.
10.18 Custody, Pledge and Security Agreement, dated as of December 19, 2007,
by and among Orbit International Corp. ("Pledgor"), Kenneth J. Ice, Michael R.
Rhudy and Julie A. McDearman ("Pledgees"), and Phillips Nizer LLP ("Custodian").
Incorporated by reference to Registrant's Current Report on Form 8-K for
December 19, 2007.
10.19 Form of Contingent Promissory Note (three substantially similar notes
were issued) from Orbit International Corp. to Kenneth J. Ice. Incorporated by
reference to Registrant's Current Report on Form 8-K for December 19, 2007.
10.20 Form of Code of Ethics between the Company and its Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer. Incorporated by
reference to Registrant's Annual Report on Form 10K-SB for the fiscal year ended
December 31, 2003.
10.21* Amendment and Waiver to Credit Agreement
21.1* Subsidiaries of Registrant.
23.1* Consent of EisnerAmper LLP.
23.2* Consent of Amper, Politziner & Mattia, LLP.
31.1* Certification of the Chief Executive Officer required by Rule
13a-14(a) or Rule 15d-14(a) and 18 U.S.C. 1350.
31.2* Certification of the Chief Financial Officer required by Rule
13a-14(a) or Rule 15d-14(a) and 18 U.S.C. 1350.
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 herewith.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Report of Independent Registered Public Accounting Firm - F-1
EisnerAmper LLP
Report of Independent Registered Public Accounting Firm - F-2
Amper, Politziner & Mattia, LLP
Consolidated Financial Statements:
Balance Sheets as of December 31, 2010 and 2009 F-3
Statements of Operations for the Years Ended December 31, 2010 and 2009 F-4
Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2010 and 2009 F-5
Statements of Cash Flows for the Years Ended December 31, 2010 and 2009 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Orbit International Corp.
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and Subsidiaries (the "Company") as of December 31, 2010 and
the related consolidated statements of operations, stockholders' equity and
comprehensive (loss), and cash flows for the year ended December 31, 2010.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Orbit
International Corp. and Subsidiaries as of December 31, 2010 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 2010 in conformity with accounting principles generally accepted in
the United States of America.
/s/ EisnerAmper LLP
New York, New York
March 31, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Orbit International Corp.
We have audited the accompanying consolidated balance sheet of Orbit
International Corp. and Subsidiaries (the "Company") as of December 31, 2009 and
the related consolidated statements of operations, stockholders' equity and
comprehensive (loss), and cash flows for the year ended December 31, 2009.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Orbit
International Corp. and Subsidiaries as of December 31, 2009 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 2009 in conformity with accounting principles generally accepted in
the United States of America.
/s/ Amper, Politziner & Mattia, LLP
New York, New York
March 31, 2010
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2010 2009
--------------------------------------------------------------- ------------ -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,964,000 $ 2,321,000
Investments in marketable securities 146,000 1,019,000
Accounts receivable, less allowance for doubtful accounts of $145,000 3,927,000 3,857,000
Inventories 11,627,000 11,624,000
Costs and estimated earnings
in excess of billings on uncompleted contracts 468,000 1,079,000
Deferred tax asset 391,000 714,000
Other current assets 1,043,000 287,000
--------- ----------
TOTAL CURRENT ASSETS 19,566,000 20,901,000
Property and equipment, net 1,172,000 1,246,000
Intangible assets, net - 227,000
Goodwill 1,688,000 2,483,000
Deferred tax asset 1,847,000 1,403,000
Other assets 106,000 661,000
--------- ----------
TOTAL ASSETS $24,379,000 $26,921,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 931,000 $ 995,000
Notes payable - bank 387,000 988,000
Accounts payable 794,000 1,084,000
Liability associated with former chief executive officer 1,194,000 -
Income taxes payable - 57,000
Accrued expenses 1,051,000 1,102,000
Customer advances 118,000 32,000
Deferred income 85,000 85,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,560,000 4,343,000
Deferred income 86,000 171,000
Liability associated with former chief executive officer,
net of current portion 494,000 -
Long-term debt, net of current portion 3,026,000 4,034,000
---------- ----------
TOTAL LIABILITIES 8,166,000 8,548,000
----------- ----------
Stockholders' Equity:
Common stock, $.10 par value, 10,000,000 shares authorized,
5,101,000 and 4,931,000 shares issued at 2010 and 2009, respectively,
and 4,732,000 and 4,563,000 shares outstanding at 2010 and 2009,
respectively 510,000 493,000
Additional paid-in capital 22,360,000 21,464,000
Treasury stock, at cost, 369,000 and 368,000 shares, respectively (915,000) (913,000)
Accumulated other comprehensive income, net of income tax 19,000 65,000
Accumulated deficit (5,761,000) (2,736,000)
----------- ------------
STOCKHOLDERS' EQUITY 16,213,000 18,373,000
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,379,000 $26,921,000
=========== ============
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2010 2009
------------- -----------
Net sales $26,749,000 $26,518,000
Cost of sales 17,273,000 15,790,000
----------- ------------
Gross profit 9,476,000 10,728,000
----------- ------------
Selling, general and administrative expenses 9,614,000 10,248,000
Costs related to non-renewal of former chief executive officer contract 2,000,000 -
Impairment of intangible assets 129,000 1,622,000
Goodwill impairment 795,000 426,000
Interest expense 225,000 208,000
Investment and other income, net (275,000) (208,000)
----------- -----------
Total expenses, net 12,488,000 12,296,000
---------- -----------
Loss before income tax provision (3,012,000) (1,568,000)
Income tax provision 13,000 39,000
---------- -----------
Net loss $(3,025,000) $(1,607,000)
============ ============
Net loss per common share:
Basic $ (.66) $ (.37)
============ ============
Diluted $ (.66) $ (.37)
============ ============
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2010 AND 2009
--------------------------------------
COMMON STOCK ACCUMULATED OTHER
10,000,000 SHARES COMPREHENSIVE
AUTHORIZED ADDITIONAL INCOME (LOSS),
SHARES PAID-IN ACCUMULATED TREASURY STOCK NET OF INCOME
ISSUED AMOUNT CAPITAL DEFICIT SHARES AMOUNT TAX TOTAL
------- ------- -------- ------------- ------ ------ ------------ --------
Balance at January 1, 2009 4,772,000 $477,000 $21,032,000 $(1,129,000) 237,000 $(529,000) $(125,000) $19,726,000
Share-based compensation expense - - 310,000 - - - - 310,000
Issuance of restricted stock 84,000 8,000 (8,000) - - - - -
Exercise of options 75,000 8,000 76,000 - - - - 84,000
Tax benefit of stock option
exercise - - 54,000 - - - - 54,000
Purchase of treasury stock - - - - 131,000 (384,000) - (384,000)
Change in unrealized gains
and losses on marketable
securities, net of income tax - - - - - - 190,000 190,000
Net loss - - - (1,607,000) - - - (1,607,000)
----------
Comprehensive loss- 2009 (1,417,000)
-------- --------- ---------- ---------- ---------- --------- --------- -----------
Balance at December 31, 2009 4,931,000 493,000 21,464,000 (2,736,000) 368,000 (913,000) 65,000 18,373,000
--------- ------- ---------- ---------- --------- --------- -------- ----------
Share-based compensation expense - - 656,000 - - - - 656,000
Issuance of restricted stock 48,000 5,000 (5,000) - - - - -
Exercise of options 128,000 13,000 150,000 - - - - 163,000
Tax benefit of stock option
exercise - - 94,000 - - - - 94,000
Purchase of treasury stock - - - - 1,000 (2,000) - (2,000)
Forfeiture of restricted stock (6,000) (1,000) 1,000 - - - - -
Change in unrealized gains
and losses on marketable
securities, net of income tax - - - - - - (46,000) (46,000)
Net loss - - - (3,025,000) - - - (3,025,000)
----------
Comprehensive loss- 2010 (3,071,000)
---------- -------- --------- ---------- ----------- -------- -------- ----------
Balance at December 31, 2010 5,101,000 $510,000 $22,360,000 $(5,761,000) 369,000 $(915,000) $19,000 $16,213,000
========= ========= =========== =========== ========= ========== ======= ===========
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 2009
------------------------ ----- ------
Cash flows from operating activities:
Net loss $ (3,025,000) $(1,607,000)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Impairment of intangible assets 129,000 1,622,000
Goodwill impairment 795,000 426,000
Share-based compensation expense 656,000 310,000
Amortization of intangible assets 98,000 497,000
Depreciation and amortization 278,000 242,000
Bond premium amortization 1,000 6,000
Bad debts - 10,000
Unrealized impairment loss on write down of marketable securities - 39,000
Gain on sale of marketable securities (129,000) (26,000)
Deferred income (85,000) (86,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (70,000) 2,466,000
Increase in inventories (3,000) (88,000)
Decrease (increase) in costs and earnings in excess of billings 611,000 (1,079,000)
(Increase) in other current assets (756,000) (89,000)
Decrease (increase) in other assets 555,000 (17,000)
Increase in liability associated with former chief executive officer 1,688,000 -
Decrease in accounts payable (290,000) (415,000)
Increase (decrease) in customer advances 86,000 (5,000)
Decrease in taxes payable (57,000) (12,000)
Decrease in accrued expenses (51,000) (20,000)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 431,000 2,174,000
Cash flows from investing activities:
Sale of marketable securities 928,000 388,000
Purchase of property and equipment (204,000) (842,000)
Sale of fixed asset - 9,000
----------- ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 724,000 (445,000)
Cash flows from financing activities:
Purchase of treasury stock (2,000) (384,000)
Repayments of long-term debt and note payable-bank (3,682,000) (2,884,000)
Proceeds from issuance of note payable-bank 2,009,000 1,696,000
Proceeds from exercise of stock options 163,000 84,000
---------- -----------
NET CASH USED IN FINANCING ACTIVITIES (1,512,000) (1,488,000)
---------- -----------
(continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
(CONTINUED)
Net (decrease) increase in cash and cash equivalents (357,000) 241,000
Cash and cash equivalents at beginning of year 2,321,000 2,080,000
----------- -----------
Cash and cash equivalents at end of year $ 1,964,000 $ 2,321,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 231,000 $ 207,000
Cash paid during the year for income taxes $ 69,000 $61,000
1. ORGANIZATION AND BUSINESS:
-- --------------------------
The consolidated financial statements include the accounts of Orbit
International Corp. and its wholly owned subsidiaries (collectively, the
"Company"). All significant intercompany transactions have been eliminated in
consolidation.
The Company currently operates in two reporting segments, the
Electronics Group and the Power Group. The Electronics Group is comprised of the
Company's Orbit Instrument Division ("Orbit"), its TDL subsidiary, and
Integrated Consulting Services, Inc. d/b/a Integrated Combat Systems ("ICS").
Orbit and TDL are engaged in the design and manufacture of electronic components
and subsystems. ICS performs system integration for gun weapons systems and fire
control interface as well as logistics support and documentation. The Power
Group is comprised of the Company's Behlman subsidiary and is engaged in the
design and manufacture of commercial and custom power units. The Electronics
Group and the Power Group both conduct their operations in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-- -------------------------------------------
GENERAL
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates. On an on-going basis, we re-evaluate our judgments
and estimates including those related to inventory valuation, the valuation
allowance on our deferred tax asset, goodwill impairment, valuation of
share-based compensation, revenue and cost recognition on long-term contracts
accounted for under the percentage-of-completion method and other-than-temporary
impairment on marketable securities.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company
maintains cash in bank deposit accounts, which, at times, exceed federally
insured limits. The Company has not experienced any losses on these accounts.
MARKETABLE SECURITIES
The Company's investments are classified as available-for-sale securities
and are stated at fair value, based on quoted market prices, with the unrealized
gains and losses, net of income tax, reported in other comprehensive income
(loss). Realized gains and losses are included in investment income. Prior to
adoption of an amendment to Accounting Standards Codification ("ASC") 320,
Investments - Debt and Equity Securities, any decline in value judged to be
other-than-temporary on available-for-sale securities was included in investment
income. After adoption of an amendment to ASC 320 at the beginning of the second
quarter of 2009, any decline in value judged to be other-than-temporary on
available-for-sale securities are included in earnings to the extent they relate
to a credit loss. A credit loss is the difference between the present value of
cash flows expected to be collected from the security and the amortized cost
basis. The amount of any impairment related to other factors will be recognized
in comprehensive income. The cost of securities is based on the
specific-identification method. Interest and dividends on such securities are
included in investment income.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are reported at their outstanding unpaid principal
balances reduced by an allowance for doubtful accounts. The Company estimates
doubtful accounts based on historical bad debts, factors related to specific
customers' ability to pay and current economic trends. The Company writes off
accounts receivable against the allowance when a balance is determined to be
uncollectible.
INVENTORIES
Inventories, which consist of raw materials, work-in-process, and finished
goods, are recorded at the lower of cost (specific, average and first-in,
first-out basis) or market. Inventories are shown net of any reserves relating
to any potential slow moving or obsolete inventory.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation and amortization
of the respective assets are computed using the straight-line method over their
estimated useful lives ranging from 3 to 10 years. Leasehold improvements are
amortized using the straight-line method over the remaining term of the lease or
the estimated useful life of the improvement, whichever is less.
LONG-LIVED ASSETS
When impairment indicators are present, the Company reviews the carrying
value of its long-lived assets in determining the ultimate recoverability of
their unamortized values using future undiscounted cash flow analyses. In the
event the future undiscounted cash flows of the long-lived asset are less than
the carrying value, the Company will record an impairment charge for the
difference between the carrying value and the fair value of the long-lived
asset.
GOODWILL
The Company records goodwill as the excess of purchase price over the fair
value of identifiable net assets acquired. In accordance with ASC 350, goodwill
is not amortized but instead tested for impairment on at least an annual basis.
The Company's annual goodwill impairment test is performed in the fourth quarter
each year. If the goodwill is deemed to be impaired, the difference between the
carrying amount reflected in the financial statements and the estimated fair
value is recognized as an expense in the period in which the impairment occurs.
In determining the recoverability of goodwill, assumptions are made regarding
estimated future cash flows and other factors to determine the fair value of the
assets.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Valuation
allowances have been established to reduce deferred tax assets to the amount
expected to be realized.
REVENUE AND COST RECOGNITION
The Company recognizes a substantial portion of its revenue upon delivery
of product, however for certain products, revenue and costs under larger,
long-term contracts are reported on the percentage-of-completion method. For
projects where materials have been purchased but have not been placed into
production, the costs of such materials are excluded from costs incurred for the
purpose of measuring the extent of progress toward completion. The amount of
earnings recognized at the financial statement date is based on an
efforts-expended method, which measures the degree of completion on a contract
based on the amount of labor dollars incurred compared to the total labor
dollars expected to complete the contract. When an ultimate loss is indicated on
a contract, the entire estimated loss is recorded in the period the loss is
identified. Assets related to these contracts are included in costs and
estimated earnings in excess of billings on uncompleted contracts as they will
be liquidated in the normal course of contract completion, although this may
require more than one year. The components of cost and estimated earnings in
excess of billings on uncompleted contracts are the sum of the related
contract's direct material, direct labor, manufacturing overhead and estimated
earnings less accounts receivable billings.
All contracts are for products made to specific customer specifications
with no right of return. All units are shipped with a one-year warranty.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consists of net income (loss) and unrealized
gains and losses on marketable securities, net of tax.
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation awards based on the fair
value of the awards on the date of grant and expensing such compensation over
the vesting periods of the awards.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of shares of common stock outstanding. Diluted
earnings (loss) per share is computed by dividing net earnings (loss) by the sum
of the weighted average number of shares of common stock and the dilutive effect
of unexercised stock options and the unearned portion of restricted stock
awards.
FREIGHT AND DELIVERY COSTS
The Company's freight and delivery costs were $131,000 and $116,000 for the
years ended December 31, 2010 and 2009, respectively. These costs are included
in selling, general and administrative expenses.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed when incurred. The Company
expensed approximately $1,412,000 and $1,446,000 for research and development
during the years ended December 31, 2010 and 2009, respectively.
3. INVENTORIES:
-- ------------
Inventories consist of the following:
December 31, 2010 2009
------- -------
Raw materials $ 7,584,000 $ 7,569,000
Work-in-process 3,512,000 3,328,000
Finished goods 531,000 727,000
------------ -------------
$ 11,627,000 $ 11,624,000
============ =============
4. MARKETABLE SECURITIES:
-- ------------------------
The following is a summary of the Company's available-for-sale marketable
securities at December 31, 2010 and 2009:
Unrealized
Adjusted Fair Holding
December 31, 2010 Cost Value Gain
----------------- ---- ----- ----
Corporate Bonds $ 116,000 $ 145,000 $ 29,000
U.S. Government
Agency Bonds 1,000 1,000 -
---------- --------- ---------
Total $ 117,000 $ 146,000 $ 29,000
=========== ========== =========
December 31, 2009
-----------------
Corporate Bonds $ 915,000 $1,018,000 $ 103,000
U.S. Government
Agency Bonds 1,000 1,000 -
---------- ---------- ----------
Total $ 916,000 $1,019,000 $ 103,000
=========== ========== ==========
Maturities of marketable securities classified as available-for-sale at December
31, 2010 are as follows:
Due after one year through five years $116,000
Due after five years through ten years 1,000
---------
$117,000
========
During 2009, the Company charged $39,000 against investment and other income-net
to record the impairment in market value of certain available-for-sale
securities deemed to be other than temporary.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
-- -------------------------------------
ASC 820, Fair Value Measurements and Disclosures, requires disclosure that
establishes a framework for measuring fair value in GAAP and expands disclosure
about fair value measurements. This statement enables the reader of the
financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The statement requires that assets
and liabilities carried at fair value will be classified and disclosed in one of
the following three categories:
Level 1: Quoted market prices in active markets for identical assets or
liabilities.
Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
In determining the appropriate levels, the Company performs a detailed
analysis of the assets and liabilities that are subject to ASC 820.
The tables below present the balances, as of December 31, 2010 and 2009, of
assets and liabilities measured at fair value on a recurring basis by level
within the hierarchy.
2010 Total Level 1 Level 2 Level 3
---- ----- -------- -------- --------
Corporate Bonds $ 145,000 $ 145,000 $ - $ -
U.S. Government
Agency Bonds 1,000 1,000 - -
----------- --------- ------ ------
Total Assets $ 146,000 $ 146,000 $ - $ -
=========== ========= ======= =======
2009 Total Level 1 Level 2 Level 3
---- ----- -------- -------- --------
Corporate Bonds $1,018,000 $1,018,000 $ - $ -
U.S. Government
Agency Bonds 1,000 1,000 - -
--------- --------- ------- ------
Total Assets $1,019,000 $1,019,000 $ - $ -
========== ========== ======== ======
The Company's only asset or liability that is measured at fair value on a
recurring basis is marketable securities, based on quoted market prices in
active markets and therefore classified as Level 1 within the fair value
hierarchy. The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and short-term debt reasonably approximate their fair value due
to their relatively short maturities. Long-term debt carrying value and
liability associated with former chief executive officer are approximate to
their fair value at the balance sheet date. The fair value estimates presented
herein were based on market or other information available to management. The
use of different assumptions and/or estimation methodologies could have a
significant effect on the estimated fair value amounts.
6. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON
UNCOMPLETED CONTRACTS:
-- -------------------------------------------------------
At December 31, 2010 and 2009, costs and estimated earnings in excess of
billings on uncompleted contracts consist of:
2010 2009
----- ---------
Costs incurred on uncompleted contracts $1,040,000 $2,211,000
Estimated earnings 167,000 980,000
---------- -----------
1,207,000 3,191,000
Less: billings to date (739,000) (2,112,000)
----------- -----------
Cost and estimated earnings in excess of
billings on uncompleted contracts $ 468,000 $1,079,000
========== ==========
7. INTANGIBLE ASSETS AND GOODWILL:
-- ---------------------------------
ASC 350, Intangibles-Goodwill and Other, 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 performs its annual impairment test of goodwill at the
end of its fiscal year and tests its other intangible assets when impairment
indicators are present.
At December 31, 2010, the Company's goodwill and intangible assets consist of
the following:
Estimated Gross Net
Useful Carrying Accumulated Accumulated Carrying
Life Value Amortization Impairment Value
-------- ---- ------------ ------------ ------------
Goodwill $ 9,798,000 - (8,110,000) $1,688,000
============ ============ =========== ==============
Intangible Assets:
Contract relationships 15 Years 2,000,000 (278,000) (1,722,000) -
Contract backlog 1-5 Years 1,750,000 (1,750,000) - -
Non-compete agreements 3 Years 415,000 (386,000) (29,000) -
------------ ------------ ----------- -----------
$4,165,000 $ (2,414,000) $(1,751,000) $ -
========== ============== ============ =============
At December 31, 2009, the Company's goodwill and intangible assets consist of
the following:
Estimated Gross Net
Useful Carrying Accumulated Accumulated Carrying
Life Value Amortization Impairment Value
---- ----- ------------ ------------ -------
Goodwill $ 9,798,000 - $(7,315,000) $2,483,000
============ ======= =========== ==========
Intangible Assets:
Contract relationships 15 Years 2,000,000 (267,000) (1,593,000) 140,000
Contract backlog 1-5 Years 1,750,000 (1,668,000) - 82,000
Non-compete agreements 3 Years 415,000 (381,000) (29,000) 5,000
------------ ----------- ----------- ----------
$4,165,000 $ (2,316,000) $(1,622,000) $ 227,000
========== ============= ============ ===========
The Company recognized amortization expense of $98,000 and $497,000 for the
years ended December 31, 2010 and 2009, respectively.
During September 2010, ICS received an award for fewer MK 119's than it received
during the prior year. In addition, during the fourth quarter of 2010, we
learned that the award for potential new business on the U.S. Navy's new
Littoral Combat Ship will be less than expected. Consequently, we determined
that future cash flows for ICS are projected to decrease. As a result, we
determined the undiscounted future cash flows for certain of our intangible
assets were less than their carrying value. Therefore, we recorded an impairment
charge for the full remaining carrying value ($129,000) of ICS' intangible
assets in the year ended December 31, 2010. Also during the fourth quarter 2010,
after completing the annual impairment testing of goodwill pursuant to ASC 350,
we concluded an impairment charge of $795,000, representing the remaining
carrying value of goodwill, should be take in connection with the goodwill
arising from the acquisition of ICS in 2007.
During the fourth quarter of 2009, the Company's ICS subsidiary was notified by
one of its major customers that a replacement was under consideration for a
portion of significant future contract requirements for which ICS was being
considered but not guaranteed a future award. Consequently, the Company
determined that future cash flows for ICS could potentially decrease. As a
result, the Company determined the undiscounted future cash flows for certain of
the Company's intangible assets are less than their carrying value. Therefore,
the Company has recorded an impairment charge relating to its intangible assets
in the amount of $1,622,000 in the year ended December 31, 2009, representing
the excess carrying values over their fair values. Also during the fourth
quarter 2009, after completing the annual impairment testing of goodwill
pursuant to ASC 350, the Company concluded an impairment charge of $426,000
should be taken in connection with the goodwill arising from the acquisition of
ICS in 2007.
During 2010 and 2009, the methods used to determine the fair value of the
Company's reporting units were an income approach (discounted cash flow analysis
based on financial and operating projections) and a market approach (comparison
of financial data for publicly traded companies engage in similar lines of
business).
8. PROPERTY AND EQUIPMENT:
-- ------------------------
Property and equipment at cost, consists of the following:
December 31, 2010 2009
----- --------
Leasehold improvements $ 879,000 $851,000
Computer equipment 622,000 572,000
Machinery and equipment 1,595,000 1,479,000
Autos 87,000 87,000
Furniture and fixtures 788,000 778,000
---------- ----------
3,971,000 3,767,000
Accumulated depreciation and amortization (2,799,000) (2,521,000)
----------- ----------
$ 1,172,000 $ 1,246,000
============ ===========
The Company recognized, on a straight-line basis, depreciation and amortization
expense of $278,000 and $242,000 for the years ended December 31, 2010 and 2009,
respectively
9. DEBT:
-- -----
During March 2010, the Company entered into a $3,000,000 line of credit
with a commercial lender secured by all assets of the Company. In addition, the
Company refinanced its existing term loans with the same aforementioned
commercial lender with a new five-year $4,655,000 term loan facility that
matures March 2015. The aggregate amount of principal outstanding under the line
of credit cannot exceed a borrowing base of eligible accounts receivable and
inventory, as defined. During March 2011, the expiration date on the line of
credit was extended to August 15, 2011 unless sooner terminated for an event of
default including adherence to certain financial covenants. Outstanding
borrowings under the line of credit were $387,000 at December 31, 2010. In March
2010, the Company fully paid the outstanding principal on its term loans and
line of credit with its previous commercial lender.
The Company was not in compliance with one of its financial covenant ratios
as of March 31, 2010. In May 2010, the Company's lender agreed (i) to waive the
covenant default; and (ii) to amend the financial covenant ratio in question for
the remainder of 2010 and to replace it with a new covenant related to the
Company's operating profitability. The lender, in consideration of such waiver
and amendment, assessed a waiver fee of $25,000 plus legal fees and increased
the interest rate on the Company's line of credit and term debt to the prime
rate of interest plus 1% and the prime rate of interest plus 1.5%, respectively.
In addition, the Company agreed to enhanced reporting and monitoring
requirements, to suspend its stock repurchase program and for all future
borrowings to be on a prime rate basis only and not on a LIBOR basis. The
Company was in compliance with all of its financial covenants as of June 30,
2010 and September 30, 2010.
The Company was not in compliance with one of its financial covenants as of
December 31, 2010. In March 2011, the Company and its lender agreed to (i) waive
the covenant default; (ii) replace a financial covenant ratio for the first two
quarters of 2011 with a new covenant related to the Company's operating
profitability; (iii) modify the definition of a financial covenant; (iv)
institute a new covenant related to the Company's liquidity; and (v) extend the
expiration date of the Company's line of credit to August 15, 2011. The lender,
in consideration of such waiver and amendment, assessed a waiver fee of $10,000
plus legal fees but did not change the interest rate on the Company's line of
credit or term debt.
The Company's long-term debt obligations are as follows:
December 31, 2010 2009
------------ ----- -----
Term loan agreement, collateralized by all business assets of the Company.
Payable in sixty (60) monthly payments of approximately $77,500. The loan bears
interest equal to the prime rate of interest (3.25% at December 31, 2010) plus
1.5%. Matures March 2015. $3,957,000 -
Term loan agreement, collateralized by all business assets of the Company, used
to finance the acquisition of TDL ("TDL Shareholder Note"). Payable in thirty
(30) monthly payments of approximately $35,000. The loan bears interest equal to
the one-month LIBOR rate (0.26% at December 31, 2010) plus 4.00%. The loan was
fully paid in January 2010. - $35,000
Term loan agreement, which is collateralized by all business assets of the
Company, was used to finance the acquisition of TDL ("TDL Term Loan"). Payable
in fifty-nine (59) monthly principal payments of approximately $60,000 and a
sixtieth payment of approximately $1,190,000 in 2010. The loan bears interest
equal to the one-month LIBOR rate (0.26% at December 31, 2010) plus 4.00%. The
loan was fully paid in March 2010. - 1,726,000
Term loan agreement, collateralized by all business assets of the Company, used
to finance the acquisition of ICS ("The ICS Term Loan"). Payable in fifty-nine
(59) monthly payments of approximately $54,000 and a sixtieth (60th) payment of
approximately $1,339,000 in 2013. The loan bears interest equal to the one-month
LIBOR rate (0.26% at December 31, 2010) plus 4.00%. The loan was fully paid in
March 2010. - 3,268,000
------------- ------------
3,957,000 5,029,000
Less: current portion 931,000 995,000
------------- -----------
$3,026,000 $4,034,000
========== ===========
Principal payments due on the Company's long-term debt are as follows:
Year ending December 31,
2011 $ 931,000
2012 931,000
2013 931,000
2014 931,000
2015 233,000
----------
$ 3,957,000
===========
10. STOCK-BASED COMPENSATION PLANS:
-- --------------------------------
The Company has various stock-based compensation plans, which provide for
the granting of nonqualified and incentive stock options, as well as restricted
stock awards to officers, key employees and nonemployee directors. The plans
authorize the granting to officers and key employees, stock options and
restricted stock awards, to acquire up to 1,891,000 common shares. Each plan
grants options at the market value of the Company's stock on the date of such
grant and all options expire ten years after granted. The terms and vesting
schedules for share-based awards vary by type of grant and the employment status
of the grantee with vesting ranging from one to ten years. Generally the awards
vest based upon time-based conditions. Stock option exercises are funded through
the issuance of the Company's common stock. Stock compensation expense for the
years ended December 31, 2010 and 2009 was $656,000 and $310,000, respectively.
The following table summarizes activity in stock options:
December 31, 2010 2009
------------ --------------------------------- -------------------------
Average
Weighted- Remaining Weighted-
Average Contractual Average
Exercise Term Exercise
Options Price (in years) Options Price
----------------------------- ---------- ---------- ---------- -------- -------------
Outstanding at
beginning of year 476,000 $ 3.58 3 591,000 $ 3.19
Granted - - - 85,000 2.00
Forfeited (34,000) 6.20 - (125,000) 2.15
Exercised (128,000) 1.26 - (75,000) 1.13
----------------------------- -------- ------------ ----------- ----------- ---------
Outstanding at end of
Year 314,000 $ 4.24 3 476,000 $3.58
========== ========== =========== =========== =========
Outstanding and
exercisable at end
of year 258,000 $ 4.73 3 405,000 $3.85
========== ========== =========== =========== ========
Weighted-average fair
value of options granted
during the year - $ 1.02
========== =======
The following table summarizes information about stock options outstanding and
exercisable at December 31, 2010:
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------------
Weighted-
average Weighted- Weighted-
Remaining average average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life/Years Price Exercisable Price
--------------- ----------- ------------------- ---------- ----------- --------------------
.60 - $2.00 85,000 4 $ 1.96 29,000 $ 1.89
3.01 - $3.70 3,000 3 $ 3.60 3,000 $ 3.60
4.51 - $5.96 226,000 3 $ 5.11 226,000 $ 5.11
---------------- ----------- ------------------- ---------- ----------- --------------------
..60 - $5.96 314,000 3 $ 4.24 258,000 $ 4.73
================ =========== =================== =========== =========== ====================
At December 31, 2010, 12,000 shares of common stock were reserved for future
issuance of stock options, restricted stock and stock appreciation rights.
At December 31, 2010, the aggregate intrinsic value of options outstanding was
$156,000 and the aggregate intrinsic value of options exercisable was $55,000.
At December 31, 2009, the aggregate intrinsic value of options outstanding was
$514,000 and the aggregate intrinsic value of options exercisable was $383,000.
The intrinsic value of options exercised during the years ended December 31,
2010 and 2009 was approximately $257,000 and $147,000, respectively.
The Company estimated the fair value of its stock option awards on the date of
grant using the Black-Scholes valuation model. The assumptions used for stock
option grants issued during the following periods were as follows:
December 31, 2010 2009
------------- ----- -----
Expected Volatility - 61.86%
Risk-free interest rate - 1.88%
Expected term of options (in years) - 4.5
Dividend Yield - -
Expected volatility assumptions utilized for 2009 were based on the volatility
of the Company's stock price for 4.5 years, prior to grant date. The risk-free
rate for 2009 is derived from the 5 and 10 year U.S. treasury yield on grant
date, respectively. Expected life for 2009 was estimated using the "simplified"
method, as allowed under the provisions of the Securities and Exchange
Commission Staff Bulletin No. 107, since there was no prior history of similar
stock option grants. Dividend yield is based on prior history of cash dividends
declared.
The following table summarizes the Company's nonvested stock option activity for
the year ended December 31, 2010:
Number of Weighted-Average
Shares Grant-Date Fair Value
---------- -----------------------
Nonvested stock options
at January 1, 2010 71,000 $1.02
Granted - -
Vested (14,000) 1.02
Forfeited - -
---------- ---------
Nonvested stock options
at December 31, 2010 57,000 $1.02
====== ======
At December 31, 2010, there was approximately $9,000 of unearned compensation
cost related to the above non-vested stock options. The cost is expected to be
recognized over approximately the next three years.
The following table summarizes the Company's nonvested stock option activity for
the year ended December 31, 2009:
Number of Weighted-Average
Shares Grant-Date Fair Value
----------- ------------------------
Nonvested stock options
at January 1, 2009 9,000 $3.06
Granted 85,000 1.02
Vested (22,000) 1.74
Forfeited (1,000) 2.91
--------- -------
Nonvested stock options
at December 31, 2009 71,000 $1.02
========= =====
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, which ranges from two to ten years. The share based expense for
these awards was determined based on the market price of the Company's stock at
the date of grant applied to the total number of shares that were anticipated to
vest. During the year ended December 31, 2010, approximately 48,000 shares of
restricted stock were awarded to senior management and independent directors.
During the year ended December 31, 2009, approximately 84,000 shares of
restricted stock were awarded to senior management. As of December 31, 2010, the
Company had unearned compensation of $440,000 associated with all of the
Company's restricted stock awards; the expense is to be recognized over the next
four years.
11. EMPLOYEE BENEFIT PLAN:
-- ----------------------
A profit sharing and incentive-savings plan provides benefits to certain
employees who meet specified minimum service and age requirements. The plan
provides for contributions by the Company equal to 1/2 of employee contributions
(but not more than 2% of eligible compensation) and the Company may make
additional contributions out of current or accumulated net earnings at the sole
discretion of the Company's board of directors. The Company contributed
approximately $223,000 and $229,000 to the plan during the years ended December
31, 2010 and 2009, respectively.
12. INCOME TAXES:
-- -------------
For the year ended December 31, 2010, the Company recorded income tax
expense of $13,000 for state income and federal minimum taxes. For the
comparable period in 2009, the Company utilized net operating loss
carry-forwards to offset income taxes except for $39,000 of state income and
federal minimum tax expense.
At December 31, 2010 and 2009, the Company has an alternative minimum tax credit
of approximately $573,000 with no limitation on the carryforward period. The
Company also has federal and state net operating loss carryforwards of
approximately $22,000,000 and $8,000,000, respectively, at December 31, 2010.
The net operating loss carry-forwards expire through 2030. Approximately,
$15,000,000 of federal net operating loss carry-forwards expire between
2011-2012.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
December 31, 2010 2009
------- -------
Tax at U.S. statutory rates (34.0%) (34.0%)
State income and federal minimum taxes - 2.0%
Change in valuation allowance 38.0% 33.0%
Exercise of stock options (3.0%) -
Other items, net (1.0%) 1.0%
------- -------
- 2.0%
======= =======
Deferred tax assets (liabilities) are comprised of the following:
December 31, 2010 2009
------------ ------------ ------------
Alternative minimum tax credit carry-forward $ 573,000 $ 573,000
Net operating loss and capital loss carryfowards
(including pre-acquisition net operating loss
carry-forwards) 7,673,000 6,655,000
Temporary differences in bases of assets and
liabilities:
Accounts receivable and inventory 530,000 435,000
Marketable securities 14,000 53,000
Accrued expenses 376,000 222,000
Stock-based compensation 72,000 76,000
Goodwill 1,640,000 1,591,000
Intangible assets 1,085,000 1,103,000
Deferred revenue 62,000 94,000
Property and equipment (144,000) (197,000)
---------- -----------
3,635,000 3,377,000
Total deferred tax assets, net 11,881,000 10,605,000
Valuation allowance (9,643,000) (8,488,000)
------------ ------------
Net deferred tax assets $ 2,238,000 $ 2,117,000
============ ============
The increase in the valuation allowance in 2010 was due to a change in the
Company's projected future profitability.
Deferred income taxes are included in the accompanying balance sheet as follows:
2010 2009
---- ----
Current asset $ 391,000 $ 714,000
Long-term asset 1,847,000 1,403,000
----------- ---------
$ 2,238,000 $ 2,117,000
========== ==========
On January 1, 2007, the Company adopted amended accounting principles related to
the accounting for uncertainty in income taxes (ASC 740). This amendment
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 than not" that the position is sustainable
based on its technical merits. Additionally, this amendment provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The Company has evaluated its tax positions
and has concluded that the tax positions meet the "more likely than not"
recognition threshold. As such, there are no liabilities recorded for uncertain
tax positions at December 31, 2010 and 2009. The Company's tax returns from
December 31, 2007 through December 31, 2010 remain open to examination. The
Company's policy is to recognize interest and penalties relating to uncertain
tax positions in income tax expense.
13. SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:
---- --------------------------------------------------------
Sales to significant customers accounted for approximately 36% (24% and 12%) and
40% (25% and 15%) of the Company's consolidated net sales for the years ended
December 31, 2010 and 2009, respectively.
Significant customers of the Company's Electronics Group accounted for
approximately 63% (31%, 19% and 13%) and 54% (31% and 23%) of the Electronics
Group's net sales for the years ended December 31, 2010 and 2009, respectively.
Significant customers of the Company's Power Group accounted for approximately
34% (21% and 13%) and 28% (14% and 14%) of the Power Group's net sales for the
years ended December 31, 2010 and 2009, respectively.
A substantial portion of the net sales is subject to audit by agencies of the
U.S. government. In the opinion of management, adjustments to such sales, if
any, will not have a material effect on the Company's consolidated financial
position or results of operations.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables from its
customers.
The Company performs credit evaluations on its customers and collateral is
generally not required. Credit losses are provided for in the consolidated
financial statements during the period in which an impairment has been
determined.
14. LEASING ARRANGEMENTS
-- ---------------------
The Company entered into a sale-leaseback of its New York operating facility in
2001. The Company recorded a deferred gain on sale which is being recognized
over the initial term of the lease. Effective January 1, 2011, the Company
entered into an amendment to the lease. The amendment extended the lease
expiration date to December 31, 2019 and modified the annual lease payments as
follows; approximately $390,000 for the years 2011 through 2013, approximately
$424,800 for the years 2004 through 2016, and approximately $463,200 for the
years 2017 through 2019. The Company's landlord agreed, at its sole expense, to
make certain improvements to the facility.
In April 2009, the Company's TDL subsidiary entered into a five year lease for a
new operating facility commencing November 1, 2009. Annual rent payments will be
approximately $183,600 for the first two years of the lease and approximately
$199,200, $206,400 and $213,600 for years three, four and five of the lease,
respectively. The lease includes two five year renewable options. In August
2009, TDL entered into a sublease with the landlord on a month-to-month basis
for $1,250 per month. Additional operating leases are for the ICS facility, a
sales office, vehicles and office equipment.
Future minimum lease payments as of December 31, 2010 under all operating lease
agreements that have initial or remaining noncancelable lease terms in excess of
one year are as follows
Year ending December 31,
2011 795,000
2012 807,000
2013 762,000
2014 638,000
2015 and thereafter 2,240,000
-----------
Total future minimum lease payments $5,242,000
===========
Rent expense for operating leases was approximately $841,000 and $740,000 for
the years ended December 31, 2010 and 2009, respectively.
15. COMMITMENTS:
--- ------------
The Company elected not to renew the employment agreement of its former chief
executive officer effectively terminating his employment as of December 31,
2010. The Company recorded an expense charge of $2,000,000 representing its
estimated contractual obligation, along with associated costs, relating to the
contract non-renewal. Included in the recorded expense is $312,000 of stock
compensation expense relating to the accelerated vesting of restricted stock. A
majority of the obligation will be paid by January 2012. The former chief
executive officer has filed for an arbitration hearing in the City of New York
to settle a dispute regarding certain contractual obligations owed in connection
with the contract non-renewal. We are committed to paying the amount that we
believe is owed to our former chief executive officer. We believe any amount
over what we believe is contractually owed to him is without merit and will be
vigorously defended by us.
From time to time, the Company may become a party to litigation or other legal
proceedings that it considers to be a part of the ordinary course of business.
The Company is not currently involved in any other legal proceedings that could
reasonably be expected to have a material adverse effect on its business,
prospects, financial condition or results of operations.
The Company also has employment agreements with two executive officers and five
other principal officers. At December 31, 2010, the total contractual
obligations under these agreements over the next three years is approximately
$1,686,000. In addition, three executive officers will be entitled to bonuses
based on certain performance criteria, as defined, and six officers are entitled
to bonuses based on a percentage of earnings before taxes, as defined. Total
bonus compensation expense was approximately $89,000 and $324,000 for years
ended December 31, 2010 and 2009, respectively.
16. BUSINESS SEGMENTS:
---- ------------------
The Company operates through two reporting segments. The Electronics Group is
comprised of the Orbit Instrument Division and TDL and ICS subsidiaries. The
Company's Power Group is comprised of its Behlman Electronics, Inc. subsidiary.
The Company's reportable segments are business units that offer different
products. The Company's reportable segments are each managed separately as they
manufacture and distribute distinct products with different production
processes
The following is the Company's reporting segment information as of and for the years
ended December 31, 2010 and 2009:
Year ended December 31, 2010 2009
----------------------- ------------ ------------
Net sales:
Electronics Group:
Domestic $15,798,000 $15,380,000
Foreign 1,031,000 1,331,000
----------- -----------
Total Electronics Group 16,829,000 16,711,000
----------- ------------
Power Group:
Domestic 8,908,000 9,014,000
Foreign 1,179,000 1,170,000
----------- -----------
Total Power Group 10,087,000 10,184,000
----------- ------------
Intersegment Sales (167,000) (377,000)
------------ ------------
Total net sales $26,749,000 $26,518,000
============ ============
Income (loss) before income tax provision:
Electronics Group (1) $(2,986,000) $(1,569,000)
Power Group 1,437,000 1,509,000
Intersegment profit 61,000 (82,000)
General corporate expenses not allocated (1,574,000) (1,426,000)
Interest expense (225,000) (208,000)
Investment and other income, net 275,000 208,000
------------ ------------
Loss before income tax provision $(3,012,000) $(1,568,000)
============ ============
December 31, 2010 2009
------------ ------------
Assets:
Electronics Group $12,297,000 $12,629,000
Power Group 6,089,000 5,916,000
General corporate assets not allocated 6,036,000 8,828,000
Elimination of intersegment receivables (21,000) (370,000)
Elimination of intersegment gross profit in
ending inventory (22,000) (82,000)
----------- ------------
TOTAL ASSETS $24,379,000 $26,921,000
============ ============
Depreciation and amortization:
Electronics Group $ 354,000 $ 710,000
Power Group 22,000 29,000
Corporate 1,000 6,000
------------ ------------
TOTAL DEPRECIATION AND AMORTIZATION $ 377,000 $ 745,000
=========== ============
(1) Includes goodwill and intangible assets impairment charges of $924,000
and $2,048,000 in 2010 and 2009, respectively.
17. NET LOSS PER COMMON SHARE:
--- ---------------------------
The following table sets forth the computation of basic and diluted net loss per
common share:
Year Ended December 31, 2010 2009
--------- -------
Denominator:
Denominator for basic net loss per
share - weighted-average common shares 4,563,000 4,365,000
Effect of dilutive securities:
Unearned portion of restricted stock awards - -
Employee and director stock options - -
------------ ------------
Dilutive potential common shares - -
------------ ------------
Denominator for diluted net loss
per share - weighted-average common
shares and assumed conversions 4,563,000 4,365,000
============ ============
The numerator for basic and diluted net loss per share for the years ended
December 31, 2010 and 2009 is the net loss for each year.
During the years ended December 31, 2010 and 2009, the Company had net losses
and therefore did not include, respectively, 229,000 and 248,000 incremental
common shares and options in its calculation of diluted net loss per common
share an inclusion of such securities would be anti-dilutive.
Approximately 97,000 and 221,000 shares of common stock were outstanding during
the years ended December 31, 2010 and 2009, 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.
18. RELATED PARTY TRANSACTION:
--- --------------------------
TDL leased a facility from a limited partnership, the ownership of which is
controlled by the former shareholders of TDL. The lease commenced April 2005 and
ended January 2010 and provided for monthly payments of $9,100 and increases of
2% each year for the first two renewal periods and 3% for the final two renewal
periods. For the years ended December 31, 2010 and 2009, the total amount paid
under this lease was approximately $10,000 and $120,000, respectively.
19. EQUITY:
-------------
In August 2008, the Company's Board of Directors authorized a stock repurchase
program through December 2010, allowing the Company to purchase up to $3.0
million of its outstanding shares of common stock in open market or privately
negotiated transactions in compliance with applicable laws and regulations
including the SEC's Rules 10b5-1 and 10b-18. The timing and amount of
repurchases under the program depended on market conditions and publicly
available information. During year ended December 31, 2010, the Company
repurchased approximately 700 shares of its common stock at an average purchase
price of $3.44 per share. Total cash consideration for the repurchased stock was
approximately $2,400. From August 2008 through May 2010, the Company purchased
approximately 369,000 shares of its common stock for total cash consideration of
$915,000 representing an average purchase price of $2.48 per share. In May 2010,
in connection with an amendment to its Credit Agreement, the Company was
required to suspend its stock repurchase program.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
ORBIT INTERNATIONAL CORP.
Dated: March 31, 2011 By: /s/ Mitchell Binder
---------------------
Mitchell Binder, Acting
President and Chief
Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mitchell Binder Acting President, March 31, 2011
------------------- Chief Executive Officer
Mitchell Binder and Director
(Principal Executive Officer)
/s/ David Goldman Acting Chief Financial Officer, March 31, 2011
----------------- and Treasurer
David Goldman (Principal Financial and
Accounting Officer)
/s/ Bruce Reissman Executive Vice President, March 31, 2011
------------------- Chief Operating Officer and
Bruce Reissman Director
/s/ Fredric Gruder
-------------------
Fredric Gruder Director March 31, 2011
/s/ Bernard Karcinell Director March 31, 2011
----------------------
Bernard Karcinell
/s/ Sohail Malad Director March 31, 2011
----------------
Sohail Malad
EX-10.21
2
amendmentandwaiver.txt
AMENDMENT AND WAIVER TO CREDIT AGREEMENT
EXHIBIT 10.21
AMENDMENT AND WAIVER TO CREDIT AGREEMENT
This Amendment and Waiver to Credit Agreement (this "AMENDMENT") is dated
as of the 31st day of March, 2011 and is by and between Orbit International
Corp., Behlman Electronics, Inc., Tulip Development Laboratory, Inc. and
Integrated Consulting Services, Inc. d/b/a Integrated Combat Systems (each a
"BORROWER" and collectively, the "BORROWERS"), and Capital One, National
Association ("BANK") (this "AMENDMENT").
WHEREAS, on March 10, 2010 the Bank made available to the Borrowers a line
of credit in the amount of $3,000,000.00 and a term loan in the amount of
$4,654,761.84 pursuant to a Credit Agreement dated as of March 10, 2010 between
the Borrowers and the Bank (as amended from time to time, the "CREDIT
AGREEMENT") and evidenced by, respectively, a Line of Credit Note dated March
10, 2010 from the Borrowers to the Bank (as amended from time to time, the "LINE
OF CREDIT NOTE") and the Term Loan Note dated March 10, 2010 from the Borrowers
to the Bank (as amended from time to time, the "TERM LOAN NOTE") and secured by
a Security Agreement dated March 10, 2010 from the Borrowers to the Bank (the
"SECURITY AGREEMENT") (the Credit Agreement, the Line of Credit Note, the Term
Loan Note, the Security Agreement, and all other documents executed and
delivered in connection therewith, collectively, the "FINANCING DOCUMENTS");
WHEREAS, the Borrowers have requested that the Bank modify certain
covenants set forth in the Credit Agreement and waive compliance with certain
covenants set forth in the Credit Agreement to which the Bank has agreed
provided the Borrowers enter into this Amendment;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Borrowers and the Bank hereby
agree as follows:
1. Capitalized terms not defined herein shall have the meaning set
forth in the Credit Agreement.
2. The definition of "Consolidated Debt Service Coverage Ratio" set forth in
Section 1.01 of the Credit Agreement is hereby amended to read in its entirety
as follows:
"Consolidated Debt Service Coverage Ratio" means the ratio of the
Borrowers' (1) earnings before interest, taxes, depreciation and amortization,
plus non-cash goodwill impairment charges, plus non-cash share-based
---- ----
compensation expense, plus costs related to non-renewal of senior officer
----
contract, minus cash taxes, minus cash stock repurchases, each calculated for
----- -----
the immediately preceding four quarters, to (2) current maturities of long term
Debt and lease obligations plus scheduled payments to former officer for the
----
following four quarters plus interest expense for the immediately preceding four
----
quarters, all calculated in accordance with GAAP and tested quarterly.
3. The definition of "Line of Credit Maturity Date" set forth in Section
1.01 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"Line of Credit Maturity Date" means August 15, 2011.
4. The following definition is hereby added to Section 1.01 of the Credit
Agreement:
"Liquidity" shall mean cash plus marketable securities plus net
---- ----
availability under the Borrowing Base before adding back cash and marketable
securities and tested daily and submitted with the Borrowing Base Certificate.
5. The following Section 5.12 is hereby added to the Credit Agreement:
Section 5.12. Establishment of Blocked Account.
-----------------------------------
On or before April 30, 2011, Orbit International Corp. and Behlman Electronics,
Inc. shall establish a blocked account at Capital One, National Association and
Tulip Development Laboratory, Inc. and Integrated Consulting Services, Inc.
d/b/a Integrated Combat Systems shall establish a blocked account (each a
"Blocked Account" and collectively, the "Blocked Accounts") at a third party
---------------- ----------------
bank (the "Third Party Bank"), in the Bank's and the Third Party Bank's name, as
----------------
applicable, for the benefit of the Borrowers. Upon the occurrence of an Event
of Default which continues beyond any applicable notice or cure period, the Bank
may require that the Borrowers direct all of their Account Debtors to make all
payments on the Accounts directly to a post office box ("Lock Box") at Capital
--------
One, National Association with respect to Orbit International Corp. and Behlman
Electronics, Inc., and at the Third Party Bank with respect to Tulip Development
Laboratory, Inc. and Integrated Consulting Services, Inc. d/b/a Integrated
Combat Systems, with, in the name of, and under exclusive control of the Bank or
the Third Party Bank, as applicable. All payments received in the Lock Box
shall be deposited into the Blocked Accounts, and the Borrowers will immediately
deposit into the Blocked Accounts all payments received by the Borrowers for
inventory or services sold, leased or rendered by the Borrowers and received by
the Borrowers in the identical form in which such payments were received,
whether by cash or check. If the Borrowers, any Affiliate or Subsidiary of the
Borrowers, or any shareholder, officer, director, employee or agent of the
Borrowers or any Affiliate or Subsidiary, or any other Person acting for or in
concert with the Borrowers shall receive any monies, checks, notes, drafts or
other payments relating to or as proceeds of accounts receivable or other
Collateral, the Borrowers and each such Person shall receive all such items in
trust for, and as the sole and exclusive property of, the Bank or the Third
Party Bank, as applicable, for its benefit and, immediately upon receipt
thereof, shall remit the same (or cause the same to be remitted) in kind to the
Blocked Account. The Borrowers agree that all payments made to the Blocked
Accounts established by the Borrowers or otherwise received by the Bank, whether
in respect of the accounts receivable of the Borrowers or as proceeds of other
Collateral of the Borrowers or otherwise, will be applied, on account of the
Line of Credit Loans, on account of any scheduled currently due monthly payments
on the Term Loan and also on account of such other due and payable obligations
(excluding payments on the Term Loan which are not currently due and payable) of
the Borrowers as the Bank shall determine in accordance with the terms of this
Agreement. The Borrowers agree to pay all fees, costs and expenses which the
Borrowers incur in connection with opening and maintaining a Lock Box and
Blocked Account. All of such fees, costs and expenses which remain unpaid by
the Borrowers pursuant to any Lock Box or Blocked Account Agreement with the
Borrowers, to the extent same shall have been paid by the Bank hereunder, shall
constitute Line of Credit Loans hereunder, shall be payable to the Bank for its
benefit by the Borrowers upon demand, and, until paid, shall bear interest at
the highest rate then applicable to Line of Credit Loans hereunder. All checks,
drafts, instruments and other items of payment or proceeds of collateral
delivered to the Bank or the Third Party Bank in kind shall be endorsed by the
Borrowers to the Bank or the Third Party Bank, as applicable, and, if that
endorsement of any such item shall not be made for any reason, the Bank or the
Third Party Bank, as applicable, is hereby irrevocably authorized to endorse the
same on the Borrowers' behalf. For the purpose of this paragraph, the Borrowers
irrevocably hereby make, constitute and appoint the Bank and the Third Party
Bank, as applicable, (and all Persons designated by the Bank or the Third Party
Bank, as applicable, for that purpose) as the Borrowers' true and lawful
attorney and agent-in-fact (i) to endorse each Borrower's name upon said items
of payment and/or proceeds of collateral of the Borrowers and upon any chattel
paper, document, instrument, invoice or similar document or agreement relating
to any accounts receivable of the Borrowers or goods pertaining thereto; (ii) to
take control in any manner of any item of payment or proceeds thereof; (iii) to
have access to any lock box or postal box into which any of Borrowers' mail is
deposited; and (iv) open and process all mail addressed to any Borrower and
deposited therein.
6. Section 7.01 of the Credit Agreement is hereby amended to read in its
entirety as follows:
Section 7.01. Consolidated Debt Service Coverage Ratio. Commencing with the
----------------------------------------
period ending September 30, 2011 and at all times thereafter, the Borrowers
shall maintain a Consolidated Debt Service Coverage Ratio of not less than 1.25
to 1.00 (to be tested as of the end of September 30, 2011 and each Fiscal
Quarter thereafter on a rolling four (4) quarter basis).
7. Section 7.03 of the Credit Agreement is hereby amended to read in its
entirety as follows
Section 7.03. The Borrowers, on a consolidated basis, shall have a net
profit before interest, taxes and Bank and other legal fees associated with the
waivers and amendments to this Agreement dated as of March 31, 2011 of not less
than (i) One Hundred Thousand Dollars ($100,000.00) for the Fiscal Quarter
ending March 31, 2011 and (ii) Five Hundred Thirty Thousand Dollars
($530,000.00) for the Fiscal Quarter ending June 30, 2011.
8. The following Section 7.04 is hereby added to the Credit Agreement:
Section 7.04 Liquidity. The Borrowers shall maintain at all times a
---------
minimum Liquidity of not less than $1,200,000.00.
9. The Bank hereby waives compliance with Section 7.03 for the Fiscal
Quarter ending December 31, 2010 provided the actual operating loss before
goodwill and Intangible Asset impairment charges was not greater than
$2,101,000.00 as at December 31, 2010.
10. Exhibit H of the Credit Agreement is hereby amended to read in its
entirety as follows:
CONTINUED ON NEXT PAGE
EXHIBIT H
CAPITAL ONE, N.A.
ASSET BASED LENDING DEPARTMENT BORROWING BASE/LIQUIDITY CERTIFICATE
COMPANY NAME: ORBIT INTERNATIONAL CORP AND SUBSIDIARIES
------------- -----------------------------------------
DATE:
------
Orbit
International Behlman Tulip ICS
------------ ------- ---- ------
1.Accounts Receivable (line 5 of previous BBC) $ $ $ $
2.Additions to Accounts Receivable
since last BBC
New Sales Dated _____/_____/_____
to _____/_____/_____ $ $ $ $
(Attach Sales Register)
3.Reductions to Accounts Receivable since last BBC
(A) Gross Reductions
(Remit # ________ to ________) $ $ $ $
(B) Credit Memos issued since
last BBC $ $ $ $
(C) Total Reductions $ $ $ $
4. Other Adjustments to
Accounts Receivable (*Explain) $ $ $ $
5. New Accounts Receivable Balance $ $ $ $
6.Total Ineligible Accounts
(line G. from last Monthly BBC) $ $ $ $
7.Eligible Accounts Receivable
(line 5 minus line 6) $ $ $ $
8. Accounts Receivable Availability
(85% of line 7) $ $ $ $
9. Total Accounts Receivable Avail.
(Orbit, Behlman, Tulip and ICS - line 8) $
10. Gross Eligible Inventory
(From last monthly BBC) $ $ $ $
11. Total Gross Eligible Inventory
(Orbit, Behlman, Tulip and ICS - line 10) $
12. Inventory Avail. (the lesser of $3MM,
50% of line 11 or Line 9) $
13. TOTAL GROSS AVAILABILITY - A/R
& INVENTORY (line 9 + 12) $
14. NEW LINE OF CREDIT LOAN BALANCE $
15. AVAILABILITY BEFORE TERM LOAN (13-14) $
16. TERM LOAN OUTSTANDING $
17. AVAILABILITY BEORE CASH AND MKT.
SECURITIES (15-16) $
18. If shortfall CASH AND MKT. Securities
over $1,000M $
19. If shortfall enter APPROVED
OVERADVANCE ONLY $
19. Collateral Availability/Shortfall $
*Explain:
-------------------
If a collateral shortfall exists, the loan balance MUST be reduced, or cash
collateral provided, for an amount greater than or equal to the shortfall.
LIQUIDITY COVENANT COMPLIANCE
a)Cash + Marketable Securities $
b)Borrowing Base Availability before adding back Cash and
Marketable securities (Line 17 of Borrowing Base Certificate)$
c)Liquidity (a + b) $
d)Required Liquidity $ 1,200,000.00
e)Excess/(Shortfall) (c - d) $
f)In compliance? Circle One Yes / No
The undersigned hereby certifies to Capital One, N.A. (the "Bank") that (1) the
information provided herein is true, correct, complete and accurate as of the
dates stated above and has been prepared in a manner consistent with the
preparation of prior Borrowing Base/Liquidity Certificates to the Bank, (2)
except as set
forth below, the undersigned is currently in compliance with all terms,
covenants, conditions contained in any agreement between the Bank and the
undersigned and in each of the other loan documents, and all of the
undersigned's representations and warranties in any other loan documents are
currently
true and correct, and (3) except as set forth below, no default or event of
default has occurred and is currently continuing under any agreement between
the undersigned and the Bank, or will occur after giving effect to any loan
requested herewith. The undersigned agrees that in the event of any conflict
between the Borrowing Base/Liquidity Certificate and other loan documents, the
terms of the other loan documents shall control. The undersigned further
acknowledges that the Bank will rely on the foregoing in making credit available
to the undersigned.
ORBIT INTERNATIONAL CORP AND SUBSIDIARIES
Prepared by: _____________________ Authorized Signature:________________________
11. The obligation of the Bank to enter into this Amendment is subject to
the following:
(a) Receipt by the Bank of a fully executed counterpart of this
Amendment from the Borrowers;
(b) The Borrowers shall have established Blocked Accounts at the Bank or a
Third Party Bank by April 30, 2011;
(c) Receipt by the Bank of fully executed Blocked Account Agreements from
Orbit International Corp. and Behlman Electronics, Inc. by April 6, 2011, which
Blocked Account Agreements shall be in form and substance satisfactory to the
Bank;
(d) Receipt by the Bank of a copy of fully executed Blocked Account
Agreements between Tulip Development Laboratory, Inc., Integrated Consulting
Services, Inc. d/b/a Integrated Combat Systems and a Third Party Bank by April
30, 2011;
(e) Receipt by the Bank of an assignment of life insurance policy no.
950650077PR (the "Life Insurance Policy") issued by Metropolitan Life Insurance
Company (the "Insurance Company") insuring Dennis Sunshine by April 6, 2011,
which assignment shall be in form and substance satisfactory to the Bank;
(f) The Borrowers shall convert the Life Insurance Policy to cash and shall
cause the Insurance Company to deposit in the Blocked Account at the Bank the
sum of not less than Five Hundred Seventy Five Thousand and 00/100 Dollars
($575,000.00) (the "Cash Deposit"), representing a portion of the cash surrender
value of the Life Insurance Policy, on or before October 15, 2011, which Cash
Deposit shall be pledged to the Bank as additional collateral for the Loans and
the Borrowers shall execute and deliver such documents, if any, as may
reasonably be required by the Bank to evidence said pledge; and
(g) The Borrowers shall pay to the Bank its fee for this Amendment in
the amount of $10,000.00 together with all other fees and out-of-pocket
disbursements incurred by the Bank in connection with this Amendment, including
legal fees incurred by the Bank in the preparation, consummation, administration
and enforcement of this Amendment.
12. The Borrowers ratify and reaffirm the Financing Documents and the
Financing Documents, as hereby amended, shall remain in full force and effect.
13. The Borrowers represent and warrant that (a) the representations and
warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, at, or
event which could constitute an event of default under the Credit Agreement, the
Notes or any other Financing Documents exists, and (c) no condition, event, act
or omission has occurred, which, with the giving of notice or passage of time,
would constitute an event of default under the Credit Agreement, the Notes or
any other Financing Document.
14. The Borrowers acknowledge that as of the date of this Amendment they
have no offsets or defenses with respect to all amounts owed by it to the Bank
arising under or related to the Financing Documents on or prior to the date of
this Amendment. The Borrowers fully, finally and forever release and discharge
the Bank and its successors, assigns, directors, officers, employees, agents and
representatives from any and all claims, causes of action, debts and
liabilities, of whatever kind or nature, in law or in equity, whether now known
or unknown to them, which they may have and which may have arisen in connection
with the Financing Documents or the actions or omissions of the Bank related to
the Financing Documents on or prior to the date hereof. The Borrowers
acknowledge and agree that this Amendment is limited to the terms outlined above
and shall not be construed as an agreement to change any other terms or
provisions of the Financing Documents. This Amendment shall not establish a
course of dealing or be construed as evidence of any willingness on the Bank's
part to grant other or future agreements, should any be requested.
15. This Amendment is a modification only and not a novation. Except for
the above-quoted modifications, the Financing Documents, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, instruments or
documents executed in connection with the Financing Documents, and all the terms
and conditions thereof, shall be and remain in full force and effect with the
changes herein deemed to be incorporated therein. This Amendment is to be
considered attached to the Financing Documents and made a part thereof. This
Amendment shall not release or affect the liability of any guarantor of the
Notes or credit facility executed in reference to the Financing Documents, if
any, or release any owner of collateral granted as security for the Financing
Documents. The validity, priority and enforceability of the Financing Documents
shall not be impaired hereby. To the extent that any provision of this
Amendment conflicts with any term or condition set forth in the Financing
Documents, or any document executed in conjunction therewith, the provisions of
this Amendment shall supersede and control. The Bank expressly reserves all
rights against all parties to the Financing Documents.
16. This Amendment shall be governed and construed in accordance with the
laws of the State of New York
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as
of the day and year first above written.
BORROWERS:
ORBIT INTERNATIONAL CORP.
By: /s/ David Goldman
-------------------
Name: David Goldman
Title: Acting Chief Financial Officer
BEHLMAN ELECTRONICS, INC.
By: /s/ David Goldman
------------------
Name: David Goldman
Title: Chief Financial Officer
TULIP DEVELOPMENT LABORATORY, INC.
By: /s/ David Goldman
-------------------
Name: David Goldman
Title: Chief Financial Officer
INTEGRATED CONSULTING SERVICES, INC.
By: /s/ David Goldman
------------------
Name: David Goldman
Title: Chief Financial Officer
BANK:
CAPITAL ONE,
NATIONAL ASSOCIATION
By: /s/ Dawn Juliano
-------------------
Name: Dawn Juliano
Title: Vice President
EX-21.1
3
subsidiariesofregistrant.txt
SUBSIDIARIES OF REGISTRANT
EXHIBIT 21.1
Orbit International Corp.
Subsidiaries of Registrant
--------------------------
Name State of Incorporation
---- ----------------------
Behlman Electronics, Inc. Delaware
Orbit Instrument of California, Inc. California
Tulip Development Laboratory, Inc. Pennsylvania
TDL Manufacturing, Inc. Pennsylvania
Integrated Consulting Services, Inc. d/b/a
Integrated Combat Systems, Inc. Kentucky
EX-23.1
4
eisneramperconsent.txt
CONSENT OF EISNERAMPER LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements
(Numbers 333-25979, 333-69410, 333-122575 and 333-159686) on Form S-8 and the
Registration Statement (Number 333-130629) on Form S-3 of Orbit International
Corp. and Subsidiaries of our report dated March 31, 2011 relating to our audit
of the consolidated financial statements as of December 31, 2010 and for the
year then ended, which appears in this annual Report on Form 10-K of Orbit
International Corp. and Subsidiaries for the year ended December 31, 2010.
/S/ EISNERAMPER LLP
New York, New York
March 31, 2011
EX-23.2
5
amperconsent.txt
CONSENT OF AMPER, POLITZINER & MATTIA, LLP
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements
(Numbers 333-25979, 333-69410, 333-122575 and 333-159686) on Form S-8 and the
Registration Statement (Number 333-130629) on Form S-3 of Orbit International
Corp. and Subsidiaries of our report dated March 31, 2010 relating to our audit
of the consolidated financial statements as of December 31, 2009 and for the
year then ended, which appears in this annual Report on Form 10-K of Orbit
International Corp. and Subsidiaries for the year ended December 31, 2010.
/S/ AMPER, POLITZINER & MATTIA, LLP
New York, New York
March 31, 2011
EX-31.1
6
ceocertification.txt
CEO CERTIFCATION
EXHIBIT 31.1
I, Mitchell Binder, certify that:
1. I have reviewed this annual report on Form 10-K 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 registrant as
of, and for, the periods presented in this report;
4. The registrant'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)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the
registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.;
(c) Evaluated the effectiveness of the registrant'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 registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant'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 registrant's internal control
over financial reporting.
Date: March 31, 2011 /s/ Mitchell Binder
-------------------
Mitchell Binder
Acting Chief Executive Officer
EX-31.2
7
cfocertification.txt
CFO CERTIFICATION
EXHIBIT 31.2
I, David Goldman, certify that:
1. I have reviewed this annual report on Form 10-K 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 registrant as
of, and for, the periods presented in this report;
4. The registrant'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)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)for the
registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.;
(c) Evaluated the effectiveness of the registrant'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 registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant'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 registrant's internal control
over financial reporting.
Date: March 31, 2011 /s/ David Goldman
-----------------
David Goldman
Acting Chief Financial Officer
EX-32.1
8
ceo906certification.txt
CEO 906 CERTIFICATION
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, Mitchell Binder, Acting 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 Annual Report on Form 10-K for the year ended December 31, 2010
(the "Annual Report") which this statement accompanies fully complies with the
requirements of Section 13(a) or 15(d) of the Exchange Act; and
(2) information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of Orbit
International Corp.
Dated: March 31, 2011
/s/Mitchell Binder
------------------
Mitchell Binder
Acting 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
9
cfo906certification.txt
CFO 906 CERTIFICATION
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, David Goldman, Acting 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 Annual Report on Form 10-K for the year ended December 31, 2010
(the "Annual Report") which this statement accompanies fully complies with the
requirements of Section 13(a) or 15(d) of the Exchange Act; and
(2) information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of Orbit
International Corp.
Dated: March 31, 2011
/s/ David Goldman
-----------------
David Goldman
Acting 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.