Orbit International (ORBT) 10-Q 2013 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended March 31, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to___________

Commission file number 0-3936

ORBIT INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)

Delaware	11-1826363
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
80 Cabot Court, Hauppauge, New York	11788
(Address of principal executive offices)	(Zip Code)

631-435-8300

(Registrant's telephone number, including area code)

N/A

(Former name, former address and formal fiscal year, if changed since last report)

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration 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 post such files). Yes x  No o

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 o	Accelerated Filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 4,591,987 shares of common stock, par value $.10, as of May 12, 2013.

INDEX

	Page No.
Part I. Financial Information:
Item 1. - Financial Statements:
Condensed Consolidated Balance Sheets - March 31, 2013(unaudited) and December 31, 2012	3-4
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2013 and 2012 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012 (unaudited)	6-7
Notes to Condensed Consolidated Financial Statements (unaudited)	8-17
Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations.	18-28
Item 3. - Quantitative and Qualitative Disclosures About Market Risk.	28
Item 4. - Controls and Procedures.	28
Part II. Other Information:
Item 1. – Legal Proceedings.	29
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds.	29
Item 3. – Defaults Under Senior Securities.	29
Item 4. – Mine Safety Disclosures.	29
Item 5. – Other Information.	29
Item 6. - Exhibits.	29
Signatures	30
Exhibits	31-36

2

PART I - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
ASSETS	2013		2012
	(unaudited)
Current assets:
Cash and cash equivalents	$	1,179,000	$	610,000
Investments in marketable securities		261,000		251,000
Accounts receivable (less allowance for doubtful accounts of $145,000)		4,067,000		5,372,000
Inventories		12,928,000		13,271,000
Costs and estimated earnings in excess of billings on uncompleted contracts		884,000		875,000
Deferred tax asset		647,000		447,000
Other current assets		234,000		252,000
Total current assets		20,200,000		21,078,000
Property and equipment, net		1,159,000		1,099,000
Goodwill		868,000		868,000
Deferred tax asset		1,603,000		1,806,000
Other assets		111,000		125,000
TOTAL ASSETS	$	23,941,000	$	24,976,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(continued)

	March 31,			December 31,
	2013			2012
LIABILITIES AND STOCKHOLDERS’ EQUITY	(unaudited)
Current liabilities:
Current portion of long-term debt	$	33,000		$	33,000
Note payable - bank		2,700,000			3,324,000
Accounts payable		782,000			741,000
Liability associated with non-renewal of senior officer contract		563,000			661,000
Income taxes payable		4,000			2,000
Accrued expenses		1,129,000			1,294,000
Customer advances		17,000			88,000
Total current liabilities		5,228,000			6,143,000
Liability associated with non-renewal of senior officer contract, net of current portion		33,000			41,000
Long-term debt, net of current portion		-			8,000
Total liabilities		5,261,000			6,192,000
STOCKHOLDERS’ EQUITY
Common stock - $.10 par value, 10,000,000 shares authorized, 5,232,000 and 5,102,000 shares issued at 2013 and 2012, respectively,and 4,630,000 and 4,515,000 shares outstanding at 2013 and 2012, respectively		523,000			510,000
Additional paid-in capital		22,741,000			22,726,000
Treasury stock, at cost, 602,000 and 587,000 shares at 2013 and 2012, respectively		(1,756,000	)		(1,700,000	)
Accumulated other comprehensive income (loss), net of tax		1,000			(3,000	)
Accumulated deficit		(2,829,000	)		(2,749,000	)
Total stockholders’ equity		18,680,000			18,784,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	23,941,000		$	24,976,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

	Three Months Ended
	March 31,
	2013			2012
Net sales	$	6,447,000		$	6,162,000
Cost of sales		3,956,000			3,775,000
Gross profit		2,491,000			2,387,000
Selling, general and administrative expenses		2,531,000			2,597,000
Costs related to non-renewal of senior officer contract		-			1,194,000
Interest expense		17,000			34,000
Investment and other income, net		(3,000	)		(93,000	)
Loss before income tax provision		(54,000	)		(1,345,000	)
Income tax provision		26,000			30,000
NET LOSS		(80,000	)		(1,375,000	)
Change in unrealized gains and (losses) on marketable securities, net of income tax		4,000			15,000
Comprehensive loss	$	(76,000	)	$	(1,360,000	)
Net loss per common share:
Basic	$	(0.02	)	$	(0.30	)
Diluted	$	(0.02	)	$	(0.30	)

The accompanying notes are in integral part of these condensed consolidated financial statements.

5

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(80,000	)	$	(1,375,000	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Share-based compensation expense		28,000			52,000
Depreciation and amortization		68,000			66,000
Loss on sale of marketable securities		2,000			-
Bond premium amortization		1,000			1,000
Changes in operating assets and liabilities:
Accounts receivable		1,305,000			1,255,000
Inventories		343,000			(1,491,000	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(9,000	)		-
Other current assets		18,000			31,000
Other assets		14,000			2,000
Accounts payable		41,000			549,000
Accrued expenses		(165,000	)		(331,000	)
Income taxes payable		2,000			(30,000	)
Income taxes receivable		-			(8,000	)
Customer advances		(71,000	)		11,000
Liability associated with non-renewal of senior officers’ contracts		(106,000	)		730,000-
Net cash provided by (used in) operating activities		1,391,000			(538,000	)
Cash flows from investing activities:
Purchases of property and equipment		(128,000	)		(147,000	)
Purchase of marketable securities		(156,000	)		(4,000	)
Sale of marketable securities		150,000			- -
Net cash used in investing activities		(134,000	)		(151,000	)

(continued)

6

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(continued)

	Three Months Ended
	March 31,
	2013			2012
Cash flows from financing activities:
Purchase of treasury stock		(56,000	)		(402,000	)
Proceeds from issuance of long-term debt		-			66,000
Repayments of note payable - bank		(624,000	)		-
Restricted cash		-			(1,000	)
Repayments of long-term debt		(8,000	)		(233,000	)
Net cash used in financing activities		(688,000	)		(570,000	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		569,000			(1,259,000	)
Cash and cash equivalents – Beginning of period		610,000			1,709,000
CASH AND CASH EQUIVALENTS – End of period	$	1,179,000		$	450,000
Supplemental cash flow information:
Cash paid for interest	$	18,000		$	35,000
Cash paid for income taxes	$	24,000		$	68,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

 ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(NOTE 1) – Basis of Presentation and Summary of Significant Accounting Policies:

General

The interim financial information herein is unaudited.  However, in the opinion of management, such information reflects all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations for the periods being reported.  Additionally, it should be noted that the accompanying condensed consolidated financial statements do not purport to contain complete disclosures required for annual financial statements in accordance with accounting principles generally accepted in the United States of America.

The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results of operations that can be expected for the year ending December 31, 2013.

These condensed consolidated statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2012 contained in the Company’s Annual Report on Form 10-K.

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. 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.

8

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(NOTE 1) – Basis of Presentation and Summary of Significant Accounting Policies (continued):

Inventories

Inventories, which consist of raw materials, work-in-process, and finished goods, are recorded at the lower of cost (average cost method and specific identification) 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 Accounting Standards Codification (“ASC”) 350, goodwill is not amortized but instead tested for impairment on at least an annual basis. The Company, where appropriate, will utilize Accounting Standards Update (“ASU”) 2011-08 which allows the Company to not perform the two-step goodwill impairment test if it determines that it is not more likely than not that the fair value of the reporting unit is less than the carrying amount based on a qualitative assessment of the reporting unit. The Company’s annual goodwill impairment test is performed in the fourth quarter each year or when impairment indicators are present. 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.

9

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(NOTE 1) – Basis of Presentation and Summary of Significant Accounting Policies (continued):

Income Taxes

The Company recognizes deferred tax assets and liabilities in accordance with ASC 740 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. The Company evaluates uncertain tax positions and accounts for such items in accordance with ASC 740-10. As of March 31, 2013, the Company has no material uncertain tax positions. The Company is subject to federal income taxes and files a consolidated U.S. federal income tax return. In addition to the federal tax return, the Company files income tax returns in various state jurisdictions. The Company is subject to routine income tax audits in various jurisdictions and tax returns from December 31, 2009 remain open to examination by such taxing authorities.

Revenue and Cost Recognition

The Company recognizes a substantial portion of its revenue upon the delivery of product. The Company recognizes such revenue when title and risk of loss are transferred to the customer and when there is: i) persuasive evidence that an arrangement with the customer exists, which is generally a customer purchase order, ii) the selling price is fixed and determinable, iii) collection of the customer receivable is deemed probable, and iv) we do not have any continuing non-warranty obligations. 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. Costs and estimated earnings in excess of billings on uncompleted contracts represent an asset that will be liquidated in the normal course of contract completion, which at times 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.

10

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(NOTE 1) – Basis of Presentation and Summary of Significant Accounting Policies (continued):

Deferred Rent

The Company’s leases have escalation clauses which are recognized on a straight line basis over the life of the lease. The amounts are recorded in accrued expenses in the accompanying condensed consolidated financial statements.

Comprehensive Income (loss)

Comprehensive income (loss) consists of net income (loss) and unrealized gains and losses on marketable securities, net of tax. The Company adopted ASU 2011-05 during the first quarter ended March 31, 2012, which eliminated the option to present the components of other comprehensive income in the statement of changes in stockholders’ equity. The Company has elected to present the components of net income, the components of other comprehensive income and total comprehensive income as a single continuous statement.

(Note 2) - Stock Based Compensation:

At March 31, 2013, the Company has two stock-based employee compensation plans. At March 31, 2013, approximately 6,000 shares of common stock were reserved for future issuance of stock options, restricted stock and stock appreciation rights. These plans provide for the granting of nonqualified and incentive stock options as well as restricted stock awards and stock appreciation rights to officers, employees and other key persons. The terms and vesting schedules of stock-based awards vary by type of grant and generally the awards vest based upon time-based conditions. Share-based compensation expense was $28,000 and $52,000 for the three months ended March 31, 2013 and 2012, respectively.

The Company's stock-based employee compensation plans allow for the issuance of restricted stock awards that may not be sold or otherwise transferred until certain restrictions have lapsed. The unearned stock-based compensation related to restricted stock granted is being amortized to compensation expense over the vesting period, which ranges from seven 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 three months ended March 31, 2013, 130,000 shares of restricted stock were awarded to senior management which will vest over seven years. As of March 31, 2013, the Company had unearned compensation of $480,000 associated with all of the Company's restricted stock awards, which will be expensed over approximately the next seven years. The unvested portion of restricted stock awards at March 31, 2013 and 2012 were approximately 149,000 and 28,000 shares, respectively.

11

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(Note 2) - Stock Based Compensation (continued):

Stock option activity during the three months ended March 31, 2013, under all stock option plans is as follows:

					Average
			Weighted		Remaining
			Average		Contractual
	Number of		Exercise		Term
	Shares		Price		(in years)
Options outstanding, January 1, 2013		178,000	$	3.58		2
Granted		-		-		-
Forfeited		-		-		-
Exercised		-		-		-
Options outstanding, March 31, 2013		178,000	$	3.58		2
Outstanding exercisable at March 31, 2013		164,000	$	3.72		2

At March 31, 2013, the aggregate intrinsic value of options outstanding and exercisable was $137,000 and $113,000, respectively. At the comparable 2012 period, the aggregate intrinsic value of options outstanding and exercisable was $213,000 and $145,000, respectively.

The following table summarizes the Company's nonvested stock option activity for the three months ended March 31, 2013:

	Number of			Weighted-Average
	Shares			Grant-Date Fair Value
Nonvested stock options at January 1, 2013		28,000		$	1.02
Granted		-			-
Vested		(14,000	)	$	1.02
Forfeited		-			- .
Nonvested stock options at March 31, 2013		14,000		$	1.02

At March 31, 2013, there was approximately $1,000 of unearned compensation cost related to the above non-vested stock options. The cost is expected to be recognized over the next year.

12

    ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(NOTE 3) – Debt:

On November 8, 2012, the Company entered into a new credit agreement (“New Credit Agreement”) with a new commercial lender pursuant to which the Company established a committed line of credit of up to $6,000,000. This line of credit was used to pay off, in full, all of the Company’s obligations to its former primary lender and to provide for its general working capital needs. The line of credit matures on November 8, 2013 and may be renewed on an annual basis. Payment of interest on the line of credit is due at a rate per annum as follows: (i) variable at the lender’s prime lending rate (3.25% at March 31, 2013) and/or (ii) 2% over LIBOR for 30, 60, or 90 day LIBOR maturities. The line of credit is secured by a first priority security interest in all of the Company’s tangible and intangible assets. Outstanding borrowings under the line of credit were $2,700,000 at March 31, 2013.

The New Credit Agreement contains customary affirmative and negative covenants and certain financial covenants. Additionally, available borrowings under the line of credit are subject to a borrowing base of eligible accounts receivable and inventory. All outstanding borrowings under the line of credit are accelerated and become immediately due and payable (and the line of credit terminates) in the event of a default, as defined, under the New Credit Agreement. The Company was in compliance with the financial covenants contained in the New Credit Agreement at March 31, 2013.

During March 2012, the Company entered into a two-year $65,000 installment loan agreement to finance the purchase of a leasehold improvement. The loan’s imputed interest rate is 3.25%, is payable in twenty-four (24) monthly payments of approximately $2,800, is secured by the related leasehold improvement, and matures March 2014. The unpaid balance on the installment loan agreement was $33,000 at March 31, 2013.

(NOTE 4) – Net Loss Per Common Share:

The following table sets forth the computation of basic and diluted net loss per common share:

	Three Months Ended
	March 31,
	2013		2012
Denominator:
Denominator for basic net loss per share - weighted-average common shares		4,487,000		4,646,000
Effect of dilutive securities:
Employee and directors stock options		-		-
Unearned portion of restricted stock awards		-		-
Denominator for diluted net loss per share - weighted-average common shares and assumed conversion		4,487,000		4,646,000

The numerator for basic and diluted net loss per share for the three month periods ended March 31, 2013 and 2012 is the net loss for each period.

13

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(NOTE 4) – Net Loss Per Common Share (continued):

During the three months ended March 31, 2013 and 2012, the Company had a net loss and therefore did not include 31,000 and 26,000 incremental common shares, respectively, in its calculation of diluted net loss per share since an inclusion of such securities would be anti-dilutive.

Options to purchase 95,000 and 163,000 shares of common stock were outstanding during the three months ended March 31, 2013 and 2012, respectively, but were not included in the computation of diluted loss share. The inclusion of these options would have been anti-dilutive as the options’ exercise prices were greater than the average market price of the Company’s common shares during the relevant period.

Approximately 149,000 and 55,000 shares of common stock were outstanding during the three months ended March 31, 2013 and 2012, respectively, but were not included in the computation of basic loss per share. These shares were excluded because they represent the unvested portion of restricted stock awards.

(NOTE 5) - Cost of Sales:

For interim periods, the Company estimates certain components of its inventory and related gross profit.

(NOTE 6) - Inventories:

Inventories are comprised of the following:

	March 31,		December 31,
	2012		2012
Raw Materials	$	7,541,000	$	8,199,000
Work-in-process		5,010,000		4,742,000
Finished goods		377,000		330,000
TOTAL	$	12,928,000	$	13,271,000

(NOTE 7) – Marketable Securities:

The following is a summary of the Company’s available-for-sale marketable securities at March 31, 2013 and December 31, 2012:

					Unrealized
	Adjusted		Fair		Holding
March 31, 2013	Cost		Value		Gain(Loss)
Corporate Bonds	$	260,000	$	261,000	$	1,000
December 31, 2012
Corporate Bonds	$	257,000	$	251,000	$	(6,000	)

14

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(NOTE 8) - 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 table below presents the balances, as of March 31, 2013 and December 31, 2012, of assets and liabilities measured at fair value on a recurring basis by level within the hierarchy.

March 31, 2013	Total		Level 1		Level 2		Level 3
Corporate Bonds	$	261,000	$	261,000	$	-	$	-
December 31, 2012	Total		Level 1		Level 2		Level 3
Corporate Bonds	$	251,000	$	251,000	$	-	$	-

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. 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.

15

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(NOTE 9) - Business Segments:

The Company operates through two business segments, the Electronics Segment (or "Electronics Group") and the Power Units Segment (or "Power Group").  The Electronics Group is comprised of the Orbit Instrument Division and the Company’s TDL and ICS subsidiaries. The Orbit Instrument Division and TDL are engaged in the design, manufacture and sale of customized electronic components and subsystems. ICS performs system integration for Gun Weapons Systems and Fire Control Interface as well as logistics support and documentation. The Company's Power Group, through the Company's Behlman Electronics, Inc. subsidiary, is engaged in the design, manufacture and sale of distortion free commercial power units, power conversion devices and electronic devices for measurement and display.

The Company’s reportable segments are business units that offer different products.  The reportable segments are each managed separately as they manufacture and distribute distinct products with different production processes.

The following is the Company’s business segment information for the three month periods ended March 31, 2013 and 2012:

	Three Months Ended
	March 31,
	2013			2012
Net sales:
Electronics
Domestic	$	2,837,000		$	2,640,000
Foreign		351,000			466,000
Total Electronics		3,188,000			3,106,000
Power Units
Domestic		3,072,000			2,705,000
Foreign		200,000			351,000
Total Power Units		3,272,000			3,056,000
Intersegment Sales		(13,000	)		-
Total	$	6,447,000		$	6,162,000
Income (Loss) before income tax provision:
Electronics Group	$	(467,000	)	$	(1,733,000	)
Power Group		734,000			646,000
General corporate expenses not allocated		(307,000	)		(317,000	)
Interest expense		(17,000	)		(34,000	)
Investment and other income, net		3,000			93,000
Loss before income tax provision	$	(54,000	)	$	(1,345,000	)

16

ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(continued)

(NOTE 10) - Goodwill:

As of March 31, 2013 and December 31, 2012, the Company's goodwill consists of the following:

Gross							Net
Carrying		Accumulated		Accumulated			Carrying
Value		Amortization		Impairment			Value
$	9,798,000		-	$	(8,930,000	)	$	868,000

(NOTE 11) – Income Taxes:

For the three months ended March 31, 2013 and 2012, the Company recorded $26,000 and $30,000, respectively, of state income and federal minimum tax expense.

(NOTE 12) – Liability Associated with Non-renewal of Senior Officer Contract:

In March 2012, the Company reached a decision that made it probable that the employment agreement of its former chief operating officer would not be renewed, which effectively terminated his employment as of July 31, 2012. Pursuant to the terms of his existing agreement, the Company recorded an expense of $1,194,000 during the three months ended March 31, 2012, representing its estimated contractual obligation relating to the contract non-renewal. In addition, relating to the non-renewal, all of his unvested restricted shares vested as of July 31, 2012, which resulted in share based compensation expense of approximately $138,000. As of March 31, 2013, the liability associated with the non-renewal of the former chief operating officer contract was approximately $596,000.

(NOTE 13) – Equity:

Under the terms of the Company’s New Credit Agreement, entered into November 8, 2012, the Company is permitted to purchase up to an additional $400,000 of its common stock during the term of the Agreement. In November 2012, the Company’s Board of Directors authorized management, in its discretion, to purchase up to this dollar amount of common stock. From the commencement of the New Credit Agreement to May 12, 2013, the Company purchased a total of approximately 76,000 of its common shares for total cash consideration of approximately $263,000 for an average price of $3.48 per share.

17

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

Forward Looking Statements

Statements in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document are certain statements which are not historical or current fact and constitute “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual financial or operating results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Such forward looking statements are based on our best estimates of future results, performance or achievements, based on current conditions and the most recent results of the Company.  In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “may”, “will”, “potential”, “opportunity”, “believes”, “belief”, “expects”, “intends”, “estimates”, “anticipates” or “plans” to be uncertain and forward-looking. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in the Company’s reports and registration statements filed with the Securities and Exchange Commission.

Executive Overview

We recorded an increase in revenue and a decrease in our net loss for the three months ended March 31, 2013 as compared to the same period in 2012. Our revenue increase was due to an increase in sales from both our Electronics and Power Groups. The decrease in our net loss was primarily attributable to a $1,194,000 charge taken in the prior year period relating to the non-renewal of our former chief operating officer’s contract. The decrease in our net loss was also attributable, to a lesser extent, to an increase in profitability at our Power Group and a decrease in the net loss at our Electronics Group.

Our backlog at March 31, 2013 was approximately $14,700,000 compared to $15,900,000 at December 31, 2012 due to a lower backlog at both our Electronics and Power Groups.  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 number of business opportunities and while we are confident that we will receive many of the orders we are pursuing, there can be no assurance as to the ultimate receipt and timing of these orders.

Our financial condition remains strong as evidenced by our 3.9 to 1 current ratio at March 31, 2013. During November 2012, we entered into a $6,000,000 line of credit facility with a new lender. This line of credit was used to pay off, in full, all of our obligations to our former primary lender and to provide for our general working capital needs. The new credit facility expires November 8, 2013. We were in compliance with the financial covenants contained in the New Credit Agreement at March 31, 2013. Under the terms of our New Credit Agreement entered into November 8, 2012, we are permitted to purchase up to an additional $400,000 of our common stock during the term of our New Credit Agreement. In November 2012, our Board of Directors authorized management, in its discretion, to purchase up to this dollar amount of our common stock. On March 6, 2013, our Board of Directors approved a 10b5-1 Plan through which we will conduct our currently authorized stock buy back program. From the commencement of the New Credit Agreement to May 12, 2013, we purchased a total of approximately 76,000 shares of our common stock for total cash consideration of approximately $263,000 for an average price of $3.48 per share.

18

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 and intangible assets 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 (average cost method and specific identification) 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 which have forced our country into various conflicts have resulted in increased usage of hardware and equipment which are now in need of repair and refurbishment. This could lead to increased product demand as well as the use of some older inventory items that we had previously determined obsolete. In addition, recently announced reductions in defense spending may result in deferral or cancellation of purchases of new equipment, which may require refurbishment of existing equipment.

Deferred Tax Asset

At March 31, 2013, 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 $5,000,000 and $6,000,000, respectively that expire from 2018 through 2032. 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 our deferred tax asset and operating results could be affected accordingly. We will evaluate the possibility of changing some or all of our valuation allowance relating to our deferred tax asset should we become profitable or incur further losses in the future. The increase or reduction of some or all of our valuation allowance would create a deferred tax expense or benefit, resulting in a decrease or increase to net income in our consolidated statements of operations.

19

Impairment of Goodwill

The balance of our goodwill, as of March 31, 2013, is $868,000 for Behlman. After applying ASU 2011-08, the Company performed a qualitative assessment on Behlman’s goodwill at December 31, 2012. The Company concluded as of December 31, 2012 that the fair value of Behlman was more likely than not greater than its carrying amount. This assessment was based on certain factors, such as: i) Behlman’s bookings and revenue in 2012 (approximately $12.5 million and  $12.4 million, respectively), ii) Behlman’s net income (approximately $2.8 million) in 2012, iii) Behlman’s backlog at December 31, 2012 of approximately $8.1 million and iv) the result of our 2010 quantitative goodwill impairment test under which Behlman’s fair value at December 31, 2010 exceeded its carrying amount by approximately 27%.

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 $28,000 and $52,000 for the three months ended March 31, 2013 and 2012, respectively. During the three months ended March 31, 2013, 130,000 shares of restricted stock were awarded to senior management. During the comparable period in 2012, no shares of restricted stock or stock options were granted.

Revenue and Cost Recognition

We recognize a substantial portion of our revenue upon the delivery of product. We recognize such revenue when title and risk of loss are transferred to our customer and when there is: i) persuasive evidence that an arrangement with the customer exists, which is generally a customer purchase order, ii) the selling price is fixed and determinable, iii) collection of the customer receivable is deemed probable, and iv) we do not have any continuing non-warranty obligations. 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 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 the loss is identified. Costs and estimated earnings in excess of billings on uncompleted contracts represent an asset that will be liquidated in the normal course of contract completion, which at times may require more than one year. The components of costs and estimated earnings in excess of billings on uncompleted contracts are the sum of the related contract’s direct material, direct labor, and manufacturing overhead and estimated earnings less accounts receivable billings.

20

Marketable Securities

We currently have approximately $261,000 invested 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.

Results of Operations

Three month period ended March 31, 2013 v. March 31, 2012

We currently operate in two industry segments.  Our Orbit Instrument Division and our TDL subsidiary are engaged in the design and manufacture of electronic components and subsystems and our ICS subsidiary performs system integration for Gun Weapons Systems and Fire Control Interface as well as logistics support and documentation (which collectively comprise our “Electronics Group”).  Our Behlman subsidiary is engaged in the design and manufacture of commercial power units and COTS power solutions (which comprises our “Power Group”).

Consolidated net sales for the three month period ended March 31, 2013 increased by 4.6% to $6,447,000 from $6,162,000 for the three month period ended March 31, 2012. The increase was principally due to increases of 2.6% and 7.1% from both our Electronics and Power Groups, respectively. The increase in sales from our Electronics Group was primarily attributable to an increase in sales from our Orbit Instrument Division and our ICS subsidiary that was partially offset by a decrease in sales at our TDL subsidiary. The increase in sales at our Orbit Instrument Division was primarily due to an increase in shipments pursuant to customer delivery schedules resulting from higher bookings during the 2012 year as compared to the 2011 year. The decrease in sales at our TDL subsidiary was primarily due to a decrease in shipments pursuant to customer delivery schedules. The increase in sales at our Power Group was principally due to an increase in shipments at both its commercial and COTS divisions primarily due to customer delivery schedules.

21

Gross profit, as a percentage of sales, for the three months ended March 31, 2013 decreased slightly to 38.6% from 38.7% for the three month period ended March 31, 2012.  The decrease was primarily the result of lower gross profit from our Electronics Group (28.2% in the current year period compared to 29.1% in the prior year period) that was partially offset by slightly higher gross profit from our Power Group (48.7% in the current year period compared to 48.5% in the prior year period). The decrease in gross profit from our Electronics Group was principally due to lower gross profit from our TDL and ICS subsidiaries that was partially offset by higher gross profit at our Orbit Instrument Division. The decrease in gross profit at our TDL subsidiary was primarily due to lower sales and higher material costs principally due to the shipment of a prototype order during the current year period. The decrease in gross profit at our ICS subsidiary was primarily due to higher estimated costs relating to its Signal Data Converter order which is accounted for under the percentage of completion method. The increase in gross profit at our Orbit Instrument Division was principally due to a change in product mix and higher sales during the current year period. The increase in gross profit from our Power Group was principally due to operating leverage inherent in our business due to the increase in sales during the current period.

Selling, general and administrative expenses decreased by 2.5% to $2,531,000 for the three month period ended March 31, 2013 from $2,597,000 for the three month period ended March 31, 2012 principally due to lower selling, general and administrative expenses from our Electronics Group that was partially offset by slightly higher corporate costs and selling, general and administrative expenses from our Power Group. The decrease in selling, general and administrative expense at our Electronics Group during the current year period was principally due to a reduction in personnel at our ICS subsidiary. Selling, general and administrative expenses, as a percentage of sales, for the three month period ended March 31, 2013 decreased to 39.3% from 42.1% for the three month period ended March 31, 2012 principally due to the increase in sales and a decrease in expenses.

During the first quarter of 2012, we reached a decision that made it probable that the employment agreement of our chief operating officer would not be renewed, which would effectively terminate his employment as of July 31, 2012. Pursuant to the terms of his existing agreement, we recorded an expense of $1,194,000 for estimated costs associated with the contract non-renewal.

22

Interest expense for the three months ended March 31, 2013 decreased to $17,000 from $34,000 for the three months ended March 31, 2012. In November 2012, we entered into a new credit agreement with a new commercial lender pursuant to which we established a committed line of credit of up to $6,000,000. This line of credit was used to pay off all of our obligations (term debt and line of credit) to our former primary lender. The decrease in interest expense was principally due to the pay off of our term debt, a lower interest rate on our new line of credit and despite an increase in amounts owed under our line of credit.

Investment and other income for the three month period ended March 31, 2013 decreased to $3,000 from $93,000 for the three-month period ended March 31, 2012 principally due to an $85,000 gain recognized during the prior year quarter relating to the remaining unamortized deferred gain on the sale of our building in 2001 and also due to a $2,000 loss on the sale of a corporate bond during the current period.

Net loss before income tax provision was $54,000 for the three months ended March 31, 2013 compared to a net loss before income tax provision of $1,345,000 for the three months ended March 31, 2012.  The net loss decrease was principally due to a $1,194,000 charge taken in connection with the non-renewal of our former chief operating officer’s contract in the prior year period, an increase in sales and gross profit from our Power Group, a decrease in selling, general and administrative expenses and a decrease in interest expense that was partially offset by a decrease in investment and other income and a slight decrease in gross profit at our Electronics Group.

Income taxes for the three months ended March 31, 2013 and March 31, 2012 consist of $26,000 and $30,000, respectively, in state income 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 three months ended March 31, 2013 was $80,000 compared to a net loss of $1,375,000 for the year ended March 31, 2012.

Earnings before interest, taxes and depreciation and amortization (EBITDA) for the three months ended March 31, 2013 increased to $31,000 from a loss of $1,245,000 for three months ended March 31, 2012.  Listed below is the EBITDA reconciliation to net income (loss):

EBITDA is a Non-GAAP financial measure and should not be construed as an alternative to net income. An element of the Company's 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 the Company believes 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.

23

	Three months ended
	March 31,
	2013			2012
Net loss	$	(80,000	)	$	(1,375,000	)
Interest expense		17,000			34,000
Income tax expense		26,000			30,000
Depreciation and amortization		68,000			66,000
EBITDA	$	31,000		$	(1,245,000	)

Material Change in Financial Condition

Working capital increased slightly to $14,972,000 at March 31, 2013 compared to $14,935,000 at December 31, 2012.  The ratio of current assets to current liabilities was 3.9 to 1 at March 31, 2013 compared to 3.4 to 1 at December 31, 2012.

Net cash provided by operating activities for the three month period ended March 31, 2013 was $1,391,000, primarily attributable to a decrease in accounts receivable and inventory, an increase in accounts payable and the non-cash depreciation and stock based compensation that was partially offset by the net loss for the period, a decrease in customer advances, accrued expenses and the liability associated with the non-renewal of a senior officer contract. Net cash used in operating activities for the three month period ended March 31, 2012 was $538,000, which was primarily attributable to the net loss for the period, the increase in inventory and the decrease in accrued expenses and despite the increase in the liability associated with the non-renewal of senior officers’ contracts and accounts payable, and a decrease in accounts receivable and the non-cash depreciation and stock based compensation.

 Cash flows used in investing activities for the three month period ended March 31, 2013 was $134,000, attributable to the purchase of fixed assets and marketable securities that was partially offset by the sale of marketable securities. Cash flows used in investing activities for the three month period ended March 31, 2012 was $151,000, attributable to the purchase of fixed assets.

Cash flows used in financing activities for the three month period ended March 31, 2013 was $688,000, attributable to the repayment of note payable-bank and long term debt and the purchase of treasury stock. Cash flows used in financing activities for the three month period ended March 31, 2012 was $570,000, primarily attributable to the repayment of long term debt and the purchase of treasury stock which was partially offset by the proceeds from the issuance of long term debt.

The New Credit Agreement contains customary affirmative and negative covenants and certain financial covenants. Additionally, available borrowings under the line of credit are subject to a borrowing base of eligible accounts receivable and inventory. All outstanding borrowings under the line of credit are accelerated and become immediately due and payable (and the Line of Credit terminates) in the event of a default, as defined, under the New Credit Agreement. We were in compliance with the financial covenants contained in the New Credit Agreement at March 31, 2013.

24

Our existing capital resources, including our bank credit facility (which we expect to renew in 2013) and our cash flow from operations, are expected to be adequate to cover our cash requirements for the foreseeable future.

Under the terms of our New Credit Agreement, we are permitted to purchase up to an additional $400,000 of our common stock during the term of the Agreement. In November 2012, our Board of Directors authorized management, in its discretion, to purchase up to this dollar amount of common stock. From the start of the New Credit Agreement on November 8, 2012 to May 12, 2013, we purchased a total of approximately 76,000 of our common shares for total cash consideration of approximately $263,000 for an average price of $3.48 per share.

On March 6, 2013, our Board of Directors approved a 10b5-1 Plan (the “Plan”) through which we will conduct our currently authorized stock buy back program. We have authorized a total of approximately $300,000 which may be devoted to repurchases made pursuant to the Plan.  As of May 12, 2013, we had approximately $137,000 available for repurchases under the Plan.

Inflation has not materially impacted the operations of our Company.

Certain Material Trends

Backlog at March 31, 2013 was $14.7 million compared to $21.2 million at March 31, 2012.  The decrease in backlog at March 31, 2013 from March 31, 2012 was attributable to lower backlogs at both our Electronics and Power Groups.  The decrease in the backlog was attributable to several significant orders booked by the Electronics Group in the first quarter of the prior year under programs for which orders are again expected in the current year but have not yet been received to date.

Our backlog at March 31, 2013 does not include approximately $4.2 million of orders that have not yet been funded against a base contract award for approximately $5.8 million received by ICS for its Signal Data Converter (“SDC”). Our backlog at March 31, 2013, inclusive of the full base contract award for the SDC would be $18.9 million. The $4.2 million remainder of the contract was expected to be received during the first quarter of 2013 so that all shipments would be completed by the end of 2013. However, ICS was notified by its customer that orders and deliveries under this contract will be spread over a four year period.  The initial production order is expected in the third quarter of 2013 for approximately $800,000 to $900,000.

Bookings at our Orbit Instrument Division exceeded $10,000,000 in 2012 due to significant orders for our Remote Control Units (RCU) and FAA keyboards that were expected in 2011 but were received in the first quarter of 2012 along with orders received for our Color Programmable Entry Panels (CPEP). We again received orders for our RCU in the first quarter of 2013 but have not yet received new orders in 2012 for our FAA keyboards and our CPEP’s. FAA keyboard and CPEP orders are expected in the second or third quarter of 2013. There has been a significant amount of bid and proposal activity for our Orbit Instrument Division on both legacy products and new opportunities.  Information from our customers related to all legacy opportunities is that the timing of the receipt of these awards is uncertain but the business remains intact. Our Orbit Instrument Division recorded improved gross margins in the first quarter of 2013 compared to 2012.  We expect that these margins can be maintained in 2013 but only if certain outstanding proposals can be converted to purchase orders on a timely basis so that revenue levels can be sustained.

25

ICS last received a follow-on award for its MK-119 Gun Console System for 2012 delivery. Future orders on this program for foreign military sales are expected no earlier than 2014. ICS developed and shipped three prototype SDC units during the second quarter of 2011 and received an order for two additional prototype SDCs, one that was delivered in the second quarter of 2012 and the other delivered during the third quarter of 2012. In April 2012, ICS received a follow-on base contract award mentioned earlier for its SDC for approximately $5,758,000. ICS received initial orders of $1,597,000 against this contract.  The remainder of this contact is expected to be awarded over a four year period. ICS is currently working on other business opportunities and has took certain cost cutting initiatives in 2012 including a reduction in personnel in November 2012 and the consolidation of its two operating facilities into one.  We are planning to relocate ICS’s operations into a smaller, more suitable facility when its lease expires in early 2014, thereby creating additional savings.

TDL continues to work with several prime contractors on new prototype and pre-production orders but is experiencing significant delays to expected follow-on production awards.  An order for avionic displays was initially expected during the second quarter of 2012 but the order of approximately $1,143,000 was received at the end of 2012. Follow-on orders are expected for these displays over the next three years. However, timing remains an uncertainty for other expected follow-on awards that TDL has been waiting on since the end of 2012. Any further significant delay to the receipt of these awards could adversely affect TDL’s operating performance for 2013.

For the year ended December 31, 2012, operating results for the Power Group decreased from the prior year but business conditions remained strong. We experienced a 10.1% and 13.1% decrease in bookings at our COTS and Commercial Divisions, respectively for 2012 compared to the prior year period. Overall, bookings decreased by approximately 11.7% from the record levels in 2011. Despite the decrease in bookings, as evidenced by our first quarter 2013 results, we expect revenue and profitability for 2013 to improve from 2012 levels based on customer delivery schedules.

We were initially optimistic about our operating performance for 2013, but this was predicated upon no unknown adverse consequences of the budget discussions being conducted in Washington DC.  On March 1, 2013, our government officials failed to reach a consensus to avoid sequestration cuts.  These cuts could have a profound effect on the budget for the Department of Defense and their implementation has created great uncertainty for our Company and the defense industry as a whole.  At the present time, it appears the greatest immediate impact of sequestration will be government furloughs. Program contract delays, such as what we are experiencing now, particularly at our Orbit Instrument Division and TDL subsidiary, have always been a factor in our business. Government furloughs resulting from sequestration may exacerbate this problem. Continued delays in contract awards could adversely impact our delivery schedules and compromise our operating leverage, which currently could adversely impact our results for 2013. Nevertheless, it appears that aside from the timing of the receipt of certain pending orders, all of our legacy business with our customers remains intact. A resolution to sequestration would, in any event, significantly improve the environment in which we are operating.

26

Reductions in the level of military spending by the U.S. 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 current plans for cuts in defense spending will be in areas of the defense budget in which we generally do not participate.  In fact, we believe that as military assets return from the Middle East, the need for refurbishment and modernization could become a defense spending priority.  Therefore, we believe there could be significant opportunities for us as military efforts are curtailed and defense spending priorities are refocused.  However, future business for our Company resulting from these opportunities will also be dependent upon the make/buy decisions made by our prime contractors.

Although our Electronics Group and the 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 several new opportunities that are in the prototype or pre-production stage.  These opportunities generally move to a production stage at a later date, although the timing is also uncertain.  However, once initial production orders are received, 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 number 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.

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.  Again, due to sequestration, the merger and acquisition process has become more difficult.  Because of the uncertainty surrounding the DoD budget, there is elevated risk to revenue and profitability projections from potential targets.  Through the past several years, we reviewed various potential acquisitions and believe there will be opportunities available, particularly to integrate into our current operating facilities. Currently, we are not engaged in any discussions, beyond preliminary, related to any specific acquisition target, and there is no assurance that any future acquisition will be accomplished.

Although we have had several positive discussions with investment bankers looking to support our M&A initiatives, there can be no assurance that we will obtain the necessary financing to complete additional acquisitions. Moreover, even if we are able to obtain financing, there can be no assurance that we will have sufficient income from operations from any acquired companies to satisfy scheduled debt payments, in which case, we will be required to make the payments out of our existing operations.

27

We will continue to use the cash generated by our operations to pay down our debt and repurchase our shares in the marketplace.  Since January 1, 2012, we have repurchased in excess of 271,000 shares at an average price of $3.60.  Our tangible book value at March 31, 2013 was $3.85 per share and we plan to continue to purchase shares under this trading level.  However, subject to our current 10b5-1 Plan, management could decide to curtail, temporarily cease or discontinue our repurchase program due to certain restrictions contained in our lending agreement or because of other general market conditions.

Off-balance sheet arrangements

We presently do not have any off-balance sheet arrangements.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed by us in the reports that we submit under the Exchange Act is accumulated and communicated to its management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

There has been no change to the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

28

PART II- OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

    None.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

    None.

Issuer's Purchase of Equity Securities:

	(a)		(b)		(c)		(d)
Period	Total Number of Shares(or Units) Purchased		Average Price Paid per Share(or Unit)		Total Number of Shares(or Units) Purchased as part of Publicly Announced Plans or Programs		Maximum Number(or Approximate Dollar Value) of Shares(or Units) that May Yet Be Purchased Under the Plans or Programs
January  1- 31, 2013		5,073	$	3.36		5,073	$	309,000
February  1-28, 2013		-		-		-		-
March 1-31, 2013		10,735	$	3.64		10,735	$	270,000
Total		15,808	$	3.55		15,808

Item 3. DEFAULTS UPON SENIOR SECURITIES

    None.

Item 4. MINE SAFETY DISCLOSURE

    Not applicable.

Item 5. OTHER INFORMATION

    None.

Item 6. EXHIBITS

(a) Exhibits

Exhibit Number	Description
31.1*	Certification of the Chief Executive Officer. Required by Rule 13a-14 (a) or Rule 15d-14(a).
31.2*	Certification of the Chief Financial Officer. Required by Rule 13a-14 (a) or Rule 15d-14(a).
32.1*	Certification of the Chief Executive Officer. Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
32.2*	Certification of the Chief Financial Officer. Required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350.
101.1*	Financial statements from the Quarterly Report on Form 10-Q of Orbit International Corp. for the quarter ended March 31, 2013, filed on May 15, 2013, formatted in XBRL.

*Filed with this report.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ORBIT INTERNATIONAL CORP.
		Registrant
Dated:	May 15, 2013	/s/ Mitchell Binder
		Mitchell Binder, President,
		Chief Executive Officer and Director

Dated:	May 15, 2013	/s/David Goldman
		David Goldman, Chief
		Financial Officer

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