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Article by DailyStocks_admin    (01-12-09 04:14 AM)

Filed with the SEC from Dec 26 to Dec 31:

Orbit International (ORBT)
A group including Chadwick Capital Management and Monarch Activist Partners transferred their 411,044 shares on Dec. 23 as an in-kind distribution to Monarch's limited partners.

BUSINESS OVERVIEW

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. The Company conducts its operations through its Orbit Instrument Division and its wholly owned subsidiaries, Behlman Electronics, Inc. and Tulip Development Laboratory, Inc. ("TDL") and its affiliated manufacturing company, TDL Manufacturing, Inc. ("TDLM")(collectively "Tulip"). Through its Orbit Instrument Division, which includes its wholly owned subsidiaries, Orbit Instrument of California, Inc. and Tulip, the Company is engaged in the design, manufacture and sale of customized electronic components and subsystems. Integrated Consulting Services, Inc., d/b/a Integrated Combat Systems, Inc. ("ICS"), acquired effective December 31, 2007 and based in Louisville, Kentucky, performs systems integration for gun weapons systems and fire control interface, as well as logistics support and documentation. Behlman Electronics, Inc. is engaged in the design and manufacture of distortion free commercial power units, power conversion devices and electronic devices for measurement and display.

On December 19, 2007, the Company completed the acquisition of all of the issued and outstanding stock of ICS effective December 31, 2007. The total transaction value was approximately $6,600,000 consisting of $5,400,000 in cash, of which $4,500,000 was funded by a five year term loan from its primary lender, approximately 120,000 shares of Orbit stock valued at approximately $1,000,000 and approximately $200,000 in acquisition costs. Additionally, there is a contingent earn out of $1,000,000, payable over the next three years, based on ICS's ability to attain certain revenue levels over the three year period.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Company currently operates in two industry segments. The Electronics Group is comprised of the Company's Orbit Instrument Division, its Tulip subsidiary, and its ICS subsidiary, commencing December 31, 2007. Orbit Instrument Division and Tulip 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 power units.

(1) Does not include the operations of ICS since the acquisition was not effective until December 31, 2007.
(2) Exclusive of corporate overhead expenses, interest expense and investment and other income- net, which are not allocated to the business segments.

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

Orbit's 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. The Group primarily designs and manufactures in support of specific military programs. More recently, the Company has 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". The Electronics Group's products, which in all cases are designed for customer requirements on a firm fixed price contract basis, have been successfully incorporated on surveillance aircraft programs, 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.

Orbit's 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 Behlman designs and manufactures "power conversion devices" (equipment that produces power that is the same as what would be received from a public utility) and electronic products for measurement and display.

PRODUCTS

Electronics Group

IFF- Identification Friend or Foe

Orbit Instrument has designed and developed a Remote Control Unit ("RCU") that has supported the Common Transponder ("CXP") program for both U.S. Navy and U.S. Army program requirements. Orbit's 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. The Orbit 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, Orbit has designed and qualified a new Integrated Remote Control Unit ("IRCU") which has been qualified to support U.S. Air Force retrofit, as well as new program opportunities.

Intercommunication Panels

The Orbit Instrument Division has designed and developed various types of shipboard communication terminals. Orbit also upgraded these panels with state-of-the-art displays and touch screens. These communication terminals support existing shipboard secure and non secure voice communication switches. In addition, the Orbit Instrument Division has also upgraded the communications Terminals with "telco-based" capability. The upgraded communication terminals are installed on combat information centers of various U.S. Naval ships.

The Orbit Instrument Division 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) replaces our existing Plasma Entry Panel (PEP). The CEP has already been successfully manufactured and tested on several platforms.

Displays

The Electronics Group, through the Orbit Instrument Division and Tulip, have designed, developed, qualified and successfully supported a number of critical programs for prime contractor and government procurement agency requirements. The Electronics Group has designed displays using Electroluminescent ("EL"), Plasma, and Liquid Crystal Display ("LCD") technologies, for military and ruggedized environments.

Displays designed by Orbit's Electronics Group allow an operator, or, multiple operators to monitor and control radar systems for aircraft, helicopter, shipboard, ground based, and tracked vehicles systems on a number of critical defense electronics programs. The unique modular design technique allows Orbit's displays to provide "smart technology", high-speed graphics to operators in the most severe combat conditions. Tulip and Orbit Instrument displays are designed to meet both sunlight readable and night vision (NVIS"), and continue to operate after exposure to nuclear, biological and chemical ("NBC") environments.

Both Orbit Instrument and Tulip 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, incorporating multiple inputs and outputs for operator program requirements.

With years of prime contractor and procurement agency support, both Tulip and Orbit 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.

Tulip has developed a number of color LCD displays that have been qualified and currently support a number of helicopter, jet fighter, bomber, and tracked vehicle programs requirements.

Orbit Instrument has supported programs that now include displays, keyboards and track balls to form complete operator systems. These trays are qualified for sub-surface, shipboard, aircraft and tracked vehicle program opportunities.

Tulip has successfully designed and qualified an Input Device Assembly ("IDA"), which includes an 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 with the cockpit environment.

Keyboards, Keypads and Pointing Devices

The Orbit Instrument Division and Tulip have designed a number of custom backlit keyboards and keypads to meet full 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 designed/developed pointing devices, trackballs and force sticks. Orbit 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.

Tulip has successfully designed and qualified an Input Device Assembly (IDA), which is a fully integrated keyboard, trackball and display assembly that is worn (via Velcro) on the co-pilot's thigh during flight missions. This allows the aircraft to actually have four bullnose systems, the last being the Tulip designed IDA thigh pad.

Operator Control Trays

The 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 airborne aircraft programs, "standard shipboard display console requirements" and shore 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)

The Orbit Instrument Division currently has orders for command display panels that are being utilized for vehicular, shipboard and sheltered platform requirements. The display panels are flat panel technology based and include a Pentium based single board computer. Orbit designed/developed several models of the CDU to be used by U.S. Navy, U.S. Army and Marines, Korean and Canadian armies.

Mobile Key Panel Receivers

Tulip is under contract for the production of mobile key panel receivers that provide battlefield operators with real time position, velocity, navigation and timing (PVNT) information in a stand alone, hand-held, lightweight configuration.

MK 119 Gun Console System Computer (GCSC)

ICS is under multi-year contract for 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 perform processing, interfacing and data extraction functions.

MK 437 Gun Mount Control Panel (GMCP)

ICS is also under contract for the GMCP, a manned control panel located shipboard in the Gun Loader room. The GMCP consists of an interactive operator control/display terminal that provides operator interactions with the Gun Mount and the GCSC to allow the operator to enter ammunition and environmental pre-engagement data and allows monitoring of 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.

Selected Products

ICS builds a wide range of system integration related products, including:
fiber optic cables, specialty enclosures, traditional shipboard cable sets (both low smoke and non-low smoke) and training devices.

Power Group

Behlman'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 (both manned and unmanned), and on ships including related ground support.

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). These frequency converters are used to supply 400 Hz aircraft and ship power from the local power grid that is 50 or 60 Hz. They are also used on airplanes to supply the 60 Hz. required by standard equipment such as computers from the 400 Hz. available on the aircraft. Behlman's products are being used for railroad signaling; its frequency converters are being 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 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 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 Custom Power Supply Division designs and manufactures power supplies that use commercial-off-the-shelf (COTS) power modules to meet its customers' environmental specifications. This technique requires less engineering and produces a more reliable unit in much less time.

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 NAVICP and has been given the opportunity to compete against prime contractors. Behlman has supplied products including positioning assemblies and power supplies for the F/18 FLIR system.

Behlman also operates as a qualified repair depot for many United States Air Force and Navy programs.

PROPOSED PRODUCTS

Electronics Group

The Orbit Electronics Group has continued 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.

Tulip continues to be a leading supplier of display and keyboard designs, supporting defense electronics and industrial program requirements. Tulip 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. The significance of this market penetration is the specific transit authority operational requirements, where down time due to repeated failures is not an option. Tulip continues to support this transportation display requirement, and can provide solutions to each transit authority as new awards are released.

The Electronics Group has developed several new color smart displays for use on helicopter programs. Given the critical requirements of the helicopter missions, each configuration has been designed as sunlight readable, night vision qualified displays that provides the crew with real time data under extreme environmental combat requirements.

The Electronics Group continues to provide a family of display configurations that are designed with latest state of the art technologies, and combines various stand alone switch panels and data input devices onto a single display. These displays provides an operator with a single source of easy to access information that supports naval consoles, aircraft cockpits, armor vehicle suites and helicopter cockpit requirements.

The Orbit Instrument Division 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.

The 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, the Orbit Instrument Division and Tulip have designed latest 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 Orbit units, which have been operational in combat mode for decades. As the Electronics Group continues to receive new contract awards for program opportunities, developing replacement hardware to obsolete our previously designed units will continue to be a significant part of the Group's business strategy.

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 Defense customer base.

Future modifications of the GCSC will incorporate touch sensitive displays, detailed built-in-test capabilities and a robust graphic interface.

Power Group

In an effort to expand its product base, Behlman is developing new higher power inverters. These products are designed to expand Behlman's presence in the utility market and to establish a presence in the military inverter market to be used on equipment such as Hummers.

Behlman is expanding its high power BL series to be used on new aircraft that utilize "wild frequency" systems.

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 is developing a new line of ruggedized UPS to be used in military and high end industrial applications.

In response to customer requests, Behlman is developing COTS power supplies to be used in applications such as satellite, 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 the Electronics Group are marketed by Orbit Instrument Division's sales personnel and management. Products and services of ICS are marketed by ICS's management. Military products of the Power Group are marketed by Behlman's sales and program managers and other management personnel. Commercial products of the 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.

The Electronics Group's competitive position within the electronics industry is, in management's view, predicated upon the Orbit Instrument Division's and Tulip's manufacturing techniques, its ability to design and manufacture products which will meet the specific needs of its customers and its long-standing successful relationship with its major customers. (See "- Major Customers"). There are numerous companies, many of which have greater resources than the Company, capable of producing substantially all of the Company's products. However, to the Company's knowledge, none of such competitors currently produce nearly all of the products that the Electronics Segment produces.

Competition in the markets for the 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 the Company's 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

The Company uses multiple sources for its procurement of raw materials and is not dependent on any suppliers for such procurement. The Company continuously updates its delivery schedules and evaluates availability of components so that they are received on a "just-in-time schedule". Occasionally, in the production of certain military units, the Company will be faced with procuring certain components that are either obsolete or difficult to procure. However, the Company has 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

A unit of BAE Systems, various agencies of the United States Government and Raytheon Company, accounted for approximately 14%, 12%, and 10%, respectively, of consolidated net sales of the Company for the year ended December 31, 2007. The loss of any of these customers would have a material adverse effect on the net sales and earnings of the Company. The Company does not have any significant long-term contracts with any of the above-mentioned customers.

The major customers of the Electronics Group are a unit of BAE Systems, various agencies of the United States Government, Raytheon Company, Lockheed Martin and Rockwell Collins, Inc., accounting for approximately 20%, 15%, 15%, 11% and 10%, respectively, of the net sales of such segment for the year ended December 31, 2007. The loss of any of these customers would have a material adverse effect on the net sales and earnings of the Electronics Group.

The major customers of the Power Group are Telephonics, Inc. and Baker Hughes Inc. accounting for approximately 16% and 10%, respectively, of the net sales of such segment for the year ended December 31, 2007. The loss of these customers would have a material adverse effect on the net sales and earnings of the Power Group.

Since a significant amount of all of the products which the Company manufactures are used in military applications, any substantial reduction in overall military spending by the United States Government could have a materially adverse effect on the Company's sales and earnings.

The backlog of the Electronics Group at December 31, 2007 included $1,600,000 of backlog attributable to ICS.

Approximately $1,100,000 of the backlog at December 31, 2007 represents backlog under contracts that will be shipped beyond 2008.

The backlog at December 31, 2007 and December 31, 2006 does not include approximately $3,800,000 and $2,000,000, respectively, of orders not yet received under a Master Order Agreement received from a customer whereby the Company was authorized to procure material to complete such orders.

A significant amount of the Company's 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.

During the year ended December 31, 2007, the Power Group was a subcontractor to a prime contractor on a program that was terminated by the U.S. Government, under which the Company expects to recover all its costs of approximately $200,000. The termination claim is currently under review by the U.S. Government.

During the year ended December 31, 2006, the Power Group recovered substantially all of its costs associated with a $299,000 contract terminated by the U.S. Government. No other material terminations of contracts of either the Electronics Group or the Power Group at the convenience of the U.S. Government occurred during the years ended December 31, 2007 and 2006.

A significant portion of the Company's 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. The Company believes that adjustments to such revenues, if any, will not have a material effect on the Company's financial position or results of operations.

RESEARCH AND DEVELOPMENT

The Company incurred approximately $1,203,000 and $1,110,000 of research and development expenses during the years ended December 31, 2007 and 2006, respectively. During the years ended December 31, 2007 and 2006, the Company recognized revenue of approximately $690,000 and $705,000, respectively, for customer funded research and development.

PATENTS

The Company does not own any patents which it believes are of material significance to its operations.

EMPLOYEES

As of March 14, 2008, the Company employed 146 persons, all on a full-time basis except for two part-time employees. Of these, the Electronics Group employed 97 people, consisting of 23 in engineering and drafting, 6 in sales and marketing, 18 in direct and corporate administration and the balance in production. The Power Group employed 49 people, consisting of 13 in engineering and drafting, 6 in sales, 3 in direct and corporate administration and the balance in production.


CEO BACKGROUND

Name of Nominee Age Independent Position
--------------- --- ----------- --------

Dennis Sunshine 61 No President, Chief Executive
Officer and Director

Bruce Reissman 58 No Executive Vice President,
Chief Operating Officer
and Director

Mitchell Binder 52 No Executive Vice President,
Chief Financial Officer
and Director

Richard A. Hetherington 53 No President and Chief Operating
Officer of Tulip Development
Laboratory, Inc.

Kenneth J. Ice 46 No President and Chief Operating
Officer of Integrated Combat
Systems

Mark Tublisky 69 No Secretary (President,
Behlman Electronics, Inc.)

David Goldman 38 No Treasurer and Controller

Robert Mitzman 53 Yes Director

Bernard Karcinell 69 Yes Director

Lee Feinberg 61 Yes Director

Sohail Malad 33 Yes Director

Fredric Gruder 62 Yes Director




MANAGEMENT DISCUSSION FROM LATEST 10K

Executive Overview

The Company recorded an increase in operating results for the year ended December 31, 2007. Revenues increased by 3.5% and gross profit margins increased slightly for the year ended December 31, 2007, compared to the prior year. The increase in revenues was principally due to slight increases for both our Electronics and Power Groups. However, selling, general and administrative expenses also increased due to increased selling costs and higher corporate expenses. Interest expense decreased and investment and other income increased. Consequently, net income for the year ended December 31, 2007 increased by 6.7% compared to the prior year. Our backlog at December 31, 2007 was approximately $14,500,000 compared to $14,700,000 at December 31, 2006. There is no seasonality to the Company's business. Our shipping schedules are generally determined by the shipping schedules outlined in the purchase orders received from our customers. Both of our operating segments are pursuing a significant amount of business opportunities and our confidence level remains very high with respect to receiving many of the orders we are pursuing, although timing is always an uncertainty. Our success of the past few years has significantly strengthened our balance sheet evidenced by our 4.1 to 1 current ratio at December 31, 2007, which includes the balance sheet accounts of ICS. We currently have a $3,000,000 credit facility in place and the Company continues to explore acquisition opportunities that are compatible with our existing operations. We also have several financing alternatives available to us, if needed, in order to fund any potential acquisitions.
Forward Looking Statements

Statements in this Item 7. "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.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of the Company's financial condition and the results of its operations are based on the Company's financial statements and the data used to prepare them. The Company's financial statements have been prepared based on accounting principles generally accepted in the United States of America. On an on-going basis, we re-evaluate our judgments and estimates including those related to inventory valuation, the valuation allowance on the Company's deferred tax asset, goodwill impairment and the valuation of share-based compensation. These estimates and judgments are based on historical experience and various other assumptions that are believed to be reasonable under current business conditions and circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect more significant judgments and estimates in the preparation of the consolidated financial statements.
Inventories

Inventory is valued at the lower of cost (specific, average and first-in, first-out basis) or market. Inventory items are reviewed regularly for excess and obsolete inventory based on an estimated forecast of product demand. Demand for the Company's products can be forecasted based on current backlog, customer options to reorder under existing contracts, the need to retrofit older units and parts needed for general repairs. Although the Company makes every effort to insure the accuracy of its forecasts of future product demand, any significant unanticipated changes in demand or technological developments could have an impact on the level of obsolete material in its inventory and operating results could be affected, accordingly. However, world events have forced our country into various situations of conflict whereby equipment is used and parts may be needed for repair. This could lead to increased product demand as well as the use of some older inventory items that the Company had previously determined to be obsolete.
Deferred tax asset

At December 31, 2007, the Company had an alternative minimum tax credit of approximately $573,000 with no limitation on the carry-forward period and federal net operating loss carry-forwards of approximately $21,000,000 that expire through 2025. Approximately, $18,000,000 of federal net operating loss carry-forwards expire between 2010-2012. In addition, the Company receives a tax deduction when their employees exercise their non-qualified stock options thereby increasing the Company's deferred tax asset. The Company records a valuation allowance to reduce its deferred tax asset when it is more likely than not that a portion of the amount may not be realized. The Company estimates its valuation allowance based on an estimated forecast of its future profitability. Any significant changes in future profitability resulting from variations in future revenues or expenses could affect the valuation allowance on its deferred tax asset and operating results could be affected, accordingly.
Impairment of Goodwill

The Company has significant intangible assets related to goodwill and other acquired intangibles. In determining the recoverability of goodwill and other intangibles, assumptions must be made regarding estimated future cash flows and other factors to determine the fair value of the assets. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for those assets not previously recorded. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). Under the provisions of SFAS 142, the costs of certain intangible assets are no longer subject to amortization. These costs were reviewed for potential impairment in 2007 and 2006 and will be reviewed on an annual basis thereafter.
Share-Based Compensation

Effective January 1, 2006, the Company began recognizing share-based compensation under SFAS No. 123(R), which requires the measurement at fair value and recognition of compensation expense for all share-based awards. Total share-based compensation expense was $180,000 for the year ended December 31, 2007. The estimated fair value of stock options granted in 2007 were calculated using the Black-Scholes model. This model requires the use of input assumptions. These assumptions include expected volatility, expected life, expected dividend rate, and expected risk-free rate of return.

RESULTS OF OPERATIONS:
Year Ended December 31, 2007 vs. Year Ended December 31, 2006

The Company currently operates in two industry segments. Its Orbit Instrument Division and its Tulip subsidiary are engaged in the design and manufacture of electronic components and subsystems (the "Electronics Group"). Its Behlman subsidiary is engaged in the design and manufacture of commercial power units (the "Power Group"). On December 19, 2007, the Company completed the acquisition of ICS, effective December 31, 2007. ICS, which became part of the Company's Electronics Group, performs system integration for Gun Weapons Systems and Fire Control Interface as well as logistics support and documentation. Since the effective date of the acquisition was December 31, 2007, ICS was not included in the Company's statement of operations for the year ended December 31, 2007.

Consolidated net sales for the year ended December 31, 2007 increased by 3.5% to $25,885,000 from $25,015,000 for the prior year principally due to a 2.1% and 6.1% increase in sales recorded from the Electronics Group and Power Group, respectively.

Gross profit, as a percentage of net sales, for the year ended December 31, 2007 increased to 43.4% from 43.3% for the prior year. This increase resulted from a higher gross profit recorded by the Power Group that was offset by a slightly lower gross profit recorded by the Electronics Group. The increase in gross profit (44.3% v. 43.6%) from the Power Group was principally due to the increase in sales and to product mix. The slight decrease in gross profit (42.9% v. 43.1%) from the Electronics Group was due principally to product mix.

Selling, general and administrative expenses for the year ended December 31, 2007 increased by 5.4% to $8,729,000 from $8,285,000 from the year ended December 31, 2006 principally due to higher selling costs (brochures and website design) incurred by the Electronics Group and due to higher corporate administrative costs particularly: i) $93,000 of costs related to implementation of internal controls over financial reporting as required by Section 404 of the Sarbanes Oxley Act and ii) $50,000 retainer paid to its investment banker to pursue strategic alternatives for the Company. Selling, general and administrative expenses, as a percentage of sales, for the year ended December 31, 2007 increased to 33.7% from 33.1% principally due to the increase in expenses without a commensurate increase in sales.

Interest expense for the year ended December 31, 2007 decreased to $332,000 from $443,000 for the year ended December 31, 2006 due to a decrease in the amounts owed to lenders in the current year and to a reduction in interest rates.

Investment and other income for the year ended December 31, 2007 increased to $447,000 from $358,000 for the prior year principally due to an increase in the amounts invested during the current year and despite a write-down of $50,000, related to certain corporate bonds held by the Company, for an unrealized loss that was determined to be other than temporary.

Income before income tax provision was $2,612,000 for the year ended December 31, 2007 compared to $2,459,000 for the year ended December 31, 2006. This increase was principally due to the increase in sales, the slight increase in gross margins, the decrease in interest expense and increase in investment and other income and despite the increase in selling, general and administrative expenses.

Income taxes for the year ended December 31, 2007 and December 31, 2006 consist of $30,000 and $40,000, respectively, in state income taxes that cannot be offset by any state net operating loss carry-forwards.

As a result of the foregoing, net income for the year ended December 31, 2007 was $2,582,000 compared to $2,419,000 for the year ended December 31, 2006, an increase of 6.7%.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the year ended December 31, 2007 increased slightly to $3,505,000 from $3,468,000 for the year ended December 31, 2006. Listed below is the EBITDA reconciliation to net income:

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.
Liquidity, Capital Resources and Inflation

Our consolidated balance sheet accounts include ICS at December 31, 2007. Working capital increased to $18,167,000 at December 31, 2007 as compared to $17,176,000 at December 31, 2006. The ratio of current assets to current liabilities was 4.1 to 1 at December 31, 2007 compared to 4.9 to 1 at December 31, 2006. This reduction was principally due to the term debt used to finance the acquisition of ICS.

Net cash provided by operating activities for the year ended December 31, 2007 was $1,477,000, primarily attributable to net income for the period, the non-cash amortization of intangible assets, depreciation and stock based compensation and the increase in accounts payable that was partially offset by the increase in accounts receivable and inventory and the decrease in customer advances. Net cash provided by operating activities for the year ended December 31, 2006 was $4,422,000, primarily attributable to the net income for the period, the non-cash amortization of intangible assets and stock based compensation, depreciation, an increase in accounts payable and customer advances and a decrease in other long term assets.

Cash flows used in investing activities for the year ended December 31, 2007 was $3,846,000, attributable to the acquisition of ICS, the purchase of marketable securities and fixed assets that was partially offset by the sale of marketable securities. Cash flows used in investing activities for the year ended December 31, 2006 was $3,266,000, primarily attributable to the purchase of marketable securities and fixed assets that was partially offset by the sale of marketable securities.

Cash flows provided by financing activities for the year ended December 31, 2007 was $2,010,000, attributable to loan proceeds primarily related to the acquisition of ICS and stock option exercises that was partially offset by repayments of debt. Cash flows used in financing activities for the year ended December 31, 2006 was $1,154,000, attributable to the repayments of debt that was partially offset by the proceeds from stock option exercises.

In June 2007, the Company entered into an amended $3,000,000 credit facility with a commercial lender secured by accounts receivable, inventory and property and equipment. In April 2005, the Company entered into a five-year $5,000,000 Term Loan Agreement to finance the acquisition of Tulip and its manufacturing affiliate. In December 2007, the Company entered into a five-year $4,500,000 Term Loan Agreement to finance the acquisition of ICS. In connection with the new Term Loan entered into in December 2007, the interest rates on both Term Loan Agreements and the credit facility were amended to equal a certain percentage, depending on a matrix related to a certain financial covenant (as defined), plus the one month LIBOR. At December 31, 2007, the interest rate was equal to the sum of either 1.15% or 1.50% plus the one-month LIBOR (4.60% at December 31, 2007). The credit facility will continue from year to year unless sooner terminated for an event of default including non-compliance with certain financial covenants. Principal payments under the two term loan facilities are approximately $113,000 per month. The Company had outstanding borrowings of $699,000 under its credit facility at December 31, 2007.

In April 2005, the Company entered into a five year $2,000,000 Promissory Note with the selling shareholders of Tulip at an interest rate of prime plus 2.00% (7.25% at December 31, 2007). Principal payments of $100,000 were made on a quarterly basis along with accrued interest. In June 2007, the Company refinanced the balance due on the Promissory Note of $1,050,000 with its primary commercial lender. Under the terms of a new Term Loan, monthly payments of $35,000 will be made over a thirty-month period along with accrued interest, depending on a matrix related to a certain financial covenant (1.15% at December 31, 2007), (as defined), plus the one-month LIBOR(4.60% at December 31, 2007).

The Company's existing capital resources, including its bank credit facilities and its cash flow from operations are expected to be adequate to cover the Company's cash requirements for its operations. The Company believes that financing alternatives are available in order to fund future acquisitions.

Inflation has not materially impacted the operations of the Company.
Certain Material Trends

In April 2005, the Company completed the acquisition of Tulip and its operations became part of the Company's Electronics Group. In December 2007, the Company completed the acquisition of ICS which also became part of the Electronics Group. The Company's Electronics Group and the Custom Division of its Power Group are heavily dependent on military spending. The events of September 11, 2001, have put a tremendous emphasis on defense and homeland security spending and the Company has benefited from an increasing defense budget. Although the Electronics Group and the Custom Division of the Power Group are pursuing several opportunities for reorders, as well as new contract awards, the Company has normally found it difficult to predict the timing of such awards. In addition, the Company has 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.

There is no seasonality to the Company's business. The Company's revenues are generally determined by the shipping schedules outlined in the purchase orders received from its customers. The Company stratifies all the opportunities it is pursuing by various confidence levels. The Company generally realizes a very high success rate with those opportunities to which it applies a high confidence level. The Company currently has a significant amount of potential contract awards to which it has applied a high confidence level. However, because it is difficult to predict the timing of awards for most of the opportunities the Company is pursuing, it is also difficult to predict when the Company will commence shipping under these contracts. A delay in the receipt of any contract from its customer ultimately causes a corresponding delay in shipments under that contract. During 2007, due to shipping schedules, the Company's second half of the year was stronger than the first half. Once again for 2008, based on current and projected shipping schedules, the Company expects the second half of 2008 to be stronger than the first half.

Despite the increase in military spending, the Company still faces a challenging environment. The government is emphasizing the engineering of new and improved weaponry and it continues to be our challenge to work with each of our prime contractors so that we can participate on these new programs. In addition, these new contracts require incurring up-front design, engineering, prototype and pre-production costs. While the Company attempts to negotiate contract awards for reimbursement of product development, there is no assurance that sufficient monies will be set aside by its customers, including the United States Government, for such effort. In addition, even if the United States Government agrees to reimburse development costs, there is still a significant risk of cost overrun that may not be reimbursable. Furthermore, once the Company has completed the design and pre-production stage, there is no assurance that funding will be provided for future production. In such event, even if the Company is reimbursed its development costs it will not generate any significant profits.

The Company is heavily dependent upon military spending as a source of revenues and income. However, even increased military spending does not necessarily guarantee the Company increased revenues, particularly, when the allocation of budget dollars may vary depending on what may be needed for specific military conflicts Any future reductions in the level of military spending by the United States Government due to budget constraints or for any other reason, could have a negative impact on the Company's future revenues and earnings. In addition, due to major consolidations in the defense industry, it has become more difficult to avoid dependence on certain customers for revenue and income. Behlman's line of commercial products gives the Company some diversity and the additions of Tulip and ICS gives the Electronics Segment a more diversified customer base.

The Company's business strategy is to expand its operations through strategic, accretive acquisitions. Through the past several years, the Company reviewed various potential acquisitions and believes there are numerous opportunities presently available. In April 2005, it completed the acquisition of Tulip and in December 2007, it completed the acquisition of ICS. The Company has received offers from several financial institutions that have expressed an interest in helping the Company with acquisition financing. However, there can be no assurance it will obtain the necessary financing to complete additional acquisitions and even if it does, there can be no assurance that we will have sufficient income from operations of such acquired companies to satisfy the interest payments, in which case, we will be required to pay them out of Orbit's operations which may be adversely affected. The Company continues to review acquisition candidates but there is no assurance that an acquisition will be completed in 2008.

In the first quarter of 2007, the Company hired an investment banker to assist the Company in its efforts to pursue strategic acquisitions. During the second quarter of 2007, the Company expanded the activities of its investment banker to include the pursuit of alternative strategies, including the potential sale of the Company as a means of enhancing shareholder value. However, there is no assurance that a sale or any of the other strategic alternatives will be accomplished.

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