UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF EXCHANGE ACT
COMMISSION FILE NUMBER 0-29673
ORION TECHNOLOGIES, INC.
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(Name of small business issuer as specified in its charter)
NEVADA 88-0369588
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1133 21ST STREET 8TH FLOOR
WASHINGTON, DC 20036
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(Address of principal executive offices)
(202) 822 0114
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(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [ ] Yes [X] No
As of March 31, 2001 and September 30, 2001 there were 5,307,156 and 6,921,429
shares of Common Stock issued and outstanding, respectively.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
ORION TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000.................................1
Consolidated Statements of Operations for the
Three Months Ended March 31, 2001 and 2000...........................2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000...........................3
Notes to Consolidated Financial Statements...........................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................12
Item 2. Changes in Securities and Use of Proceeds...........................12
Item 3. Defaults Upon Senior Securities.....................................12
Item 4. Submission of Matters to a Vote of Security Holders.................12
Item 5. Other Information...................................................12
Item 6. Exhibits and Reports on Form 8-K....................................12
SIGNATURES ........................................................................13
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2001 2000
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ASSETS
Current Assets:
Cash $ 37,648 $ 19,274
Accounts receivable, net 194,165 220,741
Inventory 247,860 258,106
Prepaid assets and other current assets 2,500 9,895
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Total current assets 482,173 508,016
Property and equipment, net 40,093 43,504
Goodwill and other intangibles, net 1,141,012 1,215,563
Advance to Rodan Telecom 100,000 100,000
Other non-current assets 51,022 52,800
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Total assets $ 1,814,300 $ 1,919,883
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LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit payable $ 45,943 $ 78,443
Accounts payable 982,774 1,472,000
Accrued expenses 640,680 298,912
Advance from related party 3,500 3,500
Current portion of long-term debt 369,757 366,051
Net liabilities of discontinued operations 86,633 86,633
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Total current liabilities 2,129,287 2,305,539
Long-term debt, net of current portion 394,159 87,249
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Total liabilities 2,523,446 2,392,788
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Commitments and contingencies - -
Stockholders' deficit:
Preferred stock, no par value, 2,500,000 shares
authorized; 65,000 shares issued and
outstanding at both March 31, 2001 and
December 31, 2000 135,328 135,328
Common stock, $0.01 par value, 100,000,000 shares
authorized; 5,307,156 and 5,190,156 shares
issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 5,308 5,191
Additional paid in capital 42,614,261 42,501,078
Accumulated deficit (43,464,043) (43,114,502)
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Total stockholders' deficit (709,146) (472,905)
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Total liabilities and stockholders' deficit $ 1,814,300 $ 1,919,883
============= =============
See accompanying notes to unaudited consolidated financial statements.
ORION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
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Revenues $ 793,236 $ -
Cost of revenues 373,797 -
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Gross Profit 419,439 -
Sales and marketing 106,258 -
General and administrative expenses 447,331 462,057
Non-cash compensation expenses - general and
administrative 109,000 -
Amortization and depreciation 77,988 112,657
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Net operating loss (321,138) (574,714)
Other expense, net (28,403) -
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Loss from continuing operations before discontinued
operations (349,541) (574,714)
Discontinued operations:
Loss from discontinued operations - (319,183)
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Net loss (349,541) (893,897)
Preferred stock dividend (7,620) (7,620)
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Net loss attributable to common stockholders $ (357,161) $ (901,517)
============= =============
Loss per common share - Basic and Diluted:
Loss from continuing operations $ (0.07) $ (0.16)
Discontinued operations - (0.09)
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Total loss per share $ (0.07) $ (0.25)
============= =============
Weighted shares outstanding used in
calculation - Basic and
Diluted 5,243,523 3,604,443
============= =============
See accompanying notes to unaudited consolidated financial statements.
2
ORION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(UNAUDITED)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (349,541) $ (574,714)
Adjustments to reconcile net loss to cash used in
operations:
Discontinued operations - (319,183)
Depreciation and amortization 77,988 112,657
Change in net assets of discontinued operations - 149,431
Non-cash compensation 109,000 -
Changes in operating assets and liabilities:
Accounts receivable 26,576 -
Inventory 10,246 -
Prepaid expenses and other current assets 7,395 -
Advance from OIF - 78,716
Other assets 1,753 -
Accounts payable and accrued liabilities 162,422 (72,522)
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Net cash provided by (used in) operating activities 45,838 (480,571)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Advance to Rodan Telecom - (100,000)
Cash advance to Telefreedom - (250,000)
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Net cash used in investing activities - (350,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net (32,500) -
Repayment of notes payable (6,523) -
Proceeds from the sale of common stock 11,560 813,500
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Net cash (used in) provided by financing activities (27,464) 813,500
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Net (decrease) increase in cash 18,374 (17,071)
Cash, beginning of period 19,274 60,814
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Cash, end of period $ 37,648 $ 43,743
============= =============
See accompanying notes to unaudited consolidated financial statements.
3
ORION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Orion Technologies, Inc. is a holding company concentrating on acquiring and
developing companies engaged in telecommunications-based technologies and
services for electronic commerce and business-to-business markets. The Company
is focusing its efforts on two lines of business - telecommunications and
eCommerce, including electronic point of sale systems. Since the beginning of
2001 the Company completed the following transactions.
- In May 2001, the Company disposed of its two German subsidiaries, EZ
Electronic Payment Systems ("EZ") and EPS Electronic Processing
("EPS").
- On May 1, 2001, the Company entered into a lease purchase agreement
for a Siemen's DCO/CS tandem collocated in space provided by AT&T
Local Services at the World Trade Center in Manhattan, NY. The switch
was destroyed in connection with the Terrorist attack on the World
Trade Center on September 11, 2001. The Company is negotiating with
the Lessor to replace this switch that was destroyed with a comparable
switch located in Florida applying previous payments against the
purchase of this replacement switch.
- On June 30, 2001, the Company purchased the operating assets, and
assumed certain liabilities of erbia Networks, Inc. and related
companies.
BASIS OF PRESENTATION
The consolidated financial statements of Orion Technologies, Inc., (the
"Company") include the accounts of its wholly owned subsidiaries Globalinx
Corporation ("Globalinx"), Transaction Verification Systems, Inc ("TVS"),
Special Billing Accounts Group, Inc. ("SABG") and Hancock Holdings, Inc. The
Company has accounted for EZ and EPS, both companies formed under the laws of
the Federal Republic of Germany, as discontinued operations, as more fully
described in Note 3.
All intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of the Company's management, the interim
consolidated financial statements include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the results
for the interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles in the United States of America (US GAAP) have been
condensed or omitted. The interim consolidated financial statements should be
read in conjunction with the Company's December 31, 2000 audited financial
statements filed with the Securities and Exchange Commission on Form 10-KSB. The
interim operating results are not necessarily indicative of the operating
results for the full fiscal year.
The accompanying financial statements have been prepared in conformity with US
GAAP which contemplates the realization of assets, and the satisfaction of
liabilities in the normal course of business and the continuation of the company
as a going concern. The Company has experienced net losses since its inception,
currently has both a significant cash and working capital deficit, and is in
immediate need of additional investment capital. As shown in the consolidated
financial statements, the Company has accumulated a significant deficit at March
31, 2001. While the Company expects, with the disposal of EZ and EPS, and the
acquisition of the operations of erbia Networks that operating results will
improve, there can be no assurances that the Company will not experience adverse
results of operations in the future, that it will be able to satisfy its current
obligations in the normal course of business, or obtain the additional
investment capital it needs. The Company believes that without additional
investment capital it will not have sufficient cash to fund its activities in
the near future, and will not be able to continue operating. As such, the
Company's continuation
4
as a going concern is dependent upon its ability to raise additional financing
and to successfully develop and introduce its products to market. These factors
among others may indicate that the Company will be unable to continue as a going
concern. The Company is actively pursuing additional equity financing to provide
the necessary funds for working capital and other planned activities.
Management believes that actions presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
NOTE 2 - BUSINESS ACQUISITIONS
ERBIA NETWORKS, INC .
On April 19, 2001, which was prior to the Company's acquisition of the operating
assets of erbia Networks, the Company entered into an agreement with one of its
suppliers, Qwest, whereby the Company issued 200,000 shares of its common stock
to Qwest in exchange for Qwest extending credit to erbia Networks, and erbia
Networks agreeing to pay the Company $250,000 under a promissory note. This note
bears interest at 10% per annum.
Effective June 30, 2001, the Company entered into an Asset Purchase Agreement
for the acquisition of the operating assets of erbia Networks, Inc. and related
companies, and the assumption of certain liabilities. The Company entered into
and / or completed the following transactions :
- The Company issued 300,000 shares of its common stock to erbia
Networks, Inc, a company controlled by Arne Durhem, as the initial
installment toward a total purchase price of $1,000,000 for the
operating assets of erbia Networks to be paid in shares of Company
common stock over a one year period. It may be necessary for the
Company to issue additional shares of common stock should on the six
month anniversary date of closing, the value of the initial
installment of 300,000 shares the Company issued be valued at less
than $1,000,000. The Company would then be required to issue an
additional number of shares of common stock equal to 50% of the
remaining balance of the $1,000,000 divided by the market price on the
six month anniversary measurement date. Should on the twelve month
anniversary date, the value of the 300,000 shares plus any additional
shares issued on the six month anniversary measurement date be valued
at less than $1,000,000, the Company would be required to issue
additional shares of common stock so that the market value of the
number of shares of common issued on the twelve month anniversary
measurement date plus the value of previously issued shares of common
stock would equal $1,000,000 as final payment of the Company's
obligation to the seller.
- The seller requested that 175,000 shares of the first 300,000 shares
issued be held in reserve by the Company on behalf of the seller and
transferred at its request to agents and certain creditors to settle
certain of their obligations that the Company did not assume in the
acquisition.
- The Company issued 200,000 shares of its common stock to Arne Dunhem,
100,000 shares as compensation for him to continue being guarantor for
certain contracts, with the remaining 100,000 shares as part of a
consulting agreement with him. Should the Company not be able to
accomplish the release of Mr. Dunhem as a guarantor within six months
following the date of closing, the Company has agreed to issue to this
individual an additional 50,000 shares of Company common stock. The
Consulting Agreement is for a period of three months following Closing
and includes performance targets and bonus compensation opportunities.
- The Company entered into two promissory notes payable to Qwest
Communications, Inc. totaling $821,106. These two promissory notes,
one for $500,000 which represented the settlement amount
5
due Qwest by erbia Networks prior to the Company's acquisition of the
operating assets of erbia Networks, and one for $321,106 which
represented amounts due to Qwest from Globalinx. These notes are due
in monthly payments of $39,687 beginning in August 2001 through
January 2002, followed by six additional monthly payments of $106,744.
Based on this payment schedule, and an effective interest at
approximately 10%, these notes will fully amortize with the last
monthly payment in July 2002.
- The Company issued 400,000 shares of common stock to Qwest as the
initial installment for a total price of $400,000 to be paid in
Company common stock over a six month period as settlement of certain
outstanding debts of Globalinx and erbia Networks due to Qwest, and
for Qwest to permit the Company to transfer its customers under the
Globalinx Resellers Agreement to the erbia Networks account. The
Company delivered 400,000 shares at closing. It may be necessary for
the Company to issue additional shares of its common stock should on
the third month anniversary date of closing, the value of the 400,000
shares issued be valued at less than $400,000. The Company would be
required to issue an additional number of shares of common stock equal
to 50% of the remaining balance of the $400,000 divided by the market
price on the third anniversary measurement date. Should on the sixth
month anniversary date, the value of the 400,000 shares plus any
additional shares issued at on the third month anniversary measurement
date be valued at less than $400,000, the Company would be required to
issue additional shares of common stock so that the market value of
the number of shares of common issued on the six month anniversary
measurement date plus the value of previously issued shares of common
stock would equal $400,000 as final payment of the Company's
obligation to Qwest.
- The Company also agreed to pay other amounts due from Globalinx to
Touch America totaling $22,459.
NOTE 3 - DISCONTINUED OPERATIONS
In December 2000, the Company's Board of Directors decided to dispose of EZ and
EPS. In May 2001, the Company sold all the issued and outstanding capital stock
of EZ and EPS for a nominal amount to an individual, who was one of the
individuals the Company acquired these companies from and a current shareholder
of the Company who is a principal of OIF.
Prior period statements of operations and cash flows for the three months ended
March 31, 2000 have been restated to present the operations of EZ and EPS as
discontinued operations.
NOTE 4 - NOTES PAYABLE
On March 1, 2001, the Company entered into a Promissory Note Agreement with its
former legal counsel for $317,140, which represented the amount owed this law
firm at December 31, 2000. This Promissory Note bears interest at 8% and is due
on the earlier of December 31, 2002 or receipt of gross proceeds from a private
placement of securities in the aggregate amount of $1,250,000.
NOTE 5 - STOCKHOLDERS' EQUITY
During January 2001, the Company sold 17,000 shares of common stock for $11,560.
During February 2001, the Company issued 100,0000 shares of common stock to a
consultant in exchange for services provided. The fair market value of the
shares totaled $109,000 and is recorded as general and administrative expense in
the accompanying statement of operations.
6
NOTE 6 - RELATED PARTY TRANSACTIONS
During 2000, the Company utilized the services of NewDominion Capital Group,
Inc., a company which Frans Heideman, the Company's chief executive officer, is
the controlling shareholder, to provide the Company with office support,
management and consulting services, including amounts paid for the services of
Frans Heideman. The Company terminated its agreement with NewDominion during
late 2000 having incurred approximately $85,000 of cost during the three months
ended March 31, 2000 for such services.
Mr. Klaus Maedje, one of the Company's directors, earned fees for preparing the
accounting and tax reports for EZ and EPS. During the three months ended March
31, 2001 and 2000, Mr. Maedje earned approximately $38,000 and $39,000,
respectively, in fees for providing these services to EZ and EPS.
NOTE 7 - SEGMENT INFORMATION
PRODUCT AND SERVICES INFORMATION
The following tables show revenues by product and service group for each
reportable segment for the three months ended March 31, 2001. The Company
operated in only one segment during the three months ended March 31, 2000.
Telecom Point Corporate
Services of Sale Costs Total
---------- --------- ----------- ------------
Revenue from external
customer $ 243,033 $ 550,203 $ - $ 793,236
Intersegment revenues - - -
Segment loss before taxes (116,121) 1,153 (234,573) (349,541)
FACTORS MANAGEMENT USED TO IDENTIFY REPORTABLE SEGMENTS
The Company's reportable segments are business units located in distinct
subsidiaries. The reportable segments are managed separately due to differences
in operating environments, customer base and technological capacity.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The Company evaluates performance and allocates resources based on profit or
loss before taxes from operations of each segment. The accounting policies of
each reportable segment are the same as those described in the summary of
significant accounting policies. There are no intersegment sales and transfers.
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company made no payment for interest or taxes during the three months ending
March 31, 2001 and 2000. In addition, the Company had the following non-cash
activities during the three months ended March 31, 2001 and 2000.
2001 2000
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Conversion of accounts payable into a note
payable $ 317,140 $ -
Issuance of 25,000 shares of common stock as
payment for the acquisition of Hancock
Holdings, Inc. 112,500
Accrual of dividends on preferred stock 7,260 7,260
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements made by our management may be considered to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements are based on various factors
and assumptions that include known and unknown risks and uncertainties. The
words "believe," "expect," "anticipate" and "project," and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such statements may include, but not be limited to,
projections of revenues, income or loss, expenses, plans, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
results could differ materially from those described in forward-looking
statements as a result of the risks set forth in the following discussion, among
others.
Our financial statements have been presented on a going concern basis, which
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. We have experienced losses since
our inception, currently have a significant working capital deficit, and are in
the need of additional capital investment. Our auditors have included a fourth
paragraph in their Report of Independent Certified Public Accountants, drawing
attention to factors which raise substantial doubt about our ability to continue
as a going concern. We are hopeful that, with our recent acquisition of the
business assets of erbia Networks and the disposal of EZ and EPS, our operating
results will improve. However, there can be no assurances that positive results
will occur. We may continue to experience adverse results of operation in the
future, and may not be able to satisfy our current obligations in the normal
course of business or obtain additional investment capital on terms acceptable
to us, or at all.
Prior to April 2001, our common stock was traded on the OTC Bulletin Board, a
service operated by the Nasdaq Stock Market, Inc. under the trading symbol
"ORTG". Our common stock was removed temporarily from the OTC Bulletin Board in
accordance with NASD Market Rule 6530 and we are currently listed in the gray
market until we qualify for relisting, which we are working to accomplish.
OVERVIEW OF OUR BUSINESS AND RESULTS OF OPERATIONS
Our focus is on providing telecommunications services and electronic commerce
(point of sale) equipment. In December 1999, we formed Globalinx, a wholly owned
subsidiary that is concentrating on providing integrated telecommunications
services, including the resale of long distance telephone time and in March 2000
we acquired Special Accounts Billing Group, Inc., a Company owning FCC state
certification licenses throughout the United States. In May 2001, we entered
into a lease purchase agreement with The Willis Group, Inc. of Houston, Texas,
for a Siemen's DCO/CS tandem switch, which used to be collocated in space
provided by AT&T Local Services at the World Trade Center in Manhattan, New
York. The switch was destroyed in connection with the Terrorist attack on the
World Trade Center on September 11, 2001. We are negotiating with the lessor to
replace this switch that was destroyed with a comparable switch located in
Florida, applying previous payments against the purchase of this replacement
switch. The switch facility, if obtained in Florida, will allow Globalinx to
offer facility based enhanced telecommunications solutions for our commercial
and residential customer base and expand our network operations to include
wholesale, pre-paid and existing post-paid services. We believe that should we
be successful in completing our negotiation and the replacement switch becomes
operational, multiple global carriers will be connected to the switch.
Effective June 30, 2001, the Company purchased the majority of the operating
assets and assumed certain liabilities of erbia Networks, Inc. and related
companies. This acquisition substantially increases the customer base for
Globalinx products. Founded in 1998, erbia Networks provides long distance
services to more than 20,000 small office/home office (SOHO), small-to-medium
enterprises and high-value residential customers nationwide. It also possesses a
sizable agent base and customer care call center in Margate, Florida. By merging
the management teams and resources of Globalinx and erbia Networks, Globalinx
expands its customer service capabilities and breadth of services offering to
customers worldwide. erbia Networks provides long-distance services to more than
20,000 customers. Should we be successful in completing our
8
negotiations for a replacement switch and with our acquisition of erbia
Networks, we would consider ourselves to be a facilities based reseller of
bundled telecommunications services, including long distance time.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 AND 2000
For the three months ended March 31, 2001 and 2000, we experienced net losses
before discontinued operations of ($349,541) or ($0.07) per share of common
stock and ($893,897) or ($0.16) per share of common stock, respectively. The
loss for the three months ended March 31, 2001 was caused primarily by operating
losses incurred by Globalinx, and corporate administrative charges which
included a non-cash charge of $109,000 recorded in connection with the issuance
of 100,000 shares of common stock to a consultant in exchange for services
received.
We anticipate that the June 2001 acquisition of the operating assets and
customer base of erbia Networks will enable us to add product offerings and
services that are in our areas of focus, and will contribute both revenues and
cash flows once fully integrated and operational.
Due to the recent acquisition of the operating assets of erbia Network and the
discontinuance of our European operations, we believe that our current
operations are not indicative of our future operations. It is difficult for us
to predict what those operations will consist of, since we are in the process of
refining our focus and building our Company. Our current focus includes
additional acquisitions, all of which would be subject to the Company being able
to obtain financing on acceptable terms.
REVENUES
Our revenue from continuing operations for the three months ended March 31, 2001
and 2000 were as follows.
2001 2000
------------- --------------
Sale of TVS products $ 550,203 $ -
Sale of services by Globalinx 243,033 -
------------- --------------
$ 793,236 $ -
============= ==============
We had no sales during the three months ended March 31, 2000 other than $27,630
generated by EZ which are included in discontinued operations.
COST OF REVENUES
During the three months ended March 31, 2001 and 2000, cost of services provided
and goods sold were as follows.
2001 2000
------------- --------------
Sale of TVS products $ 232,133 $ -
Sale of services by Globalinx 141,664 -
------------- --------------
$ 373,797 $ -
============= ==============
Costs we incur related to the sale of point of sale security products by TVS
consist primarily of material and labor costs incurred in producing the
products. Gross margins at TVS are relatively stable at approximately 50%, and
are expected to remain at this level in the future. Our cost of the services
provided by Globalinx consists primarily of the cost of long distance services
we purchase. We believe that, as our customer base increases and our revenues
grow, our costs will increase. However, as our customer base expands and we
diversify our product offerings, we expect to experience an improvement in our
overall gross margin.
9
SALES AND MARKETING
During the three months ended March 31, 2001, we incurred sales and marketing
costs in both our Globalinx and TVS subsidiaries totaling $106,258. We
anticipate that we will incur increased sales and marketing costs in these
subsidiaries as we introduce new products, expand our markets and integrate
acquisitions, like erbia Networks, into our business.
GENERAL AND ADMINISTRATIVE
During the three months ended March 31, 2001 and 2000, we incurred general and
administrative expenses totaling $447,331 and $462,054, respectively. We expect
general and administrative expenses to increase in the future. General and
administrative expenses for the three months ended March 31, 2001 and 2000 were
as follows:
2001 2000
------------- --------------
Orion Technologies $ 99,944 $ 318,384
Globalinx 166,188 143,673
TVS 181,199 -
------------- --------------
$ 447,331 $ 462,057
============= ==============
NON-CASH COMPENSATION-GENERAL AND ADMINSTRATIVE
During February 2001, we issued 100,000 shares of common stock to a consultant
in exchange for services received. The shares had a fair value of $109,000 at
the date of issuance.
AMORTIZATION AND DEPRECIATION
Amortization and depreciation expense was $77,988 for the three months ended
March 31, 2001, and relates primarily to the amortization of goodwill and other
intangibles we recorded in connection with our acquisitions of TVS and SABG.
Since we plan to complete additional acquisitions in the future and anticipate
purchasing property and equipment used in the operation of our businesses, we
expect that amortization and depreciation expense will also continue to
increase. Amortization and depreciation of $112,657 for the three months ended
March 31, 2000 was related to the full impairment of the $112,500 of goodwill
recorded when we acquired Hancock Holdings.
Goodwill amortization during the three months ended March 31, 2000 related to
the acquisition of EZ and EPS totaled $188,675. This amount has been included in
loss from discontinued operations at March 31, 2000.
INCOME TAXES
There was no provision for federal or state income taxes for the period from our
inception due to our operating losses. At March 31, 2001, we had net operating
loss carryforwards for income tax purposes. A valuation allowance has been
established and, accordingly, no benefit has been recognized for our net
operating losses and other deferred tax assets.
10
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2001, we raised $11,560 from the sale of
17,000 shares of our common stock.
Our line of credit, available for use exclusively by TVS, for up to $100,000
expired on June 30, 2001 and was terminated on July 31, 2001. At March 31, 2000,
we had drawn approximately $46,000 under this line of credit. Certain current
employees and former stockholders of TVS guarantee repayment of this line of
credit. In connection with the termination of this line of credit we agreed to
repay the bank the $35,000 outstanding at that time in monthly installments of
$6,000 over a six-month period.
Net cash provided by operating activities for the three months ended March 31,
2001 totaled $45,838. Cash provided from operations was primarily due to our
accounts payable and accrued liabilities increasing offset by our loss from
operations, adjusted for non-cash items, which include depreciation,
amortization and non cash compensation.
There were no investing activities during the three months ended March 31, 2001.
We expect to increase our capital expenditures and enter into lease commitments
in the future consistent with our anticipated growth in operations,
infrastructure and personnel.
Net cash used in financing activities was $27,464 during the three months ended
March 31, 2001 and consisted primarily of repayments on the Company's line of
credit and long-term debt. We also sold a small number of shares of our common
stock for $11,560, which we used for working capital.
Our financial statements have been prepared on a going concern basis, which
contemplates the realization of assets, and the satisfaction of liabilities in
the normal course of business. Our auditors have included in their Report of
Independent Certified Public Accountants a fourth (explanatory) paragraph
drawing attention to factors that raise substantial doubt about our ability to
continue as a going concern. We have experienced net losses since our inception,
currently have a significant working capital deficit, and are in immediate need
of additional investment capital in order to continue our operations.
Although we are hopeful that operating results will improve, there can be no
assurances that positive results will occur. We may continue to experience
adverse results of operation in the future, and we will not be able to satisfy
our current obligations in the normal course of business or obtain additional
investment capital on terms acceptable to us, or at all. We believe that without
additional investment capital we will not have sufficient cash to fund our
planned activities in the near future, and we will not be able to continue
operating. As such, our continuation as a going concern is dependent upon our
ability to immediately raise additional financing followed by the successful
development and introduction of our products and services to market. Our
anticipated cash flows from our 2001 operations is largely dependent upon our
ability to achieve our sales and gross profit objectives from our current
products and the new products we launched in 2001 in connection with our
acquisition of erbia Networks. These factors among others may indicate that we
will be unable to continue as a going concern. We are actively pursuing
additional equity financing to provide the necessary funds for working capital.
We cannot be assured that we will be able to secure the needed funds or that
should we be able to obtain these funds, that they will be on terms acceptable
to us.
11
PART II - OTHER INFORMATION
Item 1. Legal proceedings - None.
Item 2. Changes in securities and use of proceeds - None.
Item 3. Defaults upon senior securities
In connection with our acquisition of TVS on June 30, 2000, the holders
of 7,294 shares of TVS Preferred Stock did not elect to convert their
TVS Preferred Stock into shares of our common stock and instead received
promissory notes totaling $72,940. These promissory notes bear 8% per
annum simple interest, and the principal and interest due was payable on
December 31, 2000. Orion Technologies Inc. has guaranteed the repayment
of these notes. At March 31, 2001, we were in default of these notes,
and are currently attempting to arrive at a solution to this situation
due to our inability to satisfy this debt on the due date.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - None.
Item 6. Exhibits and reports on Form 8-K
A. Exhibits
Exhibit No. Description
--------------- ----------------------------------------------------------------
3 Articles of Incorporation. (Incorporated by reference to the
Form 8-K filed on February 24, 2000)
3.1 Certificate of Amendment to Articles of Incorporation dated
August 13, 1996. (Incorporated by reference to the Form 8-K
filed on February 24, 2000)
3.2 Certificate of Amendment to Articles of Incorporation dated
September 5, 1997. (Incorporated by reference to the Form 8-K
filed on February 24, 2000)
3.3 Certificate of Designation, Preferences, and Rights of the
Series A Preferred Stock dated September 5, 1997.
(Incorporated by reference to the Form 8-K filed on February
24, 2000)
3.4 Certificate of Designation, Preferences and Rights of the
Series B Preferred Stock dated May 15, 1998. (Incorporated by
reference to the Form 8-K filed on February 24, 2000)
3.5 Bylaws (Incorporated by reference to the Form 8-K filed on
February 24, 2000)
B. Reports on Form 8-K: None
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Orion Technologies, Inc.
(Registrant)
By: /s/ A. Frans Heideman Date: October 26, 2001
------------------------------
A. Frans Heideman, President
and Chief Executive Officer
By: /s/ James McComas Date: October 26, 2001
------------------------------
James McComas, Vice President
and Chief Financial Officer
13