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 JUNE 30, 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 June 30, 2001 and September 30, 2001 there were 6,921,429 shares of
Common Stock issued and outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
ORION TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000..................................1
Consolidated Statements of Operations for the
Three Months Ended June 30, 2001 and 2000............................2
Consolidated Statements of Operations for the
Six Months Ended June 30, 2001 and 2000..............................3
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000.............................4
Notes to Consolidated Financial Statements...........................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................15
Item 2. Changes in Securities and Use of Proceeds...........................15
Item 3. Defaults Upon Senior Securities.....................................15
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 5. Other Information...................................................15
Item 6. Exhibits and Reports on Form 8-K....................................15
SIGNATURES ........................................................................16
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2001 2000
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ASSETS
Current Assets:
Cash $ 74,160 $ 19,274
Accounts receivable, net 551,324 220,741
Inventory 246,041 258,106
Prepaid assets and other current assets - 9,895
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Total current assets 825,525 508,016
Property and equipment, net 371,433 43,504
Goodwill and other intangibles, net 2,639,249 1,215,563
Advance to Rodan Telecom 100,000 100,000
Other non-current assets 42,855 52,800
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Total assets $ 4,025,062 $ 1,919,883
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit payable $ 35,000 $ 78,443
Accounts payable 914,529 1,472,000
Accrued expenses 387,903 298,912
Advance from related party 3,500 3,500
Current portion of long-term debt 1,084,831 366,051
Capital lease obligation 220,020 -
Net liabilities of discontinued operations 24,633 86,633
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Total current liabilities 2,670,416 2,305,539
Long-term debt, net of current portion 489,383 87,249
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Total liabilities 3,159,799 2,392,788
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Commitments and contingencies - -
Stockholders' equity (deficit):
Preferred stock, no par value, 2,500,000 shares
authorized; 65,000 shares issued and
outstanding 135,328 135,328
Common stock, $0.01 par value, 100,000,000 shares
authorized; 6,921,429 and 5,190,156 shares
issued and outstanding at June 30, 2001 and
December 31, 2000, respectively 6,922 5,191
Additional paid in capital 44,620,703 42,501,078
Accumulated deficit (43,897,690) (43,114,502)
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Total stockholders' equity (deficit) 865,263 (472,905)
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Total liabilities and stockholders' equity
(deficit) $ 4,025,062 $ 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 JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
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Revenues $ 640,027 $ 204,636
Cost of revenues 344,708 182,619
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Gross profit 295,319 22,017
Sales and marketing 55,535 -
General and administrative expenses 493,908 668,491
Telefreedom advance write-off - 330,000
Amortization and depreciation 92,990 5,746
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Net operating loss (347,114) (982,217)
Interest and other expense, net (86,533) (18,500)
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Loss from continuing operations before discontinued
operations (433,647) (1,000,717)
Discontinued operations:
Loss from discontinued operations - 276,688
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Net loss (433,647) (1,277,405)
Preferred stock dividend (7,620) (7,620)
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Net loss attributable to common stockholders $ (441,267) $ (1,284,665)
============= =============
Loss per common share - Basic and Diluted:
Loss from continuing operations $ (0.07) $ (0.23)
Discontinued operations - (0.06)
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Total loss per share $ (0.07) $ (0.29)
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Weighted shares outstanding used in calculation
- Basic and Diluted 5,865,085 4,286,445
============= =============
See accompanying notes to unaudited consolidated financial statements.
2
ORION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
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Revenues $ 1,433,263 $ 204,636
Cost of revenues 718,505 182,619
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Gross profit 714,758 22,017
Sales and marketing 161,793 -
General and administrative expenses 1,050,239 1,120,545
Telefreedom advance write-off - 330,000
Amortization and depreciation 170,978 118,403
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Net operating loss (668,252) (1,556,931)
Interest and other expense, net (114,936) (18,500)
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Loss from continuing operations before discontinued
operations (783,188) (1,575,431)
Discontinued operations:
Loss from discontinued operations - (595,871)
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Net loss (783,188) (2,171,302)
Preferred stock dividend (15,240) (15,240)
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Net loss attributable to common stockholders $ (798,428) $ (2,186,542)
============= =============
Loss per common share - Basic and Diluted:
Loss from continuing operations $ (0.14) $ (0.40)
Discontinued operations - (0.15)
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Total loss per share $ (0.14) $ (0.55)
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Weighted shares outstanding used in calculation
- Basic and Diluted 5,566,823 3,945,443
============= =============
See accompanying notes to unaudited consolidated financial statements.
3
ORION TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (783,188) $ (1,575,431)
Loss from discontinued operations - (595,871)
Adjustments to reconcile net loss to cash used in
operations:
Depreciation and amortization 170,978 118,304
Write off of Telefreedom advance - 330,000
Non-cash compensation 109,000 -
Changes in operating assets and liabilities:
Accounts receivable 13,784 (87,336)
Inventory 12,065 -
Prepaid expenses and other current assets 9,895 (11,340)
Other assets 9,945 (25,977)
Accounts payable and accrued liabilities 456,558 410,991
Net assets of discontinued operations - 539,710
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Net cash used in operating activities (963) (896,853)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,936) (15,581)
Acquisition of Special Accounts Billing Group, Inc. - (60,000)
Acquisition of Transaction Verification Systems, Inc.,
net of cash acquired - 2,403
Proceeds lent to Rodan Telecom - (100,000)
Cash advance to Telefreedom - (330,000)
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Net cash used in investing activities (2,936) (503,178)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit, net (43,443) -
Payments of capital lease obligations (35,000) -
Repayment of notes payable (27,332) -
Proceeds from note payable 50,000 -
Proceeds from the sale of common stock 114,560 1,383,025
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Net cash provided by financing activities 58,785 1,383,025
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Cash, beginning of period 19,274 60,814
Net increase (decrease) in cash 54,886 (17,006)
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Cash, end of period $ 74,160 $ 43,808
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See accompanying notes to unaudited consolidated financial statements.
4
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.
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 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
accounting principles generally accepted in the United States of America,
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 June 30, 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 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.
5
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 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 measurement date. Should on the twelve month anniversary
date, the value of the 300,000 shares plus any additional shares
issued at 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 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 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
6
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.
The acquisition was accounted for under the purchase method of accounting,
thus the results of erbia Network's operations have been included in the
consolidated financial statements from the date of acquisition. The purchase
price was allocated based on the preliminary fair value of the assets acquired
and the liabilities assumed at the date of acquisition, and is subject to
revision. The purchase resulted in goodwill of approximately $1,570,000.
The unaudited pro forma information for the six months ended June 30, 2001 set
forth below gives effect to the acquisition as if it had occurred on January
1, 2001. The pro forma information is presented for information purposes only
and is not necessarily indicative of the results of operations that actually
would have been achieved had the acquisition been consummated as of January 1,
2001.
Revenue $ 3,261,521
Net loss (108,188)
Loss per share - Basic and
Diluted (0.02)
ACQUISITION OF THE NEW YORK SWITCH FACILITY
On May 1, 2001, the Company, through its wholly-owned subsidiary - Globalinx,
entered into a lease purchase agreement for a Siemen's DCO/CS tandem switch
with a total purchase price of approximately $240,000. The lease agreement
requires monthly payments of $15,000 to be credited against the total purchase
price until paid in full. Payment of any balance due may be paid in full at
any time without penalty. The switch was co-located 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 of equal
value.
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 six months ended
June 30, 2000 have been restated to present the operations of EZ and EPS as
discontinued operations.
7
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.
On April 26, 2001, the Company entered into a promissory note agreement for
$50,000. This promissory notes bear interest at 12%, with principal and
accrued interest due on October 26, 2001. In connection with the issuance of
this promissory note, the Company issued a stock purchase warrant for the
purchase of up to 250,000 shares of the Company's common stock at $0.10 per
share. This stock purchase warrant expires on February 24, 2004. Based on the
relative fair value of the debenture and stock purchase warrant, the stock
purchase warrant has been assigned a value of $40,000, which represents a
discount and will be amortized to interest expense over the life of the debt.
NOTE 5 - STOCKHOLDERS' EQUITY
COMMON STOCK
During the six months ended June 30, 2001, the Company sold 429,000 shares of
common stock for $114,560.
During February 2001, the Company issued 100,000 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. During May 2001, the Company
issued an additional 100,000 shares of its common stock in satisfaction of
amounts due its landlord. The fair market value of the shares totaled $48,000,
and is recorded as general and administative expense.
In addition, in May 2001, the Company issued 202,273 shares of its common
stock to Mr. Maedje in satisfaction for services Mr. Maedje provided to EZ and
EPS, and for past due directors fees.
STOCK OPTIONS
On May 5, 2001, the Company granted to certain employees options to purchase
550,000 shares of its common stock with an exercise price of 25% of fair
market on the date of grant in satisfaction of amount previously accrued by
the Company at December 31, 2000. The intrinsic value of these options on the
date of grant was $182,500.
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 six months
ended June 30, 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 six months ended
June 30, 2001 and 2000, Mr. Maedje earned approximately $38,000 and $39,000,
respectively, in fees for providing these services to EZ and EPS. As noted in
Note 5 above, this and other amounts were satisfied in exchange for shares of
the Company common stock.
8
NOTE 7 - SEGMENT INFORMATION
PRODUCT AND SERVICES INFORMATION
The following tables show revenues by product and service group for each
reportable segment for the six months ended June 30, 2001. The Company
operated in only one segment during the six months ended June 30, 2000.
Telecom Point Corporate
Services of Sale Costs Total
---------- --------- ----------- ------------
Revenue from external
customer $ 1,083,495 $ 349,768 $ - $ 1,433,263
Intersegment revenues - - -
Segment loss before taxes (222,540) (28,379) (532,269) (783,188)
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 six months ending
June 30, 2001 and 2000. In addition, the Company had the following non-cash
activities during the six months ended June 30, 2001 and 2000.
2001 2000
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Conversion of accounts payable into a note $ 317,140 $ -
payable
Grant of stock options and issuance of
common stock in satisfaction of accrued
amounts due certain employees and consultants 292,316 39,000
Assets acquired under capital lease arrangements 264,024
Accrual of dividends on preferred stock 7,260 7,260
9
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 that 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 with application of 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
10
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 AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
We experienced net losses before discontinued operations for all of the three
and six months months ended June 30, 2001 and 2000.
Six Six
Three Three months Months
months months ended ended
ended June ended June June 30, June 30,
30, 2001 30, 2000 2001 2000
------------ ------------ ----------- -----------
Net loss from operations $ (443,647) $ (1,000,717) (783,118) (1,575,431)
Net loss per common share (0.07) (0.23) (0.14) (0.40)
The loss for the three and six months ended June 30, 2001 was caused primarily
by operating losses we incurred in our Globalinx subsidiary and costs related
to 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 issued to a consultant in exchange for services received. We acquired
TVS on June 30, 2000, and as such the results of TVS is not included in our
operations during 2000.
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 and six months ended June
30, 2001 were as follows.
Six Six
Three Three months Months
months months ended ended
ended June ended June June 30, June 30,
30, 2001 30, 2000 2001 2000
------------ ------------ ----------- -----------
Sale of TVS products $ 533,292 $ - $ 1,083,495 $ -
Sale of services by
Globalinx 106,735 204,636 349,768 204,636
------------ ------------ ----------- -----------
$ 640,027 $ 204,636 $ 1,433,263 $ 204,636
============ ============ =========== ===========
Sales generated by EZ totalling $54,253 the six months ended June 30, 2000 are
included in discontinued operations.
11
COST OF REVENUES
During the three and six months ended June 30, 2001 cost of services provided
and goods sold were as follows.
Six Six
Three Three months Months
months months ended ended
ended June ended June June 30, June 30,
30, 2001 30, 2000 2001 2000
------------ ------------ ----------- -----------
Cost of sale of TVS products $ 250,009 $ - $ 482,142 $ -
Cost of services by
Globalinx 94,699 182,619 263,363 182,619
------------ ------------ ----------- -----------
$ 344,708 $ 182,619 $ 718,505 $ 182,619
============ ============ =========== ===========
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.
SALES AND MARKETING
During the three and six months ended June 30, 2001, we incurred sales and
marketing costs in both our Globalinx and TVS subsidiaries totaling $55,535
and $161,793. We did not incur any costs for sales and marketing during the
six months ended June 30, 2000. 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 and six months ended June 30, 2001 we incurred general and
administrative expenses totaling $493,908 and $1,050,239, respectively,
compared to general and administrative expense we incurred totalling $668,491
and $1,120,545 for the three and six months ended June 30, 2000. Included in
general and administrative expenses for the six months ended June 30, 2001 is
$109,000 of non-cash costs related to the issuance of 100,000 shares of common
stock to a consultant in exchange for services. We expect general and
administrative expenses to increase in the future as our operating expand.
General and administrative expenses for the six months ended June 30, 2001 and
2000 were as follows:
2001 2000
------------- --------------
Orion Technologies $ 436,621 $ 882,807
Globalinx 249,859 237,738
TVS 363,759 -
------------- --------------
$ 1,050,239 $ 1,120,545
============= ==============
AMORTIZATION AND DEPRECIATION
Amortization and depreciation expense was $170,978 for the six months ended
June 30, 2001, and relates primarily to the amortization of goodwill and other
intangibles we recorded in connection with our acquisitions of TVS and SABG.
Amortization and depreciation of $118,403 for the six months ended June 30,
2000 was related primarily to the impairment of goodwill when Hancock
Holdings.
12
We recorded approximately $1,570,000 of additional goodwill on June 30, 2001
in connection with our acquisition of the operating assets of erbia Networks.
We plan to complete additional acquisitions in the future we anticipate that
some, or all of these acquisition could result in us recording additional
goodwill.
The issuance of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets" in June 2001, will impact the amount of goodwill amortization
recognized in future periods. Effective July 2001, goodwill related to new
acquisitions will not be amortized. but will instead be reviewed at least
annually for impairment. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, we may elect to adopt SFAS 142 effective
either January 1, 2002 or January 1, 2003. Due to the complexity of this new
standard and its recent issuance, we are evaluating whether to adopt SFAS 142
effective January 1, 2002. This election must be made prior to the issuance of
the Company's financial statements for the quarter ending March 31, 2002. Upon
adoption of SFAS 142, goodwill related to purchase acquisitions which occurred
prior to July 1, 2001 will no longer be amortized, but instead reviewed at
least annually for impairment.
INCOME TAXES
There was no provision for federal or state income taxes for the period from
our inception due to our operating losses. At June 30, 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.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2001, we raised $114,560 from the sale of
429,000 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 June 30,
2000, we had drawn approximately $35,000 under this line of credit. Repayment
of this line of credit is guaranteed by certain current employees and former
stockholders of TVS. 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 used in operating activities for the six months ended June 30, 2001
totaled $963. Cash used in operations was primarily due to our net loss
adjusted for an increase in accounts payable and accrued liabilities, and
non-cash items, which include depreciation, amortization and non cash
compensation.
There were no material investing activities during the six months ended June
30, 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 provided by financing activities was $58,785 during the six months
ended June 30, 2001. We sold 429,000 shares of our common stock for $114,560
and made payments on our line of credit and long-term debt.
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.
13
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.
14
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 June 30, 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
15
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 30, 2001
---------------------
A. Frans Heideman, President
and Chief Executive Officer
By: /s/ James McComas Date: October 30, 2001
---------------------
James McComas, Vice President
and Chief Financial Officer
16