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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
February 22, 2000
Date of Report
(Date of Earliest Event Reported)
ORION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
1800 Diagonal Road
Suite 500
Alexandria, Virginia 22314
(Address of principal executive offices (zip code))
(703) 299-0500
(Registrant's telephone number, including area code)
Hancock Holdings, Inc.
39 Broadway, Suite 2250
New York, New York 10006
(Former Name and Former Address)
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<S> <C> <C>
Nevada 000-29673 88-0369588
(State of incorporation) (Commission File Number) (IRS Employer Identification No.)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
Pursuant to a Share Exchange Agreement dated February 22, 2000, Orion
Technologies, Inc. ("Orion") acquired all of the issued and outstanding capital
stock of Hancock Holdings, Inc., a company whose securities are registered under
the Securities and Exchange Act of 1934. Orion acquired all of Hancock's stock
in a pro rata exchange for an aggregate of 150,000 shares of Orion common
stock (the "Share Exchange").
There were seven shareholders of Hancock immediately prior to the Share
Exchange. Those shareholders were MHE Projix LLC, a Florida limited liability
company, Mark Elenowitz, Louis Taubman, David Simonetti, Thomas Bostic Smith,
William Quigley, Jr., and Barry Labell, who held 5,000,000 shares of Hancock
common stock in the aggregate. As a result of the Share Exchange, Hancock became
a wholly-owned subsidiary of Orion's. Prior to the Share Exchange, Orion had
3,507,508 shares of common stock issued and outstanding. Immediately following
the Share Exchange, there were 3,657,508 shares of common stock issued and
outstanding. A copy of the Share Exchange Agreement was attached as exhibit 2.1
to the Form 8-K field on February 24, 2000, and is incorporated herein by
reference. Please refer to the Share Exchange Agreement for additional details
of the Share Exchange.
Upon effectiveness of the Share Exchange, Orion became successor issuer to
Hancock for reporting purposes under the Securities Exchange Act of 1934
pursuant to Rule 12g-3(a) of the General Rules and Regulations of the Securities
and Exchange Commission.
The consideration given by the parties pursuant to the Share Exchange Agreement
was negotiated between the former Hancock shareholders and us. In evaluating the
Share Exchange transaction, the former Hancock shareholders used criteria such
as the value of our assets, our ability to compete in our markets, and our
current and anticipated business operations. We considered the value of
Hancock's status as a publicly reporting shell company and our ability to
succeed to the reporting status of Hancock.
A description of Orion containing all information required by a registration
statement is provided below. As used in this filing, the terms "we" and "our"
include Orion and its subsidiaries.
Information Regarding Forward Looking Statements: The statements contained in
this Form 8-K/A that are not historical fact are "forward-looking statements".
These statements can often be identified by the use of forward-looking
terminology such as "estimates," "projects," "believes," "expects," "may,"
"will," "should," "intends," or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. We wish to caution the reader that these
forward-looking statements, such as the timing, costs and scope of acquisition
of, or investments in, existing businesses, the revenue and profitability levels
of such businesses, and other matters contained in this Form 8-K/A regarding
matters that are not historical facts, are only predictions. No assurance can be
given that the future results indicated, whether expressed or implied, will be
achieved. While sometimes presented with numerical specificity, these
projections and other forward-looking statements are based upon a variety of
assumptions relating to our business which, although we consider
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reasonable, may not be realized. Because of the number and range of the
assumptions underlying our projections and forward-looking statements, many of
which are subject to significant uncertainties and contingencies that are beyond
our reasonable control, some of the assumptions inevitably will not materialize
and unanticipated events and circumstances may occur subsequent to the date of
this Form 8-K/A. These forward-looking statements are based on our current
expectations, and we assume no obligation to update this information. Therefore,
our actual experience and results achieved during the period covered by any
particular projections or forward-looking statements may differ substantially
from those projected. Consequently, the inclusion of projections and other
forward-looking statements should not be regarded as a representation by us or
any other person that these estimates and projections will be realized, and
actual results may vary materially. There can be no assurance that any of these
expectations will be realized or that any of the forward-looking statements
contained herein will prove to be accurate.
A. DESCRIPTION OF BUSINESS
(1) DEVELOPMENT OF BUSINESS
Orion was incorporated in Nevada as Geoasia Enterprises, Ltd. on July 17, 1996
but did not engage in any business until September 1997. On September 8, 1997,
we merged with Orion Technologies, Inc. and adopted our current name. In that
merger we acquired a wholly owned subsidiary, Orion Technologies (Canada) Inc.
("Orion Canada").
From September 1997 to June 1999, through our ownership of Orion Canada, we
engaged in the development of a secure global electronic commerce network for
use in markets within Southeast Asia. Together with the Association of
Development Financing Institutions in Asia Pacific (ADFIAP), we attempted to
create a network of Southeast Asian development banks, all members of the
ADFIAP, through which we would provide a full range of electronic commerce
products to the member banks and their customers. After investing heavily in the
concept, we abandoned this endeavor primarily due to the impact of the 1998-99
Asian economic recession on the ADFIAP member banks and throughout the Asia
Pacific region.
On June 15, 1999, we sold 100% of Orion Canada's capital stock to members of
Orion Canada's management in exchange for: 5,000,000 shares of preferred stock
of a new company formed to purchase Orion Canada, which preferred stock has a
total value of $5,000; the surrender by Orion Canada's management of
approximately 462,000 shares of our common stock for cancellation; and
assumption by the new company of the operating liabilities of Orion Canada and
certain of our liabilities.
In July 1999, we acquired two German companies, EZ Electronic Payment Systems
(EZ Elektronische Zahlungssysteme GmbH) ("EZ") and EPS Electronic Processing
(EPS Elektronische Processing Systems GmbH) ("EPS") engaged in the business of
renting point of sale equipment and processing transactions for electronic funds
transfers at points of sales.
In December 1999, we formed a Delaware corporation, Globalinx Corporation, as a
wholly-owned subsidiary for developing our telecommunication services business.
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In January 2000, we became a one-third partner in Rodan Telecom, a company
offering real time stock quotes and related trade data for companies listed on
the Warsaw Stock Exchange and other Polish exchanges.
On February 22, 2000, we acquired all of the issued and outstanding shares of
Hancock pursuant to the Agreement. Prior to this acquisition, Hancock did not
engage in any material business.
(2) BUSINESS OF THE COMPANY
We are an international holding company concentrating on acquiring and
developing companies engaged in Internet and telecommunications-based
technologies and services for electronic commerce and business-to-business
markets. We are currently focusing our efforts on two lines of business -
electronic commerce (or e-commerce), including point of sale systems, and
telecommunications. Through our subsidiary companies, we aim to deliver
reliable, competitive and fully integrated carrier-quality telecommunications
and electronic commerce solutions while providing the highest quality of
customer service.
Electronic Commerce and EFT/POS Business
In July 1999 we acquired EZ and EPS. EZ rents machines that are used by retail
merchants in point of sale transactions. EPS processes electronic fund transfers
at point of sale (EFT/POS). Such transfers include transactions involving credit
cards, bank customer cards (ATM), chip cards (cash cards), and private label
cards. Since the acquisition of EZ and EPS, we determined that we could more
profitably outsource the transaction processing part of the business to a third
party than do it in house. EZ engaged Deutsche Verkehrsbank, part of the third
largest German banking group, to provide billing, collection and transaction
processing services for the EZ EFT/POS business. As a result, EPS no longer has
any personnel and has ceased operations and will be liquidated later this year.
EZ rents multi-functional, electronic card processing terminals to its customers
and charges a fixed monthly fee plus a fee for each transaction processed on the
terminals. EZ has over 380 customers throughout Germany ranging from small
retail stores and local governments to large retail organizations. These
customers include Otto Stores, the largest retail catalogue store chain in the
world. EZ has a strategic alliance with Trintech Limited, a manufacturer of
electronic card reading machines pursuant to which EZ will acquire up to 3,500
terminals for placement at retail outlets of EZ's customers in Germany. EZ and
Trintech have jointly developed a turnkey package for the delivery of electronic
credit or debit card processing terminals for new customers. EZ purchases the
terminals from Trintech, packages them with simple installation instructions,
and mails them to new customers, including new stores identified by the retail
outlet chains with whom EZ has a relationship. The terminals are easily
connected to an electrical and telephone outlet, and the customer is immediately
ready to process credit card transactions. EZ maintains a customer support
hotline for its customers. Trintech also provides EZ with technical support
services for the EFT/POS terminals.
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We believe the potential market for electronic funds transfers at points of sale
in Germany is substantial. According to the German Bankers Association, there
are over 49 million Eurocheque ("EC") cardholders, and over 15 million bank
clients carrying debit cards in Germany. In addition, EZ terminals will accept
credit cards, ATM cards, cash cards, and private label cards. We market EZ
products and services primarily through direct mail advertising and referrals
from banks and other businesses using our products.
EZ has formed a subsidiary in Warsaw, Poland known as EZ Elektroniczne Systemy
Platinicze S. A. ("EZ Poland") to pursue the EZ business in Poland. EZ's
strategic partner, a large Polish investment fund, holds a minority interest in
EZ Poland. EZ Poland will rent electronic point of sale terminals to retail
merchants in Poland for the processing of credit and debit card transactions. In
addition, EZ Poland intends to seek strategic alliances with telecommunications
service providers to market Globalinx's telecommunications services, including
Internet-based services, to EZ Poland's customers. EZ Poland is currently
completing its market research and business plan and negotiating with a supplier
of Polish-approved point of sale terminals. We expect operations to begin in the
third quarter of 2000.
In January 2000, we entered into a joint venture agreement pursuant to which we
agreed to contribute $350,000 for a one-third interest in Rodan Telecom Sp.zo.o
located in Warsaw, Poland. Thus far we have contributed $100,000 pursuant to the
commitment. The other one-third partners are Zeto-Rodan Ltd. and CG Parkiet,
both Polish companies. Zeto-Rodan has developed a comprehensive family of
integrated software products designed for the Polish securities trading market.
Over the past five years, these products have become the standard and are used
by leading firms ranging from Polish banks to multinationals such as Credit
Suisse First Boston, Citibrokerage S.A. and ING Baring, who collectively serve
approximately 300,000 brokerage accounts in Poland. Parkiet is the leading
business information publisher in Poland. They publish a daily paper and
periodic magazine-style analysis of the Polish financial and economic markets
and participate in a consortium of the leading financial publishers throughout
the world. Rodan Telecom has developed a new service known as ParkietOnLine
Professional. This service is the first of its kind in the Polish marketplace
and allows users of the service to monitor real time buy and sell bids, trades,
index values, and specific trade data, such as volume, in automatically updated
tables and charts. The service is accessible around the clock and is live during
Warsaw Stock Exchange trading hours. The service began testing in January and
went operational with customers in March 2000. In the future, Rodan Telecom
plans to expand ParkietOnLine to offer its securities firm users the ability to
provide on-line securities trading to their brokerage account customers.
In January 2000, we entered into a non-binding letter of intent to acquire a
company that manufactures and sells products and electronic systems that enhance
the capabilities of point of sale equipment to verify individual transactions
and document employee theft. The equipment interfaces with cameras, video tape
and ATM or cash registers to ensure the integrity and accuracy of transactions
for retailers and banks. The market and customer base of the target company is
similar to that of EZ (small to mid-size banks, retail and commercial
businesses), although to date, the company has concentrated its marketing
efforts in the United States. The letter of intent contemplates our issuance of
up to 250,000 shares of our common stock to
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consummate this acquisition. We are currently engaged in final negotiations of
the acquisition documents for the target company and believe that the
transaction will close by June 30, 2000.
We are also pursuing other strategic acquisitions to supplement this line of
business.
Telecommunications Business
In late 1999, we took advantage of an opportunity to attract three experienced
senior executives from a reorganizing telecommunications company. In December
1999, we incorporated Globalinx to pursue operations in the telecommunications
business.
From its inception until March 2000, Globalinx has been establishing the
infrastructure and systems necessary for a telecommunications reseller business.
These efforts include establishing relationships with telecommunication
providers, resellers, billing agencies and marketing organizations and obtaining
necessary regulatory licenses. In January 2000, Globalinx signed an agreement
with QWEST Communications to provide a comprehensive set of wholesale
telecommunications services to be offered by Globalinx to retail customers and
other carriers. Globalinx has also established relationships with a network of
professional resellers, distributors and agents for the marketing of these
telecommunications services. We have also engaged a billing company to provide
back office billing services to Globalinx customers. Globalinx has received
approval from the FCC to provide international telecommunications services and
its tariff agreement is in effect. We recently reached agreement for the
acquisition of a company that is licensed to provide and bill interstate and
intrastate long distance telecommunications services to customers in each of the
fifty states in the United States. These licenses are essential for the delivery
and continued expansion of our telecommunications business.
Globalinx began operations in March 2000 and currently provides
telecommunications services to over 15,000 customers, 85% of which purchase long
distance services.
We intend to expand the operation of Globalinx both in terms of the services it
will offer and the customer base it will service. Our agreement with QWEST
enables us to offer state of the art telecommunications services including
inter- and intrastate U.S. long distance service, international long distance,
operator-assisted calling, U.S. and international toll-free calling, global
calling cards, and data services such as point-to-point, frame relay, ATM
(asynchronous transfer mode) and ISP (Internet service provider) services.
Additional services available under the QWEST agreement include operator
assisted conference service and multi-lingual customer services. We are
currently negotiating with other service providers for similar service packages,
as well as for local telecommunications services.
In March 2000, we entered into a non-binding letter of intent to acquire a 40%
interest in a marketer of telecommunications services located in Scottsdale,
Arizona. We are still in the process of negotiating that transaction. Globalinx
also has been focused on certain "heritage markets" as part of its strategic
marketing plan. Heritage market telecommunications services include providing
long-distance access to underserviced areas of the world, as well as providing
for the telecommunication needs of certain multi-lingual communities within the
United States. Globalinx is negotiating to acquire the assets of a small
telecommunications company which
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markets international long-distance telephone services to specific Eastern
European countries and provides telecommunications services to over 1,200
customers. We expect this acquisition to be completed by June 30, 2000. Through
these and other acquisitions or strategic partnerships, we hope to expand the
operations of Globalinx.
Business Expansion
In order to expand our business operations, we seek to acquire additional
companies in the EFT/POS, electronic commerce and telecommunications marketplace
through merger, acquisition and strategic alliance. In particular, we intend to
continue to expand our market share within the rapidly growing
telecommunications industry.
We believe that Internet Protocol (IP) telephony will lead the next generation
in telecommunications services. IP telephony uses internet protocol technology
through clear channel fiber optics, cables or cellular technology to provide
telephone service. We are actively seeking strategic alliances in this arena.
We have not restricted the type of companies we may acquire in our marketplaces.
We may acquire a business that only recently commenced operations, or a
developing company in need of additional funds to expand into new products or
markets, or an established business that may be experiencing financial or
operating difficulties and needs additional capital. In some instances, a
business opportunity may involve acquiring or merging with a corporation. We may
purchase assets and establish wholly-owned subsidiaries in various businesses or
purchase existing businesses as subsidiaries. Certain transactions may result in
our present management and shareholders losing control of the Company. In
addition, our officers and directors may, as part of the terms of the
transaction, resign and be replaced by new officers and directors without a vote
of our shareholders.
Because of general economic conditions, rapid technological advances being made
in our targeted industries, and shortages of available capital, we believe that
there are numerous firms seeking the benefits offered by association with a
public company. These perceived benefits include facilitating or improving the
terms on which additional equity financing may be sought, improving liquidity
for the principals of a business, creating a means for providing incentive stock
options or similar benefits to key employees and improving liquidity for all
shareholders.
At times, we may have insufficient capital to purchase other businesses with
cash or other assets. Instead, we primarily intend to acquire businesses for
shares of our common stock. We believe that we offer owners of privately held
businesses the opportunity to acquire an ownership interest in a public company
at substantially less cost than is required to conduct an initial public
offering of their own companies. We anticipate that securities issued in any
such transaction would generally be restricted securities issued in reliance on
exemptions from registration under applicable federal and state securities laws.
In some circumstances, however, as a negotiated element of a transaction, we may
agree to register such securities either at the time the transaction is
consummated, or at a specified time thereafter. In pursuing this method of
acquisition, we will incur significant legal and accounting costs.
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We intend to seek potential business opportunities from all known sources, but
will rely principally on the personal contacts of our officers and directors as
well as indirect associations between them and other business and professional
people. From time to time, we may engage the services of consultants or other
outside professionals for their assistance in locating and evaluating
appropriate business opportunities.
The analysis of new business opportunities will be under the supervision of our
officers and directors. Among other factors, they will consider:
1. the available technical, financial and managerial resources
2. working capital and other financial requirements
3. history of operation, if any
4. prospects for future growth and expansion
5. present and expected competition
6. the quality and experience of management services which may be
available and the depth of that management
7. the potential for further research, development or exploration
8. specific risk factors not now foreseeable but which then may
be anticipated to impact our proposed activities
9. the potential for profit
10. the perceived public recognition or acceptance of products,
services or trades
11. name identification
Opportunities in which we may participate will present certain risks, many of
which cannot be identified adequately prior to selecting a specific opportunity.
Our shareholders must, therefore, depend on our officers and directors to
identify and evaluate such risks. Promoters of some opportunities may be unable
to develop a going concern or may present a business in its development stage.
Even after our participation, there is a risk that the combined enterprise may
not become a going concern or advance beyond the development stage. Other
opportunities may involve new and untested products, processes, or market
strategies that may not succeed.
The investigation of specific business opportunities and the negotiation,
drafting and execution of relevant agreements, disclosure documents, and other
instruments will require substantial management time and attention as well as
substantial costs for accountants, attorneys and others.
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If we decide not to participate in a specific business opportunity the costs
incurred in the investigation of the business would not be recoverable.
Furthermore, even if an agreement is reached for our participation in a specific
business opportunity, the failure to complete that transaction may result in the
loss of the related costs incurred.
In order to finance our continued business expansion we will require significant
additional funding. Our operating budget for the next 12 months indicates that
we will need $3 million for working capital of which only a small portion will
be generated by operations. We recently commenced a private placement of our
common stock in order to raise additional financing of approximately $5 million.
We have arranged for this amount of financing through an investor group located
in Zurich, Switzerland, which has contracted to purchase 1 million shares of
Orion common stock at a minimum price of $4 per share, to be adjusted as
provided therein. As of May 15, 2000, the first installment of $403,000 was
received in exchange for 89,556 shares at $4.50 per share. The Agreement also
provides that additional amounts will be raised or provided by the investor
group as needed to finance strategic acquisitions.
Competition
We face stiff competition from established companies within our various industry
markets, as well as from possible new entrants into such markets.
Telecommunications Competition
There are a number of regional competitors in the United States that market
individual and bundled local and long distance telephone services to residential
and small business customers. Among long distance service providers, we must
compete with establish providers such as QWEST, MCI, and AT&T. If we are
successful in negotiations to offer local telephone service, we will be
competing against companies such as SBC and the regional Bell providers,
including Bell South, Bell Atlantic, and others. Customers currently using
regional Bell operating companies for their local services will also soon be
able to choose new local savings plans just as they can select long distance
providers today. Such discounts and plans will further increase our competition
in the event that we are successful in offering local service. If we are
successful in offering ISP services as intended, we would be competing against
established companies such as Mindspring, Earthlink, and MSN. All of the above
named competitors have significantly greater resources than we do and an
established business record for offering their respective telecommunications
services.
We are aware of far fewer telecommunications marketing companies that offer the
bundled full range of services that we hope to offer in the future. Companies
presently providing such bundled services include Communications 2000 and Ciera
Networks. By bundling the various telecommunications services that we offer, we
hope to provide additional value and savings to our customers, thereby gaining
an advantage in the highly competitive telecommunications market. Globalinx will
also face competition in marketing its telecommunications services to resellers.
There are many resellers of telecommunications products that may compete with
some of Globalinx's products and services.
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Point of Sale/EZ Competition
The EFT/POS market is still developing in Germany. The market for the sale or
rental of POS terminals and transaction processing in Germany is very fragmented
and there is no apparent industry leader to date. For example, EZ is one of over
15 distributors for Trintech Limited in Germany, several of which are in direct
competition with EZ. Some of these competing distributors, however, have limited
their operations to specific regions of Germany. We believe that EZ is typical
of Trintech's distributors and does not face any significant competitive
disadvantage compared to the other Trintech distributors. There are also major
multinational corporations that manufacture POS equipment, including Giesecke &
Divirent, and Verifone, a subsidiary of Hewlett Packard. These large
corporations also use sales agents or representatives to sell their products in
Germany. We believe that these large corporations typically offer a more
expensive product and require a three to five year lease or service contract,
personally guaranteed by the owner of the retail customer for the full term of
the contract. EZ rents its product under contracts that may be cancelled on one
month's notice. This short term contract may give EZ a competitive advantage
with the small retail shop owner that does not want personal liability for a
long term contract. We believe that the Trintech product is also more up to date
and is fully Euro compliant for the German marketplace. EZ will also face
competition from banks that offer point of sale equipment at very competitive
rates.
Business Opportunity Competition
We will also face extreme competition both in the identification and acquisition
of appropriate target businesses in our lines of business and in the operation
of any businesses acquired. There are many established management and financial
consulting companies and venture capital firms that have significantly greater
financial and personal resources, technical expertise and experience than we do.
In view of our limited financial resources and management availability, we will
continue to be at significant competitive disadvantage. In particular, venture
capital firms are aggressively pursuing telecommunications companies and may be
in a better position to acquire an interest in companies that we might pursue.
Employees
We have 8 full time employees and 5 full time consultants. These include 2
executive officers and one accounting consultant who manage the holding company
and oversee the strategic acquisitions at the Orion offices in Alexandria,
Virginia; five EZ employees located in the Frankfurt area of Germany and 1
located in Warsaw, Poland; and four full time Globalinx consultants located in
Alpharetta, Georgia.
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Risk Factors
Our business is subject to numerous risk factors, including the following:
WE HAVE A LIMITED BUSINESS HISTORY AND HAVE ONLY RECENTLY BEGUN GENERATING
REVENUE.
We have a limited history and have only recently generated limited revenues from
operations. We have limited assets and limited financial resources. We will, in
all likelihood, continue to sustain operating losses which will increase
continuously until our businesses are more fully developed or until we complete
a business combination with a profitable business. There is no assurance that we
will ever become profitable or will identify a business opportunity or complete
a business combination.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
SUCCESSFULLY COMPETE AGAINST NEW ENTRANTS AND ESTABLISHED COMPANIES WITH GREATER
RESOURCES
The markets in which we operate are extremely competitive and can be
significantly influenced by the marketing and pricing decisions of the larger
industry participants. There are limited barriers to entry in either the
electronic commerce or the telecommunications markets in which we compete. We
expect competition in these markets to intensify in the future. Competition for
customers in the markets in which we compete is often focused on the basis of
price and, to a lesser extent, on the basis of the type and quality of service
offered. Increased competition could force us to reduce our prices and profit
margins.
THE MARKET FOR OUR ELECTRONIC COMMERCE AND TELECOMMUNICATIONS SERVICES IS NEW
AND EVOLVING AND WE CANNOT PREDICT WHETHER THE MARKET WILL CONTINUE TO GROW
The market for point of sale and telecommunications services is new and rapidly
evolving. Although we expect demand for these services to grow, we cannot assure
you that this growth will occur. Certain critical issues concerning commercial
viability of these services, including security, reliability, ease and cost of
access and quality of service, may develop and may negatively impact our growth.
To be successful, we must develop and market our services in a rapidly changing
marketplace. Therefore, there is a risk that our services will become obsolete.
THE TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGES, AND
OUR FAILURE TO KEEP UP WITH SUCH CHANGES COULD CAUSE US TO LOSE CUSTOMERS AND
IMPEDE OUR ABILITY TO ATTRACT NEW CUSTOMERS.
The telecommunications industry is subject to rapid and significant changes in
technology, customer requirements and preferences and our failure to keep up
with such changes could cause us to lose customers and impede our ability to
attract new customers. New technologies could
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reduce the competitiveness of our products. We may be required to select one
technology over another, but at a time when it would be impossible to predict
with any certainty which technology will prove to be the most economic,
efficient or capable of attracting customer usage. Subsequent technological
developments may reduce the competitiveness of our products and require
unbudgeted upgrades or additional products that could be expensive and time
consuming. If we fail to adapt successfully to technological changes or
obsolescence or fail to obtain access to important technologies, we could lose
customers and impede our ability to attract new customers.
RESISTANCE BY POTENTIAL CUSTOMERS TO ACCEPT US AS A NEW PROVIDER OF
TELECOMMUNICATIONS SERVICES MAY REDUCE OUR ABILITY TO INCREASE OUR REVENUE.
The success of our telecommunications business will be dependent upon, among
other things, the willingness of additional customers to accept us as a new
provider of telecommunications services. We cannot assure you that we will be
successful in overcoming the resistance of potential customers to change their
service provider, particularly those that purchase services from the traditional
telephone companies, or that customers will buy our services. The lack of
customer acceptance would reduce our ability to increase our revenue.
WE COULD BE ADVERSELY EFFECTED BY CHANGES IN GOVERNMENTAL REGULATION OF
TELECOMMUNICATIONS.
As a telecommunications company, we are subject to the regulatory authority of
the U.S. Government under the Federal Communications Commission's authority, and
the national and local communications authorities of the other countries in
which we operate. We are also subject to the rules and regulations of local
Public Utility Commissions. Our business prospects could be adversely affected
by the adoption of new laws, policies, or regulations, or by changes in the
interpretation or application of existing laws, policies, and regulations that
modify the present regulatory environment.
A DETERIORATION IN OUR RELATIONSHIPS WITH CARRIERS AND OTHER THIRD PARTY
TELECOMMUNICATIONS COMPANIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
We depend on other carriers and third party telecommunications companies,
including foreign government-owned telephone authorities, for many of our key
functions and services, including local switching of long distance telephone
traffic and national and international network connectivity of telephone
traffic. We may be unable to extend or replace our existing contracts with our
carriers on terms comparable to our existing agreements. These carriers are not
restricted from competing against us. We are currently dependent primarily upon
QWEST, which is our primary provider of telecommunications. Our business could
be adversely affected by a deterioration in this relationship, or in our
relations with any of our other suppliers.
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IF OUR BACK OFFICE SERVICES ARE UNABLE TO MEET THE NEEDS OF OUR CUSTOMERS, WE
MAY LOSE CUSTOMERS.
Sophisticated back office processes and billing systems are vital to our growth
and our ability to achieve operating efficiencies. We are dependent on other
companies for our billing and certain other support systems. We cannot assure
you that these systems will perform as expected which could cause us to lose
customers.
THE E-COMMERCE INDUSTRY IS RAPIDLY CHANGING AND OUR FAILURE TO ADAPT TO NEW
TECHNOLOGIES COULD ADVERSELY AFFECT OUR BUSINESS.
The e-commerce industry is characterized by:
- rapid technological changes;
- frequent emergence of new industry standards and practices; and
- continual changes in user and customer requirements and preferences.
Failure to adapt to the evolving technologies, industry standards and user
requirements and preferences on an ongoing basis could have a material adverse
effect on our ability to attract customers for our point of sale and e-commerce
operations. We cannot assure you that we will be successful in this regard.
BEING FOCUSED ON THE ELECTRONIC COMMERCE AND TELECOMMUNICATIONS INDUSTRIES, WE
LACK BUSINESS DIVERSIFICATION.
We have focused our business efforts within the electronic commerce and
telecommunications industries. In all likelihood, our proposed operations, even
if successful, will result in a business combination with only a limited number
of entities. Consequently, the resulting activities may be limited to those
entities' businesses. Our inability to diversify our activities into a number of
areas may subject us to economic fluctuations within a particular business or
industry, thereby increasing the risks associated with our operations.
WE ARE DEPENDENDANT UPON OUR MANAGEMENTS' ABILITY TO IDENTIFY AND CREATE
BUSINESS OPPORTUNITIES AND STRATEGIC PARTNERSHIPS.
The success of our proposed plan of operation will depend to a great extent on
the operations, financial condition and management of identified business
opportunities. While management intends to seek business combinations with
entities having established operating histories, we cannot provide assurance
that we will successfully locate candidates meeting such criteria. If we
complete a business combination, the success of our operations may be dependent
upon management of the successor firm or venture partner firm together with
numerous other factors beyond our control.
13.
<PAGE> 14
WE MAY BE ADVERSELY AFFECTED BY THE LOSS OF ANY OF OUR OFFICER'S SERVICES.
We rely on the experience and business relations of our officers to effectuate
our business plans. Many of our officers have not yet entered into written
employment agreements, nor have we obtained key man life insurance for such
individuals. The loss of the services of any of such officers could adversely
affect .
THERE IS SIGNIFICANT COMPETITION FOR BUSINESS OPPORTUNITIES AND COMBINATIONS
WITH OTHER COMPATIBLE TELECOMMUNICATIONS COMPANIES.
We are, and will continue to be, an insignificant participant in the business of
seeking mergers and joint ventures with, and acquisitions of small private
entities. A large number of established and well financed entities, including
venture capital firms, are active in mergers and acquisitions of companies which
may also be desirable target candidates for us. Nearly all such entities have
significantly greater financial resources, technical expertise, and managerial
capabilities than we do. Consequently, we are at a competitive disadvantage in
identifying possible business opportunities and successfully completing a
business combination. Moreover, we will also be competing with numerous other
small public companies in seeking merger or acquisition candidates.
WE MAINTAIN NO PREDETERMINED STANDARDS FOR BUSINESS COMBINATIONS AND WE MAY BE
UNABLE TO NEGOTIATE FAVORABLE TRANSACTIONS IN THE FUTURE.
There can be no assurance that we will successfully identify and evaluate
suitable business opportunities or conclude a business combination. There is no
assurance that we will be able to negotiate a business combination on favorable
terms. We have not established a specific length of operating history or a
specified level of earnings, assets, net worth or other criteria that we will
require a target business opportunity to have achieved. Accordingly, we may
enter into a business combination with a business opportunity having no
significant operating history, losses, limited or no potential for earnings,
limited assets, negative net worth or other negative characteristics.
IN SEEKING STRATEGIC PARTNERS AND BUSINESSES FOR COMBINATION, WE ARE SUBJECT TO
PROBABLE CHANGES IN CONTROL AND MANAGEMENT.
A business combination involving the issuance of our common stock may result in
shareholders of a private company obtaining a controlling interest in our
ownership. Any such business combination may require our management to sell or
transfer all or a portion of our common stock held by them, or resign as members
of the Board of Directors. The resulting change in control of our ownership
could result in removal of one or more present officers and directors and a
corresponding reduction in or elimination of their participation in our future
affairs.
OUR INTENDED BUSINESS COMBINATIONS MAY DILUTE THE PERCENTAGE SHARE OWNERSHIP OF
OUR INVESTORS.
14.
<PAGE> 15
Our primary plan of operation is based upon a series of business combinations
with private or small public concerns which, in all likelihood, would result in
our issuing securities to shareholders of such private or small public
companies. Issuing previously authorized and unissued common stock will reduce
the percentage of shares owned by present and prospective shareholders, and a
change in our control and/or management.
FUTURE BUSINESS COMBINATIONS COULD RESULT IN ADVERSE TAX IMPLICATIONS.
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination that we may undertake. Typically,
these transactions may be structured to result in tax-free treatment to both
companies, pursuant to various federal and state tax provisions. We intend to
structure any business combination so as to minimize the federal and state tax
consequences to both us and the target entity. Management cannot assure that a
business combination will meet the statutory requirements for a tax-free
reorganization, or that the parties will obtain the intended tax-free treatment
upon a transfer of stock or assets. A non-qualifying reorganization could result
in the imposition of both federal and state taxes, which may have an adverse
effect on both parties to the transaction.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL FUNDS, WHICH COULD PREVENT US FROM
IMPLEMENTING OUR BUSINESS PLAN.
We need additional financing for future capital expenditures to implement our
business plan, including:
- development of our product offerings and our back office systems;
- offering new telecommunications and e-commerce services;
- acquisition of synergistic companies or other business opportunities; and
- financing operating losses.
We cannot assure you that any additional financing will be available to us on
favorable terms or at all. If we cannot obtain additional financing when
necessary, our ability to implement our business plan will be impaired.
WE HAVE LIMITED INFORMATION ABOUT OUR SHAREHOLDERS.
We believe a substantial portion of our equity securities are held by non-U.S.
persons, including non-U.S. banks that hold securities on behalf of their
customers and are prohibited by local bank secrecy laws from disclosing
information regarding the beneficial ownership of accounts. As a result,
non-U.S. persons may be able to substantially influence the markets of our
common stock. We could have difficulty in effecting service of process and
enforcing civil liabilities arising under U.S. securities laws against non-U.S.
persons.
15.
<PAGE> 16
WE ARE SUBJECT TO FOREIGN EXCHANGE RATE RISKS
The revenue and expenses from our point of sale and other international
operations will largely be in Euros and deutsche marks (which as of January 1,
1999 are fixed to the Euro), instead of the dollar, our reporting currency. As
we expand our international operations, we expect that we will continue to
generate revenues in currencies other than the dollar. Accordingly, our revenues
from our international operations will continue to be impacted by fluctuations
in the exchange rate of the Euro and deutsche mark against the U.S. dollar. As a
result, we will be exposed to foreign currency exchange risks, and our results
of operation will likely be effected by fluctuations in value in the local
currency. Such risks generally depend on economic and political events over
which we have no control.
PURCHASES AND SALES OF OUR STOCK ARE SUBJECT TO PENNY STOCK REGULATIONS
Our stock has had a market price of less than $5.00 per share in recent times.
The SEC has adopted regulations which generally define "penny stock" to be any
equity security that has a market price (as defined) less than $5.00 per share
or an exercise price less than $5.00 per share, subject to certain exceptions.
During periods when our common stock does not qualify for inclusion on the
Nasdaq SmallCap Market, the common stock will be subject to rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule prepared by the SEC
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell our common stock
and may affect the ability of investors to sell our common stock in the public
market.
(3) REPORTS TO SECURITY HOLDERS
Hancock, our predecessor, was a publicly reporting corporation. Following our
acquisition of Hancock, we are now required to file reports with the Securities
and Exchange Commission ("SEC"). We plan to prepare and provide annual reports
to our security holders beginning in 2001.
A copy of materials filed with the SEC may be obtained and copied at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC maintains an internet
16.
<PAGE> 17
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at the site
http://www.sec.gov.
B. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Prior to May 30, 2000, 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 from the OTC Bulletin Board in accordance
with NASD Market Rule 6530. Our common stock is currently listed in the
electronic pink sheets. We intend to re-list the common stock on the OTC
Bulletin Board after the SEC has completed its review of this Form 8-K/A and any
amendments required thereto.
Overview of our Business and Results of Operations
You should bear in mind that during all of 1998 and the first half of 1999 that
we were engaged in a business different from our current business model. We have
accounted for that business as a discontinued operation in our financial
statements. During 1999, we changed our focus, and as part of this change we
divested of Orion Canada, and acquired two German companies, EZ Electronic
Payment Systems (EZ Elektronische Zahlungssysteme GmbH) ("EZ") and EPS
Electronic Processing (EPS Elektronische Processing Systems GmbH) ("EPS") both
engaged in the business of rental of point of sale equipment and processing
transactions for electronic funds transfers at points of sales (EFT/POS). Our
focus is on providing electronic commerce and telecommunications services. In
December 1999, we formed Globalinx, a wholly owned subsidiary that is
concentrating on providing integrated telecommunications services. Operations
for both of these entities have only recently commenced. Before the acquisition
of EZ and EPS, our business consisted solely of the operations of our subsidiary
Orion Canada that was heavily focused on e-commerce in the banking business in
Asia Pacific. We divested Orion Canada on June 15, 1999 due to its sustaining of
material losses and our belief that such losses could not be easily remedied.
We are focusing on developing the infrastructure necessary to grow both our
domestic and European EFT/POS and telecommunications operations, and we have
incurred certain costs related to that development. Many of our lines of
business are in their early stages of development. EZ is a relatively young
company, it began generating revenue in 1997, and Globalinx, formed in late
1999, began generating revenue during April 2000.
As a part of our plan, in January 2000, we entered into a joint venture
agreement as a one-third partner in Rodan Telecom Sp.zo.o located in Warsaw
Poland. We have agreed to invest $350,000 in three installments in Rodan Telecom
to acquire a one-third interest. We made our first installment of $100,000 in
January 2000, plan to make its second installment of $150,000 in June 2000, and
our third and final installment of $100,000 in July 2000. The other one-third
partners are Zeto-Rodan Ltd. and CG Parkiet, both Polish companies. Zeto-Rodan
has developed a comprehensive family of integrated software products designed
for the Polish securities trading market. Over the past five years, these
products have become the standard and are used by leading firms ranging from
Polish banks to multinationals such as Credit Swiss First Boston,
17.
<PAGE> 18
Citibrokerage S.A. and ING Baring, who collectively serve approximately 300,000
brokerage accounts in Poland. Parkiet is the leading business information
publisher in Poland. They publish a daily paper and periodic magazine-style
analysis of the Polish financial and economic markets and participate in a
consortium of the leading financial publishers throughout the world. Rodan
Telecom has developed a new service known as ParkietOnLine Professional, which
we believe is the first of its kind in the Polish marketplace. The service
allows users to monitor realtime buy and sell bids, trades, index values, and
specific trade data, such as volume, in automatically updated tables and charts.
In the future, Rodan Telecom plans to expand the ParkietOnLine service to offer
its securities firm users the ability to provide on-line securities trading to
their brokerage account customers. This enterprise began commercial service in
March of 2000.
Also, in January 2000, we entered into a non-binding letter of intent to
acquire a company that manufactures and sells products and electronic systems
that enhance the capabilities of point of sale (POS) equipment to verify
individual transactions and document any evidence of theft. The equipment
interfaces with cameras, video tape, and ATM or cash registers, to ensure the
integrity and accuracy of transactions for retailers and banks. The market and
customer base of the target company is similar to that of EZ (small to mid-size
banks, retail and commercial businesses), although to date, the target has
concentrated its marketing efforts in the United States. We are currently
engaged in final negotiations of the acquisition documents prepared for this
transaction. The acquisition documents currently provide for our issuance of up
to 250,000 shares of our common stock as consideration for the target company.
We believe that the target company will provide value added services to our
electronic funds transfer and point of sale business and allow our family of
companies to further capitalize on marketing synergies between them. We expect
this acquisition to be consummated by June 30, 2000.
Pursuant to a Share Exchange Agreement dated February 22, 2000, we acquired all
of the issued and outstanding capital stock of Hancock Holdings, Inc. Pursuant
to Rule 12g-3(a) of the General Rules and Regulations of the Securities and
Exchange Commission, we became the successor issuer to Hancock for reporting
purposes under the Securities Exchange Act of 1934, which was the sole reason
that we acquired Hancock. Prior to our acquisition of Hancock, Hancock was a
publicly reporting shell company with substantially no assets or liabilities,
and no operations.
In March 2000, we entered into a non-binding letter of intent for the
acquisition of a 40% interest in a privately held affinity and network marketer
of telecommunications services located in Scottsdale, Arizona for up to
$6,000,000 of which up to $625,000 will be advanced in the form of a convertible
loan, with the remaining amount in Company common stock if and when revenue
projections are met. We entered into a Promissory Note and Security Agreement
with this company under which they can borrow up to $625,000. We have advanced
this company a total of $250,000 in March, and in April advanced them an
additional $80,000 under this Agreement, for a total advance of $330,000. This
amount and subsequent loan advances can be converted to equity at the time of
closing.
In order to expand our business operations, we seek to acquire additional
companies in the EFT/POS, e-commerce and telecommunications marketplace through
merger, acquisition and strategic alliance. In particular, we intend to continue
to expand our market share within the rapidly growing telecommunications
industry. The need for wireless and Internet-based protocols
18.
<PAGE> 19
of telecommunications is anticipated to grow exponentially. Technology research
firm Dataquest expects that the number of wireless data subscribers in the U.S.
alone will explode from three million in 1998 to 36 million in 2003. (Forbes
Daily Newsletter 12/03/99) The International Telecommunications Union believes
that cellular will overtake fixed-line access for voice and Internet access
within five years. The next generation of wireless and web integration is
merging into a universal handset with global service. Wireless Access Protocol
will enable multi-media communications capabilities for all mobile phone users.
We believe that Internet Protocol (IP) telephony will lead the next generation
in telecommunications services. IP telephony domestic Minutes of Use (MOU) will
grow from five billion MOU in 2000 to over 50 billion MOU in 2005. A recent
survey of information system and telecom managers at major U.S. corporations
found that 80 percent have IP-based network architectures; of the remaining 20
percent, half intend to migrate to IP in 2000 (The Yankee Group). The Company is
actively seeking strategic alliances and the development of its own capabilities
to deliver services within this convergent technology.
Results of Continuing Operations
We incurred losses from operation of $1,293,710 or $0.75 per share and $999,114
or $0.78 per share during the years ended December 31, 1999 and 1998,
respectively. We also incurred losses from discontinued operations of $850,819
and $3,291,036 during the years ended December 31, 1999 and 1998 and an
extraordinary loss of $408,830 during the year ended December 31, 1999. As
outlined above, we have entered into several non-binding letters of intent for
acquisitions that we expect to close during the second or third quarter of 2000.
We also entered into, and began to fund our investment in a Polish joint
venture. We anticipates that these entities will 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.
We strongly 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.
We expect this to include additional acquisitions to those identified above, all
of which will need to be integrated, and will provide us with expanded product
offerings in our areas of focus.
REVENUES - In connection with our acquisition of EZ on July 8, 1999, we began
generating revenues, recognizing $62,556 of revenue during 1999. We had never
recorded revenues before. Our revenue was derived entirely from the rental and
transaction processing of Point of Sale terminals to EZ's customer in Germany.
We believe that this business has significant growth potential, in part through
the sale of additional services that will be available to us when we close our
planned acquisition of the company that manufactures and sells products and
electronic systems to enhance the capabilities of POS equipment to verify
individual transactions and document evidence of employee theft.
We began recognizing revenue from the resale of long distance telecommunications
services in Globalinx in April 2000. Globalinx presently services over 15,000
customers.
19.
<PAGE> 20
EXPENSES - During the year ended December 31, 1999, we incurred general and
administrative expenses totaling $1,306,615 representing an increase of $408,329
over the amount incurred during 1998. We noted that when the December 31, 1999
general and administrative expenses are adjusted for cost that were incurred by
our German subsidiaries of $302,990 and depreciation and goodwill amortization
of $526,727, our Orion stand alone general and administrative costs actually
decreased. This is due to Orion having had very little business activity during
the first half of 1999.
We expect our general and administrative costs to continue to increase in 2000
and beyond, as we implement our business plan, which will include increased
business and acquisition activity and the expansion of our employee base. As we
complete additional acquisitions, we anticipate that we will acquire additional
property and equipment, and will record additional goodwill. We expect goodwill
and depreciation expense to also continue to increase in the future.
INCOME TAXES - There was no provision for federal or state income taxes for the
period from our inception due to our operating losses. At December 31, 1999 and
1998, 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.
Discontinued Operations - Disposal of Orion Canada
On July 15, 1999, the Company completed the disposal of its previous e-commerce
operations, consisting of the Company's subsidiary, Orion Canada, to eXcape.Net,
Inc., a company formed by the management of Orion Canada to acquire Orion
Canada.
In exchange for all the capital stock of Orion Canada and the forgiveness of an
intercompany receivable of $7,769,979 due from Orion Canada, the Company
received 461,818 shares of its issued and outstanding common stock held by the
management of Orion Canada, 5,000,000 shares of eXcape.Net, Inc. (valued by the
Company at $5,000) and assumption of liabilities of the Company by eXcape,
totaling $176,068 which existed at the time of the divestiture. The Company
accounted for this transaction as a reorganization, and recorded no gain or loss
on the sale of Orion Canada. Orion Canada reported net losses from operations of
$850,819 and $3,291,036 during 1999 and 1998, respectively.
Extraordinary Loss - Conversion of Debt to Equity
During 1999, we recognized an extraordinary loss of $408,830 related to the
conversion of $1,573,489 of debt into 428,517 shares of common stock. In order
to entice the holders of this debt to convert their debt into common stock, we
offered these holders a 30% discount off our common stock market price. As
described in Note 6 to the financial statements, we converted $248,950 of debt
owed to NewDominion, a related party, into 75,807 shares of common stock.
In connection with our acquisition of EZ, we assumed $2,225,119 of debt that, as
a condition of our acquisition, we converted into 657,601 shares of common
stock. As described in Note 6 to
20.
<PAGE> 21
the financial statements, we recorded $116,374 as additional goodwill in
connection with the conversion of this debt.
Cash Flow, Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCE - Since inception we have primarily financed our
company through private equity financings. Since our formation as Geoasia in
1996, through the merger with Orion Technologies, Inc, ("Old Orion") in 1997, we
have raised approximately $9,611,000 through December 31, 1999 from the sale of
our capital stock in private placements.
Since December 31, 1999, we have raised approximately $1,120,000 from the sale
of our common stock primarily in offshore private placements with European
investors. In March 2000, the Company entered into a Funding and Subscription
Agreement with OIF Optimum Investment Finance AG (OIF) for the sale of up to
1,000,000 shares of the Company's common stock to OIF at a minimum price of
$4.00 per share, subject to adjustment, as set forth in the Agreement. As part
of this Agreement, OIF has committed to provide working capital and operating
funds of up to $3,000,000 to the Company in four quarterly installments of
$750,000 beginning in May 2000. The Agreement also provides for OIF to fund the
Company with up to $1,500,000 of additional expansion funds for acquisitions,
mergers or strategic partnerships. The Agreement was entered after the
completion of the annual budgeting and planning process for the Company. The
amount and timing of additional working capital and expansion funding was
determined as a result to that planning process. As of May 15, 2000, OIF has
provided the Company with $403,000 through the purchase of 89,556 shares of
Company common stock under this Agreement.
We currently have no bank loans or lines of credit available for our use.
ANALYSIS OF CASH FLOWS - Net cash used in operating activities for the year
ended December 31, 1999 was $655,450, which represented a decrease from $856,217
used during the year ended December 31, 1998. This reduction in cash flows was
primarily due to our management of cash flows and the acquisition of EZ and EPS.
Net cash used in investing activities during 1999 consisted of the cash paid,
net of cash received, for EZ and EPS, and equipment purchases. 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 from financing activities was $781,500 for the year ended December 31,
1999 from the sale of 903,828 shares of our common stock. During the year ended
1998, we received funds from the sale of our common stock totaling $689,661 and
from borrowings of $1,029,247. We converted this debt into equity during 1999 as
described below.
We expect to experience significant growth in our operating expenses in the
future, particularly as we acquire new companies, enter into strategic
partnerships and expand our product offerings as we execute our business plan.
As a result, we anticipate that these operating expenses, as well as planned
capital expenditures, will constitute a material use of our future cash
resources. In
21.
<PAGE> 22
addition, we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of common stock under the Funding and Subscription
Agreement with OIF, supplemented by any cash flows from our operations, will be
sufficient to meet our operational and capital expenditure requirements for at
least the next twelve months. Thereafter, we may find it necessary to obtain
additional equity or debt financing. In the event additional financing is
required, we may not be able to raise it on acceptable terms or at all. Any
failure to raise additional financing will likely place the Company in
significant financial jeopardy. Therefore, the Company cannot predict the
adequacy of its capital resources on a long-term basis.
Year 2000 Issues
We did not experience any significant problems associated with Year 2000 issues,
and we are not aware that any of our suppliers or vendors are experiencing any
such problems.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, or SFAS 133. SFAS 133 requires us to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through net income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of assets,
liabilities, or firm commitments through earnings or recognized in the other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings. SFAS 133 is effective for our fiscal year ending
December 31, 2001. We do not currently hold any derivatives and do not expect
this pronouncement to materially impact our results of operations.
Quantitative and Qualitative Disclosures About Market Risk Disclosures
FOREIGN CURRENCY RATE FLUCTUATIONS - The functional currency for our German
subsidiary is the deutsche mark. Our German subsidiary's accounts are translated
from the German deutsche mark to the U.S. dollar using the current exchange rate
in effect at the balance sheet date, for balance sheet accounts, and using the
average exchange rate during the period, for revenues and expense accounts. The
effects of translation are recorded as a separate component of stockholders'
equity, and to date, have not been material. Our German subsidiary conducts its
business in local European currencies. Exchange gains and losses arising from
these transactions are recorded using the actual exchange differences on the
date of the transaction. We have not taken any action to reduce our exposure to
changes in foreign currency exchange rates, such as options or futures
contracts, with respect to transactions with our German subsidiary or
transactions with our European customers.
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C. DESCRIPTION OF PROPERTY
Our principal executive offices are currently located at 1800 Diagonal Road,
Suite 500, Alexandria, Virginia 22314, where we sublease corporate offices under
a verbal month-to-month lease agreement with NewDominion Capital Group Inc. for
$1,500 a month. We have outgrown our Alexandria offices and will be moving to
larger corporate offices at 1133 21st Street, N.W. in the District of Columbia
before June 15, 2000. The new space includes four executive offices and computer
equipment and Internet and telecommunications access for $8000 a month and is on
a month-to-month basis. Globalinx's operational headquarters are in Alpharetta,
Georgia, where we have negotiated to rent 4,000 square feet of office space for
the monthly rent of $6,500 with a lease term expiring in January 2002. EZ
operations are based in Sprendlingen/Dreieich, Germany, where it leases office
space and parking spaces at a rate of $3,350 (DM 6,700) per month and a term
expiring on September 30, 2001. EZ also shares a small office in Warsaw, Poland
at a nominal monthly rent. We do not own or invest in any real estate or
interests in real estate.
D. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information on the beneficial ownership of our
outstanding common stock as of May 15, 2000 by each person or group that owns
more than 5% of the outstanding common stock, each of our directors and
executive officers and all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the U.S.
Securities and Exchange Commission and includes shares over which the listed
beneficial owner exercises voting and/or investment power. Except as otherwise
indicated, we believe the beneficial owners of the common stock listed below
have sole voting and investment power with respect to the number of shares
listed opposite their name.
<TABLE>
<CAPTION>
AMOUNT OF COMMON STOCK PERCENT OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED(1)
<S> <C> <C>
Directors and Officers
----------------------
A. Frans Heideman 75,807(2) 1.8%
Klaus Maedje 24,836 *
James D.M. McComas 0 *
Preston W. Riner 0 *
All current directors and officers
as a group (four persons) 100,633 2.5%
5% or More Stockholders
-----------------------
First Capital Invest Corp. 443,255(3) 10.3%
P.O. Box 2071
Muhlebachstrasse 54
CH8032
Switzerland
Maximum Investments Ltd. 397,222 9.3%
c/o Dr. Marco Stoffel & Partner
Dolderstrasse 16
CH-8034
Zurich, Switzerland
OIF Optimum Investment FinanceAG 1,711,556(4) 39.9%
</TABLE>
23.
<PAGE> 24
29 Renweg
CH-8001
Zurich, Switzerland
* Represents a less than 1% interest
(1) Based on 4,293,133 shares issued and outstanding as of May 15,
2000.
(2) These shares are held in the name of NewDominion Capital Group,
Inc., a company controlled by Mr. Heideman.
(3) First Capital Invest Corp. ("FCIC") has advised us that such
shares are held as nominee for various clients of FCIC, none of whom
beneficially own more than 400,000 shares of Orion stock and none of
whom are acting in concert. FCIC has advised us that its clients have
voting power and investment power with respect to these shares and that
FCIC disclaims beneficial ownership of these shares
(4) OIF Optimum Investment Finance AG ("OIF") has advised us that such
shares are held as nominee for various clients of OIF, none of whom
beneficially own more than 400,000 shares of Orion stock and none of
whom are acting in concert. OIF has advised us that its clients have
voting power and investment power with respect to these shares and that
OIF disclaims beneficial ownership of these shares.
E. DIRECTORS AND EXECUTIVE OFFICERS
(a) The following table presents information about each of our executive
officers and directors, who will serve until our next annual meeting, or until
their successors are elected or appointed and qualified.
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
---- --- -----------
<S> <C> <C>
A. Frans Heideman 57 President, Secretary and Director
James D. M. McComas 62 Chief Financial Officer, Treasurer
and Director
Preston W. Riner 52 President of Globalinx
Klaus Maedje 48 Director
</TABLE>
A. Frans Heideman. Mr. Heideman was elected to our Board of Directors and as
Secretary in August 1997 and became our President and Secretary in February
1999. He has had a career in international investment banking, trade and
management. In 1993, Mr. Heideman formed NewDominion Capital Group, Inc., a
merchant banking and investment banking services company, and has served as
NewDominon's president since its inception. Prior to NewDominion, he was a
partner of Peers & Co., a merchant bank, and the President of Peers' Trading. In
those capacities he worked with major Scandinavian electronics firms and Peer's
purchase and management of Lloyd's Electronics. Mr. Heideman has been a
principal shareholder and chief executive of firms actively involved in business
throughout the world, including Gates Learjet Distributorship for the entire
Middle East, Linx Building Systems, a G.E. licensed manufacturer of building
products, and Semicon, a distributorship for National Semiconductor throughout
Northern Europe. Mr. Heideman currently serves on the board of a number of
publicly traded portfolio companies including US Digital Communications, Inc.
and Pyrocap International, Inc.
24.
<PAGE> 25
He served on the Board or Directors of ZMAX Corporation, a Nasdaq listed
company, from 1996 until 1997.
James D.M. McComas. Mr. McComas was appointed as the Company's Chief Financial
Officer in March 2000 and became a Director in May 2000. Mr. McComas has been
engaged as a venture investor and financial consultant since leaving his
position at Johns Hopkins in 1992. From 1997 through 1999, Mr. McComas was the
Managing Director of Cambridge Capital Management Group LLC who were engaged in
forming a Small Business Investment Corporation under the sponsorship of the
SBA. He has extensive experience in finance, banking and management. He began
his career at Chase Bank as Assistant Treasurer and lending officer in London.
During his career he has served as the International Treasurer and Director of
Finance for General Foods International and Vice President and Treasurer of the
food products division of W.R. Grace & Co., and the Executive Vice President in
charge of International and Domestic Banking at Riggs National Bank in
Washington D.C. Most recently, from 1984 to 1992, Mr. McComas was the founding
President of Dome Corporation, the for-profit business development arm of Johns
Hopkins University and Health Systems, where he formed and operated a technology
transfer venture fund to commercialize university research and technology. Mr.
McComas served as a Director and Treasurer of Orion for one year during 1997 and
1998. He resigned to assume responsibilities as Managing Director of Cambridge
Capital Management Group.
Preston W. Riner. Mr. Riner has been an executive consultant to Orion since
October 1999 and has been the President and a director of Globalinx since its
formation in December 1999. Mr. Riner is a 32-year veteran of the
telecommunications industry. He has extensive experience in global network
services, emerging technologies and telecommunications management. He began his
career with AT&T with positions in Operations and Engineering, National Accounts
Sales and Marketing and Director of Sales Promotions. He was Sales Director for
Octel Communnications from 1987 until 1989 and Vice President and General
Manager for Boston Technology from 1989 to 1995. In 1995, he founded Enhanced
Personal Communications, Inc. and served as its President and CEO until its
acquisition by US Digital Communications, Inc. in January 1999. Mr. Riner
continued as Managing Director of US Digital Communications, Inc. until June
1999.
Dipl. Kfm. Stb. Klaus Maedje. Mr. Maedje was appointed to our Board of Directors
in July 1999 in connection with the acquisition of EZ and EPS. From 1982 to the
present, Mr. Maedje has been a principal in his own firm that specializes in
providing tax and business advice along with performing audits for business
client companies in Germany. Mr. Maedje received his degree in business
administration from the University of Cologne.
(b) We have 8 employees, consisting of 2 executive officers of Orion and 6
employees of EZ. We also have 4 full time consultants operating Globalinx.
(c) No family relationships between our executive officers or directors
exists.
(d) No legal proceedings have been instituted in the previous five years
against our directors or officers.
25.
<PAGE> 26
F. EXECUTIVE COMPENSATION
The following table sets forth summary information about the compensation paid
to our executive officers and directors for the last two fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY/ FEES BONUS
--------------------------- ---- ------------ -----
<S> <C> <C> <C>
A. Frans Heideman, President, CEO, 1998 0(1) 0
Secretary and Director
1999 0(1) 0
James D.M. McComas, Chief Financial 1998 $48,000 0
Officer, Treasurer and Director
1999 0 0
Preston W. Riner, President of 1999 $29,820 0
Globalinx
Klaus Maedje, Director 1999 0 0
</TABLE>
We have not adopted or implemented any stock option plans and have not awarded
any options or stock appreciation rights during the last fiscal year.
Compensation of Directors. No compensation has been determined or paid for our
directors. Pursuant to our Articles of Incorporation, the Board of Directors is
entitled to approve compensation for our directors and officers. A former
director of the company was awarded 3,000 shares of common stock upon his
resignation.
Employment Contracts And Termination of Employment. We are currently in the
process of negotiating written employment contracts with each of our executive
officers and anticipate these agreements will be finalized on June 15, 2000. The
base salaries have been set at $180,000 for Mr. Heideman, $132,000 for Mr.
McComas and $150,000 for Mr. Riner. We have no compensation plan or
arrangement that provides for compensation in the event of a termination or
resignation of the executive officer or directors.
G. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------
(1) We incurred an obligation to NewDominion Capital Group, Inc., a company
controlled by Mr. Heideman, in the amount of $193,000 and $171,000 during 1999
and 1998 respectively, for various management and related services. $80,000 of
this amount was for the services of Mr. Heideman as our President and CEO in
1999 and $63,000 was for Mr. Heideman's services in 1998.
26.
<PAGE> 27
The following transactions have been undertaken within the past two years with
related parties.
We have a verbal agreement with NewDominion Capital Group, Inc., a company in
which Frans Heideman is a controlling shareholder, for the provision of office
space, office support, management and consulting services and other business
related services. We use a limited amount of office and records storage space
provided by NewDominion. We reimburse NewDominion for all charges we incur for
long distance telephone calls and other miscellaneous secretarial, photocopying,
and similar expenses. We incurred approximately $193,000 for the office space
and above services during 1999, of which $66,000 was payable at December 31,
1999. The $193,000 amount incurred for 1999 includes $80,000 for the services of
Mr. Heideman as our chief executive officer. For the quarter ended March 31,
2000, we incurred approximately $85,000 for office space and services from
NewDominion, including $30,000 for the services of Mr. Heideman. Of these
amounts incurred during the first quarter 2000, $45,000 is still payable.
Klaus Maedje, one of our directors, earns fees for bookkeeping and preparation
of accounting and tax reports for EZ. Since July 15, 1999, when EZ was acquired
by us, Mr. Maedje has been paid approximately $5,150 for services rendered to
EZ. Fees for Mr. Maedje's services in connection with EZ's 1999 financial
statements and tax declarations have not yet been billed. In addition, at the
time of our acquisition of EZ, Mr. Maedje had accrued fees of approximately
$39,000 which amount has not been paid. We have agreed with Mr. Maedje to pay
these fees with 9,736 shares of our common stock at $4.00 per share.
No officer, director, or member of our management is or has been indebted to us.
No director or officer is personally liable for the repayment of amounts by any
financing received by the Company.
H. DESCRIPTION OF SECURITIES
We have an authorized capitalization of 100,000,000 shares of common stock,
$.001 par value per share, and 2,500,000 authorized shares of preferred stock
with no par value. Our Articles of Incorporation authorize our Board of
Directors to direct the issuance of shares of preferred stock in one or more
series from time to time and to fix the designations, powers, preferences,
rights, qualifications, limitations and restrictions of each series of preferred
stock. These rights may include voting rights, dividend rates and whether
dividends are cumulative, terms and conditions of redemption or conversion, and
rights upon liquidation.
Common Stock
As of May 15, 2000, there were 4,293,133 shares of our common stock issued and
outstanding. The holders of the common stock are entitled to one non-cumulative
vote for each share held of record on all matters submitted to a vote of
shareholders. Subject to preferences that may be applicable to outstanding
shares of preferred stock, if any, the holders of our common stock are entitled
to ratably receive any dividends that are declared by the Board of Directors out
of funds legally available therefor and are entitled to share ratably in all of
the assets available for distribution to holders of our common stock upon
liquidation dissolution or winding up of our
27.
<PAGE> 28
business affairs. Holders of our common stock have no preemptive, subscription
or conversion rights and there are no redemption or sinking fund provisions or
rights applicable thereto.
Preferred Stock
Pursuant to the Certificate of Designation filed with the Secretary of State of
Nevada on September 5, 1997, we created the Series A Preferred Stock
designation. As of May 15, 2000, there were 65,000 shares of the Company's
Series A Preferred Stock issued and outstanding at a face price of $5.50 per
share. The Series A Preferred Stock is entitled to receive a dividend of 8% per
annum of the face price which dividends began accruing on January 1, 1998 and
are payable each year if surplus or net profits are available therefor and if
such funds are not available, the dividend accumulates from year to year. The
Series A Preferred Stock has no voting rights and is not transferable by the
holder. We may redeem the Series A Preferred Stock at any time for the purchase
price plus any accrued unpaid dividends provided that we have offered to
exchange each share of Series A Preferred Stock for 1.05 shares of common stock
and warrants to purchase additional shares of common stock, and a registration
statement registering the issuance of such common shares and warrants is in
effect.
Our Board of Directors, without shareholder approval, may issue additional
preferred stock with voting and conversion rights that could materially and
adversely affect the voting power of the holders of common stock. The issuance
of preferred stock could also decrease the amount of earnings and assets
available for distribution to holders of common stock. In addition, the issuance
of preferred stock may have the effect of delaying or preventing a change of
control of our ownership. At present, we have no plans to issue any additional
shares of preferred stock.
Reference is made to our Articles of Incorporation, as amended, and our By Laws
as well as to the applicable statutes of the State of Nevada for additional
details on the rights, privileges, and liabilities of holders of our capital
stock.
PART II
A. MARKET PRICE OF AND DIVIDENDS ON THE COMMON EQUITY AND OTHER RELATED
STOCKHOLDER MATTERS
Our common stock is traded on the Electronic "Pink Sheets", under the symbol
"ORTG." Prior to May 30, 2000, our common stock was traded on the OTC Bulletin
Board, a service provided by the Nasdaq Stock Market, Inc. The common stock was
removed from the OTC Bulletin Board in accordance with NASD Market Rule 6530,
requiring that we register the common stock with the Securities and Exchange
Commission. We intend to re-list the common stock on the OTC Bulletin Board
after the SEC has completed its review of this Form 8-K/A and any amendments
thereto which it may require. As of May 15, 2000, there are approximately 1,000
beneficial owners of common stock. As of May 15, 2000, the number of shares of
common stock outstanding is 4,293,133.
The following table sets forth the high and low bid prices for our common stock
as reported for each quarterly period within the last two fiscal years on the
OTC Bulletin Board. The prices have
28.
<PAGE> 29
been adjusted to reflect the 20-to-1 reverse split of our common stock effected
in July 1999. The prices are inter-dealer prices, do not include retail mark up,
mark down or commission and may not necessarily represent actual transactions.
OTC BULLETIN BOARD
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
<S> <C> <C>
March, 1998 158.74 60
June, 1998 160 80
September, 1998 96.26 30
December, 1998 44.36 15
March, 1999 18 4.38
June, 1999 11.26 3.12
September, 1999 3.5 1.5
December, 1999 3.5 1.19
March, 2000 9.19 2.5
May 22, 2000 8.5 3.0
</TABLE>
During the last two years, we have not paid any dividends and we do not
anticipate paying any cash dividends in the foreseeable future. Although it is
our intention to utilize all available funds for the development of our
business, no restrictions are in place that would limit or restrict our ability
to pay dividends.
B. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings, nor are our directors or
officers. We have no knowledge of any pending legal proceedings to which those
parties owning 5% of our stock are a party. We are not aware of any legal
proceedings contemplated, or threatened by or against us.
C. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
As the parent company of Hancock, we have replaced Hancock's principal
independent accountants, Cohen & Kameny CPAs PLCC, and intend to use our own
independent auditors, Grant Thornton, LLP. Cohen & Kameny's report on Hancock's
financial statements for the past fiscal year did not contain an adverse opinion
or disclaimer of opinion and was not modified as to uncertainty, audit scope, or
accounting principles. There were no disagreements with Hancock's former
accountant, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures, which
if not resolved would have caused Hancock's
29.
<PAGE> 30
former accountant to make reference to the subject matter of the disagreement(s)
in connection with its report.
Our decision to use Grant Thornton, LLP was approved by our Board of Directors.
D. RECENT SALES OF UNREGISTERED SECURITIES
(a) We have made the following sales of unregistered common stock during the
last three years.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
# OF SHARES
CLASS OF BEFORE # OF SHARES
DATE STOCK PURCHASER SPLIT* AFTER SPLIT* CONSIDERATION EXEMPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9/7/97 Series A Private Placement Purchasers 1,480,000** 1,480,000** $8,140,000 Regulation S
Preferred
-----------------------------------------------------------------------------------------------------------------------------------
9/8/97 Common Old Orion Shareholders 14,697,100 734,855 Exchange for Old Regulation S/
Orion Shares in Regulation D
Merger
-----------------------------------------------------------------------------------------------------------------------------------
9/8/97 Common Euro Swiss Securities 250,000 12,500 Finder's Fee Section 4(2)
-----------------------------------------------------------------------------------------------------------------------------------
3/24/98 Common Six Employees 25,860 1,293 Services rendered Section 4(2)
to Company
-----------------------------------------------------------------------------------------------------------------------------------
10/20/98 Common Private Placement Purchasers 73,820 3,691 $99,661 Regulation D,
Rule 504
-----------------------------------------------------------------------------------------------------------------------------------
10/20/98 Common Private Placement Purchasers 93,340 4,667 $140,000 Regulation D,
Rule 504
-----------------------------------------------------------------------------------------------------------------------------------
12/1/98 Common MFC Merchant Bank 366,660 18,333 $250,000 Regulation D,
Rule 504
-----------------------------------------------------------------------------------------------------------------------------------
12/30/98 Common MFC Merchant Bank 200,000 10,000 $200,000 Regulation D,
Rule 504
-----------------------------------------------------------------------------------------------------------------------------------
4/30/99 Common First Asset Management Ltd. 300,000 15,000 $50,000 Regulation D,
Rule 504
-----------------------------------------------------------------------------------------------------------------------------------
6/14/99 Common First Capital Invest Corp. 6,141,120 307,056 Conversion of Section 4(2)
Loan
-----------------------------------------------------------------------------------------------------------------------------------
6/14/99 Common Shafiq Nazerali 913,520 45,676 Fees/Expenses Section 4(2)
for Consulting
Services
-----------------------------------------------------------------------------------------------------------------------------------
6/14/99 Common New Dominion Capital Group 1,516,140 75,807 Fees/Expenses Section 4(2)
for Consulting
Services
-----------------------------------------------------------------------------------------------------------------------------------
7/8/99 Common EZ/EPS Equity Owners 500,000 25,000 Exchange for Section 4(2)
EZ/EPS Ownership
Stake
-----------------------------------------------------------------------------------------------------------------------------------
7/8/99 Common Maximum Investments Ltd. 7,944,440 397,222 Conversion of Section 4(2)
Loan to EZ/EPS
-----------------------------------------------------------------------------------------------------------------------------------
7/8//99 Common First Capital Invest Corp. - 3,856,240 192,812 Conversion of Section 4(2)
100,812; Loan to EZ/EPS
Patrick Ramelet - 92,000
-----------------------------------------------------------------------------------------------------------------------------------
7/9/99 Common First Asset Management Ltd. 519,900 25,495 $85,000 Regulation D,
Rule 504
-----------------------------------------------------------------------------------------------------------------------------------
8/5/99 - Common Private Placement Purchasers -- 1,800,000 $1,350,000 Regulation S
3/15/00
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
30.
<PAGE> 31
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
# OF SHARES
CLASS OF BEFORE # OF SHARES
DATE STOCK PURCHASER SPLIT* AFTER SPLIT* CONSIDERATION EXEMPTION
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/18/99 Common First Capital Invest Corp. - -- 67,567 Conversion of Loan Section 4(2)
35,327;
Patrick Ramelet - 32,240
-----------------------------------------------------------------------------------------------------------------------------------
2/22/00 Common Former Hancock Shareholders -- 150,000 Exchange for Section 4(2)
Hancock Shares
-----------------------------------------------------------------------------------------------------------------------------------
3/29/00- Common Private Placement Investors -- 89,556 $403,000 Regulation S
5/15/00
-----------------------------------------------------------------------------------------------------------------------------------
5/6/00 Common Jan A.J. Bout -- 3,000 Directors Fee Section 4(2)
-----------------------------------------------------------------------------------------------------------------------------------
5/12/00 Common Klaus Maedje -- 9,736 Fees/Expenses Section 4(2)
for Services
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* We effected a 20-1 reverse split of the common stock on July 9, 1999. The
terms of the reverse split required that no shareholder be reduced below 100
shares of common stock and we issued 1,239 additional shares of common stock to
15 shareholders to bring them up to the minimum shares.
** From December 1998 through July 1999, all but 65,000 of these Preferred
Shares were exchanged by the holders into approximately 259,416 shares of common
stock.
E. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Nevada law authorizes a Nevada corporation to indemnify its officers and
directors against claims or liabilities arising out of such person's conduct as
officers or directors if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation.
Our Articles of Incorporation, as amended, limit the director's and officer's
liability for monetary damages resulting from any breach of fiduciary duty. This
limitation of liability applies for all breaches of fiduciary duty unless such
breach was due to a breach of the duty of the director's loyalty, acts or
omissions not in good faith, certain acts specified by Nevada law, or a
transaction for the director's personal benefit.
The Articles of Incorporation also provides for the indemnification of our
directors and officers. Under this provision, our officers and directors are
indemnified against personal liability resulting from any criminal, civil,
administrative, or investigative proceeding. The Certificate of Incorporation
further empowers the Company to indemnify its officers and directors to the
fullest extent provided by law.
In addition, our Bylaws provide for indemnification of our directors, officers,
employees or agents. In general, these provision provide for indemnification in
instances when such persons acted in good faith and in a manner they reasonably
believed to be in or not opposed to our best interests.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
See Item 1 above.
31.
<PAGE> 32
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
ITEM 4. CHAGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
See Item 1, Part II, paragraph C above.
ITEM 5. OTHER EVENTS.
Not applicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following documents are attached hereto and incorporated herein by
reference.
A. FINANCIAL STATEMENTS
F-1 Audited consolidated balance
sheet as of December 31, 1999
and the related statements of
operations, cash flows, and
changes in stockholders' equity
for the two years in the period
ended December 31, 1999 (filed
herewith)
F-2 Unaudited pro forma financial
information (filed herewith)
B. EXHIBITS
3(i)(a) Articles of Incorporation.
(Incorporated by reference to
the Form 8-K filed on February
24, 2000)
(b) Certificate of Amendment to
Articles of Incorporation dated
August 13, 1996. (Incorporated
by reference to the Form 8-K
filed on February 24, 2000)
(c) Certificate of Amendment to
Articles of Incorporation dated
September 5, 1997. (Incorporated
by reference to the Form 8-K
filed on February 24, 2000)
32.
<PAGE> 33
(d) 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)
(e) 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(ii) Bylaws (Incorporated by
reference to the Form 8-K filed
on February 24, 2000)
10(i) Share Exchange Agreement.
(Incorporated by reference to
the Form 8-K filed on February
24, 2000)
10(ii) Funding and Subscription
Agreement (filed herewith)
16 Letter Re Change in Certifying
Accountant (Incorporated by
reference to the Form 8-K filed
on February 24, 2000)
27 Financial Data Schedule. (filed
herewith)
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Form 8-K/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORION TECHNOLOGIES, INC.,
A Nevada Corporation
Date June 1, 2000 By: /s/
----------------------
A. Frans Heideman,
President
33.
<PAGE> 34
F-1
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Orion Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Orion
Technologies, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the two years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Orion Technologies, Inc. and subsidiaries
as of December 31, 1999, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital
deficiency, and has experienced recurring losses and negative cash flow from
operations. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans with regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Grant Thornton, LLP
Vienna, Virginia
May 15, 2000
1
<PAGE> 35
ORION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 81,217
Accounts receivable 4,532
Prepaid expenses and other current assets 34,046
---------------------
Total Current Assets 119,795
Property and equipment, net 339,546
Goodwill, net 1,980,945
Other assets 5,000
---------------------
$ 2,445,286
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 297,588
Accrued expenses 259,284
---------------------
Total Current Liabilities 556,872
---------------------
Commitments and contingencies -
Stockholders' Equity:
Preferred stock no par value, 2,500,000 shares authorized, 65,000
shares issued and outstanding at December 31, 1999 135,328
Common stock $.001 par value, 100,000,000 shares authorized, 3,089,508
shares issued and outstanding at December 31, 1999 3,090
Additional paid in capital 34,985,443
Accumulated other comprehensive loss (50,009)
Accumulated deficit (33,185,438)
---------------------
Total Stockholders' Equity 1,888,414
---------------------
$ 2,445,286
=====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 36
ORION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Revenues $ 62,556 -
Operating expenses:
Selling, general and administrative 1,306,615 898,286
------------- --------------
Loss from operations (1,244,059) (898,286)
Interest expense (49,111) (100,828)
------------- --------------
Loss from continuing operations before extraordinary loss (1,293,170) (999,114)
Discontinued operations, net of tax (850,819) (3,291,036)
Extraordinary loss from conversion of debt, net of tax (408,830) -
------------- --------------
Net loss (2,552,819) (4,290,150)
Preferred dividends (29,040) (29,040)
------------- --------------
Net loss available to common stockholders (2,581,859) (4,319,190)
============= ==============
Basic and diluted loss per common share:
Loss from operations before discontinued
operations $ (0.75) $ (0.78)
Discontinued operations (0.49) (2.56)
Extraordinary loss (0.23) -
------------- --------------
Net loss $ (1.47) (3.34)
============= ==============
Weighted average common shares outstanding 1,741,019 1,284,835
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 37
ORION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
================================================================
NO PAR
SHARES VALUE SHARES PAR VALUE
================================================================
<S> <C> <C> <C> <C>
Balance at December 31, 1997 1,480,000 $ 3,081,300 1,248,980 $ 1,249
Comprehensive loss:
Net Loss - - - -
Foreign currency translation - - - -
Total comprehensive loss - - - -
Issuance of common stock for cash - - 26,691 27
Conversion of preferred stock to common stock (1,415,000) (2,945,972) 259,416 259
Issuance of common stock for services - - 1,293 1
Preferred stock dividend requirements - - - -
----------------------------------------------------------------
Balance at December 31, 1998 65,000 135,328 1,536,380 1,536
Comprehensive loss:
Net Loss - - - --
Foreign currency translation - - - --
Total comprehensive loss - - - --
Shares cancelled in connection with the divestiture of a segment - - (461,818) (462)
Conversion of debt into common stock - - 1,086,118 1,086
Share issued in connection with the purchase of subsidiaries - - 25,000 25
Issuance of common stock for cash - - 903,828 905
Preferred stock dividend requirements - - - -
----------------------------------------------------------------
Balance at December 31, 1999 65,000 $ 135,328 3,089,508 $ 3,090
----------------------------------------------------------------
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
PAID IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
CAPITAL DEFICIT LOSS EQUITY
================================================================
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 25,975,164 $(27,279,984) $ 168,164 $ 1,945,893
Comprehensive loss:
Net Loss - (4,290,150) - (4,290,150)
Foreign currency translation - - (280,347) (280,347)
--------------
Total comprehensive loss - - - (4,570,497)
Issuance of common stock for cash 689,634 - - 689,661
Conversion of preferred stock to common stock 2,945,713 - - -
Issuance of common stock for services 129,254 - - 129,255
Preferred stock dividend requirements (29,040) - - (29,040)
----------------------------------------------------------------
Balance at December 31, 1998 29,710,725 (31,570,134) (112,183) (1,834,728)
Comprehensive loss:
Net Loss - (2,552,819) - (2,552,819)
Foreign currency translation - - 62,174 62,174
Total comprehensive loss - - - (2,490,645)
Shares cancelled in connection with the divestiture of a segment 462 937,515 - 937,515
Conversion of debt into common stock 4,422,726 - - 4,423,812
Share issued in connection with the purchase of subsidiaries 99,975 - - 100,000
Issuance of common stock for cash 780,595 - - 781,500
Preferred stock dividend requirements (29,040) - - (29,040)
----------------------------------------------------------------
Balance at December 31, 1999 $ 34,985,443 $(33,185,438) $ 50,009 $ 1,888,414
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 38
ORION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,552,819) $ (4,290,150)
Loss from discontinued operations 850,819 3,291,036
Loss from extinguishments of debt 408,830 -
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 526,727 -
Changes in assets and liabilities, net of effects of
acquisitions and disposition.
Decrease in other receivables 14,375 18,890
Decrease in other current assets 29,300 28,593
Increase in accounts payable 204,554 466,997
Increase (decrease) in accrued liabilities 137,236 (371,583)
----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (655,450) (856,217)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired (18,566) -
Purchases of property and equipment (28,258) -
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (46,824) -
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable - 1,029,247
Issuance of common stock 781,500 689,661
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 781,500 1,718,908
Effect of exchange rate changes on cash 1,625 (22,971)
----------------- -----------------
Net change in cash and cash equivalents 80,851 (839,720)
Cash and cash equivalents at beginning of year 366 840,086
----------------- -----------------
Cash and cash equivalents at end of year $ 81,217 $ 366
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 39
ORION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Orion Technologies, Inc. (the "Company") was incorporated in Nevada as Geoasia
Enterprises, Ltd. on July 17, 1996. On September 8, 1997, the Company acquired
its current corporate name through a merger with Orion Technologies, Inc., a
company engaged in the electronic commerce network business through its
wholly-owned operating subsidiary, Orion Technologies (Canada), Inc. ("Orion
Canada"). Prior to this merger, the Company did not engage in any business other
than the investigation of various business opportunities.
Orion Technologies, Inc. is an international holding company concentrating on
acquiring and developing companies engaged in Internet and
telecommunications-based technologies and services for electronic commerce and
business-to-business markets. The Company is focusing its efforts on two lines
of business - eCommerce, including electronic point of sale systems, and
telecommunications. During 1999 and early 2000, the Company completed the
following transactions.
- On June 15, 1999, the Company divested of Orion Canada through the
exchange of 100% of Orion Canada's capital stock to members of Orion Canada's
management;
- In July 1999, the Company acquired two German companies, EZ Electronic
Payment Systems (EZ Elektronische Zahlungssysteme GmbH) ("EZ") and EPS
Electronic Processing (EPS Elektronische Processing Systems GmbH) ("EPS");
- In December 1999, the Company formed a wholly owned subsidiary, Globalinx
Corporation for use in developing its telecommunication services business; and,
- On February 22, 2000, the Company acquired all of the issued and
outstanding shares of Hancock Holdings, Inc.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, EZ and EPS, both formed under the laws of the
Federal Republic of Germany. All accounts of non-U.S. subsidiaries have been
translated into U.S. dollars and are included in the consolidated financial
statements. All intercompany accounts and transactions have been eliminated.
In connection with the acquisitions of EZ and EPS, the Company began its
principal business activity, and as such is no longer considered to be in the
development stage as defined in Statement of Financial Accounting Standard
("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises".
6
<PAGE> 40
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents.
SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1999 and 1998, the Company paid no income taxes
or interest. Non-cash investing and financing activities during 1999, each as
more fully described in the footnotes to the financial statements, included:
- The conversion of $3,989,608 of accounts and notes payable, including
accrued interest into 1,086,118 shares of common stock.
- The issuance of 25,000 shares of common stock and the assumption a
$100,000 note payable from one of the sellers as part of the purchase price of
EZ and EPS.
- The disposal of its Canadian subsidiary in a non-cash transaction.
There were no non-cash investing and financing activities during 1998.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five to ten years.
REVENUE RECOGNITION
Revenue recorded by EZ from the rental of point of sales equipment is recognized
ratably over the contractual period.
NET LOSS PER SHARE
The Company reports basic and diluted earnings per share. Net loss per common
share is computed by dividing the net loss after deducting dividends on
preferred stock by the weighted average number of shares of common stock
outstanding during the period. Common stock equivalents consisting exclusively
of warrants to purchase common stock, were excluded from the calculation for all
periods presented as they were antidilutive.
COMPREHENSIVE INCOME
In 1998, the Company adopted the provisions of Statement of Financial Accounting
No. 130 "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes rules for the reporting of comprehensive income and its components.
Comprehensive loss consists of net loss and the impact of foreign currency
translations and is
7
<PAGE> 41
presented in the Statements of Changes in Consolidated Stockholders' Equity.
INCOME TAXES
Deferred income taxes result primarily from temporary differences between
financial and tax reporting. Deferred tax assets and liabilities are determined
based on the differences between the financial statement bases and tax bases of
assets and liabilities using enacted tax rates. A valuation allowance is
recorded to reduce a deferred tax asset to that portion that is expected to more
likely than not be realized.
FOREIGN CURRENCY TRANSLATION
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at the balance sheet date for assets and
liabilities and a weighted average exchange rate for each period for revenues,
expenses, gains and losses. Where the local currency is the functional currency,
translation adjustments are recorded as a separate component of stockholders
equity. Where the U.S. dollar is the functional currency, translation
adjustments are recorded in the income statement.
GOODWILL
Goodwill arising from the acquisition of EZ is amortized over three years using
the straight-line method. Amortization expense charged to operations during the
year ended December 31, 1999 was approximately $470,000. Management reviews the
carrying value of goodwill against anticipated cash flow of EZ's business in
order to evaluate recoverability. In the event anticipated cash flows fail to
materialize, a write-down of the carrying amount of goodwill may be necessary.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to the expected future net cash
flows generated by the assets. If the assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. In connection with
the acquisition of EPS, the Company ceased the operations of EPS shortly after
consummating the acquisition and expensed the excess of the purchase price over
the net assets of EPS. To date, management believes no other impairment of any
assets has occurred.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The statement
requires companies to recognize all derivatives as either assets or liabilities,
with the instruments measured at fair value. The accounting for changes in fair
value and gains or losses depends on the intended use of the derivative and its
resulting designation. The statement was originally effective for fiscal years
beginning after June 15, 1999. In July 1999, FASB delayed implementation of this
standard for one year, to June 30, 2000. The Company will adopt SFAS 133 in the
first quarter of 2001. The Company is evaluating the effect that implementation
of SFAS 133 will have on its consolidated financial statements.
8
<PAGE> 42
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
NOTE 2 - GOING CONCERN MATTERS
The accompanying 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. As shown in the financial
statements the Company has incurred losses since its inception and has an
accumulated deficit of $33,185,438 at December 31, 1999.
The Company's continuation as a going concern is dependent upon its ability to
raise additional financing 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 to
obtain the necessary funds for planned acquisitions and strategic partnerships.
Subsequent to December 31, 1999, the Company sold a total of 1,040,889 shares of
common stock for $1,116,500. As described in Note 10, the Company entered into a
Funding and Subscription Agreement under which up to $4,500,000 will be provided
to the Company, which management believes will be sufficient to meet its
operating plans.
The 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 3 -BUSINESS ACQUISITIONS
Acquisition of EZ Elektronische Zahlungssysteme GmbH and EPS Elektronische
Processing Systeme GmbH
On July 8, 1999, the Company completed the acquisition of 100% of the ownership
interests of EZ and EPS for a total purchase price of $235,000. The purchase
price consisted of $35,000 in cash, the assumption of a $100,000 note payable
from one of the sellers, which as a condition of the acquisition the note holder
consented to convert the note into 67,567 shares of the Company's common stock
and to waive all interest that had accrued through the date of conversion, and
25,000 shares of the Company's common stock. Subject to the terms of the
agreement, the Company agreed to provide additional consideration to be paid to
certain sellers if EZ and EPS's results of operations exceed certain targeted
levels over the next five years. The maximum amount of the contingent
consideration is 75,000 shares of the Company's common stock.
The acquisition was accounted for under the purchase method of accounting. The
purchase resulted in an excess of purchase price over net assets acquired of
approximately $2,335,000. Of this amount, $2,261,000 represents the excess of
the purchase price over net assets acquired of EZ. This amount is being
amortized on a straight-line basis over a period of three years. During 1999,
the operations of EPS were ceased, and as such the entire excess purchase price
related to the acquisition of EPS of $74,000 was expensed. Goodwill amortization
during the year ended December 31, 1999 was approximately $470,000.
The operating results of EZ and EPS have been included in the consolidated
financial statements since the acquisition date.
9
<PAGE> 43
The following unaudited pro-forma financial information reflects the
consolidated results of operations of the Company as if the acquisition of EZ
and EPS had taken place at the beginning of the respective periods. The pro
forma is presented for information purposes only and is not necessarily
indicative of the results of operations as they would have been had the
acquisition been consummated as of that time.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Sales $ 89,700 $ 25,700
Loss from continuing operations 1,655,200 2,020,500
Loss per share, basic and fully diluted (1.67) (4.13)
</TABLE>
Acquisition of Hancock Holdings, Inc.
On February 22, 2000, the Company acquired all of the issued and outstanding
capital stock of Hancock Holdings, Inc. ("Hancock") from the shareholders of
Hancock in a pro rata exchange for an aggregate of 150,000 shares of the
Company's common stock. As a result of the share exchange, Hancock became a
wholly-owned subsidiary of the Company. Upon the effectiveness of the
acquisition, pursuant to Rule 12g-3(a) of the General Rules and Regulations of
the Securities and Exchange Commission, the Company became the successor issuer
to Hancock for reporting purposes under the Securities Exchange Act of 1934.
Prior to its acquisition by the Company, Hancock was a publicly reporting shell
company with substantially no assets or liabilities, and no operations. The
acquisition was accounted for under the purchase method of accounting.
On February 17, 2000, the Company entered into a service agreement with MHE
Projix, LLC ("MHE"), the former majority shareholder of Hancock. Under the terms
of the agreement, MHE has agreed to provide assistance to Orion in locating a
company for possible acquisition; to provide advice to the Company for the
acquisition of such company; assist the Company in maintaining its listing on
the OTCBB; and assist the Company with preparation and filing of the any
necessary regulatory filings related to an acquisition. In consideration for
providing such services, MHE received a consulting fee of $110,000.
NOTE 4 - DISPOSAL OF ORION CANADA
On July 15, 1999, the Company completed the disposal of its previous e-commerce
operations, consisting of the Company's subsidiary, Orion Canada to eXcape.Net,
Inc., a company formed by the management of Orion Canada to acquire Orion
Canada.
In exchange for all the capital stock of Orion Canada and the forgiveness of an
intercompany receivable of $7,769,979 due from Orion Canada, the Company
received 461,818 shares of its issued and outstanding common stock held by the
management of Orion Canada, 5,000,000 shares of eXcape.Net, Inc. (valued by the
Company at $5,000) and assumption of liabilities of the Company totaling
$176,068 which existed at the time of the divestiture by eXcape.Net, Inc. The
Company accounted for this transaction as a reorganization, and recorded no gain
or loss on the sale of Orion Canada. Orion Canada reported net losses from
operations of $850,819 and $3,291,036 during 1999 and 1998, respectively. The
Company recorded an adjustment to additional paid in capital for $937,515,
representing the excess of the shares cancelled on the disposal of Orion Canada.
10
<PAGE> 44
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Computer software $ 46,829
Computer hardware 178,259
Furniture and fixtures 165,375
---------
390,463
Less: Accumulated depreciation (50,917)
---------
$ 339,546
=========
</TABLE>
NOTE 6 - STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT
During the year ended December 31, 1999, the Company sold 903,828 shares of
common stock in exempt private offerings for net proceeds of $781,500.
Subsequent to December 31, 1999, the Company sold an additional 1,040,889 shares
of common stock for proceeds of $1,116,500, including $403,000 received from the
sale of 89,556 shares of common stock under the Funding and Subscription
Agreement described in Note 10.
REVERSE STOCK SPLIT
On April 28, 1999, the Board of Directors adopted a resolution to reverse split
the Company's issued and outstanding common stock, one share of common stock for
each twenty shares of issued and outstanding common stock. The reverse split was
effected on July 9, 1999, following the approval of the resolution by the
Company's shareholders in May 1999. All common share amounts in the accompanying
financial statements have been retroactively adjusted to reflect the effect of
the reverse stock split.
NON-REDEEMABLE SERIES A PREFERRED STOCK
During 1997, the Company sold 1,480,000 shares of Series A preferred stock, face
amount of $5.50 per share, for $7,281,300, net of offering costs of $858,700.
The Series A preferred stock is redeemable in cash, solely at the option of the
Company, at a redemption price of 105% of the purchase price plus accrued
dividends, provided that the Company first offers to exchange each share of
Series A preferred stock into 1.05 shares of common stock and to issue a warrant
for the purchase of one-half a share of common stock with an exercise price of
$7.50 per share, and that a registration statement registering the issuance of
such common stock and warrants is in effect. The Series A preferred stock also
accrues and accumulates dividends at a rate of 8% of the face amount beginning
on January 1, 1998.
In late 1998, the Company made an offer to the Series A preferred stockholders
allowing them to convert each share of issued and outstanding Series A preferred
stock into 3.666 shares of common stock. As part of this conversion, any
preferred stockholder who accepted this conversion offer waived any rights to
dividends that would have accrued, and any rights to receive any warrants.
Holders of 1,415,000 shares of Series A preferred stock accepted this conversion
offer. The exchange offer expired during 1999. The remaining 65,000 shares of
Series A preferred stock that did not convert, do not currently have any
conversion rights. In addition, the Series A preferred stock has no voting
rights and is not transferable by the holder.
11
<PAGE> 45
The Company has accrued dividends of $29,040 during each of the years ended
December 31, 1999 and 1998 related to the 65,000 shares of Series A preferred
stock issued and outstanding.
CONVERSION OF DEBT TO COMMON STOCK
During 1999, the Company converted amounts due to related parties and several
debt obligations into common stock as follows:
<TABLE>
<CAPTION>
Amount of debt plus Shares of common
accrued interest stock converted Loss on debt
converted into conversion
----------- --------- ------------
<S> <C> <C> <C>
Conversion of consulting services due an individual
totaling $150,000 into common stock at a 30%
discount to market based on the 10 day average
price ending on the date of conversion, June
15, 1999. $ 150,000 45,676 $ 61,297
Conversion of amounts due an entity owned by
the Company's president and chairman of the
board of directors for unreimbursed fees and
expenses into common stock at a 30% discount to
market based on the 10 day average price ending
on the date of conversion, June 15, 1999. 248,950 75,807 101,733
Conversion of debt from a financial institution
into common stock at a 30% discount based on
the 10 day average price ending on the date of
conversion, June 15, 1999. 1,174,539 307,034 245,800
Conversion of debt from a financial institution
the Company assumed in connection with the
purchase of EZ and EPS. The lender agreed to
convert this debt into common stock based on
the 10 day average price ending on October 18,
1999. 100,000 67,567 -
Conversion of debt from a financial institution
that the Company assumed in connection with the
purchase of EZ and EPS. This debt was converted
into common stock based on the 10 day average
price ending on July 8, 1999. 698,035 192,812 -
Conversion of debt to a financial institution
that the Company assumed in connection with the
purchase of EZ and EPS. This debt was converted
into common stock based on 10 day average price
ending on July 9, 1999. 1,527,084 397,222 -
----------- --------- ------------
$ 3,898,608 1,086,118 $ 408,830
=========== ========= ============
</TABLE>
In connection with the conversion of debt totaling $2,225,119 assumed by the
Company in its acquisition of EZ, the Company issued shares of common stock with
a market value of $2,341,493. Since the conversion of this debt by
12
<PAGE> 46
the note holders was agreed to as a condition of the Company's purchase of EZ
and EPS, the Company has recorded the differential of $116,374 as additional
goodwill.
COMMON STOCK PURCHASE WARRANTS
At December 31, 1999, the Company had outstanding warrants for the purchase of
5,858 shares of common stock expiring through December 1, 2001 as follows: 3,691
shares at $34.00 per share and 2,167 shares at $40.00 per share. All of the
outstanding warrants are currently exercisable.
NOTE 7- INCOME TAXES
The Company's deferred tax asset is summarized below. Due to a history of
operating losses and the inability to recognize an income tax benefit there
from, there is no provision for income taxes for the year ended December 31,
1999 and 1998,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net operating loss tax carryforwards
United States 1,226,000 985,000
Germany 85,000 -
------------ ------------
1,311,000 985,000
Valuation allowance ( 1,311,000) (985,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recurring losses, that a full valuation
allowance is appropriate at December 31, 1999 and 1998.
The Company has available, for U.S. income tax purposes, net operating loss
carryforwards of approximately $1,450,000 at December 31, 1999, which can be
used to offset future taxable income through 2019. The Company's utilization of
its net operating loss carryforward may be limited pursuant to Internal Revenue
Code Section 382 due to cumulative changes in ownership in excess of 50% within
a three year period.
The primary difference in the Company's federal statutory income tax rate and
the Company's effective rate is primarily attributed to the impact of state and
foreign income taxes and the recording of a valuation allowance due to the
uncertainty of the amount of future tax benefits that is more likely than not to
be realized.
In connection with the disposal of Orion Canada, the canadian net operating loss
carryforwards related to Orion Canada remained with Orion Canada and are no
longer available to the Company.
NOTE 8- RELATED PARTY TRANSACTIONS
The Company has a verbal Agreement with NewDominion Capital Group, Inc., a
company controlled by Frans Heideman, the Company's chief executive officer.
NewDominion provides the Company with office support, management and consulting
services, including amounts paid for the services of Frans Heideman, and other
business related services. The Company currently uses a limited amount of office
and records storage space provided by New Dominion and reimburses NewDominion
for all charges it incurs for long distance
13
<PAGE> 47
telephone calls and other miscellaneous secretarial, photocopying, and similar
expenses. The Company incurred approximately $193,000 and $171,000 for the above
services, during the years ended December 31, 1999 and 1998, respectively. At
December 31, 1999 the Company had a payable of $66,000 due to NewDominion.
In June 1999, as described in Note 6 to the consolidated financial statements,
the Company converted $248,940 of amounts accrued during 1997 and 1998 due to
NewDominion into 75,807 shares of the Company's common stock.
Mr. Klaus Maedje, one of the Company's directors, also earns fees for preparing
the accounting and tax reports for EZ. When the Company acquired EZ in July
1999, Mr. Maedje was owed approximately $39,000 of fees. Since the acquisition
of EZ, Mr. Maedje has been paid $5,200 for services. On May 12, 2000, Mr. Maedje
has agreed to convert the remaining amount owed him into 9,736 shares of Company
common stock.
NOTE 9- COMMITMENTS AND CONTINGENCIES
The Company's wholly owned subsidiary, EZ, leases equipment and office space in
Germany under long-term lease agreements. The minimum fixed rental commitments
under these operating leases are $40,005 in 2000 and $22,990 in 2001. Rent
expense was approximately $21,000 for the period from July 8, 1999 (date of
acquisition) to December 31, 1999.
NOTE 10 - SUBSEQUENT EVENTS
In January 2000, The Company entered into a joint venture agreement as a
one-third partner to form Rodan Telecom Sp.zo.o located in Warsaw Poland. The
other one-third partners are Zeto-Rodan Ltd. and GG Parkiet, both Polish
companies. The Company has agreed to invest $350,000 in three installments in
Rodan Telecom to acquire its one-third interest in the enterprise. The Company
made its first installment of $100,000 in January 2000. The second installment
is due in June 2000.
In January 2000, the Company executed a non-binding letter of intent for the
acquisition of a company in the business of providing security to point of sales
transactions (the "Target Company"). As set forth in the letter of intent, it is
contemplated that each share of Target Company common stock issued and
outstanding would be converted into 0.3661 shares of Company Common Stock. In
addition, the holder of each share of Target Company preferred stock issued and
outstanding immediately prior to the acquisition will have the option to be
converted to Target Company preferred stock into a promissory note with a
principal amount equal to Ten Dollars ($10.00) multiplied by the number of
shares of Target Company preferred stock being converted, and bearing simple
interest at a rate of 8% per annum, with principal and interest due and payable
on December 31, 2000, or converting each share of Target Company preferred stock
into 2.5 shares of Orion Common Stock. There are 546,380 shares of common stock
and 20,000 shares of preferred stock of Target Company outstanding (outstanding
shares amounts of Target Company are unaudited).
In March 2000, the Company entered into a non-binding letter of intent for the
acquisition of a 40% interest in a privately held affinity and network marketer
of telecommunications services located in Scottsdale, Arizona for $6,000,000, of
which $1,000,000 will be paid in cash, with the remaining amount in Company
common stock. As part of this agreement, the Company entered into a loan
agreement and promissory note with this entity, under which the Company has lent
to this entity, subsequent to December 31, 1999, a total of $330,000. The note
bears interest at 8% and is due on March 9, 2001. In the event that the Company
enters into a stock purchase transaction with this entity, the principle and
accrued interest will be credited against the purchase price.
14
<PAGE> 48
In March 2000, the Company entered into a Funding and Subscription Agreement
with OIF Optimum Investment Finance AG ("OIF") for the sale of up to 1,000,000
shares of the Company common stock to OIF at a minimum of $4.00 per share,
subject to adjustment, as set forth in the Agreement. As part of this Agreement,
OIF has committed to provide working capital and operating funds of up to
$3,000,000 to the Company in four quarterly installments of $750,000, beginning
in May 2000. The Agreement also provides for OIF to provide the Company with up
to $1,500,000 of additional funding for expansion by the Company through
acquisitions, mergers or strategic partnerships. At of May 15, 2000, OIF has
provided the Company $403,000 for the purchase of 89,556 shares of Company
common stock under this Agreement.
####
15
<PAGE> 49
F-2
Pro forma financial information:
Pursuant to a Share Exchange Agreement (the "Agreement") dated February 22,
2000, Orion Technologies, Inc., a Nevada corporation (the "Company"), acquired
all of the issued and outstanding capital stock of Hancock Holdings, Inc.
("Hancock") from the shareholders of Hancock in a pro rata exchange for an
aggregate of 150,000 shares of Orion's common stock, par value $0.001 per share
(the "Share Exchange"). There were seven shareholders of Hancock immediately
prior to the Share Exchange. They were MHE Projix LLC, a Florida limited
liability company, Mark Elenowitz, Louis Taubman, David Simonetti, Thomas Bostic
Smith, William Quigley, Jr., and Barry Labell, who held 5,000,000 shares of
Hancock common stock in the aggregate. As a result of the Share Exchange, 100%
of the outstanding capital stock of Hancock is owned by the Company, and Hancock
became a wholly-owned subsidiary of the Company. Prior to its acquisition by the
Company, Hancock was a publicly reporting shell company with substantially no
assets or liabilities, and no operations. The acquisition was accounted for
under the purchase method of accounting.
The unaudited Pro Forma Condensed Combined Statement of Operations (the "Pro
Forma Statement of Operations") for the year ended December 31, 1999 gives
effect to the acquisition of Hancock as if it had occurred on December 31, 1999.
The Pro Forma Statement of Operations is based on historical results of
operations of the Company for the year ended December 31, 1999 and the
historical results of Hancock for the period from May 20, 1999 (inception) to
December 31, 1999. The unaudited Pro Forma Condensed Combined Balance Sheet as
of December 31, 1999 (the "Pro Forma Balance Sheet") gives effect to the
acquisition of Hancock as if the acquisition had occurred on that date. The Pro
Forma Balance Sheet is based on the historical balance sheet of the Company as
of December 31, 1999 and the historical balance sheet of Hancock as of December
31, 1999. The Pro Forma Statements of Operations and Pro Forma Balance Sheet and
the accompanying notes (collectively the "Pro Forma Financial Information")
should be read in conjunction with and are qualified by the historical financial
statements of the Company and notes thereto.
No Pro Forma Financial Information is presented for the three month period
ended March 31, 2000 since Hancock was inactive during that period. The
Statement of Operations, as shown in the Company's March 31, 2000 Form 10-QSB
filing represents the combined operations of the companies.
The Pro Forma Financial Information is intended for informational purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the consolidated company after the acquisition of
Hancock, or of the financial position or results of operations of the
consolidated company that would have actually occurred had the acquisition of
Hancock been effected as of the dates described above.
1
<PAGE> 50
F-2
Orion Technologies, Inc.
Unaudited Pro Forms Condensed Combined Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Orion Hancock Pro Forma Pro Forma
Technologies, Inc. Holdings, Inc. Adjustments As Adjusted
------------------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 81,217 $ 701 $ 81,918
Accounts receivable 4,532 4,532
Other current assets 34,046 34,046
------------ --------- ------------
Total Current Assets 119,795 701 120,496
Property and equipment, net 339,546 339,546
Goodwill, net 1,980,945 112,500 (1) 2,093,445
Other assets 5,000 5,000
------------ --------- ------------
2,445,286 701 - 2,558,487
============ ========= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 297,588 110,000 (2) 407,588
Accrued expenses 259,284 259,284
------------ --------- ------------
Total Current Liabilities 556,872 - 666,872
------------ --------- ------------
Stockholders' Equity:
Preferred stock 135,328 135,328
Common stock 3,090 500 (350) (1) 3,240
Additional paid in capital 34,985,443 225 112,850 (1) 35,098,518
Accumulated other comprehensive loss (50,009) (50,009)
Accumulated deficit (33,185,438) (24) (110,000) (33,295,462
------------ --------- ------------
Total Stockholders' Equity 1,888,414 701 1,891,615
------------ --------- ------------
$ 2,445,286 $ 701 $ 2,558,487
============ ========= ============
</TABLE>
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<PAGE> 51
Orion Technologies, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1999 for Orion Technologies, Inc. and for the
Period from May 29, 1999 (inception) to December 31, 1999
for Hancock Holdings, Inc.
<TABLE>
<CAPTION>
Orion Hancock
Technologies, Holdings, Pro Forma Pro Forma As
Inc. Inc. Adjustments Adjusted
------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 62,556 $ 62,556
Operating expenses:
Selling, general and administrative 1,306,615 24 110,000 (2) 1,416,639
----------- ------- -----------
Loss from operations (1,244,059) (24) (1,354,083)
Interest expense (49,111) (49,111)
----------- ------- -----------
Loss from continuing operations before
extraordinary loss (1,293,170) (1,403,194)
Discontinued operations, net of tax (850,819) (850,819)
Extraordinary loss from conversion of debt,
net of tax (408,830) (408,830)
----------- ------- -----------
Net loss (2,552,819) (24) (2,662,843)
Preferred dividends (29,040) (29,040)
----------- ------- -----------
Net loss available to common stockholders $(2,581,859) (24) $(2,691,883)
=========== ======= ===========
Basic and diluted loss per common share:
Loss from operations before
discontinued operations $ (0.75) $ (0.74) (3)
Discontinued operations (0.49) (0.45) (3)
Extraordinary loss (0.23) (0.22) (3)
----------- -----------
Net loss $ (1.47) $ (1.41) (3)
=========== ===========
Weighted average common shares
Outstanding 1,741,019 1,891,019
=========== ===========
</TABLE>
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<PAGE> 52
Orion Technologies, Inc.
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
(1) On February 22, 2000, the Company acquired 100% of the outstanding and
issued capital stock of Hancock Holdings, Inc. ("Hancock") in exchange for
150,000 shares of Company common stock. Prior to its acquisition by the
Company, Hancock was a publicly reporting shell company with substantially
no assets or liabilities, and no operations. The value assigned to the
Company common stock issued to the shareholders of Hancock was $0.75 per
share or $112,500. This represents the price per share that the Company was
selling its common stock for in a private offering at the time of its
acquisition of Hancock. The Company will evaluate the amount recorded as
goodwill in this acquisition as event dictate.
(2) The pro forma adjustment reflects the a service agreement with MHE Projix,
LLC ("MHE"), the former majority shareholder of Hancock that would have been
entered into by the Company under which MHE would have provided assistance
to the Company in locating a company for possible acquisition; to provide
advice to the Company for the acquisition of such company; assist the
Company in maintaining its listing on the OTC Bulletin Board; and assist the
Company with preparation and filing of the any necessary regulatory filings
related to an acquisition.
(3) The pro forma basic and diluted loss from continuing operations per common
share is computed by dividing the loss from continuing operations available
to common stockholders, loss from discontinued operations and extraordinary
loss by the weighted average number of common shares outstanding. The
calculation of the weighted average number of common shares outstanding
assumes that the 150,000 shares of the Company's common stock issued in the
acquisition of Hancock were outstanding for the entire period.
4
