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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF EXCHANGE ACT
COMMISSION FILE NUMBER 000-29673
ORION TECHNOLOGIES, INC.
------------------------
(Name of small business issuer as specified in its charter)
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<S> <C>
NEVADA 88-0369588
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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1133 21ST STREET 8TH FLOOR
WASHINGTON, DC 20036
--------------------
(Address of principal executive offices)
(202) 822 0114
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(Issuer's telephone number)
----------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [ ] Yes [X] No
As of September 30, 2000, 4,663,272 shares of Common Stock were issued and
outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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ORION TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999.............................1
Consolidated Statement of Operations for the
Three and Nine Months Ended September 30, 2000.......................2
Consolidated Statement of Cash Flows for the
Three and Nine Months Ended September 30, 2000.......................3
Notes to Consolidated Financial Statements...........................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................14
Item 2. Changes in Securities and Use of Proceeds...........................14
Item 3. Defaults Upon Senior Securities.....................................14
Item 4. Submission of Matters to a Vote of Security Holders.................14
Item 5. Other Information...................................................14
Item 6. Exhibits and Reports on Form 8-K....................................14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
September 30, December 31,
2000 1999
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ASSETS
Current assets:
Cash and cash equivalents ................................... $ 34,487 $ 81,217
Accounts receivable, net .................................... 274,143 4,532
Inventory ................................................... 267,403 --
Prepaid assets and other ................................. 58,649 34,046
------------ ------------
Total current assets .................................... 634,682 119,795
Property and equipment, net ..................................... 291,899 339,546
Goodwill, net ................................................... 2,690,238 1,980,945
Investment in joint venture ..................................... 100,000 --
Other ........................................................... 82,738 5,000
------------ ------------
Total assets ............................................ $ 3,799,557 $ 2,445,286
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit payable ...................................... 82,000 --
Current portion of debt ..................................... 408,678 --
Accounts payable ............................................ 1,039,329 297,588
Accrued liabilities ......................................... 70,411 259,284
Due to OIF .................................................. 112,817 --
------------ ------------
Total current liabilities ............................... 1,713,235 556,872
Long term debt, net of current portion .......................... 107,591 --
Stockholders' equity :
Preferred stock, no par value, 2,500,000 shares
authorized; 65,000 shares issued and outstanding,
both June 30, 2000 and 1999, respectively ................ 135,328 135,328
Common stock, $0.01 par value, 100,000,000 shares
authorized; 4,663,272 and 3,089,508 shares issued and
outstanding in 2000 and 1999, respectively ............... 4,663 3,090
Additional paid in capital .................................. 41,578,253 34,985,443
Accumulated deficit ......................................... (39,714,884) (33,185,438)
Accumulated other comprehensive loss ........................ ( 24,629) (50,009)
------------ ------------
Total stockholders' equity .............................. 1,978,731 1,888,414
------------ ------------
Total liabilities and stockholders' equity .............. $ 3,799,557 $ 2,445,286
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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ORION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
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<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
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<S> <C> <C>
Revenues ........................................... $ 603,426 $ 862,315
Cost of revenues ................................... 359,341 528,960
General and administrative expense ................. 884,349 2,212,878
Non-cash compensation .............................. 3,315,735 3,315,735
Reserve for advances to acquisition target ......... -- 330,000
Amortization and depreciation ...................... 303,962 873,472
------------ ------------
Net operating loss ................................. ( 4,259,961) ( 6,398,730)
Other expense, net ................................. ( 111,183) ( 130,716)
------------ ------------
Net loss ........................................... ( 4,371,144) ( 6,529,446)
Preferred stock dividend ........................... ( 7,620) ( 22,860)
------------ ------------
Net loss available to common stockholders .......... $( 4,378,764) $( 6,552,306)
============ ============
Loss per common share - Basic and Diluted .......... $( 0.94) $( 1.57)
============ ============
Weighted shares outstanding - Basic and Diluted .... 4,637,445 4,181,497
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
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ORION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
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Cash flows from operating activities:
Net loss ............................................................. $ (6,529,446)
Adjustments to reconcile net loss to cash used in operations:
Depreciation and amortization .................................... 873,472
Reserve for advances to acquisition target ....................... 330,000
Amortization of beneficial conversion feature on convertible
promissory notes .............................................. 100,000
Non-cash employee compensation ................................... 3,315,735
Changes in operating assets and liabilities:
Increase in accounts receivable .............................. ( 90,796)
Decrease in prepaid expenses ................................. ( 20,178)
Increase in other assets ..................................... ( 14,169)
Advance from OIF ............................................. 112,817
Increase in accounts payable ................................. 636,916
Decrease in accrued expenses ................................. ( 257,192)
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Net cash used in operating activities ................................ (1,542,841)
------------
Cash flows from investing activities:
Purchase of property and equipment ............................... ( 21,696)
Acquisition of Special Accounts Billing Group, Inc. .............. ( 60,000)
Acquisition of Transaction Verification Systems, Inc., net of
cash acquired ............................................... 2,403
Investment in joint venture ...................................... ( 100,000)
Cash lent to acquisition target .................................. ( 330,000)
------------
Net cash used in investing activities ................................ ( 509,293)
------------
Cash flows from financing activities:
Proceeds from notes payable ...................................... 292,000
Proceeds from issuance of common stock ........................... 1,688,025
------------
Net cash provided by financing activities ............................ 1,980,025
------------
Effect of exchange rate changes on cash .............................. 25,379
------------
Net decrease in cash and cash equivalents ............................ ( 46,730)
Cash and cash equivalents, beginning of period ....................... 81,217
------------
Cash and cash equivalents, end of period ............................. $ 34,487
============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ORION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Orion Technologies, Inc., (the
"Company") include the accounts of its wholly owned subsidiaries EZ Electronic
Payment Systems (EZ Elektronische Zahlungssysteme GmbH) ("EZ") and EPS
Electronic Processing (EPS Elektronische Processing Systems GmbH) ("EPS"),
Globalinx Corporation ("Globalinx"), Transaction Verification Systems, Inc
("TVS"), Special Billing Accounts Group, Inc. and Hancock Holdings, Inc.
The Company 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, primarily electronic point of sale systems, and telecommunications.
Significant intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of the Company's management, the interim
consolidated financial statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The interim consolidated
financial statements should be read in conjunction with the Company's December
31, 1999 audited financial statements included with the Company's filing on Form
8-K/A filed with the Securities and Exchange Commission on June 1, 2000. The
interim operating results are not necessarily indicative of the operating
results for the full fiscal year.
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. The Company has experienced net
losses since its inception, currently has a significant working capital deficit,
and is in need of additional investment capital. Although the Company expects
operating results to improve, there can be no assurances that the Company will
not experience adverse results of operations in the future, that it will be able
to satisfy its current obligations in the normal course of business, or obtain
additional investment capital. The Company believes that without additional
investment capital it will not have sufficient cash to fund its activities in
the near future, and may not be able to continue operating. As such, the
Company's continuation as a going concern is dependent upon its ability to raise
additional financing and to successfully develop and introduce its products to
market. These factors among others may indicate that the Company will be unable
to continue as a going concern. The Company is actively pursuing additional
equity financing to provide the necessary funds for working capital and for
planned acquisitions and strategic partnerships. As described in Note 5, the
Company entered into a Funding and Subscription Agreement under which up to
$4,500,000 was to be provided to the Company. Management believed that the funds
provided under this Agreement and cash flows from operations would have been
sufficient to meet its operating plans, however, the Company has not received
funding contemplated in this Agreement, and the Company is currently negotiating
with other sources of investment capital for the needed funds.
The Company reports basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income (loss), adjusted by the
assumed conversion of any potential common share equivalents consisting of
recently issued stock options, by the weighted number of common shares and
common share equivalents (unless their effect is anti-dilutive) outstanding.
Common stock equivalents totaling 1,350,000 were not included in the computation
of diluted loss per share, because to do so would have been anti-dilutive at
September 30, 2000.
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A statement of operations and statement of cash flows for the comparative
interim periods ended September 30, 1999 are unavailable. The results of
operations for the nine month period ended September 30, 1999 would reflect the
limited activities of Orion Canada, a subsidiary that was divested of on June
15, 1999 through the date of divestiture, and three months of operations of EZ
and EPS. Due to the divestiture and the subsequent departure of Orion Canada's
management, the Company is unable to prepare or provide comparative financial
statements for the interim period of the previous year as required by Item 310
of Regulation S-B. The preparation of such statements would require an
unreasonable expense and effort due to Orion Canada's financial information
being maintained by parties no longer affiliated with the Company.
SUPPLEMENTAL CASH FLOW INFORMATION:
The Company made no payment for interest or taxes during the nine months ended
September 30, 2000.
The Company had the following non-cash investing activities during the nine
months ended September 30, 2000.
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Issuance of shares of common stock as payment
for the acquisition of Hancock Holdings, Inc. $ 112,500
===========
Issuance of shares of common stock as partial payment for the acquisition of
Special Billing Accounts Group, Inc. $ 110,000
===========
Issuance of shares of common stock as partial payment
for the acquisition of Transaction Verification Systems, Inc. $ 1,375,000
===========
Issuance of shares of common stock in satisfaction of a payable due a director
of the Company for services rendered $ 39,000
===========
Conversion of TVS preferred stock into shares of Company common
stock and promissory notes $ 107,963
===========
</TABLE>
NOTE 2 - BUSINESS ACQUISITIONS
In January 2000, The Company entered into a joint venture agreement to form
Rodan Telecom Sp.zo.o 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, and made its first installment of $100,000 in January 2000. The
Company has committed to make additional contributions totaling $250,000 in the
future although it is unlikely that these payments will be made due to a pending
sale of the asset.
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. The
Company recorded goodwill in connection with its acquisition of Hancock of
$112,500. Subsequent to the acquisition of Hancock, the Company determined that
there was no future economic benefit of the goodwill associated with Hancock and
expensed the $112,500 to amortization expense.
On February 17, 2000, 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
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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. In consideration for providing
such services, MHE received a consulting fee of $110,000. 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 pre-paid
telecommunications services. As part of this agreement, the Company lent this
entity $250,000 under a promissory note agreement and advanced it an additional
$80,000. This note pays interest at 8% and is due on March 9, 2001, subject to
acceleration if certain performance criteria are not met, and is secured by the
assets of the entity. Due to non-performance, the Company has provided notice to
this entity that it believes this note is in default and has requested repayment
of the full amount due of $330,000. The Company has fully reserved the balance
at June 30, 2000.
On May 25, 2000, the Company acquired Special Accounts Billing Group, Inc.
("SABG") for a purchase price consisting of $60,000 cash and 20,000 shares of
the Company's common stock for a total purchase price of $170,000. SABG has no
operations, and no tangible assets or liabilities. However it held
telecommunication licenses that will allow the Company, through its Globalinx
subsidiary, to provide intra and inter telecommunications services throughout
the United States. The acquisition was accounted for under the purchase method
of accounting. The entire purchase price was recorded as goodwill and is being
amortized on a straight-line basis over three years.
On June 30, 2000, the Company entered into an Agreement and Plan of Merger with
Transaction Verification Systems, Inc. ("TVS"). Pursuant to the Agreement, TVS
shareholders exchanged all of the issued and outstanding shares of TVS common
stock for 200,300 shares of common stock of the Company.
Each share of the TVS Preferred Stock, of which 20,000 shares were issued and
outstanding at the time of the merger, was converted into either the right to
receive a promissory note from the Company, the right to convert each TVS
preferred share into 2.5 shares of Company common stock. Any holders of TVS
Preferred Stock who do not elect to receive Company common stock will receive a
promissory note. The promissory notes bear 8% per annum simple interest, with
principal and interest are due and payable on December 31, 2000, with each note
being guaranteed by the Company. As of October 30, 2000, the holders of 9,206
and 7,294 shares of TVS Preferred Stock elected to convert their TVS Preferred
Stock into 23,105 shares of Company Common Stock and into promissory notes
totaling $72,940, respectively. Holders of 3,500 shares of TVS Preferred Stock
have not yet made their election. The holders of TVS Preferred Stock who do not
elect to receive Orion Common Stock will receive a promissory note. The Company
has recorded the conversion of the TVS preferred stock in its September 30, 2000
financial statement, treating the share for which no election has been made as
converted to promissory notes.
The purchase price was allocated based on the preliminary fair value of the
assets acquired and the liabilities assumed in the merger, and is subject to
revision.
The acquisition was accounted for under the purchase method of accounting, thus
the results of operations have been included in the consolidated financial
statements from the date of acquisition. The purchase price was allocated based
on the fair value of the assets acquired, including approximately $ 2,400 in
cash, and the liabilities assumed at the date of acquisition. The purchase
resulted in goodwill of approximately $1,226,000.
The unaudited pro forma information for the nine months ended September 30, 2000
set forth below gives effect to the TVS as if it had occurred on January 1,
2000. The pro forma information is presented for information purposes only and
is not necessarily indicative of the results of operations that actually would
have been achieved had the acquisition of TVS been consummated as of January 1,
2000.
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<S> <C>
Revenue $ 1,785,000
Net loss (6,665,000)
Loss per share - Basis and Diluted ( 1.54)
</TABLE>
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NOTE 3 - INVENTORY
Inventories are stated at the lower of cost, utilizing the first-in, first-out
method, or market. At September 30, 2000, inventory consisted primarily of raw
materials and work in process used by TVS in the manufacture of its products.
NOTE 4 - NOTES PAYABLE
Notes payable at September 30, 2000 consisted of the following:
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Orion convertible promissory notes (1) $ 100,000
Orion promissory note (2) 150,000
TVS promissory notes (3) 107,940
TVS notes payable bearing interest at 14.44%, due on
August 1, 2003 with interest and principle payable monthly. 158,329
----------
516,269
Less: current portion 408,678
----------
Long-term portion of notes payable $ 107,591
==========
</TABLE>
(1) On September 5, 2000, the Company entered into two convertible promissory
note agreements totaling $100,000. These promissory notes bear interest at 8%,
with principal and accrued interest due on September 5, 2001, are convertible,
at any time, into shares of the Company's common stock, with the number of
shares determined by dividing the unpaid principal balance and all accrued
interest by $1.20. The Company calculated the value of the beneficial conversion
feature associated with these promissory notes to be approximately $350,000 at
the date of issuance, based on a closing market price for the Company's common
stock on that date of $5.43 per share. In accordance with EITF 98-5: Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios, the value of the beneficial conversion feature is
limited to the proceeds allocatable to the promissory notes of $100,000, which
has been recognized by the Company as additional interest expense in the
accompanying financial statements, since the promissory notes were convertible
at the date of issuance.
(2) On September 5, 2000, the Company entered into a promissory note agreement
for $150,000. This promissory note bears interest at 8%, with principal and
accrued interest originally due on October 17, 2000. This promissory note has
been verbally extended by the note holder and is due on demand. This promissory
note is guaranteed by an officer of the Company.
(3) As described in Note 2, the Company has recorded $107,940 of promissory
notes due to the conversion of TVS preferred stock. The notes bear interest at
8% and are due on December 31, 2000.
At September 2000, TVS had a revolving line of credit with a bank of $100,000.
This line of credit was renewed on November 30, 2000 until June 30, 2001. The
Company has, at September 30, 2000, drawn $82,000 on this line. Repayment of
borrowings under this line of credit are currently guaranteed by two individuals
who were shareholders of TVS prior to its acquisition by the Company.
There were no outstanding notes payable at December 31, 1999.
NOTE 5 - STOCKHOLDERS' EQUITY
On September 22, 2000, the board of directors adopted the Orion Technologies,
Inc. 2000 Stock Incentive Plan (the "Plan") and reserved 2,350,000 shares of
common stock for issuance under this Plan. The Board of directors also granted
options for the purchase of 1,350,000 shares of common stock at an exercise
price equal to 25% of the average closing price of the Company's common stock
for the previous five business days, or
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$0.82. These options were fully vested on the date of grant and are exercisable
for a 10 year period, subject to certain termination events.
In connection with the grant of these options, the Company recorded $3,315,735
of non-cash compensation expense since the exercise price of the Company's stock
option grants were less than market price and the options were fully vested on
the date of grant.
In March 2000, the Company entered into a Funding and Subscription Agreement
(the "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. As of September 30,
2000, OIF has provided the Company $974,525 for the purchase of 276,560 shares
of Company common stock under this Agreement.
During the nine months ended September 30, 2000, OIF purchased under the above
Agreement and a prior agreement a total of 1,167,833 shares of the Company's
common stock for total proceeds of $1,688,025.
Subsequent to September 30, 2000, the Company has sold an additional 80,000
shares of common stock for $100,000 to this investor.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2000, the Company paid $191,000 to
NewDominion Capital Group, Inc., a company of which Frans Heideman, the
Company's chief executive officer, is a controlling shareholder. NewDominion
provides the Company with office support, management and consulting services,
including certain amounts paid for the personal services of Frans Heideman.
Mr. Klaus Maedje, one of the Company's directors, also earns fees for preparing
the accounting and tax reports for EZ. On May 12, 2000, Mr. Maedje agreed to
convert the approximately $39,000 due him into 9,736 shares of the Company's
common stock.
NOTE 7 - SEGMENT INFORMATION
Information regarding our operating segments - eCommerce/Point of Sales ("eCom")
and Telecommunications (Teleco") is as follows for the six months ended June 30,
2000:
<TABLE>
<CAPTION>
eCom Teleco Other Total
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<S> <C> <C> <C> <C>
Revenues from external customer $ 502,174 $ 360,141 $ -- $ 862,315
Intersegment revenues -- -- -- --
Segment income (loss) before taxes (295,666) (263,830) (5,969,950) (6,529,446)
</TABLE>
The Company evaluates the performance of its operating segments based on
operating income (loss). The "Other" column includes corporate related items and
other non-operating items.
The Company's Globalinx subsidiary currently has ten customers, of which two are
considered major customers. During the three and nine months ended September 30,
2000 approximately 18% and 29% of total revenue was derived from these
customers.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements made by our management may be considered to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements are based on various factors
and assumptions that include known and unknown risks and uncertainties. The
words "believe," "expect," "anticipate" and "project," and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such statements may include, but not be limited to,
projections of revenues, income or loss, expenses, plans, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
results could differ materially from those described in forward-looking
statements as a result of the risks set forth in the following discussion, among
others.
Our financial statements have been presented on a going concern basis, which
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. The Company has experienced losses
since its inception, currently has a significant working capital deficit, and is
in the need of additional capital investment. Although we expect operating
results to improve, there can be no assurances that we will not experience
adverse results of operation in the future, that the Company will be able to
satisfy its current obligations in the normal course of business or obtain
additional investment capital on terms acceptable to the Company, or at all.
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 temporarily from the OTC Bulletin Board in
accordance with NASD Market Rule 6530. On June 1, 2000 the Company filed a Form
8K/A and Form 10-QSB, which included audited financial statements. Nasdaq
reinstated our listing on the OTC Bulletin Board under its symbol ORTG.BB on
June 7, 2000.
OVERVIEW OF OUR BUSINESS AND RESULTS OF OPERATIONS
During 1999, we changed our focus, and as part of this change we 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, which includes the resale of long distance
telephone time. Operations for both of these entities have only recently
commenced. Before the development and expansion of these businesses, our
business consisted of the operations of our subsidiary Orion Canada that was
heavily focused on eCommerce 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 in 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. In early October 2000, one of our partners Zeto-Rodan sold a
majority state to Softbank, a major investor in Polish telecommunications
software. Our other partner CG Parkiet also informed us that they had recently
sold a majority interest in their company to Polish Telecom. As both new
stakeholders in Rodan Telecom have shown independent interest in acquiring a
majority interest in the company, we have offered to sell our one-third interest
to the highest bidder. Our plans to make the final payments under the agreement
have been put on hold pending the outcome of these negotiations.
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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 pre-paid telecommunications services. As part of this agreement, the Company
lent this entity $250,000 under a promissory note agreement and advanced it an
additional $80,000. This note pays interest at 8% and is due on March 9, 2001,
subject to acceleration if certain performance criteria are not met, and is
secured by the assets of the entity. Due to non-performance, the Company has
noticed this entity that it believes this note is in default and has requested
repayment of the $330,000 previously advanced. The Company has fully reserved
the balance at September 30, 2000 and is no longer pursuing acquiring this
entity.
On May 25, 2000, we entered a binding agreement to acquire Special Accounts
Billing Group, Inc. ("SABG") an Illinois corporation for a purchase price
totaling $170,000, consisting of $60,000 in cash and 20,000 shares of our common
stock. The acquisition of SABG was strategic to us, since it holds the
telecommunication licenses which will allow us, through Globalinx, to provide
intra and inter telecommunications services thoughout the United States.
On May 28, 2000 we signed a non-binding letter of intent to acquire the assets
through cash payment and an exchange of shares of a company engaged in the
rental of cellular phones that are able to roam seamlessly in over 100 countries
and territories outside of the United States. Users receive their phone and
phone numbers prior to leaving the United States and have immediate access on
arrival in the foreign country. The phones are returned at the end of the user's
trip. Should we be successful in acquiring the target company, it will become
part of Globalinx, since we feel it fits into our strategy of a becoming a major
provider of worldwide telecommunications services. While shortage of capital has
precluded us from closing this acquisition, we intend to continue to pursue it.
On June 30, 2000, the Company entered into an Agreement and Plan of Merger with
Transaction Verification Systems, Inc. ("TVS"). TVS 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, videotape, 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.
Existing TVS management remained in place is work closely with our senior
executives to grow the customer base and products. If and when additional
capital is necessary we plan of provide TVS with the necessary funds and
strategic resources to grow its business.
Pursuant to the Agreement TVS shareholders exchanged all of the issued and
outstanding shares of TVS common stock for 200,300 shares of our common stock.
Each share of the TVS Preferred Stock, of which 20,000 shares were issued and
outstanding at the time of the merger, was converted into either the right to
receive a promissory note from the Company in the amount of ten dollars per
share, or upon the holder's providing proper notice to the Company the right to
convert each TVS Preferred share into 2.5 shares of Company common stock. Any
holders of TVS preferred Stock who do not elect to receive Company common stock
will receive a promissory note. The promissory note bears 8% per annum simple
interest, with principal and interest are due and payable on December 31, 2000,
with each note being guaranteed by the Company.
As of October 30, 2000, the holders of 9,206 and 7,294 shares of TVS Preferred
Stock elected to convert their TVS Preferred Stock into 23,105 shares of Company
Common Stock and into promissory notes totaling $72,940, respectively. Holders
of 3,500 shares of TVS Preferred Stock have not yet made their election. The
holders of TVS Preferred Stock who do not elect to receive Orion Common Stock
will receive a promissory note. The Company has recorded the conversion of the
TVS preferred stock in its September 30, 2000 financial statement, treating the
share for which no election has been made as converted to promissory notes.
On October 3, 2000, the Company signed an non-binding letter of intent to lease
and or buy seven telecommunications switches, all Siemens DCO/CS from NetCo
Acquisitions Corp for a price of $2,100,000. An initial down payment of $300,000
will be paid to NetCo at the closing, with an additional $250,000 due to
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<PAGE> 13
the seller on or before January 1, 2001. The Company anticipates that closing
will occur in late December 2000, should funds be available. If the Company is
unable for any reason to make this second payment the seller has the option to
convert the $250,000 into shares of Company common stock. The remaining
$1,350,000 will be payable to seller in monthly installments, amortized over a
four year period at an interest rate of 14% with a balloon payment due at the
end of the second year, at which time the Promissory Note shall be paid in full.
At any time during the life of the two-year promissory note, the seller will
have the right to convert the unpaid balance or any portion thereof, into shares
of Company common stock.
If and when we secure the needed investment capital, we plan to expand our
business operations and will be seeking 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 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 (WAP) will enable multi-medium
communications capabilities for all mobile phone users.
We believe that IP (Internet Protocol) telephony will lead the next generation
in telecommunications services. IP telephony domestic Minutes of Use (MOU) are
anticipated to 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 developing its own
capabilities to deliver services with this convergent technology.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000
For the three and nine months ended September 30, 2000, we experienced a net
loss of approximately $4,371,144, or $0.94 per share of common stock and
$6,529,446 and $1.57 share of common stock, respectively. This loss was caused
by a combination of items, the largest being a non-cash charge of $3,315,735 the
Company recorded in connection with the granting of stock options for the
purchase of 1,350,000 shares of the Company's common stock at a 75% discount to
market price, operating losses incurred in all of our operating subsidiaries,
which include EZ, TVS and Globalinx, and start up and administrative expenses
incurred in the domestic operations of Orion and Globalinx. Since we accounted
for the acquisition of TVS using the purchase method, we began recording their
operation on July 1, 2000. We anticipate that TVS and future acquisitions, some
of which we have entered into non-binding letters of intent to acquire, 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 believe that our current operations are not indicative of our future
operations. It is difficult for us to predict what those operations will consist
of, since we are in the process of refining our focus and building our Company.
Our current focus includes additional acquisitions all of which would be subject
to the Company being able to obtain available financing on acceptable terms.
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<PAGE> 14
REVENUES
Our revenue during the three and six months ended September 30, 2000 was as
follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
<S> <C> <C>
Rental and transaction processing of Point of Sale (POS) terminals
by EZ in Germany $ 26,087 $ 80,340
Sale of TVS products 421,834 421,834
Resale of long distance services through Globalinx 155,505 360,141
--------- ---------
$ 603,426 $ 862,315
========= =========
</TABLE>
As mentioned above, we only began recording the operations of TVS on July 1,
2000. However, had we been able to record the revenue of TVS as though our
acquisition of TVS has occurred on January 1, 2000, we would have had total
revenue for the nine months ended September 30, 2000 of approximately
$1,728,000.
COST OF SERVICES AND GOODS SOLD
During the three and nine months ended June 30, 2000 cost of services provided
and goods sold was as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30 September 30
------------ ------------
<S> <C> <C>
Cost of services provided by Globalinx $ 167,859 $ 337,478
Cost of goods sold by TVS 191,482 191,482
--------- ---------
$ 359,341 $ 528,960
========= =========
</TABLE>
Our cost of the services provided by Globalinx consists primarily of the cost of
long distance services we purchase. We believe that, as our customer base
increases and our revenues grow, that our costs will increase. However, as our
customer base expands and we diversify our product offerings, we expect to
experience an improvement in our overall gross margin. Cost we incur related to
the sale of point of sale security products by TVS consist of primarily of
material and labor costs incurred in producing the products. Gross margins at
TVS are relatively stable at approximately 54%, and are expected to remain at
this level in the future. Direct costs we incur related to revenue earned for
the rental and servicing of point of sale terminals are minimal.
During the three and none month ended September 30, 2000, we incurred general
and administrative expenses totaling $884,349 and $2,212,878, respectively. Our
general and administrative expenses have increased each quarter during 2000 as
we have expanded our corporate infrastructure, hired additional of personnel,
made acquisitions and expanded our product services offerings. We expect this
trend to continue in the future. During the first and second quarter of 2000, we
incurred significant legal and accounting fees in preparation of our Form 8-K/A
we filed as part of becoming re-listed on the OTC Bulletin Board. While we
anticipate continuing to incur professional fees in the normal course of our
business and related to future acquisition and strategic alliances, we expect
that overall, professional fees will decline in the future. In addition, during
the second quarter, we incurred a one-time cost in connection with the
acquisition of Hancock of $110,000.
During the second quarter of 2000, the Company established a reserve related to
the collectability of amounts it had advanced a potential acquisition target in
March and April of 2000.
Amortization and depreciation expense was $ 303,962 and $873,472 for the three
and nine months ended September 30, 2000, respectively, and related primarily to
the amortization of goodwill we recorded in connection with our purchase of EZ
and EPS, TVS, SABG, and the write-off of $112,500 of goodwill we
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<PAGE> 15
recorded in our acquisition of Hancock. Since we plan to complete additional
acquisitions in the future and anticipate purchasing property and equipment used
in the operation of our businesses, we expect that goodwill and depreciation
expense will also continue to increase.
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, 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.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCE
Since December 31, 1999, we have raised approximately $2,629,525 from the sale
of our common stock primarily in offshore private placements from European
investors. In March 2000, the Company entered into a Funding and Subscription
Agreement with 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 funding 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 September 30, 2000, OIF
has provided the Company with $974,525 from the purchase of 216,560 shares of
Company common stock under this Agreement. Due to stock market conditions, we
believe that OIF may not be able to meet our expectations outlined in Agreement.
Therefore, we are actively pursuing other sources of capital.
In September 2000, the line of credit available for use by TVS of up to $100,000
was renewed by the bank and is due on June 30, 2001. We had drawn approximately
$82,000 under this line of credit. Repayment of this line of credit is
guaranteed by two of the former stockholders of TVS.
Net cash used in operating activities for the nine months ended September 30,
2000 was $ 1,542,841 used primarily for to fund the negative cash flow
operations of the Company and its subsidiaries, and included certain start up
expenses associated with Globalinx.
Net cash used in investing activities of $509,293 consisted primarily of
advances to an entity totaling $330,000, as described above, our first
investment installment of $100,000 in Rodan Telecom, purchase of equipment for
Globalinx, and net cash paid related to the acquisitions of SABG and TVS.
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 $1,980,025 during the nine months ended
September 30, 2000 from the sale of our common stock and the issuance of
promissory notes.
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. The Company has experienced net
losses since its inception, currently has a significant working capital deficit,
and is in need of additional investment capital. Although the Company expects
operating results to improve, there can be no assurances that the Company will
not experience adverse results of operations in the future, that it will be able
to satisfy its current obligations in the normal course of business, or obtain
additional investment capital. The
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<PAGE> 16
Company believes that without additional investment capital it will not have
sufficient cash to fund its activities in the near future, and may not be able
to continue operating. As such, the Company's continuation as a going concern is
dependent upon its ability to raise additional financing and to successfully
develop and introduce its products to market. These factors among others may
indicate that the Company will be unable to continue as a going concern. The
Company is actively pursuing additional equity financing to provide the
necessary funds for working capital and for planned acquisitions and strategic
partnerships. As described in Note 5, the Company entered into a Funding and
Subscription Agreement under which up to $4,500,000 was to be provided to the
Company. Management believed that the funds provided under this Agreement and
cash flows from operations would have been sufficient to meet its operating
plans, however, the Company has not received funding contemplated in this
Agreement, and the Company is currently negotiating with other sources of
investment capital for the needed funds.
PART II - OTHER INFORMATION
Item 1. Legal proceedings - None.
Item 2. Changes in securities and use of proceeds - None.
Item 3. Defaults upon senior securities - None.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - None.
Item 6. Exhibits and reports on Form 8-K
A. Exhibits
Exhibit
No. Description
27.1 Financial Data Schedule (filed herewith).
B. Reports on Form 8-K:
1. On July 17, 2000, the Company filed an 8-K related to its
acquisition of Transaction Verification Systems, Incorporated
("TVS")
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Orion Technologies, Inc.
(Registrant)
By: /s/ A. Frans Heideman Date: December 1, 2000
--------------------- ----------------
A. Frans Heideman, President
and Chief Executive Officer
By: /s/ James McComas Date: December 1, 2000
--------------------- ----------------
James McComas, Vice President
and Chief Financial Officer
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