<PAGE> 1
FORM 10-QSB
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
Commission File No. 0-25548
ORBIT TECHNOLOGIES, INC.
Delaware 841 00 1269
- ------------------------------ --------------------------------------
(State of Jurisdiction of (I. R. S. Employer Identification No.)
Incorporation or Organization)
2011 Palomar Airport Road, Suite 100, Carlsbad, California 92009
----------------------------------------------------------------
(Address of Principal Executive Offices)
(760) 930-8944
- -------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the registrant (1) has 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[ ] No[X]
The number of outstanding shares of the registrant's only class of common stock
as of June 30, 1996: 23,519,204.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE> 2
INTRODUCTION. The Company is filing this periodic report after the due date that
is prescribed by current regulations. Information presented is as of June 30,
1996, unless otherwise specifically indicated to the contrary. Despite the
foregoing, this report is not intended to cover all matters and events to the
date of filing of this report.
This Form 10-QSB contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements. The following summary is
qualified in its entirety by the more detailed information and the audited
financial statements, including the notes thereto, appearing elsewhere in the
Form 10-KSB for the subject year.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. (See accompanying Financial Report for the period
ended June 30, 1996.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
Since its incorporation in 1985, the Company has engaged in the
research, development, acquisition and licensing of technologies. Initially, the
Company concentrated its efforts in the areas of coating technologies and new
materials technologies. The Company is currently focused on two technologies
that may provide the greatest potential in the short term for commercialization
and to generate a revenue stream. Once commercialization has been proven, it is
the intent of the Company to define specific, discrete product lines for each
application and develop multiple vertical market applications.
The Company's business plan is to focus on specific technologies
discussed herein for multiple market applications and then possibly license each
to an unaffiliated entity which will engage in manufacturing, marketing, joint
venture and sub-licensing strategies with respect to each technology or
application thereof as best suits each technology.
Until completion of the development of a technology and the commencement
of sales of technology, the Company will have no operating revenues but will
continue to incur substantial expenses. No assurances can be given that the
Company can complete development of any technology or that, if any technology is
fully developed, it can be manufactured on a large scale basis or at a feasible
cost. Further, no assurance can be given that any technology will receive market
acceptance. Being a start-up stage entity, the Company is subject to all the
risks inherent in the establishment of a new enterprise and the marketing and
manufacturing of a new product, many of which risks are beyond the control of
the Company.
Results of Operations
Six Months Ended June 30, 1996 vs. 1995. The Company had revenues of $ -0- for
the three months and six months ended June 30, 1996 and 1995, respectively.
General and administrative expenses decreased from $425,617 in the first six
months of 1995 to $397,586 in the first six months of 1996 as a result of a
reduction in overhead and other expenses. For the three months ended June 30,
1996, general and administrative expenses were reduced to $172,530 compared to
$249,384 in the three months ended June 30, 1995. The Company is focusing on two
technologies which it believes have potential to yield commercial products.
Research and development expenses decreased in the six months ended June 30,
1996 to $14,580 from $255,986 in 1995 as the Company continued to refine and
define how R & D costs are allocated. Research and development expenses were
$2,371 and $106,965 for the three months ended June 30, 1996 and 1995,
respectively. Compensatory element of stock options in the three months ended
June 30, 1996 was $90,000 from $-0- in 1995.
For the six months ending June 30, 1996 and 1995, the Company incurred
operating losses of $592,166 and $681,513, respectively. Such losses were
$264,901 and $356,349 for the three months ended June 30, 1996 and 1995,
respectively. Such operating losses have decreased during this period including
administrative expenses and interest and the compensatory element of stock
options issued.
TiTRODES are being sold to Chrysler Corporation by an entity
unaffiliated with the Company (Huys Industries, Inc.) under an agreement by
which the parties would share equally net revenues derived from the sale of
TiTRODES to Chrysler Corporation. The net revenues from the sale of TiTRODES to
2
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Chrysler Corporation have not been disbursed to the Company and the Company has
requested an accounting to determine the amount of money due to it pursuant to
the above referenced agreement. Huys has not complied with the request for an
accounting and Orbit's management is evaluating its rights with respect to Huys
Industries Inc.
Liquidity and Capital Resources
At June 30, 1996, the Company had a stockholders' deficiency and a
working capital deficit of $3,463,249 and $3,820,106, respectively. The Company
had a ratio of liabilities to tangible assets of 10 to 1 as of June 30, 1996.
The Company is also in default on notes that total $2,465,527 in principal and
interest as of June 30, 1996.
The Company will require additional financing. No assurance can be given
that additional financing can be obtained, or if obtainable, that the terms will
be satisfactory to the Company. The Company has limited working capital. In
order to finance its proposed business, the Company will need to obtain
additional financing.
The Company is exploring additional sources of working capital including
borrowing, sales of securities, joint ventures and the licensing of
technologies. While no assurance can be given, management believes the Company
can raise adequate capital to keep the Company functioning at a minimum level of
operation in 1996. During 1996, the Company has borrowed $228,250, of which
$207,250 was received as of June 30, 1996, in one year convertible promissory
notes bearing interest at the rate of 10% per annum. Further, the Company is in
discussions with certain investment bankers about offerings to raise additional
capital. No assurance can be given that the Company can successfully obtain any
working capital or complete any proposed offerings or if obtained, that such
funding will not cause a dilution to shareholders of the Company.
The Company is exploring ways to reduce its existing liabilities
including exchanging some of such liabilities with affiliates and others for
shares of its Common Stock. No assurance can be given that such efforts will be
successful.
The Company does not expect to make any significant capital purchase in
1996, except for TiTRODE and Orbit's Ceramic Silicone Foam (CSF) technology.
To date, the Company has funded its operations from the private sales of
Common Stock or convertible notes (most of which have been converted into Common
Stock). Such sales have been able to fund only minimal operations and
technological developments. Development and exploitation of technologies have
been delayed by lack of adequate funding.
The Company has been awarded small research and development (R & D)
contracts based on initial positive results of tests by the Idaho National
Engineering Laboratory (INEL) for use of Orbit's Ceramic Silicon Foam (CSF)
material for stabilizing radioactive waste. Orbit has made additional proposals
for continued evaluation of CSF for use at INEL and believes those proposals
will continue to receive positive consideration for future contracts.
In May, 1996, the Company was awarded a contract to participate in the
Department of Energy's Landfill Stabilization Project to evaluate materials for
treating existing hazardous waste at the Idaho National Engineering Laboratory's
Subsurface Disposal Areas. These landfill sites are composed of a variety of
mixed waste materials including radioactive waste. Several different materials
have been selected for testing and Orbit was awarded a category sole source
contract to test and evaluate its CSF. The contract provides for initial bench
testing with options that can be exercised for more extensive field-testing.
In November 1996, the Company signed a Teaming Agreement with Ecology
and Environment, Inc. (International Specialists in the Environment), for the
sole purpose of identifying and pursuing mutually agreeable business
opportunities within the U. S. Departments of Energy and Defense, and other
federal and state government agencies and private sectors where the
environmental application of the CSF technology is possible. Identification and
pursuit of business opportunities includes technology development ( i. e., both
system design and application identification and construction), sales and client
development efforts, the bid/proposal process, and the contract negotiation
process regarding awarded projects.
In May 1997, the Company was awarded a contract by Lockheed Martin Idaho
Technologies Company to test and evaluate Orbit's proprietary Ceramic Silicon
Foam (CSF) as a stabilizing media for sodium and nitrate salts which include
chromium, from the Idaho National Engineering and Environmental Laboratory 's
(INEEL) Radioactive Waste Management
3
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Complex (RWMC). Subcontractors under the contract to Orbit are the University of
Akron's Microscale Physiochemical Engineering Center, Department of Civil
Engineering and Pierpoint Environmental Management Services.
In August 1997, Lockheed Martin expanded the initial contract to include
two additional nitrate-type surrogate waste materials containing cadmium and an
organic solvent.
In September 1997, Orbit Technologies, Inc., Ecology and Environmental,
Inc., and The University of Akron submitted a proposal entitled "Low-activity
Waste Stabilization using Ceramic Silicon Foam (CSF)" to the Department of
Energy - Idaho Operations Office.
Other Matters.
In October 1995, the Company commenced an internal audit of its books
and records to examine its debt and equity structure. In February 1996,
preliminary findings of the internal audit suggested that substantial
irregularities existed in the books, records and affairs of the company at the
direction and behest of former Directors and Officers of the company. This
resulted in a request made by the Company upon certain individuals, including
former Directors and Officers of the Company, to surrender stock issued to and
held by them for purposes of cancellation. One of the individuals subject to the
internal audit and a request to surrender stock for cancellation, Adrian Joseph,
initiated a judicial action in the Superior Court of California, County of San
Diego seeking a declaration of his rights in and to Orbit stock. In that action,
the Company sought to cancel all stock held, possessed or controlled by Mr.
Joseph either in his individual capacity, his family or corporations. The
Company and current management prevailed in that action as the court denied the
challenge of Joseph. Although Joseph's stock was not cancelled, the court
prevented Joseph from interfering with the business of the company for a period
of one year or the length of any action brought by the parties.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. See Part II, Item 6. Exhibits and Reports on Form
8-K.
The Company is involved in certain legal proceedings incidental to its
normal business activities. As of the date hereof, the Company is not party to
any material litigation except as described below, nor to the knowledge of
management is there any material litigation or claim threatened or contemplated
against the Company. Most of the litigation is related to actions by past
Directors and Officers, and their affiliates in which a determination of the
respective rights and duties of the parties is sought. This includes an
adjudication of the validity of common stock issued to Messrs. Joseph,
Singletary, Wall, and others. The Company is a party to the following
proceedings:
Benveniste v. Lahey, et al. The action filed by Richard Benveniste and
Edgar R. Benveniste on June 2, 1997 in the Delaware Court of Chancery, Case No.
15720-NC, on behalf of themselves and purportedly on behalf of the Company
against James B. Lahey, James A. Giansiracusa, Ian C. Gent, Stephen V. Prewett,
and William N. Whelen to determine the validity of an alleged shareholder
consent action by which the plaintiffs purportedly obtained managerial control
of the Company. The Court has held in abeyance proceedings as to the validity of
the consent action while ordering current management to conduct a shareholder
meeting. A date for the shareholder meeting has not been established pending
further discussions of the parties.
Jacobs v. Orbit. This action was filed on June 27, 1997, in the Superior
Court of California, County of Los Angeles as Case No. BC 173600. The plaintiff,
who has provided legal representation for Orbit, OTI Technologies Inc. (a
Canadian Corporation), Adrian Joseph, Richard A. Wall, Ruffa & Ruffa, and other
individuals who have brought groundless actions against the Company, seeks money
damages allegedly attributable to his inability to sell restricted stock.
Management believes this action has no merit.
ITEM 2. CHANGES IN SECURITIES.
(c) During November of 1996 and February 1997, the Company and certain
of its debt holders agreed to convert principal of $1,142,000 and related
accrued interest of $129,000 into 6,590,595 shares of common stock. Of such
principal to be converted, $965,000 was outstanding as of December 31, 1995. The
convertible notes were issued in reliance on the
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exemptions provided by Sec. 4(2) and Regulation D and/or Regulation D of the
Securities Act of 1933. Also see Notes to Consolidated Financial Statements,
Note 3.
To induce the note holders to an early conversion, the Company reduced
the conversion rate provided for in certain of the convertible loan agreements.
Substantially, all of the debt conversions were executed at the conversion rate
of $0.22.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT:
(1) Financial Statements.
(2) Exhibits - See (C) below.
(b) REPORTS ON FORM 8-K. O. G. Sansone v. Adrian Joseph, Orbit
Technologies Inc. et al. Settlement Agreement.
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
1. Amended and Restated Bylaws. (1)
2. Restated Certificate of Incorporation (as amended). (1)
3. Consolidated Statement of Operations for the years ended December 31,
1994, 1993, and 1992. (1)
4. Consolidated Statement of Shareholder Equity for the years ended
December 1994, 1993, and 1992. (1)
5. Consolidated Statement of Cash Flows for the years ended December 1994,
1993, and 1992. (1)
6. Notes to Consolidated Financial Statements. (1)
7. Unaudited Interim Financial Statements. (1)
8. Consolidated Balance Sheets at September 30, 1995 (unaudited) and
December 31, 1994. (1)
9. Consolidated Statement of Operation for the nine months ended September
30, 1995 and 1994 (unaudited). (1)
10. 1995 Stock Option Plan and Form S-8 Registration Statement. (1)*
10. Notes to Consolidated Financial Statements for the Period Ended
September 30, 1995 (unaudited). (1)
11. Form of Indemnification Agreement (1)
12. Agreement with Ukraine (1)
13. 1995 Stock Option Plan and Form S-8 Registration Statement (1)*
14. Research Agreement with UCLA (1)
15. License Agreement with UCLA (1)
16. Computation of Earnings Per Share (1)
17. Consolidated Balance Sheets at March 31, 1996 and December 31, 1995. (2)
18. Consolidated Balance Sheets at December 31, 1995 and 1994. (2)
19. Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994, and 1993. (2)
20. Consolidated Statements of Stockholder's Equity for the Years Ended
December 31, 1995, 1994, and 1993. (2)
21. Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994, and 1993. (2)
22. Notes to Consolidated Financial Statements for the Year Ended 1995. (2)
23. Consolidated Statements of Operations for the Six Months Ended March 31,
1996 and 1995. (3)
24. Consolidated Statements of Operations for the Three Months Ended March
31, 1995 and 1994. (3)
25. Consolidated Statement of Cash Flows for the Six Months Ended March 31,
1996 and 1995. (3)
26. Notes to Consolidated Financial Statements for the Period Ended March
31, 1996. (3)
</TABLE>
*Management Compensation Plan
5
<PAGE> 6
Note: Certain previously filed exhibits are no longer being incorporated by
reference (and therefore not numerically listed) as the underlying documents
have either expired or are no longer material or relevant.
(1) Previously filed as part of the Form 10 filed in May 1995 and which are
hereby incorporated by reference.
(2) Previously filed as part of the Form 10-KSB for the Period Ending
December 31, 1995.
(3) Previously filed as part of the Form 10-QSB for the Period Ending March
31, 1996.
6
<PAGE> 7
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ORBIT TECHNOLOGIES INC.
Registrant
Date: February 26, 1998 By: /s/ JAMES B. LAHEY
-------------------- ------------------------------------------
James B. Lahey, Chief Executive Officer
Chairman of the Board of Directors
Date: 2-27-98 By: /s/ JAMES A. GIANSIRACUSA
-------------------- ------------------------------------------
James A. Giansiracusa, Secretary/Chief
Financial Officer
7
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ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
FINANCIAL REPORT
JUNE 30, 1996
<PAGE> 9
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
JUNE 30, 1996
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-1
At June 30, 1996 and December 31, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS F-2
For the Six Months Ended June 30, 1996 and 1995
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
For the Three Months Ended June 30, 1995 and 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS F-4
For the Six Months Ended June 30, 1995 and 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 - F-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
</TABLE>
<PAGE> 10
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Note 2)
<TABLE>
<CAPTION>
At At
June 30, 1996 Dec. 31, 1995
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 10,423 $ 4,703
Prepaid expenses 4,854 10,353
Advances to officer 1,341 1,341
------------ ------------
TOTAL CURRENT ASSETS 16,618 16,397
PROPERTY AND EQUIPMENT - At cost, net of accumulated
Depreciation 272,205 213,887
INTANGIBLE ASSETS, Net of accumulated amortization 80,637 83,203
OTHER ASSETS 4,015 4,015
------------ ------------
TOTAL ASSETS $ 373,475 $ 317,502
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 581,672 $ 533,527
Accrued expenses 590,175 288,654
Due to stockholders 199,350 199,350
Notes payable (Note 3) 2,465,527 2,404,524
------------ ------------
TOTAL CURRENT LIABILITIES 3,836,724 3,426,055
------------ ------------
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Note 4)
STOCKHOLDERS' DEFICIENCY:
Preferred stock - par value $.01 per share; 1,000,000 shares authorized;
1,000,000 and -0- shares issued and outstanding as of June 30, 1996 and
December 31, 1995, respectively 10,000 --
Common stock - par value $.01 per share; 50,000,000
shares authorized; 20,428,637 shares issued and
outstanding as of June 30, 1996 and December 31, 1995 204,287 204,287
Additional paid-in capital 8,481,737 8,291,736
Accumulated deficit (11,862,839) (11,108,832)
Unearned compensation and financing charges (270,000) (478,450)
Notes receivable from stockholders (26,434) (17,294)
------------ ------------
TOTAL STOCKHOLDERS' DEFICIENCY (3,463,249) (3,108,553)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 373,475 $ 317,502
============ ============
</TABLE>
See notes to consolidated financial statements.
F-1
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ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUE $ -- $ --
------------ ------------
OPERATING EXPENSES
Research and development 14,580 255,896
General and administrative 397,586 425,617
Compensatory element of stock
Options 180,000 --
------------ ------------
TOTAL OPERATING EXPENSES 592,166 681,513
------------ ------------
OPERATING LOSS (592,166) (681,513)
------------ ------------
OTHER INCOME (EXPENSE)
Other income -- 1,050
Financing costs (28,450) (104,260)
Interest expense (133,391) (55,875)
------------ ------------
TOTAL OTHER EXPENSE (161,841) (159,085)
------------ ------------
NET LOSS $ (754,007) $ (840,598)
============ ============
PER SHARE DATA:
NET LOSS PER COMMON SHARE $ (.03) $ (.05)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK EQUIVALENTS
OUTSTANDING 25,799,309 17,670,617
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
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ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
REVENUE $ -- $ --
------------ ------------
OPERATING EXPENSES
Research and development 2,371 106,965
General and administrative 172,530 249,384
Compensatory element of stock
Options 90,000 --
------------ ------------
TOTAL OPERATING EXPENSES 264,901 356,349
------------ ------------
OPERATING LOSS (264,901) (356,349)
------------ ------------
OTHER INCOME (EXPENSE)
Other income -- 1,050
Financing costs -- (64,560)
Interest expense (69,281) (37,625)
------------ ------------
TOTAL OTHER EXPENSE (69,281) (101,135)
------------ ------------
NET LOSS $ (334,182) $ (457,484)
============ ============
PER SHARE DATA:
NET LOSS PER COMMON SHARE $ (.01) $ (.03)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK EQUIVALENTS
OUTSTANDING 25,799,309 17,751,867
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 13
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(754,007) $(840,598)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 8,482 8,527
Amortization of deferred finance costs 28,450 104,260
Compensatory element of stock options 180,000 --
Accrued interest 95,665 55,875
--------- ---------
Sub-total (441,410) (671,936)
Cash Provided By (Used In) the Change in
assets and liabilities:
Decrease in prepaid expenses 5,499 6,779
Increase in other deferred costs -- (43,000)
Increase in accounts payable 48,146 116,599
Increase (decrease) in accrued expenses 205,856 (18,584)
Increase in due to shareholders -- 12,650
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (181,909) (597,492)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (64,234) (82,734)
Cost of patents -- (23,230)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (64,234) (105,964)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan repayments (28,747) --
Loan proceeds 289,750 900,000
Increase in notes receivable from
stockholders (9,140) --
Deferred financing costs -- (88,809)
--------- ---------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 251,863 811,191
--------- ---------
INCREASE IN CASH 5,720 107,735
CASH - BEGINNING 4,703 13,864
--------- ---------
CASH - ENDING $ 10,423 $ 121,599
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 14
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions in Item 310 of Regulation S-B. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of Company management, the accompanying unaudited
consolidated financial statements and related notes included
thereto contain all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly its financial
position as of June 30, 1996, the results of its operations for the
six months and three months ended June 30, 1996 and 1995 and its
cash flows for the six months ended June 30, 1996 and 1995.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
However, for the year ended December 31, 1995, the Company incurred
a net loss of $4,147,782 and, as of that date, had a stockholders'
deficiency and a working capital deficiency of $3,108,553 and
$3,409,658, respectively. The Company had a net loss of $754,007
for the six months ended June 30, 1996. The Company is also in
default on a significant number of loan agreements which total
approximately $1,475,000 in principal and interest as of December
31, 1995 and is in arrears with substantially all of its other
payables and accrued liabilities. The Company requires additional
funds to continue research and development efforts and complete the
necessary work to commercialize its technologies. Until completion
of the development of a technology and the commencement of sales,
the Company will have no operating revenues, but will continue to
incur substantial expenses and operating losses. No assurances can
be given that the Company can complete development of any
technology or that, if any technology is fully developed, that it
can be manufactured on a large-scale basis or at a feasible cost.
Further, no assurance can be given that any technology will receive
market acceptance. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
The Company is exploring additional sources of working capital
including private borrowings, sales of its securities, joint
ventures and licensing of technologies. While no assurance can be
given, management believes the Company can raise adequate capital
to keep the Company functioning at a minimum level of operation in
1996 and 1997. During 1996, the Company's proceeds from all
financing activities amounted to $428,250, of which $289,750 was
received as of June 30, 1996.
F-5
<PAGE> 15
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 2 - GOING CONCERN (Continued)
The Company is exploring ways to reduce its existing liabilities
including exchanging certain of its liabilities for shares of its
common stock. During the fourth quarter of 1996, the Company
exchanged $965,000 of principal on various promissory notes
outstanding at December 31, 1995 for shares of common stock.
To date, the Company has not been successful in restructuring the
remaining debt and the Company continues to be in default under
such agreements. Further, one group of note holders, representing
$600,000 of the promissory notes outstanding as of December 31,
1995, has filed a lawsuit against the Company to recover loans and
other monies provided to the Company (see Note 4).
The Company's ability to continue as a going concern is dependent
upon obtaining the additional financing, restructuring and/or
curing the defaults on its debt, completion of research and
development and the successful marketing of its technologies. These
financial statements do not include any adjustments relating to the
recoverability of recorded asset amounts that might be necessary as
a result of the above uncertainty. Management believes that actions
presently being taken, as discussed above, provide the opportunity
for the Company to continue as a going concern.
NOTE 3 - CAPITALIZATION
Borrowings Under Convertible Notes Payable
During 1996, the Company has borrowed $228,250, of which $89,750
was received as of June 30, 1996, in one year promissory notes
bearing interest at 10% per annum. $77,250 of the notes and related
accrued interest are convertible into common stock at 50% of the
asked market price at any time, with automatic conversion upon the
effectiveness of the Registration Statement under the Securities
Act of 1933. The remaining $151,000 of the notes and related
accrued interest are convertible into common stock at prices
ranging from $0.10 - $0.22 per share of debt.
Issuance of Preferred Stock
During the first quarter of 1996, the Company borrowed $200,000
pursuant to a one-year promissory note that was satisfied by
issuance of 1,000,000 shares of preferred stock. Such stock is
automatically convertible into 2,000,000 shares of common stock on
or prior to the due date of the note. The board of directors issued
a resolution granting each share of preferred stock three votes and
assigned such voting rights to one of the Company's officers.
F-6
<PAGE> 16
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 3 - CAPITALIZATION (Continued)
Conversion of Debt to Equity
During November of 1996 and February 1997, The Company and certain
of its debt holders agreed to convert principal of $1,142,000 and
related accrued interest of $129,000 into 6,590,595 shares of
common stock. Of such principal to be converted, 965,000 was
outstanding as of December 31, 1995.
To induce the note holders to an early conversion, the Company
reduced the conversion rate provided for in certain of the
convertible loan agreements. Substantially, all of the debt
conversions were executed at the conversion rate of $0.22.
NOTE 4 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Litigation/Disputes
a) The Metafuse technology was utilized to coat copper-alloy
resistance welding electrodes (welding tips) through the
fusion of titanium carbide or molybdenum tungsten onto and
into copper-alloy welding tips ("TiTRODEs"). TiTRODE
electrodes have been successfully tested by the Chrysler
Corporation ("Chrysler") for use on its assembly lines.
Chrysler has conducted 18 months of testing on the TiTRODE
type electrodes and has since integrated them into certain of
its manufacturing plants. TiTRODE type electrodes are being
sold to Chrysler by a Canadian corporation, with which the
Company claims to have an oral agreement beginning in January
1994, whereby the two parties would share net revenues derived
from the sale of TiTRODEs. The net revenues from the sale of
TiTRODEs to Chrysler have not been dispersed to the Company
and the Company has requested an informal accounting to
determine the amount of money due to it pursuant to the above
referenced oral agreement. No revenue has been recognized to
date from this venture, as the Company cannot predict the
outcome of this request. The Company intends to retain legal
counsel to enforce its oral agreement.
b) In October 1995, the Company commenced an internal audit of
its debt and equity structure. In February 1996, preliminary
findings of the internal audit suggested that certain stock
issuance to former officers and related entities were without
consideration. This resulted in a request made by the Company
upon certain individuals, including former directors and
officers of the Company, to surrender stock issued to and held
by them for purposes of cancellation. One of the individuals,
F-7
<PAGE> 17
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 4 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
subject to the internal audit and who the Company has
previously demanded that he surrender stock for cancellation,
Adrian Joseph, the Company's former chairman and president,
has initiated a judicial action in the Superior Court of
California, County of San Diego, seeking a declaration of his
rights in and to Orbit stock. The Company has sought to cancel
all stock held, possessed or controlled by Mr. Joseph either
in his individual capacity, his family or corporations. The
Company and current management prevailed in that action as the
court denied the challenge of Joseph. Although Joseph's stock
was not cancelled, the court prevented Joseph from interfering
with the business of the Company for a period of one year or
the length of any action brought by the parties.
c) Emerson v. Orbit Technologies, Inc. et al.. Plaintiff claims
that Richard A. Wall, a former officer of Orbit, caused
restricted stock to be issued to her without disclosing the
restriction. Emerson seeks damages of approximately $125,000.
Orbit is named as the issuing corporation. Plaintiff failed to
timely serve Wall and he has been dismissed in the main
action. No discovery has yet been conducted and, thus, it is
impossible to estimate the chances of success. However, since
Orbit received no consideration for the stock, the Company
counsel believes there are strong affirmative defenses to
Emerson's claims. Orbit intends to vigorously defend and
pursue all claims in this action.
d) Orbit Technologies, Inc. v. First Liberty Investment Group,
Inc. ("First Liberty"). This is an action to recover
investment banking fees paid to the defendant by Orbit. A
settlement was reached in March of 1997, whereby First Liberty
agreed to pay Orbit $15,000 in full settlement of all
obligations.
F-8
<PAGE> 18
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 4 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
e) Joseph v. Orbit Technologies, Inc.. Adrian Joseph, Orbit
former CEO, President and Chairman, filed an action for
declaratory relief seeking to validate his stock holdings in
Orbit. Orbit has cross-claimed against Joseph and Tatum
C.Singletary, another former officer, seeking to invalidate
their stock and to recover millions of dollars earned by said
individuals from the sale of Orbit stock. If Orbit is
unsuccessful, and the disputed stock is validated, the Company
counsel believes that it should not result in any monetary
award against Orbit. An adverse outcome merely affects the
debt/equity structure of the Company. The Company intends to
vigorously pursue this action. The trial is to begin September
29, 1997.
f) Jeffer, Mangels, Butler & Marmaro, LLP v. Orbit Technologies,
Inc.. Action by former attorneys of Orbit to compel
arbitration to recover attorney fees. Orbit stipulated to
arbitration of fee dispute and stipulated to entry of interim
arbitration award in the amount of approximately $110,000,
subject to any defenses, offsets or claims, which Orbit is
asserting by way of a separate legal malpractice action.
The malpractice action has been filed as a cross-complaint in
the case of Joseph v. Orbit Technologies, Inc. Whether it will
remain a claim in that action or will be sent back to the
arbitrator is an issue currently pending before the court. The
Company has retained a law firm to handle the legal
malpractice claims on a contingency basis.
g) Benveniste, et. al. vs. Orbit and Its Officers. The action was
filed on March 6, 1997 in the Los Angeles Superior Court. The
action is to collect principal, interest and other fees and
damages relating to various promissory notes executed between
the plaintiffs and Orbit during 1995 aggregating $600,000 and
loans made during 1991 aggregating $197,000.
F-9
<PAGE> 19
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
NOTE 4 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
The plaintiffs allege that the defendants violated the
securities laws of the state of California and made negligent
misrepresentations related to Company's technologies, thereby
inducing them to loan monies to the Company. The plaintiffs
also allege that, pursuant to an oral agreement with an
officer of the Company, the exercise price for various stock
options to acquire Orbit stock was reduced to $0.10 per share
and the conversion price under various convertible loan
agreements between the plaintiffs and Orbit was also reduced
to $0.10. Further, the plaintiffs allege that they have not
received 500,000 shares of Orbit stock promised as additional
compensations under such agreements and that debt related to
the 1991 loans of $197,000 is not reflected on the Company's
books.
Management contends that all of the debt and related fees and
shares of common stock are properly reflected on Orbit's books
as of December 31, 1995. The Company's records reflect that
the debt related to the 1991 loans of $191,000 and related
accrued interest was converted into 226,550 common shares of
Orbit in 1993. Management also contends that there was no oral
agreement to reduce the exercise and conversion prices of
certain financial instruments. Further, management contends
that there were no violations of securities laws that no
misrepresentations were made to plaintiffs and all other
complaints are without merit.
Management has attempted to restructure these loan agreements
and has been unsuccessful to date.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORBIT
TECHNOLOGIES INC. AND SUBSIDIARIES BALANCE SHEET AS OF JUNE 30, 1996 AND
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10
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<RECEIVABLES> 1
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<CURRENT-ASSETS> 17
<PP&E> 307
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<CURRENT-LIABILITIES> 3,837
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10
<COMMON> 204
<OTHER-SE> (3,677)
<TOTAL-LIABILITY-AND-EQUITY> 373
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<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162
<INCOME-PRETAX> (754)
<INCOME-TAX> 0
<INCOME-CONTINUING> (754)
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<EPS-PRIMARY> (.03)
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