<PAGE>
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, 1999
(_) 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
Incorporation or Organization) Identification No.)
5950 La Place Court, Suite 140, Carlsbad, California 92008
----------------------------------------------------------
(Address of Principal Executive Offices)
(760) 918-9168
- --------------------------------------------------------------------------------
(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 March 31, 1999: 32,257,261.
Transitional Small Business Disclosure Format: Yes ____ No X
-----
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (See accompanying Financial Report for the
period ended June 30, 1999.)
Item 2. Management's Discussion and Analysis or Plan of Operation
Forward Looking Statements
- --------------------------
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 as a result of certain factors,
including those set forth under "Risk Factors" in Exhibit 99 and elsewhere in
this Form 10-QSB.
Plan of Operation
- -----------------
Since 1996, the Company has focused on the development and use of its
polydimethalsiloxane-based Polymer Encapsulation Technology (PET) as a method
for stabilizing and encapsulating various radioactive and toxic waste materials
leading to a final waste form for disposal.
Significant progress has been attained as evidenced by the success achieved on
test and evaluation contracts completed for Lockheed Martin Idaho Technologies
Company (LMITCO) in conjunction with the U. S. Department of Energy, Idaho
Operations Office, at their Idaho Falls waste site. The Company's business plan
and near term strategy will focus the Company's human resources and funding on
developing the Polymer Encapsulation Technology (PET) as a modern technology
solution to various radioactive and toxic waste materials identified for
environmentally safe disposal.
As a next step in product acceptance, Lockheed Martin Idaho Technologies Company
and Orbit, together with input from the Microscale Physiochemical Laboratory at
the University of Akron and Ecology and Environmental, Inc. (Orbit's Teaming
Partner) have recently completed the Scope of Work that will lead to a follow-on
calcine evaluation contract utilizing Orbit's PET as a potential transportation
medium in addition to a stabilization and encapsulation material. The
elastomeric properties and material characteristics provided by PET are of
particular benefit in eliminating the potential risk that would occur in the
transportation of the waste from one site to another for long term storage or
disposal. It is estimated that this evaluation phase will be completed in late
1999.
After product performance evaluations are successfully completed for stabilizing
and encapsulating the waste, a pilot plant evaluation is normally conducted.
The pilot plant demonstration represents actual processing methods and
applications incorporating both PET and selected waste materials.
Building on the successes achieved under the Lockheed Martin contracts, the
marketing strategy is to build a substantial government and private sector
business in which Orbit's system will be used in the containment of various
radioactive and heavy metal wastes. Work has begun with initial contacts being
made with industry leaders in the waste management and waste remediation sectors
and potential end-users of the technology. Ultimately, the Company plans to
develop strategic relationships with prime contractors throughout the waste
management industry.
Until completion of the final development and evaluation of the technology and
the commencement of sales, 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, 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. 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.
Background
In May 1996, the Company was awarded a sole source contract, within its
category, to participate in the U. S.
2
<PAGE>
Department of Energy's Landfill Stabilization Project. This Project evaluates
materials for treating existing hazardous waste at the Idaho National
Engineering Laboratory's Subsurface Disposal Areas. Several materials in other
categories have also been selected for testing. The contract provides for
initial bench testing with an option that can be exercised for more extensive
field-testing.
The results of preliminary testing and analysis in Idaho was the development of
a "White Paper" which recommended a much more extensive evaluation of Orbit's
CSF be conducted to evaluate its use for Calcine Waste Stabilization at the
Idaho facility. Calcine waste is specific to the Idaho facility and there are
about 13,000,000 pounds of material to be processed. Part of this study actually
produced three non-radioactive samples that produced acceptable results. A
conceptual process design was also performed as well as initial cost estimates
generated. This study has had wide distribution within the Department of Energy
(DOE).
In November 1996, the Company entered into a Teaming Agreement with Ecology &
Environmental, 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
Orbit's 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 (LMITCO) to test and evaluate Orbit's material as a
stabilizing media for sodium and nitrate salts, which included chromium, from
the Idaho National Engineering and Environmental Laboratory`s (INEEL)
Radioactive Waste Management 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. Conclusions from a report published in November 1997 by
Lockheed Martin indicated that Orbit's material appears to be suitable for the
stabilization of DOE complex salt wastes. The final waste form passed the TCLP
protocol and DOT oxidizer tests.
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. The proposal received wide dissemination within the
U.S. Department of Energy.
In March 1998, the Company was awarded a contract by Lockheed Martin Idaho
Technologies Company to evaluate encapsulation of both surrogate and actual WERF
(Waste Experimental Reduction Facility) low level waste with its Polymer
Encapsulation Technology (PET).
In July 1998, the Statement of Work was modified and redirected the Company to
focus on a low level calcine material. These new tests included mixing studies
and enhanced treatment methodologies. Test reports by Lockheed Martin indicated
that encapsulation of the low-level mixed waste fraction from INTEC calcined
waste has potential as an encapsulating media for final disposal and the report
recommended exploration of further treatment formulations.
In August 1998, a paper detailing the Company's mixed waste encapsulation
technology, entitled "Encapsulation of Nitrate Salt Waste Using Polysiloxane,"
was selected for presentation at the 216th Annual American Chemical Society
National Meeting. The paper examined the use of a new waste management solution
to encapsulate the U.S. Department of Energy's approximately 250 million-kg of
dry nitrate salt waste which is laden with heavy metals and radioactive
isotopes.
In October 1998, the Company filed a new patent application for its Polymer
Encapsulation Technology (PET). The new patent was the result of rigorous test
and evaluation over the last year and included the results of enhanced
formulations and improved process applications. The Company's system involves a
method for stabilizing granular salts generated by solidifying neutralized
acidic solutions used to recover and reformulate weapons material.
3
<PAGE>
In the last six months the Company has included new surfactant additives, or
binding agents, that enable the system to encapsulate and stabilize waste
material which may include soluble chromium compounds, sodium nitrate, potassium
nitrate, plutonium 238 and 239, uranium 238, and other harmful contaminants.
Orbit's encapsulation system is designed to form a cohesive material suitable
for transportation and final disposal, featuring a low leaching index as well as
the ability to perform at increased waste loading factors. The system has been
developed for the treatment of waste material to prevent environmental damage,
because certain wastes that cannot be easily or economically rendered
environmentally harmless still pose significant disposal problems.
In October 1998, Orbit's new and recently patented Polymer Encapsulation
technology (PET) was selected for presentation at the 19th U. S. Department of
Energy Low-Level Radioactive Waste Management Conference. The goal of the
conference was to provide an opportunity for information exchange between
representatives of the commercial and defense related low-level radioactive
waste management communities.
In May 1999, Orbit was awarded a contract by Lockheed Martin Idaho Technologies
Company to evaluate the encapsulation of actual pilot scale calcine waste
processed at the Idaho Nuclear Technology and Engineering Center (INTEC) with
its Polymer Encapsulation Technology (PET). All specific engineering, technical
tasks, and testing will be accomplished in accordance with ASTM, Department of
Transportation (DOT), and Toxicity Characteristic Leach Procedure (TCLP), and
standards.
Other Matters.
- --------------
None.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Jeffer, Mangels, Butler & Marmaro, LLP v. Orbit
-----------------------------------------------
Technologies, Inc. Action filed in Los Angeles Superior Court, on September 17,
- ------------------
1996, Case No. BS 041 354, by former attorneys of Orbit to recover attorneys'
fees. Orbit stipulated to arbitration of fee dispute and entry of an interim
arbitration award in the amount of approximately $110,000, subject to any
defenses, offsets or claims, which Orbit asserted in the form of a legal
malpractice claim.
The Company's legal malpractice action was denied as a result of the retainer
agreement signed by Adrian Joseph in his capacity as Chairman and President when
he was with the Company. Mr. Joseph was a personal client of Jeffer, Mangels,
Butler & Marmaro prior to Orbit's involvement with the firm. Orbit declined to
participate in the arbitration and judgment had been awarded pursuant to the
interim arbitration.
On June 21, 1999, Orbit reached a Settlement Agreement and General Release with
Jeffer, Mangels, Butler & Marmaro, LLP whereby the parties agreed that Orbit
shall pay Jeffer, Mangels, Butler & Marmaro LLP the sum of $60,000 which
represents a compromise sum for the amounts due under a court judgment in favor
of Jeffer, Mangels, Butler & Marmaro LLP for past due services in the amount of
$107,696.59 plus interest at a rate of ten percent annum from December 10,1996,
and costs, including reasonable attorney's fees in the amount of $30,670,56.
Item 2. Changes in Securities. No change.
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. None.
4
<PAGE>
(c) Exhibits
Exhibit
Number Exhibit
(10) Material contracts.
(11) Computation of per share earnings./(1)/
(15) Letter on unaudited interim financial information./(1)/
(18) Letter on change in accounting principles./(1)/
(27) Financial Data Schedule./(1)/
(99) Risk Factors./(2)/
/(1)/ See Orbit Technologies Inc. and Subsidiaries Financial Report for the
period ended June 30, 1999.
/(2)/ Previously filed as part of the Form 10-KSB for 1998 and which is hereby
incorporated by reference.
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: August 19, 1999 By: /s/ James B. Lahey
--------------- ------------------------------------------
James B. Lahey, Chief Executive Officer
Chairman of the Board of Directors
Date: August 19, 1999 By: /s/ James A. Giansiracusa
--------------- ------------------------------------------
James A. Giansiracusa, Secretary/Chief
Financial Officer
5
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
----------------------------------------
FINANCIAL REPORT
----------------
JUNE 30, 1999
-------------
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
JUNE 30, 1999
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-1
At June 30, 1999 and December 31, 1998
CONSOLIDATED STATEMENTS OF OPERATIONS F-2
For the Three Months Ended June 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF OPERATIONS F-3
For the Six Months Ended June 30, 1998 and 1999
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY F-4
For the Six Months Ended June 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
For the Six Months Ended June 30, 1998 and 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 - F-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
At At
December 31, 1998 June 30,1999
----------------- -------------
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 20,367 $ 18,048
-------- --------
Total Current Assets 20,367 18,048
Property and Equipment - At cost, net of accumulated
depreciation and allowance against equipment expenditures 39,735 29,801
Intangible Assets, Net of accumulated amortization 67,809 65,243
Other Assets 4,800 5,300
-------- --------
Total Assets $132,711 $118,392
======== ========
- -----------------------------------------------------------------------------------------------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
<TABLE>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities $ 1,977,161 $ 2,025,216
Notes payable 1,632,591 1,680,091
------------ ------------
Total Current Liabilities 3,609,752 3,705,307
------------ ------------
Commitments, Contingencies and Other Matters (Notes 1, 2 and 3)
Stockholders' Deficiency:
Preferred stock - par value $.01 per share; shares authorized -
1,000,000; shares issued and outstanding - none - -
Common stock - par value $.01 per share; shares authorized -
50,000,000; shares issued and outstanding - 32,484,716 and
33,137,692 as of December 31, 1998 and June 30, 1999,
respectively 324,848 331,377
Additional paid-in capital 11,093,727 11,321,934
Accumulated deficit (14,895,616) (15,240,226)
------------ ------------
Total Stockholders' Deficiency (3,477,041) (3,586,915)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 132,711 $ 118,392
============ ============
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended
June 30,
------------------------
1998 1999
-------- --------
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ - $ -
----------- -----------
Costs and Expenses
Research and development 1,250 -
General and administrative 100,985 116,244
Amortization of financing costs 5,344 -
Interest expense 39,214 39,760
Other (income) expense, net - (47,696)
----------- -----------
Total Costs and Expenses 146,753 108,308
----------- -----------
Net Loss $ (146,793) $ (108,308)
=========== ===========
PER SHARE DATA:
Basic and Diluted Loss Per Share $(.005) $(.003)
=========== ===========
Weighted Average Common Shares Used in Basic and Diluted Loss Per Share 29,800,242 32,916,032
=========== ===========
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the Six Months Ended
June 30,
------------------------------
1998 1999
------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ - $ -
------------- -------------
Costs and Expenses
Research and development 3,350 -
General and administrative 265,838 216,577
Amortization of financing costs 10,688 -
Debt conversion expense - 95,593
Interest expense 100,190 80,136
Other (income) expense, net - (47,696)
------------- -------------
Total Costs and Expenses 380,066 344,610
------------- -------------
Net Loss $ (380,066) $ (344,610)
============= =============
PER SHARE DATA:
Basic and Diluted Loss Per Share $ (.01) $ (.01)
============= =============
Weighted Average Common Shares Used in Basic and Diluted Loss Per
Share 29,800,242 32,823,543
============= =============
- -------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
-----------------------
Shares Amount Paid -in Capital Deficit Total
----------------------- ---------------- ------- -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1998 32,484,716 $ 324,848 $ 11,093,727 $ (14,895,616) $ (3,477,041)
Issuance of stock 256,573 2,566 42,434 - 45,000
Issuance of stock for conversion of notes
payable and accrued interest 393,903 3,938 89,705 - 93,643
Issuance of stock for accrued interest 2,500 25 475 - 500
Debt conversion expense - - 95,593 - 95,593
Net loss - - - (344,610) (344,610)
----------- ---------- ------------ ------------- ------------
Balances at June 30, 1999
33,137,692 $ 331,377 $ 11,321,934 $ (15,240,226) $ (3,586,915)
=========== ========== ============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
For the Six Months Ended
June 30,
-------------------------
1998 1999
---------- ----------
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(380,066) $(344,610)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 5,312 12,500
Amortization of unearned and deferred finance costs 10,688 -
Debt conversion expense - 95,593
Issuance of stock for services 586 -
Cash provided by (used for) the change in assets and liabilities:
Increase in other assets - (500)
Increase in accounts payable and accrued liabilities 135,966 67,198
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (227,514) (169,819)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock 236,100 45,000
Proceeds from loans 15,000 122,500
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 251,100 167,500
--------- ---------
INCREASE (DECREASE) IN CASH 23,586 (2,319)
CASH - BEGINNING 3,631 20,367
--------- ---------
CASH - ENDING $ 27,217 $ 18,048
========= =========
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of 393,903 shares of common stock for conversion
of $93,643 of notes payable and accrued interest of $18,643 $ - $ 93,643
========= =========
Issuance of 2,500 shares of common stock for payment of
accrued interest $ - $ 500
========= =========
Issuance of 108,412 shares of common stock for conversion
of $25,000 notes payable and legal fees $ 25,586 $ -
========= =========
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS
Orbit Technologies Inc. (the "Company") was incorporated in the State
of Delaware on April 29, 1985. The Company is a commercial technology
research and development company holding rights to certain patents and
their technologies.
The Company's business plan is to develop certain technologies until
commercially viable products are possible and to license or sell these
technologies to third parties which would be responsible for the
production and marketing of any products resulting therefrom. Since
its incorporation in 1985, the Company has pursued the research,
development, acquisition and licensing of certain technologies. The
Company concentrated its efforts in the areas of coatings technologies
and new materials technologies. While the technologies are undergoing
certain feasibility studies and testing, none has proved commercially
feasible, except for the TiTRODE type electrodes. To date, the Company
has not financially benefitted from the commercialization of the
TiTRODE electrode.
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, 1998 and the six months ended June 30, 1999, the
Company incurred net losses of approximately $877,000 and $345,000,
respectively, and as of June 30, 1999, had a stockholders' deficiency
and a working capital deficiency of approximately $3,857,000 and
$3,687,000, respectively. The Company is also in default on a
significant number of loan agreements which total approximately
$2,193,000 in principal and interest as of June 30, 1999, 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, 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 1999. From
January 1, 1999 through June 30, 1999, the Company's proceeds from all
financing activities amounted to approximately $167,500.
The Company is exploring ways to reduce its existing liabilities
including exchanging certain of its liabilities for shares of its
common stock. For the six months ended June 30, 1999, the Company
exchanged $75,000 of principal on various promissory notes outstanding
at December 31, 1998 for shares of common stock (see Note 2).
F-6
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
To date, the Company has not completed its restructuring of the
remaining debt and the Company continues to be in default under such
agreements. On March 6, 1997, one group of note holders, representing
$600,000 of the promissory notes outstanding as of December 31, 1997,
has filed a lawsuit against the Company to recover loans and other
monies provided to the Company. During June 1998, the Company and the
note holders reached a tentative settlement, which is subject to the
approval of the majority of the shareholders and approval of the
residing court (see Note 3b).
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.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the interim
financial statements include all adjustments necessary in order to
make the financial statements not misleading. The results of
operations for the three-month and six-month periods then ended are
not necessarily indicative of the results to be expected for the full
year. For further information, refer to the Company's audited
financial statements and footnotes thereto at December 31, 1998,
included in the Company's Form 10-KSB, filed with the Securities and
Exchange Commission.
NOTE 2 - CAPITALIZATION
Conversion of Debt to Equity
----------------------------
During the first quarter of 1999, the Company converted $25,000 of
principal and $362 of accrued interest, relating to a note payable
outstanding at December 31, 1998, into 120,771 shares of the Company's
common stock.
As part of a settlement agreement with a noteholder, during the first
quarter of 1999, the Company agreed to convert principal of $50,000
and accrued interest of $18,281, relating to a note payable
outstanding at December 31, 1998, into 273,132 shares of the Company's
common stock. Under the original loan agreement, the debt was
convertible, at the option of the noteholder, at $0.60 per share. The
difference between the original conversion rate of $0.60 and the
actual conversion rate of $0.25 was reflected in the accompanying
financial statement as a debt conversion expense of $95,593.
F-7
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - CAPITALIZATION (Continued)
Notes Payable
-------------
During the first quarter of 1999, the Company received the proceeds of
a $50,000 from loans from two unrelated individuals. The loans are due
in one year, bear interest at 8% per annum, and are convertible into
common stock at a 20% discount to the average 5-day market price at
the conversion date.
During the second quarter of 1999, the Company received the proceeds
of a $25,000 loan from an individual. The loan is due in one year,
bears interest at 8% per annum, and is convertible into common stock
at a 20% discount to the average five-day market price at the
conversion date.
During the second quarter of 1999, the Company received the proceeds
of a $7,500 loan from two individuals. The terms of the loans have not
yet been determined.
During the second quarter of 1999, the Company received the proceeds
of a $40,000 loan from two of the Company's principal officers. The
proceeds were used to pay Jeffer, Mangels, Butler & Marmaro, LLP under
a court judgement for past due services.
Common Stock
------------
During the second quarter of 1999, the Company sold 256,573 shares of
common stock for $45,000 in cash and paid related interest expense of
$500 by the issuance of 2,500 common shares.
NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Litigation/Disputes
-------------------
a) 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 $160,000, subject to any defenses,
offsets or claims, which Orbit is asserting by way of a separate
legal malpractice action.
The Company's legal malpractice action was directed to arbitration
by a retainer agreement signed by Mr. Joseph, in his capacity when
he was with the Company. Prior to Orbit becoming a client, Mr.
Joseph was a personal client of Jeffer, Mangels, Butler & Marmaro.
The retainer agreement signed by Joseph has barred Orbit from
filing a legal malpractice action.
F-8
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Litigation/Disputes (Continued)
-------------------
a) Jeffer, Mangels, Butler & Marmaro, LLP v. Orbit Technologies, Inc.
------------------------------------------------------------------
(Continued) On June 21, 1999, the Company reached a settlement
-----------
agreement and general release with Jeffer, Mangels, Butler &
Marmaro, LLP, whereby the parties agreed that Orbit shall pay the
sum of $60,000, which represents a comprise sum for the amounts
due under a court judgment in favor of Jeffer, Mangels, Butler &
Marmaro, LLP for past due services in the amount of $107,697, plus
interest, at a rate of ten percent per annum from December 10,
1996, and costs, including reasonable attorney's fees in the
amount of $30,671. This settlement resulted in a net gain of
$47,697 which has been reflected as other income during the
quarter ended June 30, 1999.
b) 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 1992 totalling $197,000 and additional
loans made during 1995 totalling $600,000.
In June of 1998, a tentative comprehensive settlement was reached
by all parties. The financial terms of the tentative settlement
include the conversion of all the Benveniste's debt to 5,745,000
shares of common stock. Because the accord requires the surrender
and cancellation of approximately 5 million shares of Orbit common
stock issued by past officers and directors that Orbit contends
are invalid, the net effect will be to essentially maintain the
existing equity structure. The agreement also grants to the
Benvenistes the option to purchase up to 1,100,000 shares at a
price ranging from $0.23 to $0.75 per share, which depend on the
period of time from the option grant date that the options are
exercised. The settlement has several contingencies, which need to
be resolved before the settlement is final.
c) Benveniste, et al. vs. Lahey, et al. On June 2, 1997, Richard
-----------------------------------
Benveniste and Edgar Benveniste filed suit in the Delaware Court
of Chancery on behalf of themselves and purportedly on behalf of
the Company against James B. Lahey, James A. Giansiracusa, Stephen
V. Prewett, Ian C. Gent and William N. Whelen. The complaint
sought a determination by the Court of Chancery for: (i) as to who
constituted the valid directors of the Company in connection with
a written consent action initiated by the plaintiffs or, (ii) in
the alternative, that the Company be required to hold a annual
meeting of shareholders.
On September 2, 1997, the Court of Chancery decided to defer a
decision on the defendants motion to dismiss until such time as an
annual meeting of the Company's shareholders was held. The Court
thereafter ordered that the Company hold its annual meeting. The
Company is in the process of complying with the Court's
requirements.
F-9
<PAGE>
Orbit Technologies, Inc. 5950 La Place Court Suite 140 Carlsbad, CA 92008
To: James A. Giansiracusa Phone: (760) 918-9168 Fax No.: (760) 918-9213
1. STATEMENT OF WORK
PURCHASE ORDER NO. K99-181662 LOCKHEED MARTIN IDAHO TECHNOLOGIES COMPANY
(LMITCO) 2525 Fremont Avenue
P. O. Box 1625, Idaho Falls, ID 83415-3521
OPERATING UNDER U. S. GOVERNMENT CONTRACT NO. I>E-AC07-94ID13223
Effective Date: 05/26/15
Completion Date: 09/15/1!
1.1. The Subcontractor shall furnish the services as detailed in the Statement
of Work entitled, "Polysiloxane Encapsulation of Calcined Waste", dated
05/06/1999, Rev. 1, and in accordance with the requirements, terms and
conditions specified or referenced in this Purchase Order.
1.2. This is a fixed-rate, ceiling.priced, level-of-effort Purchase Order for
the period of 05/26/1999 through 09/15/1999. The quantity of hours shown is an
estimate to be used during the specified period of this Purchase Order. The
estimated quantity does not obligate, guarantee, or imply that this quantity
will be purchased. Payment will be made for services rendered and accepted by
LMITCO. Pricing (i.e., fixed labor rates) is firm for the specified period of
this Purchase Order.
2. RESOURCES
2.1. The Subcontractor shall provide all resources, e.g., materials, labor,
tooling, equipment and facilities, necessary to fulfill the requirements of this
Purchase Order, except as otherwise specified.
3. APPLICABLE DOCUMENTS
The Statement of Work entitled, "Polysiloxane Encapsulation of Calcined Waste",
dated 05/06/1999, Rev. 1 is incorporated into and becomes a part of this
Purchase Order:
4. TERMS AND CONDITIONS
General Provisions: The following document is incorporated by reference and
hereby forms a part of this action: Lockheed Martin Idaho Technologies Company
General Provisions for Non-Construction Purchase Orders and Subcontracts, Form
PROC-183, Rev. August 1996. Note: LMITCO's General Provisions are available at
the following Internet address: http://www.inelgov/procurementnitco/forma.
1
<PAGE>
Procurement Agent: C. F. Cloud, Telephone: (208) 526-5596, Ceiling Price.
$60,000.00
Ship via: N/A F.O.B./Trans.: N/A Cash Terms: Net 10
Days
Article A.16, Disputes: Add the following paragraph: "The parties agree that
Alternate Dispute Resolution (ADR) is an option for resolving disputes
pertaining to this Subcontract and upon the mutual agreement of the parties, ADR
will be utilized. The particular ADR process to be used must also be mutually
agreed upon and set forth in a written agreement signed by the parties. Possible
ADR procedures include, but are not limited to: (a) a neutral party to preside
over the resolution process; (b) mediation; and (c) binding arbitration".
4.3. Certification of Eligibility: Subcontractor, by entering into this
Purchase Order, certifies that it is not debarred, or proposed for debarment, or
suspended or has not otherwise been declared ineligible from receiving Federal
contracts. Disclosure that Subcontractor was ineligible for Federal contracts on
or before the effective date of this Purchase Order shall constitute an
additional basis for termination under the Default Article of the General
Provisions.
4.4. Sales Tax: LMITCO has been granted Direct Pay Authority for Idaho Sales
Tax by the Idaho Tax Commission Utilization of Former Employees: Except as
approved by LMITCO in advance, Subcontractor shall not utilize former LMITCO or
Coleman employees who participated in the early retirement program of 1995. This
restriction also applies to any lower-tier Order(s) awarded by the
Subcontractor.
Anti-Kickback Act: By acceptance of this Purchase Order, Subcontractor certifies
that it has not and shall not make or solicit kickbacks in violation of the
Anti-Kickback Act of 1986.
5. PRICE
5.1. The ceiling price of this Purchase Order is $60,000.00.
5.2. LMITCO shall not be obligated to pay the Subcontractor any amount in
excess of the ceiling price established in the Purchase Order, and the
Subcontractor shall not be obligated to continue performance, if to do so, would
exceed that price ceiling, unless and until LMITCO shall have notified the
Subcontractor, in writing, that such price ceiling has been increased and shall
have specified in such notice a revised price ceiling, which shall thereupon
constitute the price ceiling for performance under this Purchase Order.
5.3 Labor: The ceding price for labor is $50,000.00. The Subcontractor shall
be paid at the hourly labor rates established herein up to 1016 hours for
services rendered in performing the statement of work. The hourly labor rates
are fully burdened, i.e., they include all elements of direct and indirect cost.
The Subcontractor shall maintain suitable
2
<PAGE>
records showing time actually expended by employees by name and applicable label
category; these records must be furnished to LMITCO, upon LMITCO's request.
5.4 Materials: The Subcontractor shall support all material costs claimed by
submitting paid invoices or storeroom requisitions. Except as otherwise provided
in the schedule, materials as referenced by this clause are defined as those
materials which enter directly into the work product or which are used or
consumed directly in connection with the work. The Subcontractor shall, to the
extent of its ability, procure materials at the most advantageous prices
available, with due regard to securing prompt delivery of compliant materials,
taking all cash and trade discounts, rebates, allowances, credits, salvage,
commissions, and, when unable to take advantage of such benefits, notifying
LMITCO promptly to that effect and the reason therefore. Credit shall be given
LMITCO for the aforementioned allowances et al. and the value of resulting scrap
accrued to the benefit of the Subcontractor or would have accrued except for the
fault or neglect of the Subcontractor. Such benefits lost through no fault or
neglect of the Subcontractor shall not be deducted from gross costs.
5.5 Miscellaneous Expenses: The Subcontractor shall be reimbursed for
miscellaneous expenses (e.g., copy charges, telephone and fax charges, computer
time).
5.6 Billing and Payment: Subcontractor shall be paid upon the submission of
itemized monthly invoices for services rendered during the preceding calendar
month, less deductions, if any, as herein provided. Invoices must be
substantiated a breakdown or list of personnel, labor category, hourly rate and
dates of service covered by the invoice. Labor costs will be computed by
multiplying the appropriate hourly rate set forth above by the number of direct
labor hours actually expended in performance of work. Fractional parts of an
hour shall be payable to the nearest half hour. Subcontractor personnel will be
paid for travel time when travel is required during the normal working day (8:00
a.m. to 5:00 p.m weekdays, excluding holidays and weekend travel). The hourly
rates shown are applicable to all services, regardless of whether they were
performed at straight time or overtime work.
6. COMPLETION DATE
6.1. This Purchase Order shall be in effect through 09/15/1999.
7. INSPECTION/ACCEPTANCE
7.1. Final inspection of material, equipment or services under this Purchase
Order will be performed at the MEEL and acceptance occurs at the time LMITCO
authorizes final payment
8. ADMINISTRATION
8.1. Subcontractor Administration: The Subcontractor responsibilities shall be
administered by James A. Giansiracusa.
3
<PAGE>
Administrative and Legal Jurisdiction Unless the Subcontractor is otherwise
notified in writing LMITCO's responsibilities under this action shall be
administered by C. F. Cloud, or an authorized Procurement Agent/Subcontract
Administrator (terms considered interchangeable) named herein, Procurement
Supervisor, or Procurement Manager.
8.3. Technical Jurisdiction and Occurrence Rewriting Representative. All work
performed under this Purchase Order shall be under the technical jurisdiction of
Guy G. Loomis. Such jurisdiction is to extend only to the assignment and
coordination of work within the work under this Purchase Order. 8.4. Notices:
Any notice provided for this action shall be considered as having been given: To
LMITCO, if mailed electronically via e-mail ("[email protected]") or fax, or if
delivered personally to C. F. Cloud, or if mailed by U. S. Mail addressed to
3521, Procurement LhaCO, P. O. Box 1625, Idaho Falls, Idaho 83415 - 3521; or To
the Subcontractor, if delivered personally to its duly authorized representative
at the site of work,
Statement of Work Polysiloxane Encapsulation of Calcined Waste May 6, 1999
Rev. 1
1.0 Introduction
Methods for the final disposition of reprocessed nuclear fuel are being examined
by the Department of Energy DOE). The DOE would like to avoid the high cost
of building a glass melter, which would melt the material into a glass waste
form for shipment to a Federal permanent disposal site, by either temporarily
stabilizing the waste for shipment to an off-site melter, or by using a non-
thermal encapsulation process that would satisfy waste shipping and acceptance
criteria at the proposed disposal site. Polysiloxane encapsulation is a
potential candidate technology that could achieve these goals.
Nuclear fuel was reprocessed at the Idaho Nuclear Technology and Engineering
Center (INTEC) at the Idaho National Engineering and Environmental Laboratory
ONEEL) in a process that resulted in a dry granular high level waste called
Calcined waste. Lockheed Martin Idaho Technologies Company (LMITCO) is tasked
with determining whether or not polysiloxane encapsulation is a viable
technology for disposing of this waste.
The polysiloxane encapsulation process is a simple room temperature mixing
process of the base material (including proprietary fillers) with any dry
granular waste material and then adding a catalyst to stimulate a silicon
polymerization process. LMITCO requires the assistance of a subcontractor in
determining the viability of this process as a waste disposal method.
2.0 Scope/Technical Tasks
Stored at the MEEL INTEC is a variety of "pilot scale" non-radioactive
surrogates of the calcined waste. This waste consists of salts and a variety of
heavy metal constituents and is, therefore, considered hazardous material. The
material is expected to be similar to that
4
<PAGE>
formulated during the INEEL low level calcined waste study performed by the
subcontractor in 1998.
LMITCO shall ship to the subcontractor approximately 5gal. of the pilot scale
material for encapsulation with polysiloxane. The subcontractor shall subject
the resultant waste forms to a variety of testing protocols.
The subcontractor shall use the most promising mixture of waste and polysiloxane
(the mixture that gives the highest waste loading and still passes TCLP and
compressive strength tests), to form a monolith, which the subcontractor shall
test using the testing protocol defined by the Materials Characterization Center
MCC-1P Static Leach Test Method. The subcontractor shall subject the sample to
the Department of Transportation DOT) oxidizer testing and corrosive testing.
The subcontractor shall form a sample of the material and subject it to melting
in a crucible to determine the melting temperature of the mixture (a possible
subcontractor for this work is Corning Environmental Laboratory Services).
The subcontractor shall summarize the results of these studies in a letter
report, which LMITCO will incorporate into an INEEL publication.
Finally, the subcontractor shall properly dispose of the resultant material
accumulated during the study according to State and facility requirements. The
subcontractor may perform the above-described tasks in any logical order
following the approval of the test and waste management plan submittals and
performance of the mixing study.
The subcontractor shall permanently dispose of all residual materials as part of
this project, and shall provide all notifications to state and facility
authorities as required.
3.0 Deliverables/Schedule
. The subcontractor shall submit a Waste Management Plan including the method
for final disposition of the approximately 5 gal. of pilot scale material. This
plan will take the form of a letter report transmittal. Due date May 31, 1999.
. The subcontractor shall submit a Test Plan that shall include all procedures
to be followed, all analytical techniques to be used in the evaluation of the
encapsulation process and final waste form, and a complete list of equipment to
be used. The subcontractor shall send this Plan to the INEEL as hard copy and
Word disc. Due date June 7, 1999.
Testing Phase
. The subcontractor shall prepare a mixing study starting with the scavenger
addition techniques used during EY-98 testing (low level calcined waste fiction
work). Prior to performing the TCLP, the subcontractor shall evaluate the waste
form for heavy metal
5
<PAGE>
assay and shall determine the ppm for heavy metals. The subcontractor shall
formulate the waste form with the highest possible waste loading that will still
pass the TCLP.
. Using the most favorable mix, the subcontractor shall perform a specially
designed "drop" test to determine the resultant size distribution of the waste
form following a drop that simulates dropping a stainless steel cylinder
containing waste from a height of 9m onto a pad simulating a standard cement
roadbed. The subcontractor may perform an acceptable substitute test by
subjecting the actual waste form to the same forces that would be transmitted to
the waste form inside the canister. The subcontractor shall provide a CAMCORDER
record of this drop test and submit it with the other collected data. In
addition, the subcontractor shall provide to LMITCO a still photographic record
of the before impact and after impact. The subcontractor shall obtain the size
distribution of the waste by using standard geological soil sieves.
. Using the most favorable mix obtained in the Mixing Study, the subcontractor
shall subject the waste form to "in house" DOT oxidizer testing and shall
perform an industry standard corrosiveness test.
. Using the most favorable mix obtained in the Mixing Study, the subcontractor
shall heat a small sample in a crucible test to determine the melting
temperature. This work can be done "in house" or by an outside contractor such
as Coming Environmental Laboratories Services. The subcontractor shall
photograph the resultant "glass" material against a high contrast background for
visual display.
The subcontractor shall complete all of the required testing by September 1,
1999, and shall provide a final submittal with useable tabularized data, in
hardcopy form as well as a WORD disc, along with negatives of any photographs
such that report quality figures can be generated. Due date September 15, 1999.
LMITCO Supplied items:
. LMITCO will ship to the subcontractor the approximately 5gal. of pilot scale
waste for testing by June 15, 1999. A one-for-one schedule slippage will be
allowed to the subcontractor in the event that there are unforeseen delays in
shipment of the material.
. LMITCO will publish the final report. In this report, all past work on
polysiloxane encapsulation studies will be included along with the subject
results. In addition, LMITCO will include the radiation effects results based on
the Kurchakov Institute work sponsored by the subcontractor. The subcontractor
will be consulted for verification of these test results before publication.
. LMITCO will ensure that the 1997 environmental audit of the subcontractor
facility is still valid. It is noted here that the environmental audit performed
by Ken Gilbert of MEEL covered a much more restrictive case of mixed waste pad-A
salts and the WERF ash). It is assumed that shipment of essentially the same
material used in the EY-98 study, namely hazardous waste only, will be
considered covered under the prior audit.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORBIT
TECHNOLOGIES, INC. BALANCE SHEET AS OF JUNE 30, 1999 AND STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18
<PP&E> 335
<DEPRECIATION> 305
<TOTAL-ASSETS> 118
<CURRENT-LIABILITIES> 3,705
<BONDS> 0
0
0
<COMMON> 331
<OTHER-SE> (3,918)
<TOTAL-LIABILITY-AND-EQUITY> 118
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> (345)
<INCOME-TAX> 0
<INCOME-CONTINUING> (345)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (345)
<EPS-BASIC> $(0.01)
<EPS-DILUTED> $(0.01)
</TABLE>
