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 March 31, 2000
( ) 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)
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, 2000: 32,799,702.
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 March 31, 2000.)
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) and Bechtel BWXT Idaho 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 hazardous waste
materials identified for environmentally safe remediation and disposal. The
Company believes the facts derived from test and evaluation and published
research.
In February 2000, an Orbit funded study was highlighted in the American Chemical
Society's publication ENVIRONMENTAL SCIENCE & TECHNOLOGY. The article, entitled
"CHROMIUM LEACHING FROM SILICONE FOAM-ENCAPSULATED MIXED WASTE SURROGATE" by
Christopher M. Miller, Ph.D., Stephen E. Duirk, and Kevin H. Gardner, Ph.D.,
discusses polymer encapsulation of waste and chromium leaching kinetics under
Toxicity Characteristic Leach Procedure and Accelerated Leach Test conditions at
variable waste loadings.
In March 2000, Orbit's Polymer Encapsulation Technology was selected for the
second consecutive year for presentation at the international waste symposium in
Tucson, Arizona. The international conference, Waste Management 2000, hosted and
sponsored by the University of Arizona is held at the Tucson Convention Center.
Sponsors include the American Nuclear Society, the American Society of
Mechanical Engineers, New Mexico State University, and the Waste Management
Education and Research Consortium. The paper, which was submitted for
consideration by Bechtel BWXT Idaho, was judged by the conference's Technical
Review Board and chosen for presentation based on the results of the most recent
test and evaluation project completed for the Bechtel Group. In that evaluation,
Orbit's Polymer Encapsulation Technology (PET) showed a positive
proof-of-confidence to encapsulate calcine waste for both disposal at a
permanent high-level waste repository and for transportation to an offsite
melter. Orbit's presentation, entitled "POLYSILOXANE ENCAPSULATION OF CALCINE
WASTE," was presented in the Nuclear Materials Stabilization and Disposition
technical session.
In the most recent evaluation, the Company demonstrated that with the addition
of certain surfactant additives and binding agents, the PET system will
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.
2
<PAGE>
Building on the successes achieved under the Lockheed Martin and Bechtel BWXT
contracts, the Company's 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 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.
Also in October 1998, Orbit's 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 Bechtel BWXT, Idaho Falls, to
evaluate Orbit's PET for disposal of actual pilot scale calcine waste. In
September 1999, the contract was expanded and directed that PET be examined at
maximum waste loading scenarios as a means for transporting certain high-level
3
<PAGE>
wastes out of Idaho to an off-site melter. Orbit's material was loaded at 40%
waste for final disposal evaluation and at 80% waste loading for the
transportation evaluation. The actual pilot scale calcine waste (minus
radionuclides) is processed at the Idaho Nuclear Technology and Engineering
Center (INTEC) and contained heavy metals - chromium, cadmium, lead, barium, and
arsenic.
In November 1999, Orbit reported significant results for the transportation,
storage, and disposal of radioactive waste.
In addition to the initial reductions in heavy metals provided by Orbit's
polymer formulation, the introduction of proprietary additives further reduced
the concentrations of cadmium and chromium by 77% and 71%, respectively. The PET
sample, at 40% waste loading passed all Resource Conservation and Recovery Act
(RCRA) criteria and the Universal Treatment Standards (UTS) for heavy metals.
The Universal Treatment Standards for cadmium is 0.11 and for chromium is 0.60.
See Additional Reduction in Cadmium and Chromium with Proprietary Additives.
Bechtel BWXT recommended to the DOE that a pilot plant demonstration be
conducted to test and evaluate engineering parameters and product throughput.
Other recommendations included encapsulation and mixing studies utilizing actual
radioactive materials.
As part of the transportation option of the contract, PET was mixed at a loading
factor of 85% waste to 15% polymer. The final formulation passed the Department
of Transportation Oxidizer (DOT) Test and a Drop Test from a height of 10
meters. Of particular significance was a 20% reduction in the final product's
total volume after treatment.
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 harmless
still pose significant environmental problems.
Until completion of the final development of a 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. (See Exhibit 99, Risk Factors.)
OTHER MATTERS.
None.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. No change.
ITEM 2. CHANGES IN SECURITIES. No change.
4
<PAGE>
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.
(c) EXHIBITS
Exhibit
Number Exhibit
(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)
(99-1) Risk Factors. (1)
(1) See Orbit Technologies Inc. and Subsidiaries Financial Report for the
period ended December 31, 1999 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: May 19, 2000 By: /s/ James B. Lahey,
----------------------------------
Chief Executive Officer
Chairman of the Board of
Directors
Date: May 19, 2000 By: /s/ James A. Giansiracusa,
----------------------------------
Secretary/Chief Financial
Officer
5
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
MARCH 31, 2000
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-1
At December 31, 1999 and March 31, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS F-2
For the Three Months Ended March 31, 1999 and 2000
CONSOLIDATED STATEMENTS OF STOCKHOLDERS" DEFICIENCY F-3
For the Three Months Ended March 31, 1999 and 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS F-4
For the Three Months Ended March 31, 1999 and 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 - 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, March 31,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 81,587 $ 48,390
------------ ------------
Total Current Assets 81,587 48,380
Property and Equipment - At cost, net of accumulated
depreciation and allowance against equipment expenditures 19,867 16,414
Intangible Assets, Net of accumulated amortization 62,677 61,394
Other Assets 4,800 4,800
------------ ------------
Total Assets $ 168,931 $ 130,998
============ ============
LIABILITIES AND STOCKHOLDERS DEFICIENCY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,967,349 $ 2,040,261
Notes payable 1,522,091 1,522,091
------------ ------------
Total Current Liabilities 3,489,440 3,562,352
------------ ------------
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 - 36,822,805 and
37,052,485 as of December 31, 1999 and March 31, 2000,
respectively 368,228 370,525
Additional paid-in capital 11,842,088 11,877,291
Accumulated deficit (15,530,825) (15,679,170)
------------ ------------
Total Stockholders' Deficiency (3,320,509) (3,431,354)
------------ ------------
Total Liabilities and Stockholders' Deficiency $ 168,931 $ 130,998
============ ============
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenue $ -- $ --
------------ ------------
Costs and Expenses:
Research and development -- 689
General and administrative 100,333 100,592
Debt conversion expense 95,593 --
Interest expense 40,376 47,064
------------ ------------
Total Costs and Expenses 236,302 148,345
------------ ------------
Net Loss $ (236,302) $ (148,345)
============ ============
PER SHARE DATA:
Basic and Diluted Loss Per Share $ (.007) $ (.004)
============ ============
Weighted Average Common Shares Used in Basic and Diluted Loss Per
Share 32,724,552 37,009,806
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS" DEFICIENCY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
Common Stock Additional
--------------------------- Paid-in Accumulated
Shares Amount 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 for conversion of notes
payable and accrued interest 393,903 3,938 89,705 -- 93,643
Debt conversion expense -- -- 95,593 -- 95,593
Net loss -- -- -- (236,302) (236,302)
------------ ------------ ------------ ------------ ------------
Balances at March 31, 1999 32,878,619 $ 328,786 $ 11,279,025 $(15,131,918) $ (3,524,107)
============ ============ ============ ============ ============
Common Stock Additional
--------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 36,822,805 $ 368,228 $ 11,842,088 $(15,530,825) $ (3,320,509)
Issuance of stock for cash 229,680 2,297 35,203 -- 37,500
Net loss -- -- -- (148,345) (148,345)
------------ ------------ ------------ ------------ ------------
Balances at March 31, 2000 37,052,485 $ 370,525 $ 11,877,291 $(15,679,170) $ (3,431,354)
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 2000
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $(236,302) $(148,345)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 6,250 6,330
Debt conversion expense 95,593 --
Cash provided by (used for) the change in assets and
liabilities:
Decrease in other assets (500) --
Increase in accounts payable and accrued liabilities 90,556 72,912
--------- ---------
Net Cash Used in Operating Activities (44,403) (69,130)
--------- ---------
Cash Used in Investing Activities
Capital expenditures -- (1,594)
--------- ---------
Cash Flows from Financing Activities
Proceeds from sale of stock -- 37,500
Proceeds from loan 50,000 --
--------- ---------
Net Cash Provided by Financing Activities 50,000 37,500
--------- ---------
Increase (Decrease) in Cash 5,597 (33,197)
Cash - Beginning 20,367 81,587
--------- ---------
Cash - Ending $ 25,964 $ 48,390
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ -- $ --
========= =========
Income taxes $ -- $ --
========= =========
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of 393,903 shares of common stock for conversion
of $93,643 notes payable and accrued interest $ 93,643 $ --
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<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 technology portal for
new and innovative technologies, engineering ideas, methods and
processes. The Company's business plan is to develop or acquire new or
innovative technologies that the Company believes hold the potential
to become commercially viable products or processes. Once a product or
process receives commercial validation through an outside or third
party, it is the Company's intention to either spin it off as a
separate business entity, or license or sell to an affiliated or
unaffiliated entity that, at that time, becomes responsible for the
production, marketing and sales of such products or services. The
Company's technologies are undergoing certain feasibility studies
and/or actual tests and evaluations. To date, the Company has not
financially benefited from the commercialization of any of its
technologies.
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 years
ended December 31, 1999 and the three months ended March 31, 2000, the
Company incurred net losses of approximately $635,000 and $148,000,
respectively, and as of March 31, 2000, had a stockholders' deficiency
and a working capital deficiency of approximately $3,431,000 and
$3,514,000, respectively. The Company is also in default on a
significant number of loan agreements which total approximately
$2,083,000 in principal and interest as of December 31, 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 2000. For the
three months ended March 31, 2000, the Company's proceeds from all
financing activities amounted to approximately $37,500.
F-5
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS AND CONTINUED OPERATIONS (Continued)
The Company is exploring ways to reduce its existing liabilities,
including exchanging certain of its liabilities for shares of its
common stock.
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.
NOTE 2 - CAPITALIZATION
COMMON STOCK TRANSACTIONS
During the first quarter of 2000, the Company sold 229,680 shares of
common stock for $37,500.
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 note holder, 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 note holder, 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-6
<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.
EARNINGS PER SHARE
Securities that could potentially dilute basic earnings per share
("EPS) in the future that were not included in the computation of
diluted EPS because to do so would have been anti-dilutive for the
periods presented consist of the following:
<TABLE>
<S> <C>
Options to purchase common stock 5,197,072
Accrued salaries 550,000
Convertible debt, net of shares to be cancelled 1,546,000
---------
7,293,072
=========
</TABLE>
NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LITIGATION/DISPUTES
a) A technology referred to as "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 type electrodes were sold to Chrysler by a
Canadian corporation, with which the Company claims to have an
written agreement beginning in January 1994, whereby the two
parties would share net revenues derived from the sale of
TiTRODEs. The Canadian corporation has not acknowledged the
validity of such agreement, and to-date, no monies or any
financial information have been received by the Company. The
Company intends to retain legal counsel to enforce its agreement.
No action was taken during 1998 and 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 totaling $197,000 and additional
loans made during 1995 totaling $600,000.
F-7
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
LITIGATION/DISPUTES (Continued)
b) BENVENISTE, ET. AL. VS. ORBIT AND ITS OFFICERS (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
1992 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, 1997. The Company's records reflect that the debt
related to the 1992 loans of $197,000 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.
Orbit contends that the plaintiffs loaned money to another
entity, other than Orbit in 1992, for which Orbit has no
liability. Additionally, Orbit contends that the plaintiffs hold
substantial shares of Orbit common stock which are void and/or
voidable. By its Cross Complaint, Orbit seeks to cancel invalidly
issued stock and recover money damages.
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 Benvenistes 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.
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)
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORBIT
TECHNOLOGIES, INC. BALANCE SHEET AS OF MARCH 31, 2000 AND STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
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0
0
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