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, 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
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 June 30, 2000: 32,799,702.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. (See accompanying Financial Report for the period
ended June 30, 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 (DOE), 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 technological solution to various forms of radioactive and hazardous
waste materials identified for environmentally safe remediation and disposal.
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
Waste Management 2000 in Tucson, Arizona. 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-concept 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
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compounds, sodium nitrate, potassium nitrate, plutonium 238 and 239, uranium
238, and other harmful contaminants.
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.
3
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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
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.
In June 2000, Orbit held its annual shareholder meeting in which shareholders
approved all proposals recommended by the Board of Directors including a
re-organization plan that was initiated and implemented in 1997 and is nearing
completion.
Orbit continues to examine the suitability of Orbit's Polymer Encapsulation
Technology with the Korean Electric Power Corporation (KEPCO) and is providing
additional technical information as requested by KEPCO.
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.)
4
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OTHER MATTERS. None.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. BENVENISTE, ET AL. V. ORBIT AND ITS OFFICERS. The
action was filed on March 6, 1997 in the Los Angeles Superior Court as Case No.
BC167043. 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 1992 aggregating
$197,000.
In December 1998, the parties entered into a settlement agreement, which
resolves all of the claims and the cross-claims. As part of the settlement,
approximately 5 million shares will be surrendered for cancellation by a variety
of parties including the Benvenistes. The Benvenistes have agreed to convert
debt to equity and will be issued approximately 5.5 million shares of stock.
On June 15,2000, the shareholders of the Company approved the settlement
agreement thereby canceling approximately 5 million shares of stock. In
addition, the Company will convert almost $1 million in debt. (See Item 4.
Submission of Matters to a Vote of Security Holders.)
ITEM 2. CHANGES IN SECURITIES. No change.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 15, 2000, the Company held a Special Meeting of Shareholders for the
following purposes:
1. To consider and act upon a proposal to approve the Settlement Agreement and
Mutual Release between Richard Benveniste et al, and Orbit Technologies Inc. et
al, resolving the claims and cross-claims alleged in the Superior Court of the
State of California, County of Los Angeles, Case No. BC167043. The Report of
Voting reflected a total 17,861,836 votes in favor of the Proposal and 10,000
votes against the Proposal. The Proposal was approved. (See Part II, Item 1.
Legal Proceedings.)
2. To consider and act upon a proposal to approve and ratify a previous vote of
shareholders increasing the authorized amount of Common Stock to 50 million
shares and the authorized amount of Preferred Stock to 1 million shares for the
Company. The Report of Voting reflected 17,861,836 votes in favor of the
Proposal and 10,000 votes against the Proposal. The Proposal was approved.
3. To consider and act upon a proposal to approve an increase in the authorized
amount of Common Stock of the Company to 100 million shares and the authorized
amount of Preferred Stock of the Company to 2 million shares for the Company.
The Report of Voting reflected 17,861,836 votes in favor of the Proposal and
10,000 votes against the Proposal. The Proposal was approved.
4. To ratify the appointment of Tabb, Conigliaro & McGann, P. C. as independent
accountants for fiscal year 2000. The Report of Voting reflected 17,871,836
votes in favor of the Proposal and 0 votes against the Proposal. The Proposal
was approved.
5. To consider and act upon a proposal to approve a change of name for the
Company to Technology Visions Group, Inc. The Report of Voting reflected
17,861,336 votes in favor of the Proposal and 500 votes against the Proposal.
The Proposal was approved.
5
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6. To elect the entire Board of Directors for the Year 2000 for a term of one
year or until the next shareholder meeting. The Report of Voting reflected
17,846,588 votes in favor of the Proposal and 25,248 votes against the Proposal.
The Proposal was approved. Shareholders elected James B. Lahey, James A.
Giansiracusa, William N. Whelen, Jr., Ian C. Gent, and Stephen V. Prewett, Ph.D.
as Directors to serve for one year or until the next annual meeting of
shareholders.
ITEM 5. OTHER INFORMATION. None.
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: August 21, 2000 By: /s/ James B. Lahey
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James B. Lahey, Chief Executive Officer
Chairman of the Board of Directors
Date: August 21, 2000 By: /s/ James A. Giansiracusa
--------------- ---------------------------------------
James A. Giansiracusa, Secretary/Chief
Financial Officer
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
JUNE 30, 2000
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 1
At December 31, 1999 and June 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS 2
For the Six Months Ended June 30, 1999 and 2000
CONSOLIDATED STATEMENTS OF OPERATIONS 3
For the Three Months Ended June 30, 1999 and 2000
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY 4
For the Six Months Ended June 30, 1999 and 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
For the Six Months Ended June 30, 1999 and 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 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, June 30,
1999 2000
------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 81,587 $ 12,344
----------- -----------
Total Current Assets 81,587 12,344
Property and Equipment - At cost, net of accumulated
depreciation and allowance against equipment expenditures 19,867 11,368
Intangible Assets, Net of accumulated amortization 62,677 60,112
Other Assets 4,800 4,800
----------- -----------
Total Assets $ 168,931 $ 88,624
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,967,349 $ 1,622,916
Notes payable 1,522,091 952,091
----------- -----------
Total Current Liabilities 3,489,440 2,575,007
----------- -----------
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
39,193,752 as of December 31, 1999 and June 30, 2000,
respectively 368,228 391,938
Additional paid-in capital 11,842,088 12,828,233
Accumulated deficit (15,530,825) (15,706,554)
----------- -----------
Total Stockholders' Deficiency (3,320,509) (2,486,383)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 168,931 $ 88,624
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
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ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
------------- ------------
<S> <C> <C>
Revenue $ - $ -
------------- ------------
Costs and Expenses:
Research and development - 689
General and administrative 216,577 219,898
Debt conversion expense 95,593 -
Interest expense 80,136 72,637
Other income (47,696) (117,495)
------------- ------------
Total Costs and Expenses 344,610 175,729
------------- ------------
Net Loss $ (344,610) $ (175,729)
============= ============
PER SHARE DATA:
Basic and Diluted Loss Per Share $ (.010) $ (.005)
============= ============
Weighted Average Common Shares 32,823,543 37,020,651
============= ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
----------- ----------
<S> <C> <C>
Revenue $ - $ -
----------- ----------
Costs and Expenses:
General and administrative 116,244 119,306
Interest expense 39,760 25,573
Other income (47,696) (117,495)
----------- ----------
Total Costs and Expenses 108,308 27,384
----------- ----------
Net Loss $ (108,308) $ (27,384)
=========== ==========
PER SHARE DATA:
--------------
Basic and Diluted Loss Per Share $ (.003) $ (.001)
=========== ==========
Weighted Average Common Shares 32,916,032 37,031,262
=========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
-------------------------- --------------- ------------- -----------
<S> <C> <C> <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)
========== ========== =========== ============ ===========
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
Cancellation of stock (3,703,823) (37,038) - - (37,038)
Issuance of stock and stock options
in exchange for notes payable and
accrued interest 5,845,090 58,451 950,942 - 1,009,393
Net loss - - - (175,729) (175,729)
---------- ---------- ----------- ------------ -----------
Balances at June 30, 2000 39,193,752 $ 391,938 $12,828,233 $(15,706,554) $(2,486,383)
========== ========== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000
<TABLE>
<CAPTION>
1999 2000
---------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (344,610) $(175,729)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 12,500 12,659
Debt conversion expense 95,593 -
Cash provided by (used for) the change in assets and liabilities:
Increase in other assets (500) -
Increase in accounts payable and accrued liabilities 67,198 27,921
---------- ---------
Net Cash Used in Operating Activities (169,819) (135,149)
---------- ---------
Cash Used in Investing Activities
Capital expenditures - (1,594)
---------- ---------
Cash Flows from Financing Activities
Proceeds from sale of stock 45,000 37,500
Proceeds from loans 122,500 30,000
---------- ---------
Net Cash Provided by Financing Activities 167,500 67,500
---------- ---------
Decrease in Cash (2,319) (69,243)
Cash - Beginning 20,367 81,587
---------- ---------
Cash - Ending $ 18,048 $ 12,344
========== =========
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 related accrued interest of
$18,643 $ 93,643 $ -
========== =========
Issuance of 2,500 shares of common stock for payment of
accrued interest $ 500 $ -
========== =========
Issuance of 5,845,090 shares of common stock and 1,100,000 of
stock options for cancellation of 3,703,823 shares of
common stock, $600,000 of notes payable and related accrued
interest of $372,355 $ - $972,355
========== =========
</TABLE>
See notes to consolidated financial statements.
6
<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 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 six
months ended June 30, 2000, the Company incurred net losses of
approximately $635,000 and $176,000, respectively, and as of
June 30, 2000, had a stockholders' deficiency and a working
capital deficiency of approximately $2,486,000 and $2,563,000,
respectively. 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 six months ended June 30, 2000, the
Company's proceeds from all financing activities amounted to
approximately $67,500.
7
<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.
During the quarter ended June 30, 2000 as part of a settlement
agreement, the Company converted to equity $600,000 of principal
and $372,355 of accrued interest relating to various promissory
notes (Note 2).
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
During the first quarter of 2000, the Company sold 229,680
shares of common stock for $37,500.
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.
CONVERSION OF DEBT TO EQUITY AND SETTLEMENT AGREEMENT
On June 15, 2000, the Company's shareholders voted to ratify an
agreement to settle a dispute (see Note 3b). Pursuant to the
agreement, the Company cancelled 3,703,823 shares of previously
issued common stock and exchanged $600,000 of notes payable and
$372,355 of related accrued interest for 5,845,090 new shares of
the Company's common stock and stock options to purchase
1,100,000 shares of common stock at $0.23 for nine months. The
options were valued at $0.09 per share on the grant date using
the Black-Scholes option-pricing model with the following
assumptions:
Risk-free interest rate 9.5%
Expected life 9 months
Expected volatility 80%
Dividend yield 0%
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.
8
<PAGE>
ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - CAPITALIZATION (Continued)
CONVERSION OF DEBT TO EQUITY AND SETTLEMENT AGREEMENT
(Continued)
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.
NOTES PAYABLE
During the second quarter of 2000, the Company received a loan
from an officer of the Company for $30,000 at a 10% interest
rate.
During the first quarter of 1999, the Company received the
proceeds of a $50,000 from loans from two unrelated individuals.
The loans were 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 investor. The loan was 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 $65,000 loan from four of the Company's principal
shareholders. The proceeds were used to pay Jeffer, Mangels,
Butler & Marmaro, LLP under a settlement agreement of a court
judgment for past due services.
9
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ORBIT TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
LITIGATION/DISPUTES
a) 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.
In June of 1998, a tentative comprehensive settlement was
reached by all parties and in June of 2000, the shareholders
of the Company ratified the settlement agreement (see Note
2).
b) 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 an annual
meeting of shareholders.
On September 2, 1997, the Court of Chancery decided to defer
a decision on the defendant's 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 held its annual shareholders'
meeting on June 15, 2000.
