10QSB 1 orion6302002_10qsb.txt ORION ACQUISITION CORP II 10QSB FOR 6-30-2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended: June 30, 2002 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE --- SECURITIES CHANGE ACT OF 1934 Commission File Number 0-20837 Orion Acquisition Corp. II (Exact name of registrant as specified in its charter) Delaware 13-3863260 (State of Incorporation) (IRS Employer Identification No.) 401 Wilshire Boulevard - Suite 1020 Santa Monica, CA 90401 (Address of principal executive office) (Zip code) Registrant's telephone number, including area code: (310) 526-5000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of June 30, 2002, 1,030,907 shares of Common Stock were issued and outstanding. ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) CONTENTS June 30, 2002 (unaudited) -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS Page FINANCIAL STATEMENTS Balance Sheet 2 Statements of Operations 3 - 4 Statements of Cash Flows 5 - 6 Notes to Financial Statements 7 - 10 1 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) BALANCE SHEET June 30, 2002 (unaudited) -------------------------------------------------------------------------------- ASSETS Assets Cash $ 2,026,898 Income taxes receivable 26,694 Deferred tax assets 221 Other assets 15,780 ---------------- Total assets $ 2,069,593 ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accrued expenses $ 32,333 ---------------- Total current liabilities 32,333 ---------------- Contingencies Stockholders' equity Preferred stock, $0.01 par value 1,000,000 shares authorized 110 shares (unaudited) issued and outstanding 1 Common stock, $0.01 par value 10,000,000 shares authorized 1,030,907 shares (unaudited) issued and outstanding 11,022 Additional paid-in capital 2,203,043 Deficit accumulated during the development stage (176,806) ---------------- Total stockholders' equity 2,037,260 ---------------- Total liabilities and stockholders' equity $ 2,069,593 ================ The accompanying notes are an integral part of these financial statements. 2 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS For the Three and Six Months Ended June 30, 2002 and 2001 (unaudited) and for the Period from October 19, 1995 (Inception) to June 30, 2002 (unaudited) --------------------------------------------------------------------------------
For the Period from For the For the October 19, Three Months Ended Six Months Ended 1995 June 30, June 30, (Inception) to --------------------------------- --------------------------------- June 30, 2002 2001 2002 2001 2002 --------------- --------------- ---------------- --------------- ---------------- (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Operating expenses General and administrative expenses $ 29,826 $ 16,513 $ 89,360 $ 77,634 $ 1,043,838 Stock-based compensation expense - - - - 100,000 --------------- --------------- ---------------- --------------- ---------------- Total operating expenses 29,826 16,513 89,360 77,634 1,143,838 --------------- --------------- ---------------- --------------- ---------------- Loss from operations (29,826) (16,513) (89,360) (77,634) (1,143,838) --------------- --------------- ---------------- --------------- ---------------- Other income (expense) Interest income 6,132 19,994 12,774 50,313 1,573,651 Other income - - - - 2,183 Interest expense - - - - (57,694) --------------- --------------- ---------------- --------------- ---------------- Total other income (expense) 6,132 19,994 12,774 50,313 1,518,140 --------------- --------------- ---------------- --------------- ---------------- Income (loss) before provision for income taxes (23,694) 3,481 (76,586) (27,321) 374,302 Provision for income taxes - - - - 268,467 --------------- --------------- ---------------- --------------- ---------------- Net income (loss) $ (23,694) $ 3,481 $ (76,586) $ (27,321) $ 105,835 =============== =============== ================ =============== ================
The accompanying notes are an integral part of these financial statements. 3 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS For the Three and Six Months Ended June 30, 2002 and 2001 (unaudited) and for the Period from October 19, 1995 (Inception) to June 30, 2002 (unaudited) --------------------------------------------------------------------------------
For the Period from For the For the October 19, Three Months Ended Six Months Ended 1995 June 30, June 30, (Inception) to --------------------------------- --------------------------------- June 30, 2002 2001 2002 2001 2002 --------------- --------------- ---------------- --------------- ---------------- (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Basic and diluted Loss per common share $ (0.02) $ 0.00 $ (0.07) $ (0.02) =============== =============== ================ =============== Weighted-average common shares outstanding 1,065,358 1,102,157 1,083,656 1,102,157 =============== =============== ================ ===============
The accompanying notes are an integral part of these financial statements. 4 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (unaudited) and for the Period from October 19, 1995 (Inception) to June 30, 2002 (unaudited) --------------------------------------------------------------------------------
For the Period from October 19, For the Six Months Ended 1995 June 30, (Inception) to -------------------------------- June 30, 2002 2001 2002 ---------------- --------------- ---------------- (unaudited) (unaudited) (unaudited) Cash flows from operating activities Net income (loss) $ (76,586) $ (27,321) $ 105,835 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Note discount amortization - - 37,500 Stock-based compensation expense - - 100,000 Increase in Income taxes receivable - - (26,694) Deferred income taxes - - (221) Other assets - - (15,780) Increase (decrease) in Accrued expenses (8,563) (16,916) 25,333 ---------------- --------------- ---------------- Net cash provided by (used in) operating activities (85,149) (44,237) 225,973 ---------------- --------------- ---------------- Cash flows from investing activities Purchase of United States Treasury bills - - (1,506,615) Sales or maturities of investments - (38,536) (84,029) ---------------- --------------- ---------------- Net cash used in investing activities - (38,536) (1,590,644) ---------------- --------------- ---------------- Cash flows from financing activities Dividend - - (7,200,000) Issuance of units and redeemable Class B purchase warrants, net of offering costs - - 8,677,905 Issuance of unsecured promissory notes - - 100,000 Repayment of unsecured promissory notes - - (100,000) Proceeds from related party note - - 35,000 Repayment of related party note - - (35,000) Issuance of founders' shares - - 7,500 Issuance of private placement shares - - 304,520 Issuance of convertible preferred stock - - 11,000 ---------------- --------------- ---------------- Net cash provided by financing activities - - 1,800,925 ---------------- --------------- ----------------
The accompanying notes are an integral part of these financial statements. 5 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2002 and 2001 (unaudited) and for the Period from October 19, 1995 (Inception) to June 30, 2002 (unaudited) --------------------------------------------------------------------------------
For the Period from October 19, For the Six Months Ended 1995 June 30, (Inception) to -------------------------------- June 30, 2002 2001 2002 ---------------- --------------- ---------------- (unaudited) (unaudited) (unaudited) Net increase (decrease) in cash $ (85,149) $ (82,773) $ 436,254 Cash, beginning of period 2,112,047 585,480 - ---------------- --------------- ---------------- Cash, end of period $ 2,026,898 $ 502,707 $ 436,254 ================ =============== ================ Supplemental disclosures of cash flow information Income taxes paid $ - $ - $ 61,000 ================ =============== ================
The accompanying notes are an integral part of these financial statements. 6 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS June 30, 2002 (unaudited) -------------------------------------------------------------------------------- NOTE 1 - ORGANIZATION AND LINE OF BUSINESS Orion Acquisition Corp II (the "Company") was incorporated in Delaware on October 19, 1995 for the purpose of raising capital to fund the acquisition of an unspecified operating business. All activity to date relates to the Company's formation and fundraising. To date, the Company, as a development stage company, has not effected a Business Combination (as defined below). The Company's management has broad discretion with respect to the specified application of the assets of the Company, although substantially all of the assets are currently intended to be generally applied toward consummating a business combination with an operating business ("Business Combination"). NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all normal, recurring adjustments considered necessary for a fair presentation have been included. The financial statements should be read in conjunction with the audited financial statements included in the Company's annual report on Form 10-KSB for the year ended December 31, 2001. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. Development Stage Enterprise The Company is a development stage company as defined in Statement of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development Stage Enterprises." The Company is devoting all of its present efforts to its formation and to fundraising, and its planned principal operations have not yet commenced. All losses accumulated since inception have been considered as part of the Company's development stage activities. 7 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS June 30, 2002 (unaudited) -------------------------------------------------------------------------------- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loss per Share The Company calculates loss per share in accordance with SFAS No. 128, "Earnings per Share." Basic loss per share is computed by dividing the loss available to common stockholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Because the Company has incurred net losses, basic and diluted loss per share are the same. The following potential common shares have been excluded from the computation of diluted net loss per share for all periods presented because they are not exercisable until after a Business Combination:
For the Six Months Ended June 30, ----------------------------------- 2002 2001 --------------- ---------------- (unaudited) (unaudited) Class A Warrants - 880,000 Class B Warrants 358,100 390,100 Series A Convertible Preferred Stock 110,000 110,000 Stock option 10,000 10,000 Option to purchase Class A Warrants - 100,000
Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 8 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS June 30, 2002 (unaudited) -------------------------------------------------------------------------------- NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Recently Issued Accounting Pronouncement In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost, as defined, was recognized at the date of an entity's commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002 with earlier application encouraged. The Company does not expect adoption of SFAS No. 146 to have a material impact, if any, on its financial position or results of operations. NOTE 3 - CONTINGENCIES Litigation On July 1, 1999, a Class B Warrant-holder of the Company brought suit against the Company, its former directors, and certain other third parties. On January 31, 2000, the plaintiff filed a notice dismissing the action without prejudice. On January 28, 2000, the court ordered the notice of dismissal. The Company and the plaintiff agreed that the Company will make an exchange offer to all holders of the Class B Warrants. The exchange offer must be made after the Company completes its first Business Combination with a target company that results in the acquisition of one or more companies with operating businesses and results in the Company having assets in excess of $5,000,000. Upon payment of an exercise price of $0.125 per Class B Warrant, each Class B Warrant will be exchanged for one share of common stock and one Right. The Right will provide for the issuance of additional shares of common stock based on a formula in the event that (a) the Company makes an acquisition or consummates a merger and (b) the post-transaction company does not meet the specified targets of a $7,000,000 net worth immediately after the transaction and a minimum common stock price of $5.75 for 10 days during the two-year period following the transaction, subject to certain adjustment, terms, and conditions. 9 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) NOTES TO FINANCIAL STATEMENTS June 30, 2002 (unaudited) -------------------------------------------------------------------------------- NOTE 3 - CONTINGENCIES (Continued) Litigation (Continued) The former directors of the Company who were named as defendants in the suit have made demand upon the Company for reimbursement of attorneys' fees incurred in defense of the suit prior to its voluntary dismissal. The former directors contend that they are entitled to reimbursement of attorneys' fees under a provision of Delaware corporate law. The Company is considering the reimbursement request. No accrual has been made for any potential reimbursement in the accompanying financial statements. On October 31, 2000, the Company filed with the Supreme Court of the State of New York, County of New York, a summons and complaint in an action entitled Orion Acquisition Corp. II v. Mentmore Holdings Corporation, Mentmore Holdings, Inc., Richard L. Kramer, William L. Remley, Richard C. Hoffman, Robert D. Frankel, J. Thomas Chess, and Michael Schenker. Messrs. Kramer, Remley, Hoffman, Frankel, and Chess are former directors of the Company. Messrs. Remley and Kramer were officers and/or directors of one or more of the Mentmore defendants. Mr. Hoffman is or was an officer of one or more of the Mentmore defendants. In the complaint, the Company alleged a series of causes of action, including a claim against the Company's former directors for breach of fiduciary duty in connection with the diversion of a corporate opportunity, and against other defendants for aiding and abetting the claimed breach of fiduciary duty and duty of loyalty. On March 28, 2002, a settlement agreement was reached between the Company and the Mentmore defendants, which was executed and approved by the court on May 15, 2002. Under the settlement certain of the defendants surrendered 71,250 shares of the Company's common stock that were owned by those defendants which the Company cancelled and certain of the defendants surrendered a warrant to purchase 100,000 shares of the Company's common stock which the Company cancelled, and the former directors withdrew their claims for reimbursement by the Company of their defense costs. NOTE 4 - RELATED PARTY TRANSACTIONS The Company uses the services and some of the employees of an affiliated company and has its executive offices at the offices of the affiliate. The Company does not pay any amount to or for the employees of the affiliate or any rent for these offices. The Company reimburses the affiliate for documented out-of-pocket expenses incurred on its behalf. 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results for the six-month period ending June 30, 2002, consisted of investment income earned from Treasury bills less expenses associated with general and administrative overheads and litigation expenses. Income for the six months ended 2002 was less than the comparable quarters for the prior year because of a fall in interest rates on the types of treasury securities in which the Company invests its cash balances. This is expected to continue. Results for the six months ended June 30, 2001 consisted of investment income earned from Treasury bills less expenses associated with general and administrative overheads. The Company continues to search for a suitable company to complete a business combination or merger. There remainds adequate cash on hand to bear the costs of due diligence or legal fees necessary to locate and evaluate potential candidates for a business combination. If a candidate is found the Company may need to raise additional funds to complete the acquisition. PART II. OTHER INFORMATION ITEM 1: Legal Proceedings On July 1, 1999, a Class B Warrantholder of Orion brought an action ("July Action") against Orion, its former directors and certain others. On January 31, 2000, the plaintiff filed a notice dismissing the July Action without prejudice. On January 28, 2000 the court ordered the notice of dismissal. The Company and the plaintiff agreed that Orion will make an exchange offer to all holders of the Class B Warrants. The exchange offer must be made after Orion completes its first business combination of a target company that results in the acquisition of one or more companies with operating businesses and results in Orion having assets in excess of $5,000,000. The terms of the exchange offer will require each holder to pay the $.125 exercise price of the Class B Warrant and surrender the warrant for one share of common stock, one Class A Warrant and one Right. The Right will provide for the issuance of additional shares of common stock based on a formula in the event that Orion makes an acquisition or consummates a merger and the post transaction company does not meet the specified targets of a $7,000,000 net worth immediately after the transaction and a minimum common stock price of $5.75 for ten days during the two year peiod following the transaction, subject to certain adjustment, terms and conditions. On October 31, 2000, Orion filed with the Supreme Court of the State of New York, County of New York, a summons and complaint in an action entitled Orion Acquisition Corp. II v. Mentmore Holdings Corporation, Mentmore Holdings, Inc., Richard L. Kramer, William L. Remley, Richard C. Hoffman, Robert D. Frankel, J. Thomas Chase, and Michael D. Schenker. Messrs. Karmer, Remley, Hoffman, Frankel and Chess are former directors and/or officers of Orion. Messrs. Remley and Kramer are or were officers and/or directors of one or more of the Mentmore defendants. Mr. Hoffman is or was an officer of one or more of the Mentmore defendants. In the complaint, Orion alleged a series of causes of action, including a claim against the former Orion directors for breach of fiduciary duty in connection with the diversion of a corporate opportunity, and against other defendants for aiding and abetting the claimed breach of fiduciary duty and duty of loyalty. On March 28, 2002, the terms of a settlement were reached between the Company and the Mentmore defendents and was signed on May 15, 2002. Under the settlement certain of the defendents surrendered 71,250 shares of Orion's common stock which were owned by those defendents which the Company cancelled, certain of the defendents surrendered a warrant to purchase 100,000 shares of the Company's stock which the Company cancelled, and the former directors withdrew their claim for reimbursement by the Company of their defense costs. 11 ITEM 2: Changes in Securities None ITEM 3: Defaults Upon Senior Securities None ITEM 4: Submission of Matters to a Vote of Security Holders None ITEM 5: Other Information None ITEM 6: Exhibits and Reports on Form 8-K (a) Exhibits: 99.1 Certification by Christopher A. Marlett 99.2 Certification by Anthony DiGiandomenico (b) Reports on Form 8-K: None 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. August 19, 2002 ORION ACQUISITION CORP. II By: /s/ Christopher A. Marlett ---------------------------- Christopher A. Marlett Chairman, President, and CEO By: /s/ Anthony DiGiandomenico ---------------------------- Anthony DiGiandomenico Chief Financial Officer 13