10QSB 1 orion_10qsb93003.txt FORM 10-QSB 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: September 30, 2003 __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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 November 1, 2003, 1,030,907 shares of Common Stock were issued and outstanding. ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) CONTENTS September 30, 2003 (unaudited) -------------------------------------------------------------------------------- Page FINANCIAL STATEMENTS Balance Sheet F-2 Statements of Operations F-3 Statements of Cash Flows F-4 - F-5 Notes to Financial Statements F-6 - F-9 F-1 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) CONTENTS September 30, 2003 (unaudited) -------------------------------------------------------------------------------- ASSETS Assets Cash $ 2,004,003 Deferred tax asset 221 ----------- Total assets $ 2,004,224 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 35,048 ---------- Total current liabilities 35,048 ---------- Contingencies Shareholders' equity Preferred stock, $0.01 par value 1,000,000 shares authorized 110 shares issued and outstanding 1 Common stock, $0.01 par value 10,000,000 shares authorized 1,030,907 shares issued and outstanding 10,309 Additional paid-in capital 2,203,756 Deficit accumulated during the development stage (244,890) ---------- Total shareholders' equity 1,969,176 ---------- Total liabilities and shareholders' equity $2,004,224 ========== The accompanying notes are an integral part of these financial statements. F-2 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS For the Three Months and Nine Months Ended September 30, 2003 and 2002 (unaudited) and for the Period from October 19, 1995 (Inception) to September 30, 2003 (unaudited) --------------------------------------------------------------------------------
For the For the Period from Period from October 19, October 19, (Inception) 1995 For the Three Months Ended For the Nine Months Ended to (Inception) September 30, September 30, September to ------------------------------- --------------------------- 30, December 31, 2003 2002 2003 2002 2003 2002 -------------- -------------- ----------- ------------ ------------- -------------- Operating expenses General and administrative expenses $ 12,136 $ 13,187 $ 46,069 $ 102,867 $ 1,143,424 $1,097,355 Stock-based compensation expense -- -- -- -- 100,000 100,000 -------------- -------------- ----------- ------------ ------------- -------------- Total operating expenses 12,136 13,187 46,069 102,867 1,242,424 1,197,355 -------------- -------------- ----------- ------------ ------------- -------------- Loss from operations (12,136) (13,187) (46,069) (102,867) (1,243,424) (1,197,355) -------------- -------------- ----------- ------------ ------------- -------------- Other income (expense) Other income -- -- -- -- 2,183 2,183 Interest income 4,629 6,048 13,448 18,822 1,598,153 1,598,153 Interest expense -- -- -- -- (57,694) (57,694) -------------- -------------- ----------- ------------ ------------- -------------- Total other income (expense) 4,629 6,048 13,448 18,822 1,542,642 1,529,194 -------------- -------------- ----------- ------------ ------------- -------------- Income (loss) before provision for income taxes (7,507) (7,139) (32,621) (84,045) 299,218 331,839 Provision for income taxes -- -- -- -- 268,467 268,467 -------------- -------------- ----------- ------------ ------------- -------------- Net income (loss) $ (7,507) $ (7,139) $ (32,621) $ (84,045) $ 30,751 $ 63,372 ============== ============== =========== ============ ============= ============== Basic and diluted loss per shares $ (0.01) $ (0.01) $ (0.03) $ (0.08) ============== ============== =========== ============ Weighted-average common shares outstanding 1,030,907 1,030,907 1,030,907 1,065,880 ============== ============== =========== ============
The accompanying notes are an integral part of these financial statements. F-3 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2003 and 2002 (unaudited) and for the Period from October 19, 1995 (Inception) to September 30, 2003 (unaudited) --------------------------------------------------------------------------------
For the For the Period from Period from October 19, October 19, For the Nine Months Ended 1995 1995 September 30, (Inception) to (Inception) to -------------------------- September 30, December 31, 2003 2002 2003 2002 ---------- ---------- -------------- -------------- Cash flows from operating activities Net income (loss) $ (32,621) $ (84,045) $ 30,751 $ 63,372 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Note discount amortization - - 37,500 37,500 Stock-based compensation expense - - 100,000 100,000 (Increase) decrease in Income taxes receivable - - (1,852) (1,852) Deferred tax assets - - (221) (221) Prepaid assets - - (3,212) (3,212) Other assets - - 5,064 5,064 Increase (decrease) in Accounts payable and accrued expenses 3,914 (5,301) 35,048 31,134 ---------- ---------- -------------- -------------- Net cash provided by (used in) operating activities (28,707) (89,346) 203,078 231,785 ---------- ---------- -------------- -------------- Cash flows from investing activities Purchase of United States Treasury bills - - (1,506,615) (1,506,615) Sales or maturities of investments - - 1,506,615 1,506,615 ---------- ---------- -------------- -------------- Net cash provided by investing activities - - - - ---------- ---------- -------------- --------------
F-4 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2003 and 2002 (unaudited) and for the Period from October 19, 1995 (Inception) to September 30, 2003 (unaudited) --------------------------------------------------------------------------------
Cash flows from financing activities Dividends $ - $ - $ (7,200,000) $ (7,200,000) Issuance of units and redeemable Class B purchase warrants, net of offering costs - - 8,677,905 8,677,905 Issuance of unsecured promissory notes - - 100,000 100,000 Repayment of unsecured promissory notes - - (100,000) (100,000) Proceeds from related party note - - 35,000 35,000 Repayment of related party note - - (35,000) (35,000) Issuance of founders' shares - - 7,500 7,500 Issuance of private placement shares - - 304,520 304,520 Issuance of convertible preferred stock - - 11,000 11,000 ---------- ---------- -------------- -------------- New cash provided by financing activities - - 9,000,925 9,000,925 ---------- ---------- -------------- -------------- Net increase (decrease) in cash (28,707) (89,346) 9,204,003 9,232,710 Cash, beginning of period 2,032,710 2,112,047 - - ---------- ---------- -------------- -------------- Cash, end of period $2,004,003 $2,022,701 $ 9,204,003 $ 9,232,710 ========== ========== ============== ============== Supplemental disclosures of cash flow information Income taxes paid $ - $ - $ 61,000 $ 61,000 ========== ========== ============== ==============
F-5 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, 2002. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. 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. 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 shareholders 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. F-6 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Loss per Share (Continued) -------------- The following potential common shares have been excluded from the computation of diluted net loss per share for the nine months ended September 30, 2003 and 2002 because they are not exercisable until after a Business Combination: 2003 2002 -------- -------- (unaudited) (unaudited) Class B Warrants 358,000 358,000 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. Recently Issued Accounting Pronouncements ----------------------------------------- In April 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting and reporting for derivative instruments and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for derivative instruments and hedging activities entered into or modified after June 30, 2003, except for certain forward purchase and sale securities. For these forward purchase and sale securities, SFAS No. 149 is effective for both new and existing securities after June 30, 2003. This statement is not applicable to the Company. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. In accordance with the standard, financial instruments that embody obligations for the issuer are required to be classified as liabilities. SFAS No. 150 will be effective for financial instruments entered into or modified after May 31, 2003 and otherwise will be effective at the beginning of the first interim period beginning after June 15, 2003. This statement is not applicable to the Company. F-7 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 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. The former directors of the Company who were named as defendants in the suit made demand upon the Company for reimbursement of attorneys' fees incurred in defense of the suit prior to its voluntary dismissal. The former directors contended that they were entitled to reimbursement of attorneys' fees under a provision of Delaware corporate law. 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 May 15, 2002, a settlement agreement was signed between the Company and the Mentmore defendants, subject to execution and court approval. The settlement called for certain of the defendants to surrender 71,250 shares of the Company's common stock that were owned by those defendants, which the Company has canceled. In addition, certain of the defendants surrendered a warrant to purchase 100,000 shares of the Company's common stock, which the Company has canceled, and the former directors withdrew their claims for reimbursement by the Company of their defense costs. F-8 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. F-9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results for the nine-month period ending September 30, 2003, consisted of investment income earned from Treasury bills less expenses associated with general and administrative overheads and litigation expenses. Income for the nine months ended September 30, 2003 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 three months ended September 30, 2003 consisted of investment income earned from Treasury bills, less expenses associated with general and administrative overheads. During the quarter ended March 31, 2003, the Company cancelled 71,250 shares of common stock returned as a result of settlement of outstanding litigation. These shares had been held in treasury and have been returned to the status of authorized but unissued shares of common stock. The Company continues to search for a suitable company to complete a business combination or merger. There remains 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. ITEM 3. Controls and Procedures. An evaluation of the effectiveness of the Company's disclosure controls and procedures as of September 30, 2003 was made under the supervision and with the participation of the Company's management, including the chief executive officer and chief financial officer. Based on that evaluation, they concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the most recently completed fiscal quarter, there has been no significant change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 2 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS None ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS 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: 31.1 - Section 302 Certification by CEO 31.2 - Section 302 Certification by CFO 32.1 - Section 906 Certification by CEO 32.2 - Section 906 Certification by CFO (b) Reports on Form 8-K: None 3 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. ORION ACQUISITION CORP. II Dated: November 14, 2003 /s/ Christopher A. Marlett -------------------------- Christopher A. Marlett Chairman, President, and CEO /s/ Anthony DiGiandomenico -------------------------- Anthony DiGiandomenico Chief Financial Officer 4