10QSB 1 v08809_10qsb.txt UNITED STATES 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, 2004 ------------------ __ 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, 2004, 1,213,507 shares of Common Stock were issued and outstanding. ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) CONTENTS September 30, 2004 (unaudited) ================================================================================ Page FINANCIAL STATEMENTS Balance Sheets 3 Statements of Operations 4 Statements of Cash Flows 5 - 6 Notes to Financial Statements 7 - 10 2 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS ================================================================================
ASSETS September 30, 2004 ------------ Assets (unaudited) Cash and cash equivalents $ 873,909 Convertible note receivable 1,000,000 Other receivables 89,822 Deferred tax assets 221 ------------ Total assets $ 1,963,952 ============ Current liabilities Accounts payable and accrued expenses $ 51,390 Related party payable 1,585 ------------ Total current liabilities 52,975 ------------ Shareholders' 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, 1,213,507 shares (unaudited) issued and outstanding 12,135 Additional paid-in capital 2,293,230 Deficit accumulated during the development stage (394,389) ------------ Total shareholders' equity 1,910,977 ------------ Total liabilities and shareholders' equity $ 1,963,952 ============
The accompanying footnotes are an integral part of these financial statements. 3 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS For the Three and Nine Months Ended September 30, 2004 and 2003 (unaudited) and for the Period from October 19, 1995 (Inception) to September 30, (unaudited) ================================================================================
For the Period from October 19, 1995 For the Three Months Ended For the Nine Months Ended (Inception) to September 30, September 30, September 30, ------------------------------ ------------------------------ ------------ 2004 2003 2004 2003 2004 ------------ ------------ ------------ ------------ ------------ (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) Operating expenses General and administrative expenses $ 35,843 $ 12,136 $ 156,067 $ 46,069 $ 1,301,521 Shares issued for legal settlement 91,300 91,300 91,300 Stock-based compensation expense -- -- -- -- 100,000 ------------ ------------ ------------ ------------ ------------ Total operating expenses 127,143 12,136 247,367 46,069 1,492,821 ------------ ------------ ------------ ------------ ------------ Loss from operations (127,143) (12,136) (247,367) (46,069) (1,492,821) ------------ ------------ ------------ ------------ ------------ Other income (expense) Other income 1,152 -- 1,152 -- 3,335 Interest income 58,558 4,629 63,705 13,448 1,666,003 Interest expense -- -- -- -- (57,694) ------------ ------------ ------------ ------------ ------------ Total other income (expense) 59,710 4,629 64,857 13,448 1,611,644 ------------ ------------ ------------ ------------ ------------ Income (loss) before provision for income taxes (67,434) (7,507) (182,510) (32,621) 118,822 ------------ ------------ ------------ ------------ ------------ Provision for income taxes -- -- -- -- 237,570 ------------ ------------ ------------ ------------ ------------ Net income (loss) ($ 67,434) ($ 7,507) ($ 182,510) ($ 32,621) ($ 118,748) ============ ============ ============ ============ ============ Basic and diluted loss per share ($ 0.06) ($ 0.01) ($ 0.17) ($ 0.03) ============ ============ ============ ============ Weighted-average common shares outstanding 1,143,276 1,030,907 1,068,363 1,030,907 ============ ============ ============ ============
The accompanying footnotes are an integral part of these financial statements. 4 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2004 and 2003 (unaudited) and for the Period from October 19, 1995 (Inception) to September 30, 2004 (unaudited) ================================================================================
For the Period from October 19, 1995 For the Nine Months Ended (Inception) to September 30, September 30, ------------------------------ ------------ 2004 2003 2004 ------------ ------------ ------------ (unaudited) (unaudited) (unaudited) Cash flows from operating activities Net loss ($ 182,510) ($ 32,621) ($ 118,748) 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 Shares issued for legal settlement 91,300 -- 91,300 (Increase) decrease in Income taxes receivable -- -- (33,549) Deferred tax assets -- -- (221) Prepaid assets -- -- (3,212) Other assets 5,064 Other receivable (58,125) -- (58,125) Increase (decrease) in Accounts payable and accrued 28,738 3,914 51,390 expenses Related party payable 1,585 -- 1,585 ------------ ------------ ------------ Net cash provided by (used in) operating activities (119,012) (28,707) 72,984 Cash flows from investing activities Purchase of United States Treasury bills -- -- 1,506,615 Sales or maturities of investments -- -- (1,506,615) Funds used for convertible note receivable (500,000) (1,000,000) ------------ ------------ ------------ Net cash used in investing activities (500,000) -- (1,000,000)
The accompanying footnotes are an integral part of these financial statements. 5 ORION ACQUISITION CORP. II (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2004 and 2003 (unaudited) and for the Period from October 19, 1995 (Inception) to September 30, 2004 (unaudited) ================================================================================
For the Period from October 19, 1995 For the Nine Months Ended (Inception) to September 30, September 30, ------------------------------ ------------ 2004 2003 2004 ------------ ------------ ------------ (unaudited) (unaudited) (unaudited) 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 ------------ ------------ ------------ New cash provided by financing activities -- -- 1,800,925 Net increase (decrease) in cash (619,012) (28,707) 873,909 ------------ ------------ ------------ Cash, beginning of period 1,492,921 2,032,710 -- ------------ ------------ ------------ Cash, end of period $ 873,909 $ 2,004,003 $ 873,909 ============ ============ ============ Supplemental disclosures of cash flow information Income taxes paid -- -- $ 61,800 ============
The accompanying footnotes are an integral part of these financial statements. 6 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. The activities of the Company have included its formation and capital raising and more recently identifying and negotiating an acquisition. The Company, as a development stage company, has not effected a business combination (as defined below) to date. 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, 2003. The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. 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. 7 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 three and nine months ended September 30, 2004 and 2003 because they are not exercisable until after a business combination: 2004 2003 -------------- ------------- (unaudited) (unaudited) Class B Warrants 225,400 358,000 Series A Convertible Preferred Stock 110,000 110,000 Stock option 10,000 10,000 As of July 1, 2004, the Company entered into an agreement to cancel 132,600 of the Class B Warrants, which cancellation was completed on August 5, 2004 upon the issuance of a like number of shares of common stock and other shares for some additional agreements by the Class B Warrant holder. 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. NOTE 3 - CONVERTIBLE NOTES RECEIVABLE In connection with a proposed merger, the Company lent an aggregate of $1,000,000 in principal amount to the target under three separate notes of $500,000, $250,000 and $250,000 on December 9, 2003, March 9, 2004 and July 2, 2004. The original maturity dates were extended from time to time and notes were due November 1, 2004. The target, on October 28, 2004, repaid $809,653 in principal and interest, extinguishing the December 9, 2003 and March 31, 2004 notes and on November 12, 2004, repaid $256,819 in principal and interest, extinguishing the July 2, 2004 note. 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. For the quarter ended June 30, 2004, the Company incurred expenses and a payable to a related party for printing and miscellaneous expenses relating to the proposed merger. 8 NOTE 5 - MERGER AGREEMENT On June 23, 2004, the Company entered into an Agreement and Plan of Merger with a target entity that was terminated on September 15, 2004. Under the terms of the Agreement and Plan of Merger Agreement, the Company would have issued shares for the acquisition. As a condition to the merger, the Company was obligated to raise additional capital in a private placement, the funds of which were placed in escrow. Upon termination of the Agreement and Plan of Merger Agreement, the subscription funds were returned to the investors. NOTE 6 - SUBSEQUENT EVENTS Litigation - Settlement Modification 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. On January 31, 2000, the plaintiff filed a notice dismissing the action without prejudice. On July 1, 2004, the plaintiff and the Company concluded a revision to the original settlement agreement and final resolution of all outstanding issues. Originally, the plaintiff had brought a suit against the Company based on certain breaches of fiduciary duty by the directors and management that took the Company public in 1997, which events were prior to the change to the current management that occurred in 1999. As a settlement to that suit in 2000, the Company agreed to convert the Class B Warrants held by the plaintiff on a one for one basis and issue only to the plaintiff certain rights to acquire additional shares under various specified conditions in the future. The Company had the discretion to make a conversion offer to the other Class B Warrant holders, on whatever terms it decided, if at all. Subsequently, as a result of negotiations arising out of the need to modify some of the terms of the original settlement agreement with the plaintiff, the plaintiff required that the Company would issue the same rights to which it was entitled to all the holders of the Class B Warrants, if the Company consummated a merger transaction that met certain criteria. Under the July 1, 2004 final revision to the settlement agreement, which was required by the target company in the then proposed merger, the plaintiff agreed to eliminate the requirement to issue any rights to itself and others, now or in the future, in connection with any conversion of the Class B Warrants, which provision had been imposed in the original agreement and the prior modification of the original agreement. To achieve a full and final settlement agreement to the law suit of the plaintiff, to satisfy certain outstanding breaches of various terms of the settlement agreement, to obtain the cancellation of the plaintiff's 132,600 Class B Warrants, to obtain the mutual releases of all claims between the parties, and to maintain the covenant not to sue by the plaintiff, the Company issued on August 5, 2004, 182,600 shares of common stock to the plaintiff. 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results for the nine-month period ending September 30, 2004, consisted of investment income earned from Treasury bills and promissory notes, less expenses associated with general and administrative overheads and the expenses associated with negotiating a merger agreement with a potential target and preparing private offering documentation to be consummated in connection with that merger. Overall, income for the nine months ended September 30, 2004, was less than the comparable period 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 and having less capital to invest in such securities as a result of the loans made December 9, 2003, March 9, 2004 and July 2, 2004 to a potential target. The decline in income was partially offset by the interest on these promissory notes. This overall decline in income is expected to continue because of the lower interest rates. Results for the prior period nine months ended September 30, 2003, 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. It has entered into a letter of intent with a potential target. The proposed merger of the target into the Company is expected to include a condition to raise capital in a private transaction to fund the continuing operations. The current capital of the Company is enough to fund an acquisition but not reasonably estimated to fund the operations of the potential acquisition target. At September 30, 2004, the Company had $873,909 in cash and cash equivalents. Orion will invest its cash assets in U.S. Treasury bills and/or cash until such time as assets are needed for a business combination or use in an acquired business. The Company has not incurred any debt in connection with its organizational activities. No cash compensation is currently or will be paid to any officer director until after the consummation of a business combination. Since the role of present management after a business combination is uncertain, the Company has no ability to determine what remuneration, if any, will be paid to such persons after a business combination. The Company believes it has adequate capital to fund its operations pending a business combination. The Company will use its current working capital and capital resources to consummate a business combination. In addition, because the resources of the Company are not considered sufficient to fund a business combination or its acquired business operations after acquisition, it will have to raise additional capital. The capital may be in the form of equity or debt, and will likely be based solely on the business operations and financial condition of the target business. Therefore, it is not possible at this time to determine the amount of capital that will be needed or available for a business combination. There currently are no limitations on its ability to privately obtain funds for a business combination. Because of certain SEC interpretations and related rules, the Company does not believe it can publicly raise funds prior to a business combination with an operating company unless it has in excess of $5,000,000 in assets. 10 The Company's limited resources and lack of operating history may make it difficult to obtain funds. The amount and nature of any funding will depend on numerous considerations, including its capital requirements, potential lenders' evaluation of its ability to meet debt service on borrowings and the then prevailing conditions in the financial markets, as well as general economic conditions. The Company does not have any arrangements with any bank or financial institution to secure additional financing, and there can be no assurance that such arrangements, if required, will be obtainable or otherwise in the best interests of the Company. The inability of the Company to obtain the funds required to complete a business combination, or to provide funds for an additional infusion of capital into a target business, may have material adverse effects on its business prospects, including the ability to negotiate and consummate a business combination. ITEM 3. Controls and Procedures. An evaluation of the effectiveness of the Company's disclosure controls and procedures as of September 30, 2004 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. 11 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS 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. On January 31, 2000, the plaintiff filed a notice dismissing the action without prejudice. On July 1, 2004, the plaintiff and the Company concluded a revision to the original settlement agreement and final resolution of all outstanding issues. Originally, the plaintiff had brought a suit against the Company based on certain breaches of fiduciary duty by the directors and management that took the Company public in 1997, which events were prior to the change to the current management that occurred in 1999. As a settlement to that suit in 2000, the Company agreed to convert the Class B Warrants held by the plaintiff on a one for one basis and issue only to the plaintiff certain rights to acquire additional shares under various specified conditions in the future. The Company had the discretion to make a conversion offer to the other Class B Warrant holders, on whatever terms it decided, if at all. Subsequently, as a result of negotiations arising out of the need to modify some of the terms of the original settlement agreement with the plaintiff, the plaintiff required that the Company would issue the same rights to which it was entitled to all the holders of the Class B Warrants, if the Company consummated a merger transaction that met certain criteria. Under the July 1, 2004 final revision to the settlement agreement, which was required by the target company in the then proposed merger, the plaintiff agreed to eliminate the requirement to issue any rights to itself and others, now or in the future, in connection with any conversion of the Class B Warrants, which provision had been imposed in the original agreement and the prior modification of the original agreement. To achieve a full and final settlement agreement to the law suit of the plaintiff, to satisfy certain outstanding breaches of various terms of the settlement agreement, to obtain the cancellation of the plaintiff's 132,600 Class B Warrants, to obtain the mutual releases of all claims between the parties, and to maintain the covenant not to sue by the plaintiff, the Company issued on August 5, 2004, 182,600 shares of common stock to the plaintiff. The finality of the settlement is not contingent on the proposed merger. The remaining 225,400 outstanding Class B Warrants continue to be exercisable for one share of common stock at an exercise price of $0.12 per share, commencing upon the consummation of a business combination and ending one year later. The Company will not issue any other securities on their exercise. There can be no assurance that the Class B Warrants will ever be exercisable. 12 ITEM 2: CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY 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: 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: On September 17, 2004, the Company filed a Form 8-K, disclosing under Item 1.02, that it had entered into a termination of an agreement and plan of merger with Citadel Media, Inc. for the merger of Citadel with and into the Company, with the Company as the surviving corporation under Delaware law. This Form 8-K, under Item 3.03 also disclosed that the Company was no longer obligated to issue any rights in connection with the Class B Warrants. The Class B Warrants may become exercisable only in the event of a consummation of a merger with a target company, and at that time, will entitle the holder, for one year, to acquire one share of common stock upon payment of $0.12 per share. 13 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 16, 2004 /s/ Christopher A. Marlett -------------------------- Christopher A. Marlett Chairman, President, and CEO /s/ Anthony DiGiandomenico -------------------------- Anthony DiGiandomenico Chief Financial Officer 14