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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1998 Commission File Number 000-20837
Orion Acquisition Corp. II
(Exact name of registrant as specified in its charter)
Delaware 13-3863260
(State of Incorporation) (I.R.S. Employer Identification No.)
1430 Broadway, 13th Floor 10018
New York, New York (Zip code)
(Address of principal executive office)
Registrant's telephone number, including area code: (212) 391-1392
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Redeemable Class A Common Stock Purchase Warrants
Redeemable Class B Unit Purchase Warrants
Units
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 requirement for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
YES X NO
As of March 29, 1999, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was $7,949,375.
As of March 30, 1999, there were 890,000 shares of the Registrant's Common
Stock, $.01 par value per share, outstanding.
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1
<PAGE>
PART I
ITEM 1. BUSINESS
General
Orion Acquisition Corp. II ("Orion II" or the "Company") is a "blank
check" or "blind pool" company, formed on October 19, 1995, to serve as a
vehicle to effect a merger, exchange of capital stock, asset acquisition or
other business combination (a "Business Combination") with an operating business
(a "Target Business").
The Company did not effect a Business Combination by July 2, 1998.
Therefore, the Company submitted for stockholder consideration a proposal to
liquidate the Company and distribute to the holders of Common Stock acquired as
part of the Units sold in its initial public offering or in the open market
thereafter, the amounts in the interest bearing escrow account maintained by the
Proceeds Escrow Agent. Such meeting was duly noticed to be held on January 12,
1999, but no quorum was present, and such meeting was adjourned until January
20, 1999, at which time again no quorum was present. The Company's future course
is, therefore, subject to material uncertainty.
Other than 90,000 Founders' Shares which are held in escrow, all 800,000
shares of Common Stock sold to the public in the Company's initial public
offering are held in "street name", and accordingly, the Company has no way of
ascertaining the beneficial ownership of such shares. Certain persons purporting
to either be or to represent the beneficial owners of a number of shares close
to a majority of the outstanding shares held by the public attended the January
12, 1999 special meeting of stockholders, without submitting their shares for
quorum purposes, for the purpose of advising management of the Company that they
did not approve of the Company's proposal to liquidate pursuant to Delaware law.
On January 25, 1999, the Company received a Schedule 13D filing from a
group consisting of MDB Capital Group LLC and three persons representing
themselves to be principals of MDB Capital Group LLC. Such group, per such
Schedule 13D, is the beneficial owner of 138,400 shares of Common Stock.
According to their Schedule 13D, such group intends among other items (i) to
cause a change in all the current directors and officers of the Company, (ii) to
cause a termination of the escrow account where substantially all of the
Company's assets are located and "to cause the distribution of a significant
portion of the funds as a return of capital and dividend income to the holders
of only those shares of the Common Stock issued in the initial public offering
of the Company on July 2, 1996. Funds not distributed may be constructively
transferred to another entity in connection with a merger or business
combination and will be used to fund the operations and pay the expenses of the
Company", (iii) "to cause a change in the capital structure of the Company. The
change may be effected by the elimination of some or all of the outstanding
classes of equity securities and/or by modification of outstanding equity
securities and the terms of options and warrants. These changes may be effected
through negotiation and/or shareholder action", (iv) "to cause a change in the
Certificate of Incorporation to eliminate the requirement that two-thirds of the
stockholders of the Company are required to approve a business combination. This
will be done in the near future, prior to any negotiations for a merger or other
business combination. The effect of this may be to permit the Company to enter
into a merger or business combination without the prior approval of the
stockholders of the Company." Interested persons are referred to such Schedule
13D, which is filed with the Securities and Exchange Commission, for further
information.
Management of the Company has had informal discussions with the
representatives of this group, and certain other persons representing themselves
to be the beneficial owners of or investment advisors to beneficial owners of
Common Stock who may support such a plan. No agreements or understandings have
been reached as of the filing date of this Annual Report.
Management has also received a written proposal from a reputable
investment firm proposing to have the Company acquire a pharmaceutical company,
which is a client of such investment firm. The terms of such proposal may be
mutually inconsistent with the proposals of the MDB Capital Group LLC proposals.
Management of the Company has been contacted informally by persons representing
themselves to be or to represent beneficial owners of substantial numbers of the
Company's Class B Warrants, who have indicated their support for this
alternative proposal. Management has also received a letter from an attorney
purporting to represent at least three beneficial owners of Common Stock,
threatening the Company and its officers and directors with litigation if they
do not act favorably on this merger proposal.
Subject to fulfilling their fiduciary responsibilities, the Company's
Board of Directors intends to accommodate the views of a majority of the Common
Stockholders who purchased their shares in the Company's initial public offering
or in open-market transactions thereafter.
2
<PAGE>
In addition, as of December 31, 1998, the Company had unrestricted cash
(not held in escrow) of only $11,902, all of which has since been spent on trade
payables. Under the terms of the escrow agreement with Chase Manhattan Bank
under which the initial public offering proceeds were escrowed, management
cannot obtain the release of such funds except upon liquidation of the Company,
completion of a Business Combination, or with the consent of the Board of
Directors and of both underwriters of the Company's initial public offering. The
principal underwriter, H. J. Meyers & Co., Inc., has since ceased operations,
and its last officer has declined to respond to the Company's request to consent
to the release of any escrowed funds for the purpose of paying liabilities,
which include federal, state and local income and franchise taxes, accounting
and legal fees, and administrative charges, such liabilities are less than
$200,000. While the Company had a net worth in excess of $9,000,000 at December
31, 1998 and continues to accrue interest income in the escrow account (the
profits on which are taxable), there is an inadequate amount of available cash
to pay any such liabilities. As a result, the Company may be forced to either
file suit for a declaratory judgment to attempt to break the escrow or else to
file for bankruptcy, unless stockholders are presented with and approve a
reorganization proposal. Due to the large net worth of the Company, management
expects there to be substantial assets remaining after any reorganization to
distribute to Common Stockholders. However, the administrative costs of a
bankruptcy proceeding can be large, and no prediction can be made as to the
outcome of any such proceeding. The Company has received written threats of
litigation from attorneys representing both stockholders and Class B
Warrantholders, although no lawsuits have been served on the Company as of the
date of filing this Annual Report. The costs of any such litigation are most
likely to be borne by the Company and ultimately paid out of the escrowed funds.
Organization of the Company
On July 9, 1996 (the "Closing Date") the Company consummated its initial
public offering (the "Offering"). The Company sold 800,000 units ("Units") and
320,000 Class B redeemable common stock purchase warrants ("Class B Warrants")
in the Offering. H.J. Meyers & Co., Inc. ("H.J. Meyers") and Northeast
Securities, Inc. ("Northeast") were the representatives (the "Representatives"),
of the several underwriters. Subsequently, on August 5, 1996, the underwriters
exercised their overallotment option to purchase 38,100 Class B Warrants. Each
Unit consists of one share of the Company's common stock and one Class A
redeemable common stock purchase warrant ("Class A Warrants"). Each Class A
Warrant entitles the holder to purchase from the Company one share of common
stock at an exercise price of $9.00 commencing on the date of a Business
Combination and expiring on the fifth anniversary from such date, and each Class
B Warrant entitles the holder to purchase one Unit at an exercise price of
$0.125 commencing on the date of a Business Combination and expiring on the
first anniversary from such date. The Class A Warrants and Class B Warrants are
redeemable, each as a class, in whole and not in part, at a price of $0.05 per
warrant upon 30 days' notice at any time provided that the Company has
consummated a Business Combination and the last sale price of the common stock
on all ten trading days ending on the day immediately prior to the day on which
the Company gives notice of redemption, has been $11.00 or higher.
After the Offering and the exercise of the overallotment, the Company
received net proceeds of approximately $8,700,000 (the "Net Proceeds"), after
giving effect to the payment of all underwriter discounts, the underwriters'
non-accountable expenses allowance and offering expenses. Pursuant to the terms
of the Offering, $8 million of the Net Proceeds, representing an amount equal to
the gross proceeds from the sale of the Units, was placed in escrow with The
Chase Manhattan Bank, N.A. (the "Proceeds Escrow Agent"), subject to release
upon the earlier of written notification by the Company to the Proceeds Escrow
Agent (i) of the Company's completion of a transaction or a series of
transactions in which at least 50% of the gross proceeds from the Offering are
committed to a specific line of business as a result of a Business Combination
(including any redemption payments) or (ii) to distribute the escrowed proceeds
in connection with a liquidation of the Company, to the holders of common stock
purchased as part of the Units sold in the Offering or in the open market
thereafter. The Company will notify the National Association of Securities
Dealers, Inc. (the "NASD") prior to the release of funds from the escrow
account. The escrowed Net Proceeds have been invested primarily in United States
treasury bills. As noted above, it is currently necessary for the Company to
release the approximately $200,000 from such escrow in order to pay taxes and
other current liabilities.
The Company's executive office is located at 1430 Broadway, 13th Floor, New
York, New York 10018 and its telephone number is (212) 391-1392. Structuring of
a Business Combination
Pursuant to its current organizational documents, the Company will not
acquire a Target Business unless the fair market value of such business, as
determined by the Company based upon standards generally accepted by the
financial community, including revenues, earnings, cash flow and book value (the
"Fair Market Value"), is at least 80% of the net assets of the Company at the
time of the consummation of a Business Combination (the "Fair Market Value
Test"). If the Company determines that the financial statements of a proposed
Target Business do not clearly indicate that the Fair Market Value Test has been
satisfied, the Company will obtain an opinion from an investment banking firm
which is a member of the NASD with respect to the satisfaction of such criteria.
3
<PAGE>
As a general rule, Federal and state tax laws and regulations have a
significant impact upon the structuring of Business Combinations. If the Company
does not liquidate, and pursues a Business Combination, the Company will
evaluate the possible tax consequences of any such prospective Business
Combination and will endeavor to structure a Business Combination so as to
achieve the most favorable tax treatment to the Company, the Target Business and
their respective stockholders. There can be no assurance that the Internal
Revenue Service or any relevant state tax authorities will ultimately assent to
the Company's tax treatment of a particular consummated Business Combination. To
the extent the Internal Revenue Service or any relevant state tax authorities
ultimately prevail in recharacterizing the tax treatment of a Business
Combination, there may be adverse tax consequences to the Company, the Target
Business and their respective stockholders. Tax considerations as well as other
relevant factors will be evaluated in determining the precise structure of a
particular Business Combination, which could be effected through various forms
of a merger, consolidation or stock or asset acquisition.
The Company may utilize cash derived from the Net Proceeds of the
Offering, equity securities, debt securities or bank or other borrowings or a
combination thereof as consideration in effecting a Business Combination.
Although the Company's Board of Directors has the power to issue any or all of
the authorized but unissued shares of Common Stock, the Company has agreed that
it will not issue (other than pursuant to the Offering) any securities or grant
options or warrants to purchase any securities of the Company without the
consent of the Representatives, except in connection with effecting a Business
Combination. Although the Company has no commitments to date to issue any shares
of Common Stock or options or warrants, the Company will, in all likelihood,
issue a substantial number of additional shares in connection with the
consummation of a Business Combination, if any Business Combination ever occurs.
To the extent that such additional shares are issued, dilution to the interests
of the Company's stockholders will occur. Additionally, if a substantial number
of shares of Common Stock are issued in connection with the consummation of a
Business Combination, a change in control of the Company may occur which may
affect, among other things, the Company's ability to utilize net operating loss
carry-forwards, if any.
There currently are no limitations on the Company's ability to borrow
funds to effect a Business Combination. However, the Company's limited resources
and lack of operating history may make it difficult to borrow funds. The amount
and nature of any borrowings by the Company will depend on numerous
considerations, including the Company's capital requirements, potential lenders'
evaluation of the Company's 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 or otherwise sought, would be
available on terms commercially acceptable or otherwise in the best interests of
the Company. The inability of the Company to borrow funds required to effect or
facilitate a Business Combination, or to provide funds for an additional
infusion of capital into a Target Business, may have a material adverse effect
on the Company's financial condition and future prospects, including the ability
to effect a Business Combination. To the extent that debt financing ultimately
proves to be available, any borrowings may subject the Company to various risks
traditionally associated with indebtedness, including the risks of interest rate
fluctuations and insufficiency of cash flow to pay principal and interest.
Furthermore, a Target Business may have already incurred debt financing and,
therefore, all the risks inherent thereto.
Stockholder Approval of Business Combinations
Subject to any charter changes, which may be effected by the MDB Capital
Group LLC or other stockholders, the Company, prior to the consummation of any
Business Combination, is currently required to submit such transaction to the
Company's stockholders for their approval, even if the nature of the Business
Combination is such as would not ordinarily require stockholder approval under
applicable state law. In connection with such request, the Company intends to
provide stockholders with complete disclosure documentation in accordance with
the proxy solicitation regulations under the Securities Exchange Act of 1934,
including audited financial statements, concerning a Target Business. All of the
Company's stockholders immediately prior to the Closing Date of the Offering
("Founders' Shares"), including all directors and the Company's executive
officers, have agreed to vote their respective shares of Common Stock in
accordance with the vote of the majority of the shares voted by all other
stockholders of the Company ("non-affiliated public stockholders") with respect
to any such Business Combination. A Business Combination will not be consummated
unless approved by a vote of two-thirds of the shares of Common Stock voted by
the stockholders (in person or by proxy). In addition, the Delaware General
Corporation Law requires approval of certain mergers and consolidations by a
majority of the outstanding stock entitled to vote. Holders of Warrants who
otherwise do not own any shares of Common Stock will not be entitled to vote on
any Business Combination.
4
<PAGE>
Redemption Rights
At the time the Company seeks stockholder approval of any potential
Business Combination, the Company will offer (the "Redemption Offer") to each of
the non-affiliated public stockholders of the Company the right, for a specified
period of time of not less than 20 calendar days, to redeem his shares of Common
Stock at a price equal to the Liquidation Value (as defined below) of such
shares as of the record date established for determining the stockholders
entitled to vote with respect to the approval of a Business Combination (the
"Record Date"). The Redemption Offer will be described in the disclosure
documentation relating to the proposed Business Combination. The "Liquidation
Value" for each share of Common Stock will be determined as of the Record Date
by dividing (A) the greater of (i) the Company's net worth as reflected in the
Company's then current financial statements as audited by the Company's
independent accountants, or (ii) the amount of the proceeds of the Company in
the escrow account (including interest earned thereon) by (B) the number of
shares held by non-affiliated public stockholders. In connection with the
Redemption Offer, if non-affiliated public stockholders holding 20% or less of
the shares of Common Stock elect to redeem their shares, the Company may, but
will not be required to, proceed with such Business Combination and, if the
company elects to so proceed, will redeem such shares at their Liquidation Value
as of the Record Date. Unless stockholders approve a different procedure, if
non-affiliated public stockholders holding more than 20% of the Common Stock
elect to redeem their shares, the Company will not proceed with such potential
Business Combination and will not redeem such shares. Founders' Shares and
holders of Warrants will only be allowed to participate in a Redemption Offer if
they otherwise own shares of Common Stock.
Escrow of Outstanding Shares
Pursuant to the terms of the Offering, all of the shares of Common Stock
and Series A Preferred Stock of the Company outstanding immediately prior to the
Closing Date of the Offering were placed in escrow with Campbell & Fleming,
P.C., certain of whose principals subsequently became members of Epstein, Becker
and Green, P.C., which then assumed the duties of Campbell & Fleming, P.C. with
respect to such escrowed shares (the "Share Escrow Agent"), until 120 days after
the occurrence of the consummation of the first Business Combination. During the
escrow period, the holders of escrowed shares of Common Stock will not be able
to sell or otherwise transfer their respective shares of Common Stock (with the
exceptions described below), but will retain all other rights as stockholders of
the Company, including, without limitation, the right to vote escrowed shares of
Common Stock, subject to their agreement to vote their shares in accordance with
a vote of a majority of the non-affiliated public stockholders with respect to a
consummation of a Business Combination or liquidation proposal, but excluding
the right to request the redemption of escrowed shares pursuant to a Redemption
Offer. Subject to compliance with applicable securities laws, any such holder
may transfer his, her, or its Stock held in escrow to a family member or to
trust established for the benefit of himself, herself, or a family member or to
another affiliated entity (with the consent of the Representatives which will
not be unreasonably withheld) or, in the event of the holder's death by will or
operation of law or in the case of dissolution or merger, provided that any such
transferee must agree as a condition to such transfer to be bound by the
restrictions on transfer applicable to the original holder and, in the case of
present stockholders other than the holders of the 15,000 shares of Common Stock
sold in a private placement in January, 1996, the transferor (except in the case
of death) or successor will continue to be deemed the beneficial owner (as
defined in Regulation 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), of such transferred shares.
Each of the executive officers and the other directors of the Company has
agreed to surrender his shares to the Company at the purchase price at which
such shares were acquired ($.10 per share) if he resigns prior to the occurrence
of the consummation of the first Business Combination.
Employees
The Company at December 31, 1998, 1997 and 1996, employed Mr. Richard L.
Kramer, Mr. William L. Remley, and Mr. Richard C. Hoffman on a part-time basis.
Such persons serve as officers and directors without compensation at least until
completion of a Business Combination. Mr. Hoffman received fees for legal
services rendered to the Company during 1998, 1997 and 1996 totaling
approximately $7,000, $61,000 and $68,000 respectively.
5
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company, pursuant to an oral agreement, utilizes the offices of
Mentmore Holdings Corporation ("Mentmore"), a Delaware corporation of which Mr.
Kramer, the Company's Chairman of the Board and Mr. Remley, the Company's
President and CEO, are respectively Chairman of the Board and President.
Mentmore is affiliated with Cranbrooke Corporation, a stockholder of the
Company. Mentmore has agreed that, until the acquisition of a target business by
the Company, it will make such office space and secretarial services available
to the Company, as may be required by the Company from time to time at the rate
of $2,500 per month, commencing July 10, 1996. Management believes that these
terms compare favorably to any arrangement, which might be made with an
unaffiliated party.
The Company believes that this facility is well maintained and adequate to
meet its needs in the foreseeable future pending the consummation of a Business
Combination.
ITEM 3. LEGAL PROCEEDINGS
At this time, the Company is not involved in any pending legal proceedings
involving it or any of its assets. The Company received two letters from
attorneys during the first quarter of 1999 threatening legal action, one
purporting to be on behalf of a Class B Warrantholder respecting the Company's
failure to complete a Business Combination, and the other purporting to be on
behalf of several Common Stockholders respecting the Company's failure to
execute a letter of intent with a specific acquisition candidate. (See Item 1.
Business - General)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was called for January 12, 1999 for the
sole purpose of considering a proposal to cause the dissolution and liquidation
of the Company pursuant to Delaware law. At such meeting, proxies were received
voting 2,000 shares in favor of such proposal, 14,500 shares against such
proposal and 150,575 shares abstained. Accordingly, no quorum (450,001 shares)
was present and the meeting was adjourned until January 20, 1999, at which time
again no quorum was present. No additional proxies were received in such
interim, and the meeting was adjourned until further notice to the stockholders.
See Part 1, Item 1 "Business - General."
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since July 9, 1996, the Company's Units, Common Stock, Class A Warrants
and Class B Warrants have been quoted on the OTC Bulletin Board under the
symbols "MTMRU", "MTMR", "MTMRW" and "MTMRZ", respectively. The following table
sets forth the quarterly high and low bid prices for the securities of the
Company set forth above for the periods indicated below. These prices are based
on quotations between dealers, and do not reflect retail mark-up, markdown or
commissions.
High Low
---- ---
1997 1998 1997 1998
---- ---- ---- ----
Common Stock
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January 1 through March 31 9.063 9.125 8.875 8.750
April 1 through June 30 9.250 9.450 9.000 9.031
July 1 through September 30 9.250 9.875 9.188 9.188
October 1 through December 31 9.250 10.125 8.750 9.125
Class A Warrants
- - ----------------
January 1 through March 31 0.625 1.000 0.625 0.375
April 1 through June 30 1.000 0.625 0.750 0.250
July 1 through September 30 1.000 0.750 0.688 0.500
October 1 through December 31 0.375 0.625 0.125 0.063
Class B Warrants
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January 1 through March 31 5.250 5.875 3.125 4.875
April 1 through June 30 5.625 4.250 4.750 1.500
July 1 through September 30 5.313 4.500 4.500 1.000
October 1 through December 31 4.500 0.500 2.000 0.063
Units
- - -----
January 1 through March 31 10.000 9.250 8.625 8.750
April 1 through June 30 10.250 9.125 9.500 9.000
July 1 through September 30 9.688 10.875 9.250 9.250
October 1 through December 31 9.250 8.250 9.250 8.250
The Company has paid no dividends on its shares of Common Stock since its
organization on October 19, 1995. The Company does not expect to pay any
dividends prior to the consummation of a Business Combination and anticipates
that for the foreseeable future any earnings will be retained for use in its
business and, accordingly, does not anticipate the payment of cash dividends.
(See Part 1, Item 1. "Business - General")
7
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The selected financial information for the years ended December 31, 1998,
1997 and 1996 and the period from inception (October 19, 1995) through December
31, 1998 are derived from the financial statements of the Company which have
been audited by BDO Seidman, LLP, the Company's independent auditors. This
information should be read in conjunction with the financial statements and
related notes and other financial information included herein.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Period from
Inception
(October 19, 1995)
Year ended through
December 31, December 31,
1998 1997 1996 1998
----------- ----------- ----------- -----------
Statement of Operations Data:
- - -----------------------------
Interest income ................. $ 436,292 $ 475,112 $ 222,444 $ 1,133,848
General and administrative
expenses ...................... (192,622) (294,447) (82,172) (569,241)
Stock based compensation
expense ...................... -- (100,000) -- (100,000)
Interest expense ................ -- -- (57,694) (57,694)
Provision for taxes ............. (103,153) (76,399) (39,927) (219,479)
----------- ----------- ----------- -----------
Net income ...................... $ 140,517 4,266 42,651 187,434
=========== =========== =========== ===========
Basic and fully diluted
earnings per share ........... $ 0.16 $ 0.00 $ 0.09
=========== =========== ===========
Weighted average common shares
outstanding ..................... 890,000 890,000 466,313
=========== =========== ===========
Balance Sheet Data:
- - -------------------
Total assets .................... $ 9,100,524 $ 8,981,286 $ 8,839,453
Total liabilities ............... $ 71,685 $ 92,964 $ 55,397
(Deficit) earnings accumulated
during development stage ...... $ (30,290) $ (85,323) $ 533
Common stock subject to possible
redemption at conversion value $ 1,817,724 $ 1,732,240 $ 1,642,118
Stockholders' equity ............ 7,211,115 7,156,082 7,141,938
</TABLE>
8
<PAGE>
The Company is a development stage company, and to date its efforts have
been limited to organizational activities, consummating the Offering and seeking
a Business Combination. The Company has not yet consummated a Business
Combination. Accordingly, the Company will not achieve any operating revenues
(other than investment income) until, at the earliest, the consummation of a
Business Combination.
The Company did not effect a Business Combination by July 2, 1998.
Therefore, the Company submitted for stockholder consideration a proposal to
liquidate the Company and distribute to the holders of Common Stock acquired as
part of the Units sold in its initial public offering or in the open market
thereafter, the amounts in the interest bearing escrow account maintained by the
Proceeds Escrow Agent. Such meeting was duly noticed to be held on January 12,
1999, but no quorum was present, and such meeting was adjourned until January
20, 1999, at which time again no quorum was present. The Company's future course
is, therefore, subject to material uncertainty.
At December 31, 1998, the Company had used virtually all of the net
proceeds of the Offering, excluding the escrow account funds, together with the
income and interest earned thereon, principally in connection with attempting to
effect a Business Combination, including selecting and evaluating potential
Target Businesses and structuring and consummating a Business Combination. The
Company does not have discretionary access to the income on the monies in the
escrow account and stockholders of the Company will not receive any distribution
of the income (except in connection with a liquidation of the Company) or have
any ability to direct the use or distribution of such income. Thus, such income
will cause the amount in escrow to increase. The Company cannot use the escrowed
amounts to pay the costs of evaluating potential Business Combinations.
In addition, as of December 31, 1998, the Company had unrestricted cash
(i.e. cash not held in escrow) of only $11,902, all of which has since been
spent on trade payables. Under the terms of the escrow agreement with Chase
Manhattan Bank under which the initial public offering proceeds were escrowed,
management cannot obtain the release of such funds except upon liquidation of
the Company, completion of a Business Combination, or with the consent of the
Board of Directors and of both underwriters of the Company's initial public
offering. The principal underwriter, H. J. Meyers & Co., Inc., has since ceased
operations, and its last officer has declined to respond to the Company's
request to consent to the release of any escrowed funds for the purpose of
paying liabilities, which include federal, state and local income and franchise
taxes, accounting and legal fees, and administrative charges, such liabilities
are less than $200,000. While the Company had a net worth in excess of
$9,000,000 at December 31, 1998 and continues to accrue interest income in the
escrow account (the profits on which are taxable), there is an inadequate amount
of available cash to pay any such liabilities. As a result, the Company may be
forced to either file suit for a declaratory judgment to attempt to break the
escrow or else to file for bankruptcy, unless stockholders are presented with
and approve a reorganization proposal. Due to the large net worth of the
Company, management expects there to be substantial assets remaining after any
reorganization to distribute to Common Stockholders. However, the administrative
costs of a bankruptcy proceeding can be large, and no prediction can be made as
to the outcome of any such proceeding. The Company has received written threats
of litigation from attorneys representing both stockholders and Class B
Warrantholders, although no lawsuits have been served on the Company as of the
date of filing this Annual Report. The costs of any such litigation are most
likely to be borne by the Company and ultimately paid out of the escrowed funds.
The Company had retained Ladenburg, Thalmann & Co., Inc. ("Ladenburg"), to
aid in structuring and negotiating Business Combinations. Ladenburg had been
paid an engagement fee of $3,500 per month during their period of engagement
that terminated June 30, 1998. Additionally during 1997, Ladenburg was paid
approximately $59,000 for the preparation of a fairness opinion in connection
with a proposed acquisition transaction, which was not consummated.
To the extent that Common Stock is used as consideration to effect a
Business Combination, the balance of the Net Proceeds of the Offering not
theretofore expended will be used to finance the operations of a Target
Business. The Company has not incurred any debt in connection with its
organizational activities. No cash compensation will be paid to any officer or
director until after the consummation of the first Business Combination, except
that Mr. Hoffman has been and will continue to be paid for legal services
actually rendered to the Company. 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.
9
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 14(a)(1) and
(2) are included in this report beginning on page 17.
ITEM 8. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Officers
The current directors and officers of the Company are as follows:
Name Age Position
Richard L. Kramer 49 Chairman of the Board
William L. Remley 48 President, Treasurer,
Director
Richard C. Hoffman 51 Secretary, Director
Robert D. Frankel 50 Director
J. Thomas Chess 59 Director
Management
Richard L. Kramer is an experienced investor and financial advisor who has
been closely involved with the acquisition, financing, and reorganization of
many public and private companies. He has been Chairman of the Board, cofounder,
and principal owner of Republic Properties Corporation, one of the nation's
largest commercial developers, since 1990. Mr. Kramer has also been Chairman of
the Board of each of Texfi Industries, Inc., a publicly traded textile and
apparel manufacturer since 1994; of Weldotron Corporation, a publicly traded
(OTCBB) manufacturer of packaging machinery and safety controls since 1994; of
CPT Holdings, Inc., a publicly traded (OTCBB) steel fabrication company since
1992; of Sunderland Industrial Holdings Corporation, a private holding company
with various industrial manufacturing businesses engaged in custom plastic
injection molding since 1989; of Precise Technology, Inc., a private plastic
custom injection molder since 1990; of Stellex Industries, Inc., a manufacturer
of highly engineered subsystems and components for the aerospace, defense and
space industries; and of Mentmore Holdings Corporation, a private management and
financial services company since 1991. Mr. Kramer was also a partner and
principal of Western Development Corporation, a national shopping center
developer, from 1980 through 1992.
William L. Remley has been actively engaged in the analysis, acquisition
and management of a variety of industrial manufacturing companies for the past
six years. Since 1992, he has served as President and Director of CPT Holdings,
Inc., a publicly traded steel fabrication company. Since 1989, Mr. Remley has
served as a director and President of Sunderland Industrial Holdings
Corporation, a private holding company with various industrial-manufacturing
businesses engaged in custom plastic injection molding. Mr. Remley has also been
Vice Chairman and Chief Executive Officer of Weldotron Corporation, a publicly
traded (OTCBB) manufacturer of packaging machinery and safety controls since
1994; Vice Chairman and Chief Executive Officer of Texfi Industries, Inc., a
publicly traded textile and apparel manufacturer since 1994; a Director and Vice
Chairman of Precise Technology, Inc., a plastic custom injection molder since
1990; President of Stellex Industries; Inc., a manufacturer of highly engineered
subsystems and components for the aerospace, defense and space industries; and a
Director and President of Mentmore Holdings Corporation since 1991. Mr. Remley
is also a principal in several private investment funds.
Richard C. Hoffman was Vice President and General Counsel of Mentmore
Holdings Corporation from January 1995 to March 1997, at which time his title
and duties changed to Vice President - Special Projects. He has also been
President of InterUrban Management, Inc., a real estate brokerage and management
company in Dallas, Texas since September 1991. Mr. Hoffman was formerly a
partner in the Dallas law firm of Freytag, LaForce, Rubinstein & Teofan and its
successor entities from 1985 to 1992, and served as Senior Real Estate Counsel
for the Continental Illinois National Bank in Chicago from 1978 to 1985. Mr.
Hoffman has also been a Director of Weldotron Corporation, a publicly traded
(OTCBB) manufacturer of packaging machinery and safety controls since 1994. Mr.
Hoffman is a Phi Beta Kappa graduate of the University of Wisconsin (Madison),
and received his law degree from Harvard Law School in 1972.
10
<PAGE>
Robert D. Frankel is a senior research and development executive with more
than 16 years of experience. Dr. Frankel has been the Chairman of the Board and
Executive Vice President for Research and Development for SIOS, Inc. since 1994.
He was the Vice President for Development and a Project Manager at Hampshire
Instruments from 1983 to 1993. Dr. Frankel was also a scientist at the
University of Rochester Laboratory for Laser Energetics from 1979 to 1983. Dr.
Frankel is a graduate of the State University of New York at Buffalo with a
degree in Electrical Engineering, and received his Ph.D. in Physiology from the
State University of New York at Buffalo Medical School.
J. Thomas Chess has practiced dentistry since 1964, and has been actively
involved with dental implants for 26 years. He has acted as a consultant to
several companies specializing in lasers and dental implants. Dr. Chess was a
director of the Southwest Products Company from 1991 until the company was sold
in 1996, and was formerly a director of The Dentist Company, the "for profit"
company of the California Dental Association, serving for one year of his six
year tenure as Chairman of the Board. Dr. Chess is a graduate of Bowdoin College
and received his D.D.S. from the Southern California School of Dentistry.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors receive no
compensation for serving on the Board of Directors other than the reimbursement
of reasonable expenses incurred in attending meetings. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board. The
Company has not entered into any employment agreements or other understandings
with its directors or executive officers concerning compensation. No cash
compensation is or will be paid to any officer or director in their capacities
as such until after the consummation of the first Business Combination, except
to Mr. Hoffman for legal services actually rendered to the Company. Since the
role of present management after the consummation of a Business Combination is
uncertain, the Company has no ability to determine what remuneration, if any,
will be paid to such persons after the consummation of a Business Combination.
No family relationships exist among any of the named directors or the
Company's officers. No arrangement or understanding exists between any such
director or officer and any other person pursuant to which any director or
officer was elected as a director or officer of the Company, except that Robert
D. Frankel and J. Thomas Chess are designees of H.J. Meyers, an underwriter of
the Offering.
There are no agreements or understandings for any officer or director of
the Company to resign at the request of another person and none of the officers
or directors of the Company are acting on behalf of, or will act at the
direction of, any other person.
The holder of the Company's outstanding Series A Preferred Stock is CDIJ
Capital Partners, L.P. ("CDIJ"), an indirect affiliate of Bright Licensing Corp.
("Bright"), a private company which owns and licensed to the Company, for the
purpose of marketing the Offering, the servicemarks SMA2RTSM and Specialized
Merger and Acquisition Allocated Risk TransactionSM.
Other than as set forth in this Form 10-KSB, no other relationships exist
between and among management stockholders and non-management stockholders.
Moreover, there are no arrangements, agreements or understandings between
non-management stockholders and management under which non-management
stockholders may directly or indirectly participate in or influence the
management of the Company's affairs. The Company has no knowledge of whether or
not non-management stockholders will exercise their voting right to continue to
elect the current directors to the Company's board.
11
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
No cash compensation will be paid or accrued for any officer or director
in their capacities as such until after the consummation of the first Business
Combination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 30, 1999 based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each person
known to be the owner of more than 5% of the outstanding shares of Common Stock,
(ii) each director, and (iii) all executive officers and directors as a group.
Amount and
Nature of
Beneficial Percentage of Outstanding
Name or Group(1) Ownership (2) Shares of Common Stock
---------------- ------------- ----------------------
Cranbrooke Corporation (4)......... 50,000 (3) 5.6%
Richard L. Kramer.................. 0 0.0%
William L. Remley (4).............. 50,000 (3) 5.6%
Richard C. Hoffman................. 0 0.0%
Robert D. Frankel.................. 10,688 1.2%
J. Thomas Chess.................... 10,582 1.2%
MDB Capital Group LLC
and Affiliates(5) 138,400 15.6%
Barry Rubenstein (5)............... 52,600 5.9%
All executive officers and directors
as a group (five persons)........ 71,250 (3) 8.0%
(1)Each individual listed, except MDB Capital Group LLC and Barry Rubenstein,
has an address in care of the Company. The address for Cranbrooke Corporation
is 1430 Broadway, 13th Floor, New York, New York 10018, Attention: President.
The address for MDB Capital Group LLC is 100 Wilshire Boulevard, Santa
Monica, California 90401. The address for Barry Rubenstein is 68 Wheatley
Road, Brookville, New York 11545.
(2)Unless otherwise noted, the Company believes that each person named in the
table has sole voting and investment power with respect to all shares of
Common Stock beneficially owned by him or it; except that MDB Capital Group
LLC claims sole voting power over only 48,450 shares and Barry Rubenstein
claims sole voting and investment power over only 40,700 and shared voting
and investment power over 11,900 shares.
(3)Excludes options to purchase 100,000 Units at $12.50 each, identical to the
Units issued in the Offering, held by Cranbrooke Corporation. See Part III,
Item 13. "Certain Relationships and Related Transactions."
(4)William L. Remley, a Director and President of the Company, is the President
and a Director of Cranbrooke, the owner of 50,000 shares of Common Stock of
the Company, as to which stock he disclaims beneficial ownership.
(5)Based upon information contained in such holder's Schedule 13(D) or 13(G)
filed with the Securities and Exchange Commission.
The owners of the Founders' Shares have their Common Stock in escrow until
the consummation of the first Business Combination. During this period, such
stockholders are not able to sell or otherwise transfer their respective shares
of Common Stock (with certain exceptions), but will retain all other rights as
stockholders of the Company, including, without limitation, the right to vote
such shares of Common Stock (subject to their agreement to vote their shares in
accordance with the vote of a majority of the shares voted by non-affiliated
public stockholders with respect to the consummation of a Business Combination
or liquidation proposal) but excluding the right to request the redemption of
escrowed shares pursuant to a Redemption Offer.
12
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1995, the Company issued 40,000 shares of Common Stock to
Cranbrooke Corporation, a Delaware corporation which is affiliated with Richard
L. Kramer and William L. Remley, directors and officers of the Company, 5,000
shares of Common Stock to Robert D. Frankel, a director of the Company and 5,000
shares of Common Stock to J. Thomas Chess, a director of the Company, for a
purchase price of $.10 per share. In January 1996, the Company issued the 15,000
Placement Shares to three accredited investors (including Messrs. Frankel and
Chess) at a purchase price of $0.50 per share (before deducting offering
expenses). These three investors also loaned $100,000 to the Company, which
amount was repaid out of the proceeds of the Offering. In June 1996, a founding
shareholder sold 10,000 shares of Common Stock to Cranbrooke Corporation at
their original cost of $0.10 per share.
The Company has entered into an oral agreement with Mentmore Holdings
Corporation, a Delaware corporation which is affiliated with Richard L. Kramer
and William L. Remley, to lease office space and to be provided with secretarial
and office services, which commenced upon the closing of the Offering. The
Company will pay $2,500 per month to Mentmore for rent and such services.
Management believes that these terms compare favorably to any arrangement, which
might be made with an unaffiliated party. See Part I, Item 2. "Description of
Properties."
In October 1995, Bright's predecessor granted the Company a non-exclusive
license to use, for the sole purpose of the Offering, Bright's SMA2RTSM and
Specialized Merger and Acquisition Allocated Risk TransactionSM servicemarks. In
consideration of Bright granting the non-exclusive license to the Company, the
Company paid a total of $100,000 to Bright. The value paid by the Company was
negotiated at arm's length, although no objective criteria were used to measure
the value of the license. One important consideration, however, is that Bright
previously licensed the SMA2RTSM name and structure to Initial Acquisition
Corp., which successfully completed an initial public offering in May, 1995.
CDIJ, an indirect affiliate of Bright, is the holder of the Company's
outstanding 110 shares of Series A Preferred Stock, which it purchased for
$11,000, and 1,000 shares of Common Stock, which it purchased for $.10 per
share. CDIJ paid cash for the Common Stock and issued a promissory note at an
interest rate of 8% for the Series A Preferred Stock, which was satisfied
simultaneously with the closing of the Offering.
The purchase prices for all Common Stock and Preferred Stock sold by the
Company prior to the date of the closing of the Offering were established by
negotiations between the Board of Directors and the various investors.
The Company granted an option to purchase 100,000 Units to Cranbrooke
Corporation, a Delaware corporation that is affiliated with Mr. Kramer and Mr.
Remley. The Units are identical to those that were sold pursuant to the Offering
and each consists of one share of Common Stock and one Class A Warrant to
purchase one share of Common Stock at a price of $9.00 per share. The option is
exercisable for a period of three years from the date of a Business Combination
at an exercise price of $12.50 per Unit. The option is fully vested; however,
the options will be canceled if Messrs. Kramer and Remley cease to serve as
directors or executive officers of the Company prior to the first Business
Combination. The shares issuable upon exercise of the options and underlying
warrants may not be sold or otherwise transferred until 120 days after the first
Business Combination.
13
<PAGE>
Richard C. Hoffman, Secretary and a director of the Company, acts as
general counsel to the Company. The Company utilizes Richard C. Hoffman, P.C., a
law firm of which Mr. Hoffman is sole shareholder, for legal services in
connection with Company activities. Fees paid by the Company for these services
totaled approximately $7,000, $61,000 and $68,000 through December 31, 1998,
1997 and 1996 respectively.
The Company will require that any future transactions between the Company
and its officers, directors, principal stockholders and the affiliates of the
foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arm's length transactions with independent third
parties and that any such transactions also be approved by a majority of the
Company's directors disinterested in the transaction. Management of the Company
has not yet ascertained the amount of remuneration that will be payable to the
Company's officers and directors following completion of a Business Combination.
Mr. Kramer, Mr. Remley and the other directors of the Company and Bright
may be deemed to be "promoters" of the Company.
ITEM 13.....EXHIBITS AND REPORT ON FORM 8-K
(a) The following are filed as a part of this report.
(1)...Financial Statements
Page
Report of Independent Certified Public Accountants ..........................21
Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996 and period October 19, 1995 (Date of inception)
to December 31, 1998....................................................22
Balance Sheets - December 31, 1998 and 1997..................................23
Statements of Stockholders' Equity and Common Stock Subject to
Possible Redemption, October 19, 1995 (Date of inception)
to December 31, 1998....................................................24
Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996 and the period October 19, 1995 (Date of
inception) to December 31, 1998.........................................25
Notes to Financial Statements................................................26
(2)...Exhibits
(a) Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 31, 1999.
ORION ACQUISITION CORP. II
By: /s/ William L. Remley
-------------------------
William L. Remley
President
(Principal Executive and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Richard L. Kramer March 31, 1999
- - ------------------------------ --------------
Richard L. Kramer, Chairman of the Board Date
/s/ Richard C. Hoffman March 31, 1999
- - ------------------------------ --------------
Richard C. Hoffman, Director Date
/s/ William L. Remley March 31, 1999
- - --------------------- --------------
William L. Remley, Director Date
15
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders of
Orion Acquisition Corp. II
New York, New York
We have audited the accompanying balance sheets of Orion Acquisition Corp. II (a
corporation in the development stage), as of December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity and common stock subject
to possible redemption, and cash flows for the years ended December 31, 1998,
1997 and 1996, and for the period October 19, 1995 (Date of Inception) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Orion Acquisition Corp. II as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years ended December 31, 1998, 1997 and 1996, and for the period October 19,
1995 (Date of Inception) to December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 7 to the
financial statements, the Company is unable to use escrow funds to pay general
and administrative expenses nor did the Company effect a Business Combination by
July 2, 1998. Currently, the Company has insufficient funds to pays its
liabilities and future general and administrative expenses, nor has the Company
completed a Business Combination, therefore the Company submitted for
stockholder consideration a proposal to liquidate the Company. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 3, 1999
16
<PAGE>
ORION ACQUISITION CORP. II
(a corporation in the development stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
October 19, 1995
(inception)
Year ended to
December 31, December 31,
1998 1997 1996 1998
----------- ----------- ----------- -----------
Interest income ........................... $ 436,292 $ 475,112 $ 222,444 $ 1,133,848
General and administrative ................ (192,622) (294,447) (82,172) (569,241)
expenses
Stock based compensation expense .......... -- (100,000) -- (100,000)
Interest expense .......................... -- -- (57,694) (57,694)
----------- ----------- ----------- -----------
Net income before income taxes ............ 243,670 80,665 82,578 406,913
Provision for taxes ....................... (103,153) (76,399) (39,927) (219,479)
----------- ----------- ----------- -----------
Net income ................................ $ 140,517 $ 4,266 $ 42,651 $ 187,434
=========== =========== =========== ===========
Earnings per share:
Basic .................................. $ 0.16 $ 0.00 $ 0.09
=========== =========== ===========
Diluted ................................ $ 0.16 $ 0.00 $ 0.09
=========== =========== ===========
Weighted average common shares outstanding:
Basic .................................. 890,000 890,000 446,313
======= ======= =======
Diluted ................................ 890,000 890,000 446,313
======= ======= =======
See accompanying notes to financial statements.
</TABLE>
17
<PAGE>
ORION ACQUISITION CORP. II
(a corporation in the development stage)
BALANCE SHEETS
December 31, December 31,
1998 1997
---- ----
ASSETS
Cash $ 11,902 $ 312,010
Restricted cash 190,383 453,209
US Treasury bills - restricted 8,898,239 7,999,895
Accrued investment interest receivable - 208,100
Deferred acquisition costs - 8,072
----------- -----------
Total assets $ 9,100,524 $ 8,981,286
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 71,685 $ 92,964
Common stock, subject to possible conversion of
160,000 shares at redemption value 1,817,724 1,732,240
Commitments and contingencies - -
Stockholders' equity:
Convertible preferred stock, $.01 par value
1,000,000 shares authorized
110 shares issued and outstanding 1 1
Common stock, $.01 par value 10,000,000
shares authorized; 890,000 shares issued and
outstanding (which includes shares subject to
possible redemption) 8,900 8,900
Additional paid-in capital 7,232,504 7,232,504
(Deficit) earnings accumulated
during development stage (30,290) (85,323)
----------- -----------
Total stockholders' equity 7,211,115 7,156,082
----------- -----------
Total liabilities and stockholders' equity $ 9,100,524 $ 8,981,286
=========== ===========
See accompanying notes to financial statements.
18
<PAGE>
ORION ACQUISITION CORP. II
(a corporation in the development stage)
STATEMENTS OF
STOCKHOLDERS' EQUITY AND COMMON STOCK
SUBJECT TO POSSIBLE REDEMPTION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 AND
FOR THE PERIOD FROM OCTOBER 19, 1995 (INCEPTION) THROUGH DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Earnings
Common Stock During
subject to Additional the
Preferred Stock Common Stock Possible redemption paid-in Development
Shares Amount Shares Amount Shares Amount Capital stage
BALANCE AT OCTOBER 19, 1995 ........ -- $ -- -- $ -- -- $ -- $ -- $ --
Issuance of Founders Shares ..... -- -- 16,500 165 -- -- 1,485 --
--------- --------- --------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 ....... -- -- 16,500 165 -- -- 1,485
Issuance of Founders Shares ..... -- -- 58,500 585 -- -- 5,265 --
Sale of private placement shares -- -- 15,000 150 -- -- 7,350 --
Sale of convertible
preferred stock ............... 110 1 -- -- -- -- 10,999 --
Sale of 800,000 shares,
net of underwriting discounts
and offering costs ............ -- -- 640,000 8,000 160,000 1,600,000 7,107,405 --
Net income ...................... -- -- -- -- -- -- -- 42,651
Accretion to redemption
value of common stock ......... -- -- -- -- -- 42,118 -- (42,118)
--------- --------- --------- -------- --------- --------- --------- --------
BALANCE AT DECEMBER 31, 1996 ...... 110 1 730,000 8,900 160,000 1,642,118 7,132,504 533
Issuance of options ............ -- -- -- -- -- -- 100,000 --
Net income ...................... -- -- -- -- -- -- -- 4,266
Accretion to redemption
value of common stock ......... -- -- -- -- -- 90,122 -- (90,122)
--------- --------- --------- -------- --------- --------- --------- --------
BALANCE AT DECEMBER 31, 1997 ....... 110 1 730,000 8,900 160,000 1,732,240 7,232,504 (85,323)
Net income ...................... -- -- -- -- -- -- -- 140,517
Accretion to redemption
value of common stock ......... -- -- -- -- -- 85,484 -- (85,484)
--------- --------- --------- -------- --------- --------- --------- --------
BALANCE AT DECEMBER 31, 1998 ....... 110 $ 1 730,000 $ 8,900 160,000 $1,817,724 $7,232,504 $(30,290)
=== ==== ========= ========= ========= ======== ======= ========== ========== ========
See accompanying notes to financial statements
</TABLE>
19
<PAGE>
ORION ACQUISITION CORP. II
(a corporation in the development stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
October 19, 1995
(inception)
Year Ended through
December 31, December 31,
1998 1997 1996 1998
---------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................ $ 140,517 $ 4,266 $ 42,651 $ 187,434
Adjustments to reconcile net income
to net cash provided by operating
activities:
Note discount amortization ............ -- -- 37,500 37,500
Stock based compensation expense ...... -- 100,000 -- 100,000
Changes in working capital:
Decrease (Increase) in accrued
investment receivables ............ 208,100 (5,518) (202,582) --
Increase (Decrease) in accrued
expenses .......................... (21,279) 37,567 55,397 71,685
------- ------ ------ ------
Cash provided by (used) in operating
activities ........................... 327,338 136,315 (67,034) 396,619
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of U.S. Treasury bills and
other increases in restricted cash ... (635,518) (445,098) (8,008,006) (9,088,622)
Decrease (Increase) in deferred
acquisition costs .................... 8,072 (8,072) -- --
----- ------ --------- ---------
Cash used in investing activities ..... (627,446) (453,170) (8,008,006) (9,088,622)
-------- -------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issue of units and redeemable Class B
purchase warrants, net of public
offering expenses .................. -- -- 8,677,905 8,677,905
Issuance of unsecured promissory notes -- -- 100,000 100,000
Repayment of unsecured promissory notes -- -- (100,000) (100,000)
Issuance of founders' shares .......... -- -- 5,850 7,500
Issuance of private placement shares .. -- -- 7,500 7,500
Issuance of convertible preferred stock -- -- 11,000 11,000
-------- -------- ---------- ----------
Cash provided by financing activities . -- -- 8,702,255 8,703,905
-------- -------- ---------- ----------
NET (DECREASE) INCREASE IN CASH ....... (300,108) (316,855) 627,215 11,902
Cash, beginning of year ............... 312,010 628,865 1,650
------- ------- -----
Cash, end of year ..................... $ 11,902 $312,010 $ 628,865
======== ======== ==========
See accompanying notes to financial statements
</TABLE>
20
<PAGE>
ORION ACQUISITION CORP. II
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
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 fund raising. To date, the Company has not effected a Business
Combination (as defined below).
The registration statement for the Company's Initial Public Offering (the
"Offering") became effective on July 2, 1996. The Company consummated the
Offering on July 9, 1996 and with the underwriters exercising of their
overallotment option to purchase 38,100 Class B Warrants on August 5, 1996
raised net proceeds of approximately $8,700,000 (See Note 2). The Company's
management has broad discretion with respect to the specific application of the
net proceeds of the Offering, although substantially all of the net proceeds of
the Offering were intended to be generally applied toward consummating a
business combination with an operating business ("Business Combination").
Furthermore, there is substantial doubt that the Company will be able to
successfully effect a Business Combination. An aggregate of $8,000,000 of the
net proceeds are held in an escrow account which are invested until released in
short-term United States Government Securities comprised primarily of Treasury
bills ("Proceeds Escrow Account"), subject to release at the earlier of (i)
consummation of its first Business Combination, or (ii) liquidation of the
Company (see below). The remaining proceeds were used to pay for costs relating
to the Offering and have been used for expenses relating to business, legal and
accounting due diligence on prospective acquisitions and continuing general and
administrative expenses in addition to other expenses.
The Company prior to the consummation of any Business Combination, must
submit such transaction to the Company's stockholders for their approval, even
if the nature of the acquisition is such as would not ordinarily require
stockholder approval under applicable state law. All of the Company's original
stockholders, including all directors and the Company's executive officers, have
agreed to vote their respective shares of common stock in accordance with the
vote of the majority of the shares voted by all other stockholders of the
Company ("non-affiliated stockholders") with respect to any such Business
Combination. A Business Combination will not be consummated unless approved by a
vote of two-thirds of the shares of common stock owned by non-affiliated public
stockholders.
At the time the Company seeks stockholder approval of any potential
Business Combination, the Company will offer each of the non-affiliated public
stockholders of the Company the right, for a specified period of time not less
than 20 calendar days, to redeem his shares of common stock ("Redemption
Offer"). The per share redemption price ("Liquidation Value") will be determined
by dividing the greater of (i) the Company's net worth or (ii) the amount of
assets of the Company in the escrow account including all interest earned
thereon by the number of shares held by such non-affiliated public stockholders.
In connection with the Redemption Offer, if non-affiliated public stockholders
holding 20% or less of the common stock elect to redeem their shares, the
Company may, but will not be required to, proceed with the potential Business
Combination and, consequently, will redeem such shares by applying the
Liquidation Value to the number of shares to be redeemed. Unless shareholders
approve a different procedure, if non-affiliated stockholders holding greater
than 20% of the common stock elect to redeem their shares, the Company will not
proceed with such potential Business Combination and will not redeem such
shares. Accordingly, a portion of the net proceeds from the Offering (20% of the
amount held in the Proceeds Escrow Account) has been classified as common stock
subject to possible redemption in the accompanying balance sheet at the
estimated redemption value.
All shares of the common stock outstanding immediately prior to the date of the
Offering have been placed in escrow until the earlier of (i) the occurrence of
the first Business Combination, or (ii) July 2, 1998 liquidation date. During
the escrow period, the holders of the escrowed stock will not be able to sell or
otherwise transfer their respective shares of the escrowed stock (with certain
exceptions) but will retain all other rights as stockholders of the Company
including, without limitation, the right to vote escrowed shares of Common
Stock, subject to their agreement to vote their shares in accordance with a vote
of a majority of the non-affiliated public stockholders with respect to a
consummation of a Business Combination as a liquidation proposal, but excluding
the right to request the redemption of escrowed stock pursuant to a Redemption
Offer.
21
<PAGE>
The Company did not effect a Business Combination by July 2, 1998.
Therefore, the Company submitted for stockholder consideration a proposal to
liquidate the Company and distribute to the holders of Common Stock acquired as
part of the Units sold in its initial public offering or in the open market
thereafter, the amounts in the interest bearing escrow account maintained by the
Proceeds Escrow Agent. Such meeting was duly noticed to be held on January 12,
1999, but no quorum was present, and such meeting was adjourned until January
20, 1999, at which time again no quorum was present. The Company's future course
is, therefore, subject to material uncertainty. (See Note 9.)
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company is unable to use
the escrow funds to pay general and administrative expenses nor did the Company
effect a Business Combination by July 2, 1998. Currently, the Company has
insufficient available funds to pay its liabilities and its future general and
administrative expenses, nor has the Company completed a Business Combination,
therefore the Company submitted for stockholder consideration a proposal to
liquidate the Company.
The factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustment relating to the recoverability and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
NOTE 2 - PUBLIC OFFERING
On July 9, 1996 the Company sold 800,000 units ("Units") in the Offering
and 320,000 Class B redeemable common stock purchase warrants ("Class B
Warrants"). Subsequently, on August 5, 1996, the underwriters exercised their
overallotment option to purchase 38,100 Class B Warrants. Each Unit consists of
one share of the Company's common stock and one Class A Redeemable common stock
purchase warrant ("Class A Warrants"). Each Class A Warrant entitles the holder
to purchase from the Company one share of common stock at an exercise price of
$9.00 commencing on the date of a Business Combination and expiring on the fifth
anniversary from such date, and each Class B Warrant entitles the holder to
purchase one Unit at an exercise price of $0.125 commencing on the date of a
Business Combination and expiring on the first anniversary from such date. The
Class A Warrants and Class B Warrants are redeemable, each as a class, in whole
and not in part, at a price of $0.05 per warrant upon 30 days' notice at any
time provided that the Company has consummated a Business Combination and the
last sale price of the common stock on all ten trading days ending on the day
immediately prior to the day on which the Company gives notice of redemption,
has been $11.00 or higher.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Net Earnings Per Common Share
In 1997, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share exclude any dilative effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings share
amounts for all periods have been presented, and where necessary, restated to
conform to the SFAS 128 requirements.
Net earnings per common share for the years December 31, 1998, 1997
and 1996 are computed by dividing net earnings by the weighted average common
shares outstanding during the year. The assumed exercise of common stock
equivalents was not utilized due to their exercise being predicated on the
consummation of a Business Combination.
(b) Income Taxes
The Company follows the Statement of Financial Accounting Standards
No. 109. This statement requires that deferred income taxes based on the
consequences of temporary differences between the financial carrying amounts and
the tax bases of existing assets and liabilities be recorded based on the asset
and liability method of accounting which is adjusted periodically when statutory
income tax rates change. Deferred taxes are not material.
22
<PAGE>
(c) Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(d) Fair Value of Financial Instruments
The carrying values of financial instruments including cash,
restricted cash, U.S. Treasury bonds, accrued investment interest receivable and
accrued expenses approximate fair value at December 31, 1998.
(e) Stock Options
In October 1995, the FASB issued SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 allows companies to choose
whether to account for stock-based compensation on the fair value method or to
continue to account for stock-based compensation under the current intrinsic
value method as prescribed by APB Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company adopted the disclosure alternative under SFAS 123
during 1996 and will continue to follow the provisions of APB Opinion No. 25.
SFAS 123, requires the Company to provide pro forma information regarding
net income and earnings per share as if compensation cost for the Company's
stock option plans had been determined in accordance with the fair value-based
method prescribed in SFAS 123.
NOTE 4 - INVESTMENTS
A substantial portion of the assets of the Company are invested in U.S.
Treasury Bills having maturities in January of 1999 which were subsequently
extended to April of 1999. Aggregate cost basis and market value of these
securities as of December 31, 1998 totaled approximately $8,861,000 and
$8,898,000, respectively. These securities, in addition to the restricted cash
as shown on the balance sheet together totaling $9,088,622, are held in an
escrow account with a bank. The ultimate use of these funds is restricted as
described in Note 1.
NOTE 5 - RELATED PARTIES
Richard C. Hoffman, Secretary and a director of the Company, acts as
general counsel to the Company. The Company utilizes Richard C. Hoffman, P.C., a
law firm of which Mr. Hoffman is sole shareholder, for legal services in
connection with Company activities. Fees paid by the Company for these services
totaled approximately $7,000, $61,000 and $68,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
NOTE 6 - STOCKHOLDERS' EQUITY
(a) Private Placement
In January 1996, the Company completed a private offering to a
limited group of investors which consisted, in the aggregate, of $100,000 in
unsecured promissory notes bearing interest at 8% per annum. In addition, as
part of this private placement, the Company also issued to the private placement
investors 15,000 shares of common stock for $7,500. The notes were repaid as a
result of the consummation of the Company's Offering together with accrued
interest totaling $3,533. The notes were discounted $37,500 for financial
statement reporting purposes as a result of the fair value attributed to the
common stock issued to the private placement stockholders. The effective rate on
the notes was approximately 45%.
(b) Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred
stock with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
The Company has outstanding 110 shares of Series A preferred stock
which is owned by CDIJ Capital Partners, L.P., an indirect affiliate of Bright
Licensing Corp. The purchase price for such shares was $11,000 in the aggregate,
which was paid simultaneously with the consummation of the Offering. The Series
A preferred stock are non-voting and are each convertible into 1,000 shares of
common stock for a period of one year following the consummation of a Business
Combination.
23
<PAGE>
(c) Options
On July 9, 1996, the Company granted options to purchase 100,000 Units to
Cranbrooke Corporation, a Delaware corporation which is affiliated with two
officers of the Company. The option is exercisable for a period of three years
from the date of a Business Combination at an exercise price of $12.50 per Unit.
The option is fully vested; however, the options will be canceled if Mr. Kramer
and Mr. Remley cease to serve as directors or executive officers of the Company
prior to the Business Combination. The shares issuable upon exercise of the
options and underlying warrants may not be sold or otherwise transferred for 120
days subsequent to the first Business Combination.
Effective January 10, 1997 an investment bank engaged to assist the
Company, was granted an option to purchase 10,000 shares of Common Stock, par
value $.01 per share, owned by Cranbrooke at a purchase price of $.10 per share.
The Company recorded a non-cash charge of $100,000 that represents the fair
value of the options at the date of grant as calculated using the Black-Scholes
option pricing model.
(d) Warrants
In connection with the Offering, the Company issued warrants to the
underwriters for 80,000 units at an exercise price of $11.00 per unit and 32,000
Class B warrants at an exercise price of $6.1875 per unit. These warrants are
initially exercisable for a period of four years commencing on July 2, 1997. The
underwriter's warrants contain anti-dilution provisions providing for adjustment
of the number of warrants and exercise price under certain circumstances. The
underwriter's warrants grant to the holders thereof certain rights of
registration of the Units and Class B warrants issuable upon exercise of the
underwriter's warrants.
NOTE 7 - COMMITMENTS & CONTINGENCIES
(a) The Company, pursuant to an oral agreement, utilizes the offices of
Mentmore Holdings Corporation, a Delaware corporation of which Mr. Kramer, the
Company's Chairman of the Board and Mr. Remley, the Company's President and CEO,
are respectively Chairman of the Board and President. Mentmore is also
affiliated with Cranbrooke Corporation, a stockholder of the Company. Mentmore
has agreed that, until the acquisition of a target business by the Company, it
will make such office space and secretarial services available to the Company,
as may be required by the Company from time to time, at the rate of $2,500 per
month, commencing July 10, 1996. Management believes that these terms compare
favorably to any arrangement which might be made with an unaffiliated party.
Such costs reflected in the financial statements totaled $30,000, $30,000 and
$14,274 for the year ended December 31, 1998, 1997 and 1996, respectively.
(b) On September 6, 1996, the Company entered into an agreement with
Ladenburg, Thalmann & Co., Inc. ("Ladenburg") to assist the Company as its
exclusive financial advisor in connection with its acquisition targeting
activities. The Company paid the monthly sum of $3,500 to Ladenburg as a
retainer for these services which terminated June 1998.
(c) In addition, as of December 31, 1998, the Company had unrestricted
cash (i.e. cash not held in escrow) of only $11,902, all of which has since been
spent on trade payables. Under the terms of the escrow agreement with Chase
Manhattan Bank under which the initial public offering proceeds were escrowed,
management cannot obtain the release of such funds except upon liquidation of
the Company, completion of a Business Combination, or with the consent of the
Board of Directors and of both underwriters of the Company's initial public
offering. The principal underwriter, H. J. Meyers & Co., Inc., has since ceased
operations, and its last officer has declined to respond to the Company's
request to consent to the release of any escrowed funds for the purpose of
paying liabilities, which include federal, state and local income and franchise
taxes, accounting and legal fees, and administrative charges, such liabilities
are less than $200,000. While the Company had a net worth in excess of
$9,000,000 at December 31, 1998 and continues to accrue interest income in the
escrow account (the profits on which are taxable), there is an inadequate amount
of available cash to pay any such liabilities. As a result, the Company may be
forced to either file suit for a declaratory judgment to attempt to break the
escrow or else to file for bankruptcy, unless stockholders are presented with
and approve a reorganization proposal. Due to the large net worth of the
Company, management expects there to be substantial assets remaining after any
reorganization to distribute to Common Stockholders. However, the administrative
costs of a bankruptcy proceeding can be large, and no prediction can be made as
to the outcome of any such proceeding. The Company has received written threats
of litigation from attorneys representing both stockholders and Class B
Warrantholders, although no lawsuits have been served on the Company as of the
date of filing this Annual Report. The costs of any such litigation are most
likely to be borne by the Company and ultimately paid out of the escrowed funds.
24
<PAGE>
NOTE 8 - INCOME TAXES
Federal and state income tax provisions are as follows:
Year ended December 31,
1998 1997 1996
---- ---- ----
Current:
Federal $ 63,323 $ 33,916 $ 30,081
State and local 39,830 42,483 9,846
------ ------ -----
$103,153 $ 76,399 $ 39,927
======= ====== ======
The company has a net deferred tax asset of approximately $35,000 relating to
stock based compensation. The net deferred tax asset has been fully reserved. If
a Business Combination should occur, the deferred tax asset would potentially be
utilized in a taxable year.
NOTE 9 - SUBSEQUENT EVENT
On January 25, 1999, the Company received a Schedule 13D filing from a
group consisting of MDB Capital Group LLC and three persons representing
themselves to be principals of MDB Capital Group LLC. Such group, per such
Schedule 13D, is the beneficial owner of 138,400 shares of Common Stock.
According to their Schedule 13D, such group intends among other items (i) to
cause a change in all the current directors and officers of the Company, (ii) to
cause a termination of the escrow account where substantially all of the
Company's assets are located and "to cause the distribution of a significant
portion of the funds as a return of capital and dividend income to the holders
of only those shares of the Common Stock issued in the initial public offering
of the Company on July 2, 1996. Funds not distributed may be constructively
transferred to another entity in connection with a merger or business
combination and will be used to fund the operations and pay the expenses of the
Company", (iii) "to cause a change in the capital structure of the Company. The
change may be effected by the elimination of some or all of the outstanding
classes of equity securities and/or by modification of outstanding equity
securities and the terms of options and warrants. These changes may be effected
through negotiation and/or shareholder action", (iv) "to cause a change in the
Certificate of Incorporation to eliminate the requirement that two-thirds of the
stockholders of the Company are required to approve a business combination. This
will be done in the near future, prior to any negotiations for a merger or other
business combination. The effect of this may be to permit the Company to enter
into a merger or business combination without the prior approval of the
stockholders of the Company."
Management of the Company has had informal discussions with the
representatives of this group, and certain other persons representing themselves
to be the beneficial owners of or investment advisors to beneficial owners of
Common Stock who may support such a plan. No agreements or understandings have
been reached as of the filing date of this Annual Report.
Management has also received a written proposal from a reputable
investment firm proposing to have the Company acquire a pharmaceutical company,
which is a client of such investment firm. The terms of such proposal may be
mutually inconsistent with the proposals of the MDB Capital Group LLC proposals.
Management of the Company has been contacted informally by persons representing
themselves to be or to represent beneficial owners of substantial numbers of the
Company's Class B Warrants, who have indicated their support for this
alternative proposal. Management has also received a letter from an attorney
purporting to represent at least three beneficial owners of Common Stock,
threatening the Company and its officers and directors with litigation if they
do not act favorably on this merger proposal.
Subject to fulfilling their fiduciary responsibilities, the Company's
Board of Directors intends to accommodate the views of a majority of the Common
Stockholders who purchased their shares in the Company's initial public offering
or in open-market transactions thereafter.
25
<PAGE>
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