SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 4, 1998
ORION FINANCIAL, LTD.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-11043 84-0858679
------------------------------ ------------------- ------------------
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation) Identification No.)
6860 South Bannock Street, Unit B, Littleton, Colorado 80120
------------------------------------------------------ --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 238-0937
80 North Hoyt Street, Lakewood, Colorado 80226
-----------------------------------------------------------
Former name or former address, if changed since last report
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements of Business Acquired.
Independent Auditor's Report for Athletic Footwear, Inc. and
Assets Transferred to Guarantors
Combined Balance Sheets as of March 31, 1998 (Unaudited) and
September 30, 1997
Combined Statements of Operations for the Six Months ended March
31, 1998 (Unaudited) and for the Two Years ended September 30,
1997 and 1996
Combined Statement of Changes in Stockholders' Deficit for the
Two Years ended September 30, 1996 and 1997 and for the Six
Months ended March 31, 1998 (Unaudited)
Combined Statements of Cash Flows for the Six Months ended March
31, 1998 (Unaudited) and for the Two Years ended September 30,
1997 and 1996
Notes to Combined Financial Statements
b. Pro Forma Financial Information.
Pro Forma Combined Balance Sheet as of March 31, 1998 (Unaudited)
Pro Forma Combined Statement of Operations for the Year Ended
September 30, 1997 (Unaudited)
Pro Forma Combined Interim Statement of Operations for the Nine
Months ended March 31, 1997 (Unaudited)
Notes to Pro Forma Combined Financial Information
2
<PAGE>
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 hereunto duly authorized.
Date: September 10, 1999
ORION FINANCIAL, LTD.
By: /s/ Terry A. Hunter
-------------------------------------
Terry A. Hunter, President
3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditor's Report ............................................... F-2
Combined Balance Sheets - March 31, 1998 (Unaudited) and
September 30, 1997 .................................................... F-3
Combined Statements of Operations - For the Six Months Ended
March 31, 1998 (Unaudited) and For the Years Ended
September 30, 1997 and 1996 ........................................... F-4
Combined Statement of Changes in Stockholders' Deficit -
For the Years Ended September 30, 1996 and 1997 and
For the Six Months Ended March 31, 1998 (Unaudited) ................... F-5
Combined Statements of Cash Flows - For the Six Months
Ended March 31, 1998 (Unaudited) and For the Years
Ended September 30, 1997 and 1996 ..................................... F-6
Notes to Combined Financial Statements ..................................... F-7
Pro Forma Combined Financial Information ...................................F-14
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
July 7, 1998
Board of Directors
Athletic Footwear, Inc.
Denver, Colorado
We have audited the accompanying combined balance sheet of Athletic Footwear,
Inc. and Assets Transferred to Guarantors as of September 30, 1997, and the
related combined statements of operations, changes in stockholders' deficit, and
cash flows for the years ended September 30, 1997 and 1996. 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 audit 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Athletic Footwear, Inc. and
Assets Transferred to Guarantors as of September 30, 1997, and the results of
their operations and their cash flows for the years ended September 30, 1997 and
1996, 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 Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency that raise substantial doubt about its 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/ Hein + Associates LLP
Certified Public Accountants
F-2
<PAGE>
<TABLE>
<CAPTION>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
COMBINED BALANCE SHEETS
March 31, September 30,
1998 1997
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................... $ -- $ 1,000
Accounts receivable ..................................... -- 2,000
Prepaid expenses ........................................ 1,000 1,000
----------- -----------
Total current assets ........................... 1,000 4,000
FURNITURE AND EQUIPMENT, at cost, less accumulated
depreciation of $123,000 (unaudited) and $103,000 ....... 226,000 246,000
OTHER ASSETS -
Intangibles ............................................. 4,000 4,000
----------- -----------
TOTAL ASSETS ................................................ $ 231,000 $ 254,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Notes payable ........................................... $ 62,000 $ 62,000
Payable to guarantors ................................... 135,000 135,000
Accrued and other liabilities - stockholders ............ 257,000 257,000
Accounts payable ........................................ 161,000 161,000
Accrued liabilities ..................................... 77,000 77,000
Accrued interest ........................................ 131,000 131,000
Refundable stock purchase ............................... 25,000 25,000
----------- -----------
Total current liabilities ...................... 848,000 848,000
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' DEFICIT:
Common stock, voting $.001 par value; 50,000,000 shares
authorized 4,000,000 shares issued and outstanding .... 4,000 4,000
Additional paid-in capital .............................. 3,221,000 3,221,000
Accumulated deficit ..................................... (3,842,000) (3,819,000)
----------- -----------
Total stockholders' deficit .................... (617,000) (594,000)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ................. $ 231,000 $ 254,000
=========== ===========
</TABLE>
See accompanying notes to these combined financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
FOR THE
SIX MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30,
MARCH 31, --------------------------
1998 1997 1996
--------- ---- ----
(Unaudited)
<S> <C> <C> <C>
NET REVENUES -
Sales revenue ............................. $ -- $ 104,000 $ 363,000
COST OF SALES ................................. -- (115,000) (740,000)
----------- ----------- -----------
GROSS MARGIN .................................. -- (11,000) (377,000)
OPERATING EXPENSES:
Operating ................................. -- 24,000 96,000
General and administrative ................ 3,000 216,000 150,000
Marketing and promotion ................... -- 60,000 154,000
Depreciation and amortization ............. 20,000 41,000 45,000
----------- ----------- -----------
Total expenses ....................... 23,000 341,000 445,000
----------- ----------- -----------
OPERATING LOSS ................................ (23,000) (352,000) (822,000)
OTHER INCOME (EXPENSE):
Interest expense .......................... -- 56,000 82,000
Loan fee .................................. -- -- 224,000
Loss on sale of equipment ................. -- -- 1,000
----------- ----------- -----------
Total other income (expense).......... -- 56,000 307,000
----------- ----------- -----------
NET LOSS ...................................... $ (23,000) $ (408,000) $(1,129,000)
=========== =========== ===========
</TABLE>
See accompanying notes to these combined financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997 AND
FOR THE SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
VOTING
COMMON STOCK Additional
----------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, October 1, 1995 ........................ 2,559,000 $ 3,000 $ 1,391,000 $(2,282,000) $ (888,000)
Debt converted to equity ..................... 153,000 -- 200,000 -- 200,000
Interest forgiven by stockholder ............. -- -- 65,000 -- 65,000
Options exercised ............................ 300,000 -- 15,000 -- 15,000
Stock issued to Guarantor of debt ............ 274,000 -- 224,000 -- 224,000
Stock issued in private placement ............ 737,000 1,000 736,000 -- 737,000
Net loss ..................................... -- -- -- (1,129,000) (1,129,000)
----------- ----------- ----------- ----------- -----------
BALANCES, September 30, 1996 ..................... 4,023,000 4,000 2,631,000 (3,411,000) (776,000)
Debt paid by Guarantors ...................... -- -- 590,000 -- 590,000
Net loss ..................................... -- -- -- (408,000) (408,000)
----------- ----------- ----------- ----------- -----------
BALANCES, September 30, 1997 ..................... 4,023,000 4,000 3,221,000 (3,819,000) (594,000)
Net loss (unaudited) ......................... -- -- -- (23,000) (23,000)
----------- ----------- ----------- ----------- -----------
BALANCES, March 31, 1998 (Unaudited) ............. 4,023,000 $ 4,000 $ 3,221,000 $(3,842,000) $ (617,000)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to these combined financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE
SIX MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30,
MARCH 31, ------------------------
1998 1997 1996
--------- ---- ----
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $ (23,000) $ (408,000) $(1,129,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................. 20,000 41,000 45,000
Loss on sale of equipment ..................... -- -- 1,000
Expenses paid with stock ...................... -- -- 289,000
Changes in operating assets and liabilities:
Accounts receivable ....................... 2,000 27,000 (27,000)
Inventories ............................... -- 217,000 726,000
Other assets .............................. -- 39,000 18,000
Accounts payable and accrued expenses ..... -- 48,000 27,000
Other ..................................... -- -- (6,000)
----------- ----------- -----------
Net cash used in operating activities ............ (1,000) (36,000) (56,000)
CASH FLOWS FROM INVESTING ACTIVITY -
Purchase of equipment ............................... -- -- (5,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term and long-term borrowings ... -- 58,000 278,000
Payment of long-term debt ........................... -- (43,000) (244,000)
Issuance of stock ................................... -- -- 15,000
----------- ----------- -----------
Net cash provided by financing activities ......... -- 15,000 49,000
----------- ----------- -----------
DECREASE IN CASH ...................................... (1,000) (21,000) (12,000)
CASH, at beginning of year ............................ 1,000 22,000 34,000
----------- ----------- -----------
CASH, at end of year .................................. $ -- $ 1,000 $ 22,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Conversion of long-term debt to equity ............. $ -- $ -- $ 937,000
Interest forgiven by shareholder ................... -- -- 65,000
Stock issued to guarantors ......................... -- -- 224,000
Debt paid by guarantors ............................ -- 590,000 --
</TABLE>
See accompanying notes to these combined financial statements.
F-6
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation - Athletic Footwear, Inc. (the
"Company") was incorporated under the laws of the State of Colorado in
September 1988 to develop, manufacture, and market high performance
athletic childrens' footwear.
As described in Note 12, in April 1997, the Company transferred
substantially all of its assets to certain stockholders who had guaranteed
the Company's bank debt, in exchange for the satisfaction of that debt by
the guarantors and ceased operations. In May 1998, the guarantors agreed to
transfer the assets (except for inventory, which had been sold) to Orion
Financial, Ltd. (Orion) in exchange for 1,000,000 shares of Orion stock.
Orion also issued 162,780 shares of common stock to holders of the
Company's bridge finance notes totaling $48,000. The accompanying financial
statements include the operations of the Company through April 1997, and
the combined operations of the Company and the assets acquired by Orion
subsequent to April 1997.
The accompanying financial statements have been presented on the going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As shown in
the financial statements, the Company has incurred recurring losses and has
a net capital deficiency, that 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.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
Inventory - Inventory consists of finished product and is stated at the
lower of cost, determined by the specific identification method, or market.
During the period ended September 30, 1996, the Company reduced the
carrying value of its inventory by $246,000 in order to reflect estimated
market value.
Cash Equivalents - The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
Revenue Recognition - The Company's product sales are recognized when
products are shipped to customers.
Intangibles - Intangible assets are stated at cost and are amortized using
the straight-line method over 15 years. Intangible assets consist of
patents and trademarks at September 30, 1997.
Amortization expense for the years ended September 30, 1997 and 1996 was
$3,000 and $6,000, respectively.
F-7
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
Income Taxes - The Company accounts for income taxes under the liability
method of SFAS No. 109, whereby current and deferred tax assets and
liabilities are determined based on the tax rates and laws enacted as of
the balance sheet date. As of September 30, 1997, the Company had an unused
operating loss carryforward of $3,632,000 which is not expected to be
realized in future years due to the exchange of assets as described in Note
12.
Fair Value of Financial Instruments - The estimated fair values of the
Company's financial instruments involve uncertainties and cannot be
determined with precision. The Company's financial instruments are notes
and other payables. Due to the related party nature of many of the payables
and due to the Company's financial position and lack of operations, it is
estimated that the fair value of these liabilities is less than their
carrying value.
Unaudited Interim Information - The balance sheet as of March 31, 1998, the
statements of operations and cash flows for the six-month period ended
March 31, 1998 were taken from the Company's books and records without
audit. However, in the opinion of management, such information includes all
adjustments (consisting only of normal recurring accruals) which are
necessary to properly reflect the financial position of the Company as of
March 31, 1998 and the results of operations for the six months ended March
31, 1998. The results of operations for the interim period presented are
not necessarily indicative of those to be expected for the year.
2. RELATED PARTY TRANSACTIONS:
During fiscal 1996 and 1997, the Company's stockholders paid various
expenses on behalf of the Company. The balance due to stockholders as of
September 30, 1997 was $257,000.
The warehouse used for storage of inventory was owned by a stockholder. The
rent expense for the year ended September 30, 1997 and 1996 was $33,000 and
$23,000, respectively.
3. PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. The Company capitalizes all
property and equipment with a value greater than $200 and an estimated
F-8
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
useful life greater than one year. Depreciation is provided by using the
straight-line method over the assets' estimated useful lives. Property and
equipment as of September 30, 1997 is summarized as follows:
Estimated
Useful
Lives
---------
Machinery and equipment $ 35,000 7
Furniture and fixtures 12,000 7
Trade show booths 36,000 7
Molds, dies, and lasts 266,000 11
---------
349,000
Accumulated depreciation (103,000)
---------
$ 246,000
Depreciation expense for the years ended September 30, 1997 and 1996 was
$38,000 and $39,000, respectively.
4. LINE-OF-CREDIT:
On May 11, 1995, the Company entered into a $1 million line-of-credit with
the First National Bank of Goodland, Kansas, pursuant to the terms of a
master note variable agreement which matured on May 11, 1996. The interest
rate was 1.5% over the prime rate published in the Wall Street Journal. The
loan was made to purchase inventory and was collateralized by all
machinery, equipment, fixtures, furniture, furnishings, inventory, contact
rights, accounts receivable, and general intangibles now owned or hereafter
acquired by the Company. The line-of-credit was guaranteed by nine
different persons who are also stockholders. The Company defaulted on
repayment of the line-of-credit to First National Bank of Goodland, Kansas
and the line-of-credit was paid by the guarantors. The payment of the line
by the Guarantors is reflected as additional paid-in capital.
5. NOTES PAYABLE:
Notes payable consists of the following at September 30, 1997:
Bridge finance notes payable to various individuals, with $48,000
interest at 6%, principal due $10,000 in February 1998 and
$33,000 in April 1998, without collateral.
F-9
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
Note payable to Orion Financial, with interest at 6%, without 10,000
collateral.
Note payable to an individual, with principal and interest at 6% 4,000
due on demand, without collateral. -------
$62,000
=======
6. DEFERRED LOAN FEE AGREEMENT:
In order to compensate the nine guarantors of the line-of-credit for their
credit services in making guarantees available, the Company promised to pay
them $500,000, ratably among them according to the amounts of their
guarantees, on May 11, 1995. The Company and the guarantors entered into a
subsequent agreement effective September 30, 1995 whereby all claims of the
guarantors against the Company were extinguished by the issuance of 250,000
shares of the Company's stock to the guarantors. In addition, this
agreement provides for the issuance of additional shares of stock each year
as follows if the liability of the guarantors has not been extinguished by
the dates shown:
Shares Date
------ ----
125,000 August 15, 1996
125,000 August 15, 1997
125,000 August 15, 1998
The liability of the guarantors had not been extinguished by August 15,
1996 and, in accordance with the above, 125,000 shares of the Company's
stock were issued to the guarantors.
This agreement also provides for cash equal to the sum of 10% of the unpaid
balance of the $1 million line-of-credit plus accumulated interest on the
above dates to be paid to the guarantors. If the 10% balance in cash due
cannot be paid by the Company on the due dates, shares of the Company's
stock shall be issued to the guarantors at a conversion ratio of 1.2 shares
per $1 due. On August 15, 1996, $124,055 was owed to the guarantors
pursuant to this agreement and 148,866 shares of the Company's stock were
issued to the guarantors in satisfaction of the liability.
7. ESCROW - REFUNDABLE STOCK PURCHASE:
During fiscal year 1995, the Company received funds from non-accredited
investors for the purchase of the Company's stock. The stock was never
issued and the funds were fully refundable to the investors. As of
September 30, 1997, the funds had not been refunded to the investors due to
lack of cash flows.
F-10
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
8. COMMITMENTS AND CONTINGENCIES:
Assembly Agreement - In March 1994, the Company entered into an agreement
with All American Assembly Corporation and All American LP, one of the
Company's principal stockholders, which required the Company to purchase
the following minimum annual pairs of shoes to be produced in an assembly
facility in Kolby, Kansas:
Years Minimum Purchase
----- ----------------
1 132,000 pairs
2 396,000 pairs
3 (Best efforts only) 1.4 million pairs
This agreement was modified in November 1994 to defer establishment of the
assembly facility until no earlier than January 1996 and with a minimum six
months' notice given by All American Assembly Corporation to the Company.
As of September 30, 1997, no activity has occurred with respect to this
agreement.
Employment Agreements - The Company had employment agreements with the
president of the Company and the Company's vice president of sales that
allow for annual compensation amounts of $81,000 and $50,000, respectively.
Both agreements also provide for compensation for certain fringe benefits.
The Company's president has agreed to accept a salary of $60,000 per year
until the Company can afford to pay him additional sums as determined by
the Board of Directors.
Both individuals agree that during the time of their employment and for a
period of three years thereafter, they will not compete with the Company.
Warrants - In September 1995, the Company agreed to issue to a stockholder
warrants covering 50,000 shares of stock. The warrants were issued in
return for the stockholder assisting in an equity offering. The warrants
have an exercise price of $1.20 and permit the stockholder to purchase
these shares over a five-year period. As of September 30, 1997, none of the
warrants had been exercised.
Financial Consulting Agreement - In August 1996, the Company entered into
an agreement to compensate Augusta Management, Inc. for financial
consulting services. A cash fee of 5% of the total amount raised for the
Company will be paid by the Company to Augusta Management, Inc. for a
period of 36 months commencing August 1, 1996. No funds have been raised to
date under this agreement.
Securities Transactions:
In March 1996, the Company made a rescission offer to investors who had
purchased common stock in the Company's 1995 private placement. The
rescission offer was made due to possible violations of securities laws in
-15-
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
the private placement. No investors accepted the rescission offer, however,
due to the fact that the Company may not have had the ability to satisfy
any rescission offers accepted, the rescission offer may not be deemed to
be bona fide.
In August 1995, the Colorado Department of Securities served a subpoena on
the Company and its president requesting certain information related to the
Company's financial position and securities transactions. The Company has
complied with the subpoena and has received no further notice from the
Colorado Department of Securities.
The Company believes that there will be no material impact on the Company's
financial position related to these items, and the accompanying financial
statements include no provision for any loss which may result.
9. STOCKHOLDERS' EQUITY:
In 1995 and 1996, the Company completed a private placement whereby it sold
736,561 shares of its common stock for net proceeds of $731,561. As part of
this private placement, $203,000 in stockholder notes payable were
converted into 153,333 shares of common stock.
In 1996, a stockholder of the Company forgave $65,000 in interest payable.
This amount has been recorded as additional paid-in capital. The Company
also issued 273,866 shares to the Guarantors of its debt. The Company also
issued 300,000 shares to the Company's president upon exercise of stock
options.
10. STOCK OPTION PLAN:
The Company has adopted a stock option plan, whereby, the Board of
Directors can grant stock options to key management employees of the
Company to acquire a total of up to 1,000,000 shares of the Company's
common stock.
On March 4, 1995, the Company's Board of Directors granted an option to the
president of the Company to purchase 300,000 shares at $.05 per share
pursuant to the Company's stock option plan. The $.05 per share was deemed
by the Board to be 110% of the fair market value of the Company's stock on
March 4, 1995, considering the financial condition of the Company at that
time. On January 19, 1996, the Company's Board of Directors eliminated all
previous conditions to exercise of the foregoing option and set its term at
one year beginning January 19, 1996. The option was exercised on June 15,
1996. No other options have been granted under this plan.
F-12
<PAGE>
ATHLETIC FOOTWEAR, INC. AND ASSETS TRANSFERRED TO GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information for Periods Ended Subsequent to September 30, 1997 is Unaudited)
11. COMMON STOCK RESERVED:
At September 30, 1997, common stock was reserved for the following reasons:
Contingently issuable in connection with deferred loan fee 250,000
Exercise of stock options 700,000
Exercise of warrants 50,000
---------
1,000,000
=========
12. SALE OF ASSETS:
On April 30, 1997, First National Bank of Goodland, Kansas, assigned the
bank's right, title, and interest in its promissory note and security
agreement to the underlying guarantors of the Company's indebtedness. This
assignment was done in conjunction with full payment by the guarantors of
the amount due to the bank. On April 22, 1997, and prior to the bank's
assignment, the guarantors executed an agreement with the Company whereby
the Company, pursuant to an April 12, 1997 vote of the Company's
stockholders, sold all of the assets of the Company, including inventory,
equipment, furnishings, fixtures, accounts receivable, cash, intellectual
property, patents, trademarks, goodwill, and all other general intangibles
to the guarantors in satisfaction of the indebtedness of the Company
assigned to the guarantors.
In conjunction with the April 22, 1997 sale of assets to the guarantors,
the guarantors, in turn, agreed to transfer full title to the above
referenced assets to Orion Financial, Ltd. (Orion), a publicly traded
financial investment company, in return for issuance of shares in Orion.
In May 1998, the guarantors transferred the assets they had received from
the Company (except for inventory, which had been sold) to Orion in
exchange for 1,000,000 shares of Orion common stock. Orion also issued
162,780 shares of common stock to holders of the Company's bridge finance
notes payable totaling $48,000.
F-13
<PAGE>
ORION FINANCIAL, LTD.
PRO FORMA COMBINED FINANCIAL INFORMATION
On May 4, 1988, Orion Financial, Ltd. (Orion) accepted a series of subscription
agreements, including: several individuals residing in Kansas (Kansas Group) who
received a total of 1,000,000 shares of common stock in exchange for certain
assets that the Kansas Group had received from Athletic Footwear, Inc. (AFI) on
a foreclosure of their guarantees; and previous lendors to AFI who received
162,780 shares of common stock in exchange for the cancellation of certain loans
totaling $47,700 that had previously been made to AFI. The assets received
included intellectual property, patents, copyrights, trademarks, general
intangibles, all molds and lasts and any other intangible property of AFI. AFI's
assets were used by AFI to develop, design and produce a line of childrens'
athletic and casual shoes and will be used by Orion for the same purpose.
In addition, Orion issued a total of 6,352,633 shares of common stock and
options to acquire 500,000 shares of common stock at an exercise price of $.30
per share to former management of AFI, who will be employed by Orion after the
acquisition. For accounting purposes, the acquisition of the AFI assets will be
accounted for as a purchase at estimated fair value. The shares issued to former
AFI management will be recorded as compensation expense at estimated fair value.
The accompanying unaudited pro forma balance sheet combines the March 31, 1998
balance sheets of Orion and the AFI assets as if the transaction had occurred on
that date.
The accompanying unaudited pro forma statement of operations combines the
operations of Orion for the year ended June 30, 1997 and the AFI assets for the
year ended September 30, 1997 as if the transaction had occurred as of the
beginning of the periods presented. The accompanying unaudited pro forma interim
statement of operations combines the operations of Orion and the AFI assets for
the nine months ended March 31, 1998 as if the transaction had occurred as of
the beginning of the period presented.
The statements are not necessarily indicative of future operations or the actual
results that would have occurred had the transaction been consummated at the
beginning of the periods presented.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto of the
AFI assets included elsewhere in this Form 8-K/A, and the historical financial
statements and notes thereto of Orion included in Orion's annual report on Form
10-KSB.
Orion also entered into several other significant transactions in May 1998 which
are not reflected in the pro forma financial information, as follows:
o Orion issued a total of 26,129,941 shares to Investment
Management of America, Inc. (IMA) and certain individuals
affiliated with IMA for a total of $35,000.
o Orion entered into a Production and Inventory Dating Agreement
with Asia Pacific Industries Development Group (APIDG)
pursuant to which Orion issued to APIDG 4,548,787 shares of
stock and an option to purchase 500,000 shares of common stock
at $.30 per share.
F-14
<PAGE>
<TABLE>
<CAPTION>
ORION FINANCIAL, LTD. AND AFI ASSETS
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
ORION AFI
MARCH 31, MARCH 31, PRO FORMA ADJUSTED
1998 1998 ADJUSTMENTS BALANCE
-------- --------- ------------------------- --------
(1) (2)
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................... $ 167,000 $ -- $ -- $ -- $ 167,000
Prepaid expenses ............................ -- 1,000 -- -- 1,000
FURNITURE AND EQUIPMENT, NET .................... -- 226,000 -- (205,000) 21,000
INTANGIBLES ..................................... -- 4,000 -- (4,000) --
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS .................................... $ 167,000 $ 231,000 $ -- $ (209,000) $ 189,000
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ............................... $ -- $ 62,000 $ (14,000) $ (48,000) $ --
Payable to guarantors ....................... -- 135,000 (135,000) -- --
Accrued and other liabilities -
stockholders ........................... -- 257,000 (257,000) -- --
Accounts payable ........................... -- 161,000 (161,000) -- --
Accrued liabilities ......................... -- 77,000 (77,000) -- --
Accrued interest ............................ -- 131,000 (131,000) -- --
Refundable stock purchase ................... -- 25,000 (25,000) --
----------- ----------- ----------- ----------- -----------
Total current liabilities .............. -- 848,000 (800,000) (48,000) --
STOCKHOLDERS' EQUITY:
Common stock ................................ 371,000 4,000 (4,000) 601,000 972,000
Additional paid-in capital .................. 4,639,000 3,221,000 (3,038,000) (381,000) 4,441,000
Accumulated deficit ......................... (4,843,000) (3,842,000) 3,842,000 (381,000) (5,224,000)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity ............. 167,000 (617,000) 800,000 (161,000) 189,000
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY .......................... $ 167,000 $ 231,000 $ -- $ (209,000) $ 189,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
ORION FINANCIAL, LTD. AND AFI ASSETS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
ORION AFI
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30, PRO FORMA ADJUSTED
1997 1997 ADJUSTMENTS BALANCE
---------- ------------ ----------- --------
<S> <C> <C> <C> <C>
SALES ....................................... $ -- $ 104,000 $ 104,000
Cost of sales ............................... -- (115,000) (115,000)
------------ ------------ ------------
GROSS MARGIN ................................ -- (11,000) (11,000)
Operations .................................. -- 24,000 24,000
General and administrative .................. 39,000 216,000 $ 381,000 (2) 636,000
Depreciation and amortization ............... -- 41,000 (38,000)(3) 3,000
Sales and marketing ......................... -- 60,000 -- 60,000
------------ ------------ ------------ ------------
TOTAL EXPENSES .............................. 39,000 341,000 343,000 723,000
Interest income ............................. (11,000) -- (11,000)
Interest expense ............................ -- 56,000 (56,000)(4) --
------------ ------------ ------------ ------------
TOTAL OTHER (INCOME) EXPENSE ................ (11,000) 56,000 (56,000) (11,000)
------------ ------------ ------------ ------------
NET LOSS .................................... $ (28,000) $ (408,000) $ (287,000) $ (723,000)
============ ============ ============ ============
NET LOSS PER SHARE .......................... $ (.01) $ (.06)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING ............................... 4,641,000 7,515,000 12,156,000
============ ============ ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
ORION FINANCIAL, LTD. AND AFI ASSETS
PRO FORMA COMBINED INTERIM STATEMENT OF OPERATIONS
(UNAUDITED)
ORION AFI
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31, MARCH 31, PRO FORMA ADJUSTED
1997 1997 ADJUSTMENTS BALANCE
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
SALES ....................................... $ -- $ -- $ --
------------ ------------ ------------
Cost of sales ............................... -- -- --
------------ ------------ ------------
GROSS MARGIN ................................ -- -- --
Operations .................................. -- -- --
General and administrative .................. 32,000 45,000 $ 381,000(2) 458,000
Depreciation and amortization ............... -- -- 2,000(3) 2,000
Sales and marketing ......................... -- -- -- --
------------ ------------ ------------ ------------
TOTAL EXPENSES .............................. 32,000 45,000 383,000 460,000
Interest income ............................. 5,000 -- -- 5,000
Interest expense ............................ -- -- -- --
------------ ------------ ------------ ------------
TOTAL OTHER (INCOME) EXPENSE ................ 5,000 -- -- 5,000
------------ ------------ ------------ ------------
NET LOSS .................................... $ (27,000) $ (45,000) $ (383,000) $ (455,000)
============ ============ ============ ============
NET LOSS PER SHARE .......................... $ (.01) $ (.04)
============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING ............................... 4,641,000 7,515,000 12,156,000
============ ============ ============
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-17
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
(1) To remove AFI liabilities not assumed by Orion and AFI common stock not
purchased by Orion.
(2) To record issuance of 1,000,000 shares of Orion stock to the AFI guarantors
in exchange for the assets of AFI, 162,780 shares of Orion stock to AFI
creditors in exchange for cancellation of certain loans to AFI of $47,700,
and 6,352,633 shares of Orion stock to former management of AFI for past
services.
(3) To adjust depreciation expense to reflect new accounting basis of
equipment.
(4) To remove interest expense on debt not assumed by Orion.
F-18
