FORM 10-Q Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the period ended September 30, 1997
----------------------------------------------------
or
[ ] Transition Report Pursuance to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from to
------------------ --------------------
Commission File Number 000-23039
------------------------------------------------------
ORALABS HOLDING CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 14-1623047
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2901 S. Tejon, Englewood, Colorado 80110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303)783-9499
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
SSI Capital Corp.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 1, 1997, Registrant had 9,123,555 shares of common stock, $.001
Par Value, outstanding.
<PAGE>
INDEX
-----
Page
Number
------
Part I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheets as of September 30,
1997 (Unaudited) and December 31, 1996..................2
Consolidated Statements of Income Three Months Ended
September 30, 1997 and September 30, 1996 (Unaudited)...3
Consolidated Statements of Income, Nine Months Ended
September 30, 1997 and September 30, 1996 (Unaudited)...4
Consolidated Statement of Changes in Stockholders'
Equity from December 31, 1996 through
September 30, 1997 (Unaudited)..........................5
Consolidated Statements of Cash Flows,
Three Months Ended September 30, 1997 and
September 30, 1996 (Unaudited)..........................6
Consolidated Statements of Cash Flows, Nine
Months Ended September 30, 1997 and
September 30, 1996 (Unaudited)..........................7
Notes to Consolidated Financial Statements................8
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations..................10
Part II. Other Information.........................................13
Exhibit Index .........................................................15
1
<PAGE>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(Unaudited)
September 30 December 31
1997 1996
---------- -----------
Current Assets
Cash in bank $ 783,323 $ 120,399
Inventory 436,927 450,984
Accounts receivable, net of allowance
for doubtful accounts 587,854 392,469
Other current assets 60,347 18,979
---------- ----------
Total Current Assets 1,868,451 982,831
Property and equipment, net of accumulated
depreciation 151,794 157,822
Other assets 150 150
---------- ----------
Total Assets $2,020,395 $1,140,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 296,180 $ 373,199
Income taxes payable 139,087 --
---------- ----------
Total Current Liabilities 435,267 373,199
---------- ----------
Stockholders' Equity:
Preferred stock - $.001 par value
1,000,000 shares authorized
none issued and outstanding -- --
Common stock - $.001 par value,
100,000,000 shares authorized;
9,123,555 shares issued and
outstanding at September 30, 1997 and
7,458,699 at December 31, 1996 9,124 7,459
Additional paid-in capital 1,134,427 137,457
Retained earnings 441,577 622,688
---------- ----------
Total Stockholders' Equity 1,585,128 767,604
---------- ----------
Total Liabilities and Stockholders' Equity $2,020,395 $1,140,803
========== ==========
The accompanying notes are an integral part of the financial statements
2
<PAGE>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Three Months
Ended Ended
September 30 September 30
1997 1996
----------- ------------
Revenue:
Sales $ 1,491,647 $ 1,518,506
Cost of sales 675,793 810,406
----------- -----------
Gross Profit 815,854 708,100
----------- -----------
Operating Expenses
Salaries 145,038 82,926
Bad debts 7,458 --
Rent 16,500 10,800
Commissions 36,701 50,455
Consulting fees 49,258 28,478
Trade shows 17,453 15,238
Depreciation 11,607 11,867
Other operating expenses 137,099 153,322
----------- -----------
Total Operating Expenses 421,114 353,086
----------- -----------
Net Operating Income 394,740 355,014
----------- -----------
Other Income (Expenses)
Interest income 10,235 3,666
(Loss) on sale of securities -- (55,388)
Interest expense -- (4,110)
----------- -----------
Total Other 10,235 (55,832)
----------- -----------
Net Income before taxes 404,975 299,182
Provision for Income taxes 158,744 --
----------- -----------
Net Income $ 246,231 $ 299,182
=========== ===========
Net Income per Common Share $ .03 $ .04
=========== ===========
Weighted Average Shares Outstanding 9,123,555 7,458,699
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30 September 30
1997 1996
----------- -----------
Revenue:
Sales $ 4,424,004 $ 3,899,162
Cost of sales 1,887,934 1,870,313
----------- -----------
Gross Profit 2,536,070 2,028,849
----------- -----------
Operating Expenses
Salaries 406,907 247,393
Bad debts 22,120 28,692
Rent 49,500 38,509
Commissions 160,207 156,327
Consulting fees 97,002 93,404
Trade shows 66,539 80,111
Depreciation 33,290 35,600
Stock issued for services 340,000 --
Other operating expenses 394,715 393,963
----------- -----------
Total Operating Expenses 1,570,280 1,073,999
----------- -----------
Net Operating Income 965,790 954,850
----------- -----------
Other Income (Expenses)
Interest income 22,066 17,813
Other income 182 --
Gain on sale of securities 100 36,587
Interest expense -- (6,073)
----------- -----------
Total Other 22,348 48,327
----------- -----------
Net Income before taxes 988,138 1,003,177
Provision for Income taxes 282,320 --
----------- -----------
Net Income $ 705,818 $ 1,003,177
=========== ===========
Net Income per Common Share $ .08 $ .13
=========== ===========
Weighted Average Shares Outstanding 8,707,277 7,458,699
=========== ===========
4
<PAGE>
<TABLE>
<CAPTION>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From December 31, 1996 through September 30, 1997
(Unaudited)
Additional
Preferred Stock Common Stock Paid-in Retained
No./Shares Amount No./Shares Amount Capital Earnings Total
---------- ------ ---------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- $ -- 7,458,784 $ 7,459 $ 137,457 $ 622,688 $ 767,604
Common stock issued for services
-- -- 340,000 340 339,660 -- 340,000
Reorganization/additional paid in capital
-- -- 999,771 1,000 160,849 -- 161,849
Common stock issued for cash -- -- 325,000 325 324,675 -- 325,000
Reclassification of undistributed S
Corporation earnings
-- -- -- -- 171,786 (171,786) --
Net income for the Nine month period
ended September 30, 1997 -- -- -- -- -- 705,818 705,818
Dividends paid -- -- -- -- -- (715,143) (715,143)
--- ------ ----------- ----------- ----------- --------- -----------
Balance at September 30, 1997
-- $ -- 9,123,555 $ 9,124 $ 1,134,427 $ 441,577 $ 1,585,128
=== ======= =========== =========== =========== ========= ===========
The accompanying notes are an integral part of the financial statements.
5
</TABLE>
<PAGE>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Month Three Months
Ended Ended
September 30 September 30
1997 1996
--------- -----------
Cash Flows from Operating Activities:
Net income $ 246,231 $ 299,182
Adjustments to reconcile net
loss to net cash used
in operating activities
Depreciation 11,607 11,867
Increase in accounts payable
and accrued expenses 39,051 44,677
(Increase) in accounts receivable (202,400) (317,767)
Decrease (increase) in inventory (54,633) 31,069
Other, net (8,135) (8,190)
--------- ---------
Net Cash Provided by Operating
Activities 31,721 60,838
--------- ---------
Cash Flows from Investing Activities:
Sale of investments -- 59,149
(Acquisitions) of property and
equipment (5,222) (10,581)
--------- ---------
Net Cash Provided by (Used in)
Investing Activities (5,222) 48,568
--------- ---------
Cash Flows from Financing Activities:
Dividends paid -- (450,361)
--------- ---------
Net Cash (Used in)
Financing Activities -- (450,361)
--------- ---------
Increase (decrease) in cash 26,499 (340,955)
Cash, Beginning of Period 756,824 545,701
--------- ---------
Cash, End of Period $ 783,323 $ 204,746
========= =========
Interest Paid $ -- $ 4,110
========= =========
Income Taxes Paid $ 143,233 $ --
========= =========
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30 September 30
1997 1996
----------- ------------
Cash Flows from Operating Activities:
Net income $ 705,818 $ 1,003,177
Adjustments to reconcile net
loss to net cash used
in operating activities
Depreciation 33,290 35,600
Increase (Decrease) in accounts
payable and accrued expenses 34,308 (40,312)
(Increase)in accounts receivable (195,385) (291,830)
Decrease in inventory 14,057 49,631
Stock issued for services 340,000 --
Other, net (41,368) 9,673
----------- -----------
Net Cash Provided by Operating
Activities 890,720 765,939
----------- -----------
Cash Flows from Investing Activities:
Sale of investments -- 73,142
(Acquisitions) of property and
equipment (27,262) (15,621)
----------- -----------
Net Cash Provided by (Used in)
Investing Activities (27,262) 57,521
----------- -----------
Cash Flows from Financing Activities:
Dividends paid (715,143) (1,077,458)
Common stock issued 514,609 --
----------- -----------
Net Cash (Used in)
Financing Activities (200,534) (1,077,458)
----------- -----------
Increase (decrease) in cash 662,924 (253,998)
Cash, Beginning of Period 120,399 458,744
----------- -----------
Cash, End of Period $ 783,323 $ 204,746
=========== ===========
Interest Paid $ -- $ 6,073
=========== ===========
Income Taxes Paid $ 143,233 $ --
=========== ===========
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
ORALABS HOLDING CORP. AND CONSOLIDATED SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
(1) Organization
------------
Oralabs Holding Corp, a Colorado corporation (the "Registrant") was formed
during June 1997. Effective August 22, 1997, SSI Capital Corp. was merged
into Oralabs Holding Corp. and the outstanding shares of SSI were converted
to shares of Oralabs Holding Corp. on a one for two basis. All references
to common stock in the Company's financial statements have been
retroactively adjusted for the merger and the one for two reduction in
shares outstanding.
SSI Capital Corp. (SSI) a New York corporation, was incorporated on January
30, 1981. SSI originally had a November 30 year end but has recently
changed to a December 31 year end.
OraLabs, Inc. (ORALABS), a Colorado corporation was incorporated on August
10, 1990. ORALABS is in the business of manufacturing and distributing lip
balm and fresh breath products. ORALABS has selected December 31 as its
fiscal year end. ORALABS is a wholly-owned subsidiary of the Registrant.
The consolidated financial statements include the accounts of ORALABS and
the accounts of the Registrant since the reverse acquisition. All
intercompany accounts and transactions have been eliminated.
(2) Unaudited Statements
--------------------
The balance sheet as of September 30, 1997, the statements of income and
the statements of cash flows for the three and nine month periods ended
September 30, 1997 and September 30, 1996 and the statement of changes in
stockholders' equity for the nine month period ended September 30, 1997
have been prepared by the Registrant without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1997, and for all periods
presented, have been made.
(3) Business Combination
--------------------
Effective May 1, 1997 SSI and ORALABS completed a business combination
whereby ORALABS became a wholly-owned subsidiary of SSI. Prior to the
business combination, SSI had 1,749,541 shares of common stock outstanding.
An additional 250,000 shares were issued to the two largest shareholders of
SSI and one additional individual upon closing the business combination.
Effective January 1, 1997 ORALABS issued shares of its common stock to two
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997 and 1996
(3) Business Combination, Continued
-------------------------------
individuals for services which were exchanged for 680,000 shares of SSI on
May 1, 1997. Also on May 1, 1997, 14,917,399 shares of SSI were issued for
the ownership of ORALABS. As a result of these transactions, ORALABS became
a wholly-owned subsidiary of SSI. Since the former controlling shareholders
of ORALABS own approximately 85% of SSI after the business combination, the
transaction has been accounted for as a reverse acquisition. The net
monetary assets of SSI at the time of the reverse acquisition of
approximately $161,849 have been accounted for as issuance of stock and
additional paid-in capital. See Note 1 for merger of SSI into Oralabs
Holding Corp.
(4) Income Taxes
------------
Prior to completion of the business combination, ORALABS had elected to be
taxed under Subchapter S of the Internal Revenue Service Code. The election
was automatically terminated effective May 1, 1997. No provision for income
taxes was recorded prior to May 1, 1997 since shareholders of ORALABS
included the net income from the company on their personal returns and were
responsible for the payment of the related income taxes. ORALABS had
$171,786 of undistributed earnings on May 1, 1997 which has been
reclassified in the financial statements from retained earnings to
additional paid-in capital. This treatment assumes a constructive
distribution to the owners followed by a contribution to the capital of the
Company.
9
<PAGE>
ITEM 2
------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of the financial condition and results of
operations of the Company relates to the three (3) months ended September 30,
1996 and 1997, and the nine (9) months ended September 30, 1996 and 1997, and
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Report.
Forward-Looking Statements.
- ---------------------------
Certain statements in this Report are forward-looking, and from time to
time, the Company may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. Actual results of future events could differ materially from
anticipated results or other expectations expressed in the Company's
forward-looking statements. Among the factors that could cause actual results
and the Company's experience to differ are the timely availability and
acceptance of new products, the impact of competitive products and pricing and
the lack of long-term contracts with distributors and purchasers.
Termination of Status as Sub-S Corporation.
- -------------------------------------------
The filing of this quarterly report reflects the consolidation of the
Company by merger with its wholly-owned subsidiary, OraLabs, Inc. (the
"Subsidiary"), which occurred on May 1, 1997. Until the closing of the merger,
the Subsidiary was a Sub-S Corporation, which was changed to a regular C
Corporation effective with the closing of the merger on May 1, 1997. This change
has an impact in various parts of the financial statements, including: (i)
distributions previously made to shareholders of the Sub-S Corporation are
recharacterized as dividends in the consolidated financial statements, (ii)
there was no accrual for income taxes while the Subsidiary was a Sub-S
Corporation (as income is passed for tax purposes directly to the shareholders);
and (iii) the reclassification of undistributed Sub-S Corporation earnings
during the periods covered by the financial statements.
Results of Operations.
- ----------------------
For the Nine Months Ending September 30, 1997 as Compared With the Nine Months
Ending September 30, 1996.
- --------------------------------------------------------------------------------
Sales increased $524,842 (up 13.5%). We attribute this growth in part to
the introduction of our lip balm product which occurred in July 1996 and in part
to expanded international distribution.
Gross profit increased $507,221 (up 25.0%). We attribute the increase in
gross profit as a percentage of sales from 52.03% to 57.33% in part to volume
discounts from material suppliers and in part to increased automation reducing
cost of labor.
10
<PAGE>
Salaries increased $159,514 (up 64.5%) which reflects an increase from
6.34% of net sales to 9.2% of net sales. This was the result of an increase to
additional staffing in sales and engineering.
The stock issued for services in the amount of $340,000 is a non-recurring
item. The employees' services are in the areas of human resources and investor
relations, which the Subsidiary was required to address as part of preparing for
its entry into the public market place.
Gain on sale of securities decreased by $36,487. This was a result of the
Company's distributing substantially all of its securities held for investment
prior to year end 1996 and maintaining cash in liquid money markets in 1997.
The Company was an S Corporation through April 30, 1997, with net income
passing through to the owners' personal income. Effective May 1, 1997, the
Company converted to a C Corporation. The $282,320 of income taxes reflects the
accrual of five months of income taxes through September 30, 1997.
For the Three (3) Months Ending September 30, 1997 as Compared With the Three
Months Ending September 30, 1996
- --------------------------------------------------------------------------------
Comments above with respect to the results of operations for the
comparative nine (9) month periods are similarly applicable to the comparison of
the three (3) month periods, insofar as the comments relate to the increase in
gross profit, increase of salaries, the accrual of income taxes, and the gain on
sale of securities.
Liquidity and Capital Resources.
- --------------------------------
Balance Sheet as of September 30, 1997 Compared to December 31, 1996
- --------------------------------------------------------------------
Cash increased $662,924. This is primarily due to the creation of the
parent-subsidiary relationship upon closing of the merger, as approximately
$189,000 was then held by the parent and $325,000 was added from closing a
private placement. The balance was primarily additional cash from operations.
Accounts payable and accrued expenses decreased $77,019. This is a result
of inventories being higher as of December 31, 1996 than on September 30, 1997.
Additional paid-in capital increased $996,970. This is primarily the result
of shares issued in connection with or as part of closing the merger and the
private placement which was closed soon thereafter. The balance represents the
reclassification of undistributed S Corporation earnings in the amount of
$171,786.
Retained earnings decreased $181,111. This is a result of reclassification
of undistributed S Corporation earnings (i.e., $171,786), net income for the
nine month period ended September 30, 1997 (i.e., $705,818), and dividends paid
(i.e., $715,143).
11
<PAGE>
Impact of Inflation
- -------------------
The Company's financial condition has not been affected by the modest
inflation of the recent past. The Company's revenues have not been materially
effected by inflation in part because the Company's products have been primarily
very low cost, impulse items (under $0.99 cents to consumers). To the extent
that the Company's product line consists of higher priced items, the Company
does not know how inflation will affect revenues, although the Company believes
that sales of its higher priced products, to the extent such products are
considered to be medicinal (such as products to reduce sore throat symptoms),
will not be materially affected by inflation.
12
<PAGE>
PART II - OTHER INFORMATION
Item No. 4. Submission of Matters to a Vote of Security Holders. (a) A special
meeting of the shareholders of the Company was held on August 15, 1997.
(c) Two matters were voted upon at the meeting. The first matter was approval of
a Plan of Merger between SSI Capital Corp. and the Company, which was then a
subsidiary of SSI Capital Corp. The effect of approval of the Plan of Merger was
the change in domicile of the Company from the State of New York to the State of
Colorado, the change in name of the Company from SSI Capital Corp. to OraLabs
Holding Corp., and the reduction in the number of common shares of the Company
outstanding on a one-for-two basis (i.e., the same effect as a one-for-two
reverse stock split). The second matter voted upon was the approval of the
Company's 1997 Stock Plan as well as the approval of prior grants made under the
1997 Stock Plan. There were no votes against either proposal, and both proposals
were approved by the affirmative vote of 15,007,399 shares (pre-merger) of
common stock of the Company.
Item No. 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a)
(27) Financial Data Schedule
(b) The following report on Form 8-K was filed during the quarter reported upon
in this report: The report filed August 29, 1997 with respect to the matters
described in Item No. 4 above (date of report, August 22, 1997).
13
<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 thereunto duly authorized.
SSI CAPITAL CORP.
By: /s/ Gary Schlatter
--------------------------------------
Gary Schlatter, President
By: /s/ Emile Jordan
--------------------------------------
Emile Jordan, Chief Financial Officer
Dated: November 14, 1997
14
<PAGE>
EXHIBIT INDEX
(27) Financial Data Schedule (filed herewith)
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 783,322
<SECURITIES> 0
<RECEIVABLES> 640,115
<ALLOWANCES> (52,261)
<INVENTORY> 436,927
<CURRENT-ASSETS> 1,868,451
<PP&E> 302,818
<DEPRECIATION> (151,024)
<TOTAL-ASSETS> 2,020,395
<CURRENT-LIABILITIES> 435,267
<BONDS> 0
0
0
<COMMON> 9,124
<OTHER-SE> 1,576,004
<TOTAL-LIABILITY-AND-EQUITY> 2,020,395
<SALES> 4,424,004
<TOTAL-REVENUES> 4,446,352
<CGS> 1,887,934
<TOTAL-COSTS> 1,887,934
<OTHER-EXPENSES> 1,570,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 988,138
<INCOME-TAX> 282,320
<INCOME-CONTINUING> 705,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705,818
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
