UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended: March 31, 1999
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 small business issuer as specified in its charter)
Colorado 14-1623047
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2901 South Tejon, Englewood, Colorado 80110
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(303) 783-9499
--------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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:
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after
the distribution of securities under a plan confirmed by a court.
|_| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of March 31, 1999 Issuer had 9,160,755 shares of common stock, $.001 Par
Value, outstanding.
Transitional Small Business Disclosure Format (check one) |_| Yes |X| No
<PAGE>
INDEX
-----
Page
Number
------
Part 1. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 3
1999 (Unaudited) and December 31, 1998
Consolidated Statements of Operations 4
Three Months Ended March 31, 1999 and
1998 (Unaudited)
Consolidated Statement of Stockholders' 5
Equity from December 31, 1998
through March 31, 1999 (Unaudited)
Consolidated Statements of Cash Flows, 6
Three Months Ended March 31, 1999 and
March 31, 1998 (Unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 10
Financial Conditions and Results of Operations
Part II. Other Information 13
Exhibit Index 14
2
<PAGE>
<TABLE>
<CAPTION>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
---------------------------
March 31, December 31,
1998 1998
--------- ------------
Unaudited
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents 562,916 348,979
Accounts receivable, net of allowance for
doubtful accounts of $43,628 and $33,007, respectively 1,425,299 1,125,425
Inventory 2,000,498 1,962,137
Deferred income taxes 58,060 58,060
Prepaid expenses 128,278 125,242
---------- ----------
Total current assets 4,175,051 3,619,843
Property and equipment at cost, net 473,139 431,403
---------- ----------
Total assets 4,648,190 4,051,246
=================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $1,197,134 $ 858,866
Accrued liabilities 204,786 197,190
Income taxes payable 113,600 106,294
---------- ----------
Total current liabilities 1,515,520 1,162,350
Deferred tax liability 17,941 17,941
---------- ----------
Total liabilities 1,533,461 1,180,291
---------- ----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.001 par value, 1,000,000 shares
authorized; none issued and outstanding 0 0
Common stock, $.001 par value; 100,000,000 shares
authorized;9,160,755 and 9,142,419 issued and
outstanding,respectively 9,160 9,142
Additional paid-in capital 1,216,905 1,179,309
Retained earnings 1,888,664 1,682,504
---------- ----------
Total stockholders' equity 3,114,729 2,870,955
---------- ----------
Total liabilities and stockholders' equity $4,648,190 $4,051,246
=================================
See notes to consolidated financial statements.
3
</TABLE>
<PAGE>
Consolidated Statements of Operations
-------------------------------------
For the Three Months Ended March 31
-----------------------------------
Unaudited
---------
March 31, March 31,
1999 1998
---------- ----------
Revenue
Product sales $2,065,705 $1,808,643
Service Income from Related Party 58,458 0
Total Revenues 2,124,163 1,808,643
Cost of sales 1,163,747 1,000,621
-------------------------
Gross profit 960,416 808,022
-------------------------
Operating expenses
Engineering 43,901 25,588
Selling and marketing 296,968 198,583
General and administrative 273,357 229,834
Other 38,055 2,957
-------------------------
Total operating expenses 652,281 456,962
-------------------------
Net operating income 308,135 351,060
Other income (expense)
Interest and other income 4,228 14,515
-------------------------
Total other income (expense) 4,228 14,515
-------------------------
Net income before provision for income taxes 312,363 365,575
Provision for income taxes
Current 85,598 124,324
Deferred 20,605 0
-------------------------
106,203 124,324
-------------------------
Net income 206,160 241,251
Basic income per common share $ 0.02 $ 0.03
=========================
Weighted average shares outstanding 9,168,834 9,123,555
=========================
Diluted income per share $ 0.02 $ 0.03
=========================
Diluted weighted average shares outstanding 9,350,451 9,451,168
=========================
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
From December 31, 1998 through March 31, 1999
Unaudited
Preferred Stock Common Stock Additional
------------------------------------------------ Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ -- $ -- 9,142,419 $ 9,142 $1,179,309 $1,682,504 $2,870,955
Common stock Options exercised -- -- 10,000 10 9,990 -- 10,000
Common Stock issued for services -- -- 8,336 8 27,606 -- 27,614
Net Income -- -- -- -- -- 206,160 206,160
----------------------------------------------------------------------------------------
Balance at March 31, 1999 -- -- 9,160,755 9,160 1,216,905 1,888,664 3,114,729
========================================================================================
See notes to consolidated financial statements
5
</TABLE>
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 1999 and 1998
Unaudited
For the 3 Months
Ended March 31,
---------------------------
1999 1998
----------- -----------
Cash flows from operating activities
Net income $ 206,160 $ 241,251
----------- -----------
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities
Depreciation 28,360 15,665
Stock issued for services 27,614 --
Changes in assets and liabilities
Accounts payable 338,268 39,463
Accrued expenses 7,596 --
Accounts receivable (299,874) 124,492
Inventory (38,361) (181,156)
Income taxes payable 7,306 --
Other current assets (3,036) 26,506
----------- -----------
Net cash (used in) provided
by operating activities 274,033 266,221
----------- -----------
Cash from investing activities
Investment in property and equipment (70,096) (25,336)
----------- -----------
Net cash (used in) investing activities (70,096) (25,336)
----------- -----------
Cash flows from financing activities
Stock issued and additional paid-in capital 10,000 --
----------- -----------
Net cash (used in) financing activities 10,000 --
----------- -----------
Net increase (decrease) in
cash and cash equivalents 213,937 240,885
Cash and cash equivalents,
beginning of period 348,979 1,023,598
----------- -----------
Cash and cash equivalents, end of period $ 562,916 $ 1,264,483
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for income taxes in the first quarter of 1999 was $106,293 and in the
first quarter of 1998 was $117,000.
See notes to consolidated finanical statements.
6
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
- --------------------------------------------------------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. This report should, therefore,
be read in conjunction with the Annual Report on Form 10-KSB for the year
ended December 31, 1998 (the "1998 Form 10-KSB") of Oralabs Holding Corp.
and Subsidiaries (the "Company").
The information included in this report is unaudited but reflects all
adjustments which, in the opinion of management, are necessary to a fair
statement of the results of the interim periods covered thereby. All
adjustments are of a normal and recurring nature except as described
herein.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Currently, the Company only has a single business segment.
SFAS No.'s 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997, and require comparative information for
earlier periods to be restated.
In February of 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS No. 132), which supercedes SFAS No.'s 87, 88, and 106. SFAS No.
132 addresses disclosure only and is effective for fiscal years beginning after
December 15, 1997. Restatement of disclosures for prior periods is required. The
adoption of SFAS No. 132 will have no current impact on the Company's financial
statements, as no prior disclosures under SFAS No. 87, 88, or 106 were
applicable.
In June of 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"(SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15,1999. Initial application of SFAS No. 133
shall be as of the beginning of an entity's fiscal quarter, on that date,
hedging relationships shall be designated anew and documented under the
provisions of this statement. The adoption of SFAS No. 133 shall not be
retroactively applied. This statement currently has no impact on the financial
statements of the Company, as the Company does not hold any derivative
instruments or participate in any hedging activities.
7
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 2 - Property and Equipment
- -------------------------------
Property and equipment consisted of the following:
March 31,
1999
----------
Machinery and Equipment $627,263
Leasehold Improvements 131,670
----------
758,933
----------
Less Accumulated depreciation (285,794)
----------
$473,139
==========
Note 3 - Line-of-Credit
- -----------------------
The Company renewed their line-of-credit agreement with a bank in the amount of
$750,000 which originally expired May 1999. It has been amended to expire May
2000. All other terms remain unchanged.
Note 4 - Reserve for Returns and Allowances
- -------------------------------------------
The company reserves 2% of revenues for returns and allowances of their product.
The reserve is recorded as a reduction of revenues and as a liability on the
balance sheet. The amount recorded as a liability on the balance sheet at March
31,1999 and March 31,1998 is $146,632 and $137,758, respectively.
8
<PAGE>
ORALABS HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5 - Earnings Per share
- ---------------------------
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations:
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1999
---------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator)
----------- -------------
<S> <C> <C>
Net income $ 206,160
Basic EPS
Weighted average beginning shares outstanding -- 9,160,755
Weighted average option shares issued -- 3,407
Weighted average shares issued for services -- 4,672
---------- ----------
Income available to common stockholders 206,160 9,168,834 $ .02
======
Effect of Dilutive Common Stock
Options -- 181,617 --
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 206,160 9,350,451 $ .02
========== ========== ======
For the Quarter Ended March 31, 1998
----------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator)
----------- -------------
Net income $ 241,250
Basic EPS
Weighted average beginning shares outstanding
-- 9,123,555
Weighted average option shares issued -- --
Weighted average shares issued for services -- --
--------- -----------
Income available to common stockholders 241,250 9,123,555 $ .03
======
Effect of Dilutive Common Stock
Options 327,613
Diluted EPS
Income available to common stockholders plus assumed conversions
$ 241,250 9,451,168 $ .03
========= =========== ======
</TABLE>
9
<PAGE>
ITEM 2.
- -------
Management's Discussion and Analysis of
Financial Condition and Results of Operation
Results of Operations. For the period ending March 31, 1999 as compared with the
period ending March 31, 1998.
- --------------------------------------------------------------------------------
Product sales increased $257,062 or 3%. The increase was substantially due to
growth in lip balm sales.
Service income from Related Party increased $58,458. In April 1998, the Company
entered into a management agreement with a company owned by the Company's
president. The Company receives a fee for providing certain receiving, shipping
and accounting services. The costs related to this income are insignificant.
Selling and marketing increased $98,385. Of this amount: Salaries and
commissions increased $53,000, which relates to increased revenues; Trade shows
and travel increased $23,600, which was primarily due to our first international
sales meeting in conjunction with a trade show in Germany; and advertising
increased $17,300 primarily from Nutritional Supplements ads.
General and administrative increased $43,523. Of this amount: salaries and
payroll taxes increased $45,200; Legal increased $19,700; Depreciation increased
$12,700; and Research and Development decreased $33,500.
Other operating expenses increased $35,099. Of this amount, stock issued for
services under a consulting agreement increased $27,600 and stock administrative
fees increased $7,500.
Net income decreased $53,211 primarily due to the increased operating expenses
as outlined above.
Liquidity and Capital Resources. Balance Sheet as of March 31, 1999 Compared to
December 31, 1998.
- --------------------------------------------------------------------------------
Cash increased $213,937. Net income of $206,160 contributed to cash with the
remaining operating, investing, and financing activities having a net effect of
$7,777 as outlined in the Consolidated Statements of Cash Flows.
Accounts receivable increased $299,874. Receivables before open credits
increased by $106,200 due to increased sales on account. Customer open credits
booked to accounts payable went up $204,600 due to unapplied payments that are
scheduled to be reconciled in the second quarter.
Accounts payable increased $338,268. Trade payables increased $119,900 due to
timing of vendor invoicing. Customer open credits booked to accounts payable
went up $204,600 due to unapplied payments that are scheduled to be reconciled
in the second quarter.
10
<PAGE>
Trends. During the first quarter of 1999 the Company experienced growth in Lip
Balm and is anticipating additional growth as the year progresses. We have
expanded our capacity in lip balm production to meet the increased demand by
running our production more efficiently and by adding machinery. The Lip Balm
and Candy (sour drops) categories are very large relative to the Breath Drops
category. We believe that our marketing strategy is responsible for the growth
in lip balm and sours sales.
Conversely, our Breath Drops business is flat primarily due to traditional
breath mint competition introducing "power" breath mints. Any revenue growth in
our breath drops sales would come from additional store distribution.
Sour Drops have increased in the candy category, which like Lip Balm is very
large. We have automation that produces both Breath Drops and Sour drops. We are
currently running at less than half capacity in these areas. Any growth can be
accommodated without any new capital.
Nutritional Supplements continues to be an area of potential for the Company. We
have orders booked for the second quarter that will give us momentum for our
anticipated growth.
From a distribution standpoint our highest sales for the first quarter of 1999
were Domestic Convenience Stores at 26%; International at 16%; Dollar Stores at
14%; Beauty Supply Stores at 12%; and Mass Discount-Variety Chains at 8%. We
anticipate Mass Discount-Variety Chains to make a larger contribution to
revenues in the second quarter.
Impact of Inflation. The Company's financial condition has not been affected by
the modest inflation of the recent past. The Company believes that revenues will
not be materially affected by inflation. The Company's lip care and oral care
products are primarily very low cost, impulse items (under $0.99 cents to
consumers) and the nutritional supplements are a small part of revenues.
Year 2000. Many computer systems were written using two digits rather than four
to define the applicable year. As a result, those computer programs have time
sensitive software that recognizes a date using "00" as the year 1900 rather
than the year 2000. This could cause a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company utilizes software vendors for its computer program applications. The
installation of a year 2000 compliant version of the Company's financial,
inventory, and production software was completed during the fourth quarter of
1998. The Company has also completed an assessment of its internal personal
computer network, which is expected to be year 2000 compliant by the end of June
1999. Updating telephones, facsimile machines and labeling equipment for year
2000 was completed during the fourth quarter of 1998. The voice mail system is
scheduled to be year 2000 compliant by the end of June 1999.
The Company does not believe that the cost of becoming year 2000 compliant will
be material to the financial condition of the Company. To date the Company has
incurred minor expenses, primarily for assessment of the year 2000 issue,
development of a modification plan, and the installation of a year 2000
compliant version of its financial, inventory, and production software.
11
<PAGE>
The cost of the project and the dates on which the Company believes it will
complete the year 2000 modifications are based on management's best estimates.
However, there can be no guarantee that these estimates will be achieved.
Failure to be year 2000 compliant in a timely fashion could have a material
adverse effect on the Company's operations and financial condition.
Our suppliers and customers who could adversely effect our business have been
surveyed for Year 2000 compliance. All of our material business partners have
stated that either they have or will achieve Year 2000 compliance. The Company
has not determined the extent to which the Company may be impacted by third
parties' systems, which may not be year 2000 compliant. Accordingly, the year
2000 computer issue may create risk for the Company from third parties with whom
the Company deals. There can be no assurance that the systems of other companies
with whom the Company deals with will be timely converted, or that any such
failure to convert by another company could not have an adverse effect on the
Company. During the second fiscal quarter the Company will resurvey those
suppliers and customers who had previously advised us that they were not yet
year 2000 compliant, and the Company will then determine if a contingency plan
needs to be formulated.
12
<PAGE>
PART II - OTHER INFORMATION
Item No. 1. Legal Proceedings. None.
------------------
Item No. 2. Changes in Securities. None.
----------------------
Item No. 3. Defaults Upon Senior Securities. None.
--------------------------------
Item No. 4. Submission of Matters to a Vote of Security Holders. None.
----------------------------------------------------
Item No. 5. Other Information. None.
------------------
Item No. 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a)
(27) Financial Data Schedule for three months ended March 31,
1999 and amended
Financial Data Schedule for three months ended March 31,
1998
(b) There were no reports on Form 8-K filed during the quarter reported upon in
this report.
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.
ORALABS HOLDING CORP.
By: /s/ Gary Schlatter
--------------------------------------
Gary Schlatter, President
By: /s/ Emile Jordan
--------------------------------------
Emile Jordan, Chief Financial Officer
DATED: May 17, 1999
13
<PAGE>
EXHIBIT INDEX
(27) Financial Data Schedule for three months ended March 31, 1999 and amended
Financial Data Schedule for three months ended March 31, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 562,916 1,264,483
<SECURITIES> 0 0
<RECEIVABLES> 1,468,927 605,059
<ALLOWANCES> 43,628 42,883
<INVENTORY> 2,000,498 780,426
<CURRENT-ASSETS> 4,175,051 2,747,581
<PP&E> 758,938 371,139
<DEPRECIATION> 285,799 146,736
<TOTAL-ASSETS> 4,648,190 2,971,984
<CURRENT-LIABILITIES> 1,515,520 723,237
<BONDS> 0 0
0 0
0 0
<COMMON> 9,160 9,124
<OTHER-SE> 3,105,569 2,239,623
<TOTAL-LIABILITY-AND-EQUITY> 4,648,190 2,971,984
<SALES> 2,065,705 1,808,643
<TOTAL-REVENUES> 2,128,391 1,823,158
<CGS> 1,163,747 1,000,622
<TOTAL-COSTS> 1,816,028 1,457,584
<OTHER-EXPENSES> 652,281 456,961
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 312,363 365,575
<INCOME-TAX> 106,203 124,324
<INCOME-CONTINUING> 206,160 241,251
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 206,160 241,251
<EPS-PRIMARY> .02 .03
<EPS-DILUTED> .02 .03
</TABLE>
