SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
AMENDMENT NO. 1
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) May 1, 1997
-----------
SSI CAPITAL CORP.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 000-12893 14-1623047
--------------------------- ----------- -----------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
2901 South Tejon Street, Englewood, Colorado 80110
-------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303)783-9499
--------------
------------------------------------------------------------
(Former name or former address, if changed since last report.)
5649008K.AMD
June 26, 1997
<PAGE>
ITEM NO. 7. Financial Statements and Exhibits.
(a) The following financial statements of OraLabs, Inc. are included
as Exhibit F with this filing, which is an amendment to the Form
8-K dated May 1, 1997 and filed on May 14, 1997: OraLabs, Inc.
Financial Statements and Report of Independent Certified Public
Accountants, December 31, 1996 and 1995, and OraLabs, Inc.
Financial Statements and Report of Independent Certified Public
Accountants, December 31, 1995 and 1994.
(b) Unaudited, pro forma combined financial statements respecting SSI
Capital Corp. and OraLabs, Inc. are included as Exhibit P.
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.
SSI CAPITAL CORP.
-------------------------------------
Registrant
June 26, 1997 /s/ Gary H. Schlatter
- -------------- ---------------------
Date Gary H. Schlatter, President
-2-
5649008K.AMD
June 26, 1997
<PAGE>
EXHIBIT INDEX
Exhibit Number Name of Exhibit
- -------------- ---------------
F-1 OraLabs, Inc. Financial Statements and Report of Independent
Certified Public Accountants, December 31, 1996 and 1995
F-13 OraLabs, Inc. Financial Statements and Report of Independent
Certified Public Accountants, December 31, 1995 and 1994.
P Unaudited, pro forma combined financial statements of the
Registrant and OraLabs, Inc.
-3-
5649008K.AMD
June 26, 1997
<PAGE>
ORALABS, INC.
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1996 and 1995
F-1
<PAGE>
ORALABS, INC.
-------------
Table of Contents
Page
----
Report of Independent Certified Public Accountants F-3
Financial Statements:
Balance Sheet F-4
Statements of Income F-5
Statement of Changes in Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Oralabs, Inc.
We have audited the balance sheet of Oralabs, Inc. as of December 31, 1996 and
related statements of income, changes in stockholders' equity and cash flows for
the two years ended December 31, 1996 and 1995. 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 an 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 Oralabs, Inc. as of December
31, 1996 and 1995 and the results of its operations, its changes in
stockholders' equity and its cash flows for the two years ended December 31,
1996 and 1995 in conformity with generally accepted accounting principles.
/s/ SCHUMACHER & ASSOCIATES, INC.
------------------------------------
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
March 26, 1997
F-3
<PAGE>
ORALABS, INC.
-------------
BALANCE SHEET
December 31, 1996
Current Assets
Cash in bank $ 120,399
Accounts receivable, net of allowance for
doubtful accounts of $27,623 (Note 8) 392,469
Inventory 450,984
Prepaid expenses 18,978
----------
Total Current Assets 982,830
Property and equipment, net of accumulated
depreciation of $117,633 (Note 4) 157,822
Other assets 150
----------
Total Assets $1,140,802
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 373,199
----------
Total Current Liabilities 373,199
----------
Commitments (Notes 2,5,6,8 and 10) --
Stockholders' Equity:
Common stock - $.01 par value,
1,000 shares authorized;
999 shares issued and
outstanding 10
Additional paid-in capital 144,906
Retained earnings 622,688
----------
Total Stockholders' Equity 767,604
----------
Total Liabilities and Stockholders' Equity $1,140,803
==========
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ORALABS, INC.
-------------
STATEMENTS OF INCOME
For the Years Ended December 31
1996 1995
----------- ------------
Revenue:
Sales $ 4,985,009 $ 5,447,498
Cost of sales 2,385,076 1,910,469
----------- -----------
Gross Profit 2,599,933 3,537,029
----------- -----------
Operating Expenses
Salaries and payroll taxes 432,236 266,796
Bad debts 58,670 69,338
Rent 62,709 24,139
Commissions 201,730 316,273
Consulting fees 88,249 102,397
Trade shows 90,542 65,175
Depreciation 47,466 32,840
Other operating expenses 479,175 196,973
----------- -----------
Total Operating Expenses 1,460,777 1,073,931
----------- -----------
Net Operating Income 1,139,156 2,463,098
----------- -----------
Other Income (Expenses)
Other income 72,273 62,908
Territory fees -- 7,687
Loss on sale of securities (6,038) (316,560)
Interest expense (8,284) (9,965)
----------- -----------
Total Other 57,951 (255,930)
----------- -----------
Net Income $ 1,197,107 $ 2,207,168
=========== ===========
Net Income per Common Share $ 1,198 $ 2,209
=========== ===========
Weighted Average Shares Outstanding 999 999
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ORALABS, INC.
-------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From December 31, 1994 through December 31, 1996
Common Stock Additional
-------------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 999 $ 10 $ 142,661 $ 822,029 $ 964,700
Distributions -- -- -- (2,013,255) (2,013,255)
Net income for the year ended December 31, 1995
-- -- -- 2,207,168 2,207,168
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 999 10 142,661 1,015,942 1,158,613
Cash contributed -- -- 2,245 -- 2,245
Distributions -- -- -- (1,590,361) (1,590,361)
Net income for the year ended December 31, 1996 -- -- -- 1,197,107 1,197,107
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1996 999 $ 10 $ 144,906 $ 622,688 $ 767,604
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-6
</TABLE>
<PAGE>
ORALABS, INC.
-------------
STATEMENTS OF CASH FLOWS
For the Years Ended December 31
1996 1995
----------- -----------
Cash Flows from Operating Activities:
Net income $ 1,197,107 $ 2,207,168
Adjustments to reconcile net
income to net cash used
in operating activities
Depreciation 47,466 32,840
Increase (decrease) in accounts
payable and accrued expenses 210,463 (2,041)
Decrease (Increase) in accounts
receivable 56,045 (257,826)
(Increase) decrease in notes
receivable -- 67,026
(Increase) decrease in inventory (173,459) (189,242)
Other, net 685 (17,564)
----------- -----------
Net Cash Provided by Operating
Activities 1,338,307 1,840,361
----------- -----------
Cash Flows from Investing Activities:
Investments in securities 175,500 (175,500)
Margin account payable (129,556) 129,556
Purchases of property and
equipment (134,480) (57,514)
----------- -----------
Net Cash (Used in) Investing
Activities (88,536) (103,458)
----------- -----------
Cash Flows from Financing Activities:
Additional paid-in capital 2,245 --
Stock issued -- 23,000
Distributions (1,590,361) (2,013,255)
----------- -----------
Net Cash (Used in) Financing
Activities (1,588,116) (1,990,255)
----------- -----------
Increase (Decrease) in Cash (338,345) (253,352)
Cash, Beginning of Period 458,744 712,096
----------- -----------
Cash, End of Year $ 120,399 $ 458,744
=========== ===========
Interest Paid $ 8,284 $ 9,965
=========== ===========
Income Taxes Paid $ -- $ --
=========== ===========
See accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies.
------------------------------------------
This summary of significant accounting policies of Oralabs, Inc, (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
(a) Nature of Operations
--------------------
The Company was incorporated under the laws of the state of Colorado on
August 10, 1990. The Company manufactures and distributes lip balm and
fresh breath products. The Company has selected December 31 as its
fiscal year end.
(b) Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term securities purchased with a maturity of three months or less
to be cash equivalents.
(c) Inventories
-----------
Inventories consist of raw materials and finished goods which are
carried at the lower of average cost or market value.
(d) Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation of property
and equipment is provided using the straight-line method for financial
reporting purposes at rates based on the following estimated useful
lives:
Years
-----
Machinery and equipment 5 - 7
Leasehold improvements 5
F-8
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(d) Property and Equipment, Continued
---------------------------------
For federal income tax purposes, depreciation is computed using the
accelerated cost recovery system and the modified accelerated cost
recovery system. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
(e) Income Taxes
------------
No provision for income tax has been provided in the financial
statements since the Company has elected to be taxed under Subchapter S
of the Internal Revenue Code, whereby all income or losses flow through
to the stockholder for income tax reporting purposes.
(f) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(g) Marketable Securities
---------------------
The Company's investment in marketable securities are considered
trading securities since they are bought and held for the purpose of
selling them in the near term. Unrealized holding gains and losses for
trading securities have been included in the statement of operations
with realized gains and losses.
F-9
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1996 and 1995
(2) Marketable Securities
---------------------
During the year ended December 31, 1996 the Company's marketable trading
securities had been distributed to the Company's shareholders. As of
December 31, 1996 the Company had a margin account payable related to these
securities totalling $80 shown as a liability in the financial statements.
During 1996 the Company incurred $8,284 of interest expense on this margin
account.
(3) Inventories
-----------
At December 31, 1996 inventories consisted of the following:
1996
---------
Raw materials $ 402,778
Finished goods 48,206
---------
$ 450,984
=========
Inventories are stated at the lower of cost or market. Cost is determined
by the average cost method.
(4) Property and Equipment
----------------------
Property and equipment at December 31, 1996 are summarized as follows:
1996
----------
Machinery and equipment $ 214,501
Leasehold improvements 60,954
----------
275,455
Less accumulated depreciation (117,633)
----------
$ 157,822
==========
(5) Transaction with Related Party
------------------------------
The Company pays the monthly lease payments and all operating expenses for
two vehicles used by the Company's president and his spouse who is also an
officer of the Company. Lease payments for these two vehicles total
approximately $1,150 per month.
F-10
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1996 and 1995
(6) Operating Lease
---------------
The Company leases its office and manufacturing facilities under an
operating lease for a building owned by the Company's President. The lease
commenced September 1, 1995 with monthly payments of $4,000. Effective July
1, 1996 the payment was increased to $5,500 per month based upon additional
space being used by the Company. The lease expires September 1, 2000. This
lease is a net lease whereby the Company pays all expenses. The Company has
incurred $60,954 of leasehold improvements related to this property, which
are being amortized on a straight-line basis over the five year term of the
lease.
The following is a schedule by years of future minimum rental payments
required under the operating lease as of December 31, 1996:
Year Ending
December 31, Amount
------------- ------
1997 $ 66,000
1998 66,000
1999 66,000
2000 44,000
--------
Total minimum payments required $ 242,000
=========
(7) Concentration of Business and Credit Risk
-----------------------------------------
The Company is engaged primarily in the manufacture and sale of lip balm
and breath products throughout North America. The potential for severe
financial impact can result from negative effects of economic conditions
within the market or geographic area. Since the Company's business is
principally in one area, this concentration of operations results in an
associated risk and uncertainty. Since the Company's products are
inexpensive, the potential negative effect of changes in economic
conditions are less than would be expected for higher priced products of
other industries.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade accounts receivables. Concentrations of credit with
respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base and their dispersion
across different industries and geographic locations. As of December 31,
1995, the Company had no significant concentrations of credit risk, other
than the Company had $185,678 invested in a mutual fund. While the
underlying investment securities of the fund are guaranteed by the U.S.
government, the shares of the fund are not guaranteed and therefore are
considered to be a concentration of credit risk.
F-11
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1996 and 1995
(8) Major Customers
---------------
The Company currently has one customer with net purchases of $433,353 and
$615,937 during the years ended December 31, 1996 and 1995 respectively.
These purchases represent 9% of the 1996 gross sales revenues and 11% of
the 1995 gross revenue.
(9) Line of Credit
--------------
The Company entered into a letter of credit agreement with a bank in the
amount of $500,000 which expires April 6, 1997. As of December 31, 1996 the
Company had available the entire $500,000 unused line of credit. The
initial interest rate was 8.25% per annum to be adjusted periodically based
on .5% under the banks prime rate. The line of credit is collateralized by
a first line on all of the Company's business assets.
(10) Commitment
----------
The Company has an agreement with an employee whereby compensation paid to
the employee equals 2% of sales. In addition, according to the agreement,
the employee would receive 2% of the sales price of the Company if the
Company is sold. The agreement has a provision that allows for its
termination by written notice during a thirty day period each year prior to
September 1.
F-12
<PAGE>
ORALABS, INC.
-------------
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1995 and 1994
F-13
<PAGE>
ORALABS, INC.
-------------
Table of Contents
Page
----
Report of Independent Certified Public Accountants F-15
Financial Statements:
Balance Sheet F-16
Statements of Income F-17
Statement of Changes in Stockholders' Equity F-18
Statements of Cash Flows F-19
Notes to Financial Statements F-20
F-14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Oralabs, Inc.
We have audited the balance sheet of Oralabs, Inc. as of December 31, 1995 and
related statements of income, changes in stockholders' equity and cash flows for
the two years ended December 31, 1995 and 1994. 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 an 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 Oralabs, Inc. as of December
31, 1995 and 1994 and the results of its operations, its changes in
stockholders' equity and its cash flows for the two years ended December 31,
1995 and 1994 in conformity with generally accepted accounting principles.
/S/ SCHUMACHER & ASSOCIATES, INC.
------------------------------------
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
October 4, 1996
F-15
<PAGE>
ORALABS, INC.
-------------
BALANCE SHEET
December 31, 1995
Current Assets
Cash in bank $ 458,744
Investments 175,500
Accounts receivable, net of allowance for
doubtful accounts of $57,068 (Note 8) 448,514
Inventory 277,525
----------
Total Current Assets 1,360,283
Furniture and equipment, net of accumulated
depreciation of $65,032 (Note 4) 46,214
Leasehold improvements, net of accumulated
amortization of $3,633 (Note 4) 26,095
Other assets 18,313
----------
Total Assets $1,450,905
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 162,736
Margin account payable (Note 2) 129,556
----------
Total Current Liabilities 292,292
----------
Total Liabilities 292,292
----------
Commitments (Notes 2,5,6,8 and 10) --
Stockholders' Equity:
Common stock - $.01 par value,
1,000 shares authorized;
999 shares issued and
outstanding 10
Additional paid-in capital 142,661
Retained earnings 1,015,942
----------
Total Stockholders' Equity 1,158,613
----------
Total Liabilities and Stockholders' Equity $1,450,905
==========
The accompanying notes are an integral part of the financial statements
F-16
<PAGE>
ORALABS, INC.
-------------
STATEMENTS OF INCOME
For the Years Ended December 31
1995 1994
----------- -----------
Revenue:
Sales $ 5,447,498 $ 3,605,680
Cost of sales 1,910,469 1,707,630
----------- -----------
Gross Profit 3,537,029 1,898,050
----------- -----------
Operating Expenses
Salaries and payroll taxes 266,796 98,557
Bad debts 69,338 134,846
Rent 24,139 2,192
Commissions 316,273 233,045
Consulting fees 102,397 69,887
Trade shows 65,175 37,412
Depreciation 32,840 2,505
Other operating expenses 196,973 194,586
----------- -----------
Total Operating Expenses 1,073,931 773,030
----------- -----------
Net Operating Income 2,463,098 1,125,020
----------- -----------
Other Income (Expenses)
Other income 62,908 241,372
Territory fees 7,687 --
Loss on sale of securities (316,560) --
Interest expense (9,965) (10,326)
----------- -----------
Total Other (255,930) 231,046
----------- -----------
Net Income $ 2,207,168 $ 1,356,066
=========== ===========
Net Income per Common Share $ 2,209 $ 1,357
=========== ===========
Weighted Average Shares Outstanding 999 999
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
ORALABS, INC.
-------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From December 31, 1993 through December 31, 1995
Common Stock Additional
------------ Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 999 $ 10 $ 142,661 $ (34,133) $ 108,538
Distributions -- -- -- (499,904) (499,904)
Net income for the year
ended December 31, 1994 -- -- -- 1,356,066 1,356,066
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1994 999 10 142,661 822,029 964,700
Distributions -- -- -- (2,013,255) (2,013,255)
Net income for the year
ended December 31, 1995 -- -- -- 2,207,168 2,207,168
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1995 999 $ 10 $ 142,661 $ 1,015,942 $ 1,158,613
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-18
</TABLE>
<PAGE>
ORALABS, INC.
-------------
STATEMENTS OF CASH FLOWS
For the Years Ended December 31
1995 1994
----------- -----------
Cash Flows from Operating Activities:
Net income $ 2,207,168 $ 1,356,066
Adjustments to reconcile net
income to net cash used
in operating activities
Depreciation 32,840 34,716
Increase (decrease) in accounts
payable and accrued expenses (2,041) 46,914
(Increase) in accounts receivable (257,826) (107,335)
(Increase) decrease in notes
receivable 67,026 (66,926)
(Increase) decrease in inventory (189,242) (80,766)
Other, net (17,564) (42,212)
----------- -----------
Net Cash Provided by Operating
Activities 1,840,361 1,140,457
----------- -----------
Cash Flows from Investing Activities:
Investments in securities (175,500) --
Margin account payable 129,556 --
Purchases of property and
equipment (57,514) (40,172)
----------- -----------
Net Cash (Used in) Investing
Activities (103,458) (40,172)
----------- -----------
Cash Flows from Financing Activities:
Stock issued 23,000 119,671
Distributions (2,013,255) (499,904)
----------- -----------
Net Cash (Used in) Financing
Activities (1,990,255) (380,233)
----------- -----------
Increase (Decrease) in Cash (253,352) 720,052
Cash, Beginning of Period 712,096 (7,956)
----------- -----------
Cash, End of Year $ 458,744 $ 712,096
=========== ===========
Interest Paid $ 9,965 $ 10,326
=========== ===========
Income Taxes Paid $ -- $ --
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies.
-------------------------------------------
This summary of significant accounting policies of Oralabs, Inc, (the
Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation
of the financial statements.
(a) Nature of Operations
--------------------
The Company was incorporated under the laws of the state of Colorado on
August 10, 1990. The Company manufactures and distributes lip balm and
fresh breath products. The Company has selected December 31 as its
fiscal year end.
(b) Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers all
short-term securities purchased with a maturity of three months or less
to be cash equivalents.
(c) Inventories
-----------
Inventories consist of raw materials and finished goods which are
carried at the lower of average cost or market value.
(d) Property and Equipment
----------------------
Property and equipment are carried at cost. Depreciation of property
and equipment is provided using the straight-line method for financial
reporting purposes at rates based on the following estimated useful
lives:
Years
-----
Machinery and equipment 5 - 7
Leasehold improvements 5
F-20
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1995 and 1994
(1) Summary of Significant Accounting Policies, Continued
------------------------------------------------------
(d) Property and Equipment, Continued
---------------------------------
For federal income tax purposes, depreciation is computed using the
accelerated cost recovery system and the modified accelerated cost
recovery system. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized.
Expenditures for maintenance and repairs are charged to expense as
incurred.
(e) Income Taxes
------------
No provision for income tax has been provided in the financial
statements since the Company has elected to be taxed under Subchapter S
of the Internal Revenue Code, whereby all income or losses flow through
to the stockholder for income tax reporting purposes.
(f) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(g) Marketable Securities
---------------------
The Company's investment in marketable securities are considered
trading securities since they are bought and held for the purpose of
selling them in the near term. Unrealized holding gains and losses for
trading securities have been included in the statement of operations
with realized gains and losses.
F-21
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1995 and 1994
(2) Marketable Securities
----------------------
As of December 31, 1995 the Company's marketable trading securities
totalled $ 175,500, carried at market. Cost of marketable securities
totalled $211,520 at December 31, 1995 with unrealized holding losses of
$36,020 added to realized loses of $280,540 in the statement of income. As
of December 31, 1995 the Company had a margin account payable related to
these securities totalling $129,556 shown as a liability in the financial
statements. During 1995 the Company incurred $9,965 of interest expense on
this margin account.
(3) Inventories
-----------
At December 31, inventories consisted of the following:
1995
---------
Raw materials $ 255,533
Finished goods 21,992
---------
$ 277,525
=========
Inventories are stated at the lower of cost or market. Cost is determined
by the average cost method.
(4) Property and Equipment
----------------------
Property and equipment are summarized by major classifications as follows:
1995
----------
Machinery and equipment 111,246
Leasehold improvements 29,728
----------
140,974
Less accumulated
depreciation (68,665)
----------
$ 72,309
==========
(5) Transaction with Related Party
------------------------------
The Company pays the monthly lease payments and all operating expenses for
two vehicles used by the Company's president and his spouse who is also an
officer of the Company. Lease payments for these two vehicles total
approximately $1,150 per month.
F-22
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1995 and 1994
(6) Operating Lease
----------------
The Company leases its office and manufacturing facilities under an
operating lease for a building owned by the Company's President. The lease
commenced September 1, 1995 with monthly payments of $4,000. Effective July
1, 1996 the payment was increased to $5,500 per month based upon additional
space being used by the Company. The lease expires September 1, 2000. This
lease is a net lease whereby the Company pays all expenses. The Company has
incurred $29,728 of leasehold improvements related to this property, which
are being amortized on a straight-line basis over the five year term of the
lease.
The following is a schedule by years of future minimum rental payments
required under the operating lease as of December 31, 1995:
Year Ending
December 31, Amount
------------ ------
1996 $ 57,000
1997 66,000
1998 66,000
1999 66,000
2000 44,000
----------
Total minimum payments required $ 299,000
==========
(7) Concentration of Business and Credit Risk
-----------------------------------------
The Company is engaged primarily in the manufacture and sale of lip balm
and breath products throughout North America. The potential for severe
financial impact can result from negative effects of economic conditions
within the market or geographic area. Since the Company's business is
principally in one area, this concentration of operations results in an
associated risk and uncertainty. Since the Company's products are
inexpensive, the potential negative effect of changes in economic
conditions are less than would be expected for higher priced products of
other industries.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and trade accounts receivables. Concentrations of credit with
respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base and their dispersion
across different industries and geographic locations. As of December 31,
1995, the Company had no significant concentrations of credit risk, other
than the Company had $488,953 invested in a mutual fund. While the
underlying investment securities of the fund are guaranteed by the U.S.
government, the shares of the fund are not guaranteed and therefore are
considered to be a concentration of credit risk.
F-23
<PAGE>
ORALABS, INC.
-------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
December 31, 1995 and 1994
(8) Major Customers
---------------
The Company currently has one customer with net purchases of $615,937 and
$567,258 during the years ended December 31, 1995 and 1994 respectively.
These purchases represent 11% of the 1995 gross sales revenues and 15% of
the 1994 gross revenue.
(9) Line of Credit
--------------
The Company entered into a one year letter of credit agreement with a bank
in the amount of $500,000. As of December 31, 1995 the company had
available the entire $500,000 unused line of credit. The initial interest
rate was 8.25% per annum to be adjusted periodically based on .5% under the
banks prime rate. The line of credit is collateralized by a first line on
all of the Company's business assets.
(10) Commitment
----------
The Company has an agreement with an employee whereby compensation paid to
the employee equals 2% of sales. In addition, according to the agreement,
the employee would receive 2% of the sales price of the Company if the
Company is sold. The agreement has a provision that allows for its
termination by written notice during a thirty day period each year prior to
September 1.
F-24
<PAGE>
Index to Pro Forma Financial Statements
SSI CAPITAL CORP. (SSI)
ORALABS, INC. (ORALABS)
Pro Forma Combined Financial Statements (Unaudited)
Pro Forma Financial Statements:
Balance Sheet P-2
Statements of Operations P-3
Notes to Pro Forma Financial Statements P-5
P - 1
<PAGE>
<TABLE>
<CAPTION>
SSI CAPITAL CORP. (SSI)
ORALABS, INC. (ORALABS)
PRO FORMA BALANCE SHEET
(Unaudited)
ORALABS SSI
Pro Forma Pro Forma
March 31, 1997 February 28, 1997 Adjustments Combined
-------------- ----------------- ------------ --------
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash $ 336,843 $ 191,933 $ -- $ 528,776
Inventory 329,593 -- -- 329,593
Accounts receivable 537,089 -- -- 537,089
Other 25,968 -- -- 25,968
----------- ----------- ----------- -----------
Total Current Assets 1,229,493 191,933 -- 1,421,426
Property and equipment, net of accumulated
depreciation 167,024 -- -- 167,024
Other 150 -- -- 150
----------- ----------- ----------- -----------
Total Assets $ 1,396,667 $ 191,933 $ -- $ 1,588,600
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 251,774 $ 27,760 $ -- $ 279,534
Accrued commissions 27,598 -- -- 27,598
----------- ----------- ----------- -----------
Total Current Liabilities 279,372 27,760 -- 307,132
Stockholders' Equity
Common stock 10 1,749 (1) 15,838 17,597
Additional paid-in capital 399,906 182,066 (1) (35,480) 546,492
Retained earnings 717,379 (19,642) (1) 19,642 717,379
----------- ----------- ------------ -----------
Total Stockholders' Equity 1,117,295 164,173 -- 1,281,468
----------- ----------- ------------ -----------
Total Liabilities and Stockholders' Equity $ 1,396,667 $ 191,933 $ -- $ 1,588,600
=========== =========== ============ ===========
The accompanying notes are an integral part of the proforma financial statements.
P - 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SSI CAPITAL CORP. (SSI)
ORALABS, INC. (ORALABS)
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
ORALABS SSI
Three Months Three Months
Ended March Ended February Pro Forma Pro Forma
31, 1997 28, 1997 Adjustments Combined
------------- ------------ ------------- ------------
REVENUE:
<S> <C> <C> <C> <C>
Sales $ 1,719,262 $ -- $ -- $ 1,719,262
Cost of Goods 671,451 -- -- 671,451
------------ ------------ ------------ ------------
Gross Profit 1,047,811 -- -- 1,047,811
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries and payroll taxes 402,048 -- -- 402,048
Depreciation 10,490 -- -- 10,490
Consulting fees-related parties 1,564 -- -- 1,564
Commissions 72,671 -- -- 72,671
Bad debts 8,596 -- -- 8,596
Rent 16,500 -- -- 16,500
Trade shows 28,178 -- -- 28,178
Other operating expenses 102,714 3,197 -- 105,911
------------ ------------ ------------ ------------
642,761 3,197 -- 645,958
----------- ------------ ------------ ------------
Operating Income 405,050 (3,197) -- 401,853
Other Income (Expenses), Net 4,784 1,952 -- 6,736
------------ ------------ ------------
Income before taxes 409,834 (1,245) -- 408,589
Income taxes -- -- (2)(159,349) (159,349)
------------ ------------ ------------ -----------
Net Income $ 409,834 $ (1,245) $ (159,349) $ 249,240
============ ============ ============ ============
Net Income per Common Share $ .01
============
Weighted Number of Common Shares Outstanding 17,596,940
============
The accompanying notes are an integral part of the proforma financialstatements.
P - 3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SSI CAPITAL CORP. (SSI)
ORALABS, INC. (ORALABS)
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
ORALABS SSI
Year Ended Year Ended
December November Pro Forma Pro Forma
31, 1996 30, 1996 Adjustments Combined
-------- -------- ----------- --------
REVENUE:
<S> <C> <C> <C> <C>
Sales $ 4,985,009 $ -- $ -- $ 4,985,009
Cost of Goods 2,385,076 -- -- 2,385,076
----------- ----------- ------------ ------------
Gross Profit 2,599,933 -- -- 2,599,933
----------- ----------- ------------ ------------
OPERATING EXPENSES:
Salaries and payroll taxes 432,236 -- -- 432,236
Depreciation 47,466 -- -- 47,466
Consulting fees-related parties 88,249 -- -- 88,249
Commissions 201,730 -- -- 201,730
Bad debts 58,670 -- -- 58,670
Rent 62,709 -- -- 62,709
Trade shows 90,542 -- -- 90,542
Other operating expenses 479,175 9,575 -- 488,750
----------- ----------- ----------- ------------
1,460,777 9,575 -- 1,470,352
----------- ----------- ----------- ------------
Operating Income 1,139,156 (9,575) -- 1,129,581
Other Income (Expenses), Net 57,951 7,105 -- 65,056
----------- ----------- ----------- ------------
Income before taxes 1,197,107 (2,470) -- 1,194,637
Income taxes -- (408) (2)(465,909) (466,317)
----------- ----------- ----------- ----------
Net Income $ 1,197,107 $ (2,878) $ (465,909) $ 728,320
=========== =========== =========== ===========
Net Income per Common Share $ .04
===========
Weighted Number of Common Shares Outstanding 17,596,940
===========
The accompanying notes are an integral part of the proforma financial statements.
P - 4
</TABLE>
<PAGE>
SSI CAPITAL CORP. (SSI)
ORALABS, INC. (ORALABS)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(1) General
-------
On May 1, 1997, SSI and ORALABS completed their April 30, 1997 Merger
Agreement and Plan of Reorganization, whereby 100% of the outstanding
shares of ORALABS was converted into a total of 15,597,399 shares of SSI
common stock. This business combination will be accounted for as a reverse
acquisition.
(2) Pro Forma Information
---------------------
The pro forma financial statements give effect to the acquisition by SSI at
the beginning of the respective periods.
(2) Pro Forma Adjustments
---------------------
(1) This entry gives effect to eliminating ORALABS stockholders' equity
and giving the effect of issuing 15,597,399 of SSI common stock
pursuant to the merger agreement to the stockholders of ORALABS and
250,000 shares of SSI common stock to certain stockholders of SSI.
(2) ORALABS was taxed under Subchapter S of the Internal Revenue Code,
whereby all income flows through to the stockholder for income tax
purposes. This entry gives effect of taxing the income as a regular
corporation.
P-5
