U.S. 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, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from: to:
Commission file number: 0-26022
-------
Solar-Mates, Inc.
- - --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as specified in its charter)
New York 11-2396918
- - ---------------------------------- ---------------------
(State or other jurisdiction (IRS Employer Identi-
of incorporation or organization) fication Number)
8125 25th Court East
Sarasota, Florida 34243
-----------------------
(Address of principal executive offices)
(941) 359-3599
--------------
(Issuer's telephone number, including area code)
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. YES: X NO:
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES: NO:
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,384,000 shares of Common
Stock, $.001 par value, as of May 8, 1996.
Transitional Small Business Disclosure Format. YES: NO: X
<PAGE>
Solar-Mates, Inc.
Index
Part I
------
Item 1. Financial Statements
Consolidated Balance Sheet
as of March 31, 1996 3
Consolidated Statements of Operations
and Retained Earnings (Deficit) for the
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for
the Three Months Ended March 31,
1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 11
Part II
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
Solar-Mates, Inc.
Consolidated Balance Sheets
March 31, 1996
(Unaudited)
ASSETS
- - ------
Current Assets:
Cash $ 1,033,586
Trading securities 1,065,096
Other marketable securities 284,878
Accounts receivable - less allowance for
doubtful accounts of $100,000 2,851,652
Inventories 2,856,039
Prepaid expenses 663,061
-----------
Total current assets 8,754,312
Fixed assets - net of accumulated depreciation 327,642
Other assets 374,315
-----------
$ 9,456,269
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Note payable - bank $ 1,500,000
Note payable - stockholder 188,737
Advances from stockholders 92,879
Accounts payable 1,927,218
Other current liabilities 598,210
-----------
Total current liabilities 4,307,044
Notes payable - stockholder 146,785
Long-term debt 34,755
Commitments and contingencies -
Stockholders' equity:
Preferred stock, 1,000,000 shares authorized -
Common stock, $.001 par value,
10,000,000 shares authorized,
2,384,000 shares issued and outstanding 2,384
Additional paid in capital 4,279,276
Retained earnings 686,025
-----------
Total stockholders' equity 4,967,685
-----------
$ 9,456,269
===========
See accompanying notes to financial statements 3
<PAGE>
Solar-Mates, Inc.
Consolidated Statements of Operations and Retained Earnings (Deficit)
For The Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Net sales $ 3,123,909 $ 2,395,097
Cost of sales 2,052,379 1,606,856
----------- -----------
Gross profit 1,071,530 788,241
----------- -----------
Operating expenses:
Selling expenses 365,921 177,179
General and administrative expenses 315,357 280,396
----------- -----------
681,278 457,575
----------- -----------
Income from operations 390,252 330,666
Other (expense):
Interest expense (112,260) (89,133)
----------- -----------
Income before income taxes 277,992 241,533
Provision for income taxes
Current 102,800
----------- -----------
Net income 175,192 241,633
Retained earnings (deficit) - beginning of period 603,198 (1,074,140)
S-corporation distribution (92,365)
----------- -----------
Retained earnings (deficit) - end of period $ 686,025 $ (832,607)
=========== ===========
Per share information:
Weighted average shares outstanding 2,384,000 1,280,000
=========== ===========
Net income per share $ 0.07 $ 0.19
=========== ===========
Pro forma net income
Net income $ 241,533
Pro forma provision for income taxes:
Long-term debt 89,400
-----------
Pro forma net income $ 152,133
===========
Pro forma income per share $ 0.12
===========
See accompanying notes to financial statements 4
<PAGE>
Solar-Mates, Inc.
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities $ 687,867 $ 651,205
Cash flows from investing activities:
Acquisition of patents and trademarks (3,500) (2,701)
(Acquisition) of other assets (747) (3,500)
Purchase of fixed assets (28,966) -
----------- -----------
Net cash used by investing activities (33,213) (6,201)
----------- -----------
Cash flows from financing activities:
(Increase) decrease in accounts receivable
stockholders (291) 20,796
Principal payments on notes payable (3,226) (459,864)
S corporation distribution (92,365) -
Repayments on advances from stockholders (4,442) -
(Increase) in deferred offering cost - (209,401)
----------- -----------
Net cash used by financing activities (100,324) (648,469)
----------- -----------
Net increase (decrease) in cash 554,330 (3,465)
Beginning - cash balance 479,256 18,301
----------- -----------
Ending - cash balance $ 1,033,586 $ 14,836
=========== ===========
See accompanying notes to financial statements 5
<PAGE>
Solar-Mates, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note A. Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Item 310(b) of Regulation SB. They do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the financial statements of the
Company as of December 31, 1995 and 1994 and for the two years then ended,
including notes thereto.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Solartechnics (HK) Ltd. Intercompany
transactions and balances have been eliminated in consolidation.
Note B. Inventory
Inventory consisted principally of finished goods.
Note C. Commitments and Contingencies
Concentration of credit risk/major customer
During the three month periods ended March 31, 1996 and 1995 the Company made
sales to Wal-Mart Stores, Inc. in the amounts of $2,474,000 and $2,117,000
respectively.
6
<PAGE>
Solar-Mates, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Continued)
Approximately $1,939,000 (68%) of the accounts receivable at March 31, 1996 are
due from Wal-Mart Stores, Inc. and are unsecured. This customer is a major
national retailer and the Company has not experienced collection problems with
this customer.
Note E. Income taxes
Prior to the completion of its public offering the Company had elected to be
treated as an "S" Corporation under the provisions of the Internal Revenue Code
and state statutes. Under these provisions no income taxes are incurred on a
corporate level. Instead, shareholders of the Company include their pro-rata
share of income or loss on their individual income tax returns. The provision
for income taxes for 1996 and the pro forma provision for income taxes for 1995
have been computed in accordance with Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes. There are no material
differences between financial statement income and taxable income.
The amounts shown for income taxes in the statements of operations differ from
amounts that would be derived from computing income taxes at federal statutory
rates (34%) primarily as a result of state income taxes net of the federal
benefit (3%). Subsequent to August 1995, the Company was subject to corporate
income taxes.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Prior to the 1980's, the Company manufactured its own sunglasses for
sale to the wholesale trade. As manufacturers in the Far East began playing
greater roles in the sunglass industry in the late 1970's, the Company began
importing its products and in 1980 discontinued its manufacturing operations
completely. Since 1978, the Company has focused primarily on the sale of
sunglasses and sunglass products to mass merchandisers such as large retail
chain stores. In the late 1980's, the Company began developing programs for mass
merchants designed to enhance their sale of sunglasses. The Company continually
adds new products and develops new marketing programs for its product lines. In
late 1992, the Company introduced its line of Solar*X(R) sunglasses, which
feature a ground and polished lens, comparable to optical quality sunglasses, at
popular prices. This product is currently the predominant line of the Company
and has contributed significantly to the sales growth of the Company.
The Company has introduced a higher priced line of sunglasses under the
brand name H2Optix(R). The Company is not marketing this line to mass merchants
but rather to specialty retailers. This is intended to reduce the Company's
dependence on its current customer base. The Company expects its Solar*X(R) line
of sunglasses to remain its predominant line during the introduction of
H2Optix(R) and other new product lines which may be developed.
S Corporation Status and Pro Forma Adjustments
From its inception until closing of its initial public offering in
August 1995 (the "Termination Date"), the Company had been treated for federal
and certain state tax purposes as an S Corporation under the Internal Revenue
Code and comparable state tax laws. As a result, the Company's earnings through
the day preceding the Termination Date have been taxed, with certain exceptions,
for federal and certain state income tax purposes directly to the Company's
shareholders. Since the Termination Date, the Company is no longer treated as an
S Corporation and accordingly, is fully taxable pursuant to federal and state
income tax laws. The following discussion gives pro forma retroactive effect to
the termination of the Company's S Corporation status as
8
<PAGE>
if the Company had been taxed as a C Corporation for the relevant periods
discussed.
Results of Operations
Net sales increased 30% from $2,395,097 for the three months ended
March 31, 1995 to $3,123,909 for the three months ended March 31, 1996.
Approximately $132,000 of this increase was due to the launch of the Company's
H2Optix(R) line of sunglasses. In 1996 the Company began aggressively marketing
this line. Additionally, approximately $253,000 of the increase was due to sales
of the Company's Outa Limitz(TM) line of sunglasses which did not exist during
the same period in 1995; $165,000 results from sales through a Canadian
distributor. Approximately $778,000 is attributable to increased activity and
price of Solar*X(R) to Wal-Mart Stores, Inc., the Company's largest customer,
offset by a decrease of approximately $599,000 in sales of Bonjour(R), a brand
no longer marketed by the Company.
Selling expenses increased by $188,742 or 107%, from $177,179 for the
three months ended March 31, 1995 to $365,921 for the three months ended March
31, 1996. This increase resulted primarily from increased advertising and
marketing cost associated with the launch of H2Optix(R). The Company anticipates
continued increases in selling expenses related to H2Optix(R) during the
remainder of 1996.
General and administrative expenses increased by $34,961 or 12%, from
$280,396 for the three months ended March 31, 1995 to $315,357 for the three
months ended March 31, 1996, primarily from increased personnel cost associated
with the general growth of the Company.
The Company's interest expenses increased $23,127 or 26% from $89,133
for the three months ended March 31, 1995 to $112,260 for the three months ended
March 31, 1996 as a result of increased borrowing during 1996.
9
<PAGE>
Liquidity and Capital Resources
The Company is financing its operations primarily through the proceeds
of an initial public offering completed in August 1995, its cash flow and
revolving lines of credit. The Company has a revolving line of credit in the
amount of $1,500,000 from SunTrust Bank (the "Credit Facility"). Interest on
outstanding loans under the Credit Facility accrue at a rate equal to 1.5% above
the prime rate. The Credit Facility is secured by a lien on all of the Company's
assets. Pursuant to the Credit Facility, the Company may borrow up to 70% of
accounts receivable under 61 days old and up to 25% of the Company's inventory,
to a maximum of $1,500,000.
Advances under the facility have been used for general working capital purposes.
The Credit Facility is guaranteed, jointly and severally, by certain
shareholders of the Company.
The Company's cash flow requirements are greatest during the fourth
quarter of each year, primarily as a result of inventory acquisition and the
introduction of new product lines for the upcoming sunglass season which
traditionally occurs in the later part of the fourth quarter. The Company
believes that cash flow generated from operations, supplier credit and the
revolving credit facility will be sufficient to satisfy its requirements. To the
extent that such sources are not sufficient, the Company may be required to
obtain short-term loans as it has done in the past.
The Company's liquidity improved from working capital of $4,357,962 at
December 31, 1995 to working capital of $4,447,268 at March 31, 1996. This
resulted primarily from cash flow generated by operations.
The Company did not incur any significant capital expenditures during
the three-month period ended March 31, 1996 and does not anticipate that it will
incur any significant capital expenditures during the remainder of 1996.
The Company anticipates, based on its currently proposed plans, that
the net proceeds of the public offering completed in
10
<PAGE>
August, 1995 will be sufficient to satisfy its anticipated cash requirements
for the marketing of the H2Optix(R) line for approximately 24 months from that
date.
Foreign Currency Exchange
The Company presently transacts business internationally in United
States currency. To date, the Company has not been affected significantly by
currency exchange fluctuations. However, future currency fluctuations in
countries in which the Company does business could adversely affect the Company
by resulting in pricing that is not competitive with prices denominated in local
currencies.
Seasonality
The seasonality of the Company's business generally follows the selling
activity of its largest customer, Wal-Mart Stores, Inc. The Company's strongest
quarter in terms of sales is the fourth quarter followed by the first, second
and third quarters.
11
<PAGE>
PART II
OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits. None.
(b) Reports on Form 8-K.
On March 25, 1996, the Company filed a Form 8-K with the
Securities and Exchange Commission which reported that the Company had
determined not to change it fiscal year end as previously reported.
12
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Company has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Solar-Mates, Inc.
(Registrant)
Dated: May 9, 1996 By: /s/ Stephen Nevitt
------------- -----------------------------
Stephen Nevitt
President
(Principal Executive Officer)
Dated: May 9, 1996 By: /s/ Jeffrey Rubin
------------- -----------------------------
Jeffrey Rubin
Controller
(Chief Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,033,586
<SECURITIES> 1,349,974
<RECEIVABLES> 2,851,652
<ALLOWANCES> 0
<INVENTORY> 2,856,039
<CURRENT-ASSETS> 8,754,312
<PP&E> 545,656
<DEPRECIATION> 218,014
<TOTAL-ASSETS> 9,456,269
<CURRENT-LIABILITIES> 4,307,044
<BONDS> 0
0
0
<COMMON> 2,384
<OTHER-SE> 4,965,301
<TOTAL-LIABILITY-AND-EQUITY> 9,456,219
<SALES> 3,123,909
<TOTAL-REVENUES> 3,123,909
<CGS> 2,052,379
<TOTAL-COSTS> 2,052,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,260
<INCOME-PRETAX> 277,992
<INCOME-TAX> 102,800
<INCOME-CONTINUING> 175,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,192
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.00
</TABLE>
