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, 2002
or
[] Transition Report Pursuance to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the transition period from to
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Commission File Number: 000-23039
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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, 2002 Issuer had 9,160,755 shares of common stock, $.001 Par
Value, outstanding. Transitional Small Business Disclosure
Format (check one) |_| Yes |X| No
Table of Contents
Part I. Financial Information
Item 1. Financial Statement Page
----
Consolidated Balance Sheets as of March 31, 2002 (Unaudited)
And December 31, 2001...............................................2
Consolidated Statements of Income Three Months Ended
March 31, 2002 and 2001(Unaudited)..................................3
Consolidated Statement of Stockholders' Equity from
December 31, 2001 Through March 31, 2002 (Unaudited)...............4
Consolidated Statements of Cash Flows, Three Months Ended
March 31, 2002 and 2001(Unaudited)..................................5
Notes to Consolidated Financial Statements..........................6-7
Item 2. Management's Discussion and analysis of Financial Conditions
And Results of Operations......................................8-9
Part II. Other Information................................................10-11
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Balance Sheets
---------------------------
====================================================================================================
March 31, 2002 December 31, 2001
Unaudited
----------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents 2,365,049 $2,273,838
Accounts receivable, net of allowance for doubtful accounts of
$98,330 and $174,349, respectively 2,357,591 1,937,625
Inventory 1,763,277 1,719,870
Deferred Tax Asset 223,780 223,780
Prepaid expenses 238,525 156,184
Deposits 75,691 298,807
---------- ----------
Total Current Assets 7,023,913 6,610,104
Property and equipment, net 1,319,502 1,270,708
Deferred Tax Asset 44,993 44,993
---------- ----------
Total Assets 8,388,408 7,925,805
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable - Trade 469,943 645,567
Accrued liabilities 457,448 378,120
Reserve for Returns 395,410 425,597
Income taxes payable 400,442 182,227
---------- ----------
Total current liabilities 1,723,243 1,631,511
Total liabilities 1,723,243 1,631,511
---------- ----------
Commitments and contingencies
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,
9,160,755 issued and outstanding at the end of both periods 9,160 9,160
Additional paid -in capital 1,216,905 1,216,905
Retained Earnings 5,439,100 5,068,229
---------- ----------
Total stockholders' equity 6,665,165 6,294,294
---------- ----------
Total liabilities and stockholders' equity $8,388,408 7,925,805
========== ==========
=====================================================================================================
See Notes to Consolidated Financial Statements
2
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Statements of Income
Three Months ended March 31, 2002 and March 31, 2001
Unaudited
================================================================================
Three Months Ended
03/31/02 03/31/01
-------------------------------------------------------=========================
Revenues:
Product sales $3,926,612 $4,759,844
---------- ----------
Total Revenues 3,926,612 4,759,844
---------- ----------
Cost of Sales 2,350,644 2,456,606
---------- ----------
Gross profit 1,575,968 2,303,238
---------- ----------
Operating Expenses:
Engineering 102,076 98,800
Selling and marketing costs 450,675 534,777
General and administrative 455,066 430,505
Other 9,291 5,106
---------- ----------
Total operating expenses 1,017,108 1,069,188
---------- ----------
Net Operating Income 558,860 1,234,050
Other Income (expense)
Interest and other income 31,088 805,777
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Total other income (expense) 31,088 805,777
---------- ----------
Net income before provision for income taxes 589,948 2,039,827
Provision for income taxes
Current 219,077 757,490
Deferred -- --
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219,077 757,490
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Net Income $ 370,871 $1,282,337
========== ==========
Basic income per common share $ .04 $ .14
========== ==========
Weighted average shares outstanding 9,160,755 9,160,755
========== ==========
Diluted income per share $ 0.04 $ .13
========== ==========
Diluted weighted average shares outstanding 9,234,880 9,636,964
========== ==========
See Notes to Consolidated Financial Statements
3
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Three months ended March 31, 2002
Unaudited
====================================================================================================================================
Preferred Stock Common Stock Addl. Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
----------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 2001 9,160,755 $9,160 $1,216,905 $5,068,229 $6,294,294
Net Income 370,871 370,871
---------------------------------------------------------------------------------------------------
Balance at March 31, 2002 9,160,755 $9,160 $1,216,905 $5,439,100 $6,665,165
===================================================================================================================================
See Notes to Consolidated Financial Statements
4
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flow For the
Three months ended March 31, 2002 and 2001
Unaudited
=========================================================================================================
Three Months Ended
March 31
2002 2001
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Cash flows from operating activities
------------------------------------
Net Income $ 370,871 $1,282,337
---------- ----------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities
Depreciation 93,403 65,920
Deferred Taxes
Stock issued for services
Changes in assets and liabilities:
Other current assets 140,775 (214,571)
Accounts receivable (419,966) (216,440)
Inventory (43,407) 127,103
Accounts payable (190,074) 188,860
Accrued expenses 75,161 101,254
Reserve for returns (30,187) 51,085
Income taxes payable 236,832 500,490
--------- --------
Net cash provided by operating activities 233,408 1,886,038
--------- --------
Cash from investing activities
Investment in property and equipment (142,197) (161,235)
--------- ----------
Net Cash (used in) investing activities (142,197) (161,235)
--------- ----------
Net Increase in cash and cash equivalents 91,211 1,724,803
Cash and cash equivalents, beginning of the period 2,273,838 2,098,872
--------- ----------
Cash and cash equivalents, end of the period $2,365,049 $3,823,675
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for income taxes was $0 (2002) and $265,000 (2001)
See Notes to Consolidated Financial Statements
5
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, 2001(the "2001Form 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.
Note 2 - Property and Equipment
-------------------------------
Property and equipment consisted of the following:
Machinery and equipment:
------------------------
============================================================================
March 31, 2002
----------------------------------------------------------------------------
Machinery and equipment $1,596,500
Leasehold Improvements 654,784
----------
2,251,284
----------
Less accumulated depreciation (931,782)
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$1,319,502
==========
Note 3 - Line-of-Credit
-----------------------
The Company entered into a line-of-credit agreement with a bank in the amount of
$1,000,000, which expires May 2002. As of March 31, 2002, the Company had
available the entire $1,000,000 unused line-of-credit. The line-of-credit is
collateralized by a first lien on all of the Company's business assets.
Note 4 - Reserve for Returns and Allowances
-------------------------------------------
The company reserves 2.75% 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, 2002 is $395,410.
6
ORALABS HOLDING CORP AND SUBSIDIARIES
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:
For the Quarter Ended March 31, 2002
==================================================================================================================
Income Shares
(Numerator) (Denominator) Per Share Amt
------------------------------------------------------------------------------------------------------------------
Net Income $370,871
Basic EPS
Weighted average beginning shares outstanding 9,160,755
--------------------------------
Income available to stockholders $370,871 9,160,755 $.04
========================
Effect of Dilutive Common Stock Options 74,125
Diluted EPS
Income available to common stockholders plus assumed
---------------------------------------------------------
Plus assumed conversions $370,871 9,234,880 $.04
=========================================================
===================================================================================================================
For the Quarter Ended March 31, 2001
===================================================================================================================
Income Shares
(Numerator) (Denominator) Per Share Amt
-------------------------------------------------------------------------------------------------------------------
Net Income $ 1,282,337
Basic EPS
Weighted average beginning shares outstanding 9,160,755
Weighted average options shares issued
Weighted average shares issued for services
--------------------------------
Income available to stockholders $ 1,282,337 9,160,755 $.14
========================
Effect of Dilutive Common Stock Options 476,209
Diluted EPS
Income available to common stockholders plus assumed
---------------------------------------------------------
Plus assumed conversions $ 1,282,337 9,636,964 $.13
=========================================================
===================================================================================================================
7
ORALABS HOLDING CORP AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note on Forward-Looking Statements
------------------------------------------
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended, provide a safe harbor for certain
forward-looking statements. This quarterly report contains statements that are
forward-looking. Forward looking statements include those which are not
historical facts, including without limitation statements about management's
expectations for any period beyond the fiscal quarter ended March 31, 2002.
Words such as "expect", "anticipate", "believe", "intend" and "estimate" and
similar expressions are examples of words which identify forward looking
statements. While these statements reflect the Company's beliefs as of the date
of this report, they are subject to assumptions, uncertainties and risks that
could cause actual results to differ materially and adversely from the results
contemplated, forecast or estimated in the forward-looking statements included
in this report. These factors include, but are not necessarily limited to, the
impact of competitive products, the acceptance of new products or product lines
in the marketplace, the Company's ability to manage growth, the availability of
an adequate workforce and changes in market conditions.
Results of Operations. For the period ending March 31, 2002 as compared with the
period ending March 31, 2001.
Product sales decreased $833,231 or 18%. This was due to a combination of
decreases of sales for lip balm, sours and breath fresheners, and nutritional
supplements of approximately $360,000, $360,000 and $145,000 respectively. Lip
balm sales were slowed by loss of revenues in connection with Kmart
Corporation's bankruptcy, sours and breath fresheners had large orders held over
to second quarter. Some of the nutritional supplement products became
unprofitable and the Company chose to drop those brands. The brands remaining
had slower sales. Please refer to the trends section below for a more detailed
explanation.
Gross profit decreased $727,270. As a percentage of sales gross profit decreased
from 48% to 40%. The first quarter of 2001 had higher than normal gross profit
substantially because of higher selling prices and volume for lip balm packaged
in the traditional sticks and sold at retail in the more economical loose
counter display as opposed to in the more costly blister packed product. The
first quarter of 2002 gross profit of 40% is more in line with the annual gross
profit margin of 40% for the year 2001 and the annual gross profit margin 41%
for the year 2000.
Selling and marketing decreased $84,102. The decrease can be substantially
attributed to the decrease in product sales because a decrease in marketing
commissions directly related to the decrease in product sales.
Interest and Other Income decreased $774,689. This was almost entirely due to
the one-time transaction in the first quarter of 2001in which the Company sold
its entire minority interest in a company that acquired ownership of Pecos
Pharmaceuticals, a vendor of nutritional supplements.
Net income decreased by $911,466, or 71% as explained by the above activities.
As a percentage of sales, net operating income, which excludes Interest, Other
Income and Income taxes, decreased from 26% to 14%.
Liquidity and Capital Resources. Balance Sheet as of March 31, 2002 Compared to
--------------------------------------------------------------------------------
December 31, 2001.
-------------------
At March 31, 2002, the Company had $2,365,049 of cash and its current ratio was
approximately 4 to 1. The Company believes its current capital resources are
sufficient to fund operations for the next twelve months.
The Company generated $233,408 of cash flows from operating activities for the
quarter ended March 31, 2002 versus $1,886,038 for the quarter ended March 31,
2001. This decrease in cash flow from operating activities was primarily due to
changes in various working capital items, higher operating income for the
quarter ended March 31, 2001 and the gain on the sale of our minority interest
in the company that owned Pecos Pharmaceuticals for the quarter ended March 31,
2001.
Accounts receivable increased $419,966 net of allowance for doubtful accounts.
This is substantially due to timing of receivables due shortly after the end of
the first quarter for 2002.
Inventory increased $43,407. The modest increase in Inventory can be
substantially attributed to an increase of work in process manufactured for
anticipated orders. Work in process may substantially increase in the second
quarter of 2002 as the Company builds inventory for the anticipated higher sales
volume of the third and fourth quarters.
8
Prepaid expenses increased $82,341. This increase was substantially due to
Company insurance premiums paid in advance for the year 2002.
Deposits decreased $223,116. The decrease is substantially due to a deposit on
raw materials being produced abroad specifically for the Company was made in the
fourth quarter of 2001 and subsequently used to pay for the raw materials when
received in the first quarter of 2002.
Accounts payable decreased $175,624. This is substantially due to the timing of
invoices and payments to high volume vendors, which had the effect of the
Company holding larger balances at the end of 2001 as compared to the end of
first quarter 2002 on its Trade payables.
Accrued liabilities increased $79,328. This can be attributed to increases in
reserves for commissions of approx. $30,000 and for payroll and bonuses
totaling approx. $50,000. The reserve is for commissions against accounts
receivable, which are adjusted by customer receipts.
Reserve for returns decreased $30,187. This decrease is the net result of
reducing the allowance from 3.5% to 2.75% of sales and the difference in sales
dollars applied to the allowance. The sales dollars are for the twelve months
through the end of the accounting period and the allowance percentage is based
on management analysis of historical and anticipated returns.
Income tax payable increased $218,215. This increase can be substantially
attributed to the tax liability accrued in the fourth quarter of 2001 that is
not due to be paid until the second quarter of 2002.
Retained earnings increased $370,871 as a result of net income.
Trends. Lip balm revenues declined to $3,103,684 in the first quarter of 2002 as
compared to $3,462,620 in the first quarter of 2001, or a 10% decrease. Kmart
Corporation's bankruptcy filing negatively impacted revenues in the first
quarter. Although revenues should increase from Kmart throughout the current
year, the Company does not expect it to reach levels obtained in year 2001. As a
whole in this category, the second quarter should maintain levels similar to
that of 2001, while new packaging and anticipated expanded distribution to
existing customers gives optimism that there will be growth in this category in
the third and fourth quarters of year 2002.
The sour drops and breath fresheners showed a significant decline, as the
combined revenues were $577,690 in the first quarter of 2002 as compared to
$954,539 in the first quarter of 2001, or a 38% decrease. Although overall sales
were slower than the comparable quarter of year 2001, some large orders
(approximately $300,000) were carried over from the first quarter of 2002.
Delayed shipments could cause adverse effects with a key customer, although
improvements in projections and automation may help future sales. This category
continues to be small relative to the lip balm category, and with additional
pressure from new sour and breath products, the popularity of our established
brands will be challenged, making it difficult for the Company to project
revenues for this year.
The nutritional supplements, on a relatively smaller scale, showed decline in
revenue. Revenues were $159,571 in the first quarter of 2002 as compared to
$304,008 in the first quarter of 2001, or a 48% decrease. The Company has
discontinued Healthy Bears(TM) and Dreanalean(TM), while Cheat & Lean(R) and
5-HTP continue to produce steady revenue. The other brands, Glucosamine + MSM,
MSM, and Breast Plus(TM), have not produced significant revenue and the future
of these brands is uncertain. We do not anticipate revenues in this category on
a quarterly basis to grow or decline significantly throughout year 2002 from the
first quarter of this year.
The Company revenues from international business were $301,624 in the first
quarter of 2002 as compared to $412,429 in the first quarter of 2001, or a 27%
decrease. The Company has experienced adverse effects from unsettled markets
internationally, but has been proactive in building relationships in several key
areas giving the Company optimism for future growth. We anticipate consistent
revenue from our distributors in Canada and Europe and have prospective growth
from South America and Asia through the course of year 2002.
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 retail price points and impulse items. The
nutritional supplements are a small part (approximately 4%) of revenues and
could be negatively impacted by inflation.
9
PART II - OTHER INFORMATION
Item No. 1. Legal Proceedings. The Company is not a party to any material
pending legal proceedings to which either it or its subsidiary is a party
or of which any of its property is subject.
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) Exhibits required to be filed are listed below: Certain of the following
exhibits are hereby incorporated by reference pursuant to Rule 12(b)-32 as
promulgated under the Securities and Exchange Act of 1934, as amended, from the
reports noted below:
Exhibit
No. Description
------- -----------
4(1) Specimen Certificate for Common Stock
10.1(1) 1997 Stock Plan
10.2(1) 1997 Non-Employee Directors' Option Plan
10.3(2) Amended and Restated Employment Agreement Between the
Company's Subsidiary and Gary Schlatter
10.4(1) Form of Stock Option Grant under 1997 Non-Employee
Directors' Option Plan
10.5(i)(5) Business Lease Between the Company's Subsidiary and
Gary Schlatter (September 1, 2000)
10.5(ii)(6) Amended Business Lease Between the Company's Subsidiary
and 2780 South Raritan, LLC effective October 15, 2000.
10.6(3) Agreement between the Company, Creative Business LLC and
Allen R. Goldstone dated August 24, 1999, as amended
10.9(4) Agreement (effective May 1, 2000 amending the Employment
Agreement listed above as Exhibit 10.3)
11 No statement re: computation of per share earnings is
required since such computation can be clearly
determined from the material contained in this Report on
Form 10-QSB
1 Incorporated herein by reference to the Company's Form 10-K filed for fiscal
year 1997.
2 Incorporated herein by reference to Exhibit B of the Form 8-K filed by the
Company's predecessor, SSI Capital Corp., on May 14, 1997.
3 Incorporated herein by reference to the Company's Form 10-KSB filed for fiscal
year 1999.
4 Incorporated herein by reference to the Company's Form 10-QSB filed for the
quarter ended March 31, 2000.
5 Incorporated herein by reference to the Company's Form 10-QSB filed for the
quarter ended September 30, 2000.
6 Incorporated herein by reference to the Company's Form 10-KSB filed for fiscal
year 2000.
(b) The Company filed a Form 8-K on March 7, 2002, which disclosed in Item 5 of
the Form ("Other Events") an additional aspect of the business of the Company.
No financial statements were included in the filing.
10
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 15, 2002
11