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: September 30, 2005
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.)
18685 East Plaza Drive, Parker, Colorado 80134
------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(303) 783-9499
--------------
(Issuer's telephone number)
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 September 30, 2005 Issuer had 4,693,015 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 September 30, 2005(Unaudited)
And December 31, 2004............................................2
Consolidated Statements of Operations Three Months and Nine Months
Ended September 30, 2005 and 2004 (Unaudited)....................3
Consolidated Statement of Stockholders' Equity from
December 31, 2004 Through September 30,2005 (Unaudited)..........4
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 2005 and 2004 (Unaudited)..........................5
Notes to Consolidated Financial Statements.........................6
Item 2. Management's Discussion and Analysis of Financial Conditions
And Results of Operations.......................................7
Item 3. Controls and Procedures..........................................10
Part II. Other Information ................................................11
Exhibit Index..............................................................14
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Balance Sheets
---------------------------
September 30,
2005
Unaudited December 31, 2004
------------- ------------------
Assets
Current Assets
Cash and cash equivalents $731,172 $ 866,432
Accounts receivable, net of allowance for doubtful accounts of
$211,740 (2005)and $345,177 (2004) 1,348,210 1,275,820
Inventories 3,184,018 2,878,755
Deferred tax asset - current 239,488 285,117
Income taxes receivable 329,648
Prepaid expenses 150,607 264,451
Deposits and other assets 27,955 158,720
---------- ----------
Total current assets 5,681,450 6,058,943
Non-current assets
Deferred tax asset, long-term 122,795 45,336
Property and equipment, net 1,818,195 1,668,675
---------- ----------
Total non-current assets 1,940,990 1,714,011
---------- ----------
Total Assets $7,622,440 $7,772,954
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable - trade $806,680 $ 850,157
Accrued liabilities 261,893 131,812
Reserve for returns 249,902 362,342
Income tax payable 0 0
Current portion of long-term debt 8,437 12,581
---------- ----------
Total current liabilities 1,326,912 1,356,892
---------- ----------
Non-current Liabilities
Long-term debt, less current portion 7,350 12,075
---------- ----------
Total non-current liabilities 7,350 12,075
---------- ----------
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; 25,000,000 shares authorized,
4,693,015 issued and outstanding (2005),
4,668,615 issued and outstanding (2004). 4,693 4,669
Additional paid -in capital 1,511,820 1,463,044
Retained earnings 4,771,665 4,936,274
---------- ----------
Total stockholders' equity 6,288,178 6,403,987
---------- ----------
Total liabilities and stockholders' equity $7,622,440 $7,772,954
========== ==========
See Notes to Consolidated Financial Statements
2
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Nine Months ended September 30, 2005 and
September 30, 2004
Unaudited
---------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
09/30/05 09/30/04 09/30/05 09/30/04
---------------------------------------------------------------------------------------------------------------------
Revenues:
Product sales $2,944,492 $2,831,826 $9,068,516 $9,622,482
---------- ---------- ---------- ----------
Total Revenues 2,944,492 2,831,826 9,068,516 9,622,482
---------- ---------- ---------- ----------
Cost of Sales 1,920,431 2,173,430 5,898,903 6,943,391
---------- ---------- ---------- ----------
Gross profit 1,024,061 658,396 3,169,613 2,679,091
---------- ---------- ---------- ----------
Operating Expenses:
Engineering 40,312 54,749 168,021 237,726
Selling and marketing costs 406,184 274,088 1,062,595 975,022
General and administrative 792,638 903,830 2,195,761 2,380,849
Other 12,768 2,901 38,675 30,838
---------- ---------- ---------- ----------
Total operating expenses 1,251,902 1,235,568 3,465,052 3,624,435
---------- ---------- ---------- ----------
Net operating (loss) income (227,841) (577,172) (295,439) (945,344)
Other income (expense) (24,148)
Interest and other income 13,113 2,913 53,371 7,942
---------- ---------- ---------- ----------
Total other income (expense) 13,113 2,913 53,371 (16,206)
---------- ---------- ---------- ----------
Net (loss) income before provision for income taxes (214,728) (574,259) (242,068) (961,550)
Income tax benefit (expense) 68,710 214,054 77,459 358,233
---------- ---------- ---------- ----------
Net (loss) income $ (146,018) $(360,205) $(164,609) $(603,317)
========== ========== ========== ==========
Basic and diluted (loss) income per common share $ (.03) $ (.08) $ (.04) $ (.13)
========== ========== ========== ==========
Weighted average shares outstanding 4,693,015 4,580,615 4,677,195 4,580,615
========== ========== ========== ==========
---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
3
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 2005
Unaudited
--------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Addl. Paid-In Retained Total
Shares Amount Shares Amount Capital Earnings
--------------------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 2004 4,668,615 $4,669 $1,463,044 $4,936,274 $6,403,987
Stock options exercised 24,400 24 48,776 48,800
Net loss (164,609) (164,609)
------------------------------------------------------------------------------------------------
Balance at September 30, 2005 4,693,015 $4,693 $1,511,820 $4,771,665 $6,288,178
=================================================================================================================================
See Notes to Consolidated Financial Statements
4
ORALABS HOLDING CORP AND SUBSIDIARIES
Consolidated Statements of
Cash Flow For the Nine months
Ended September 30, 2005 and 2004
Unaudited
--------------------------------------------------------------------------------------------------------------------
2005 2004
---- ----
--------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
------------------------------------
Net loss $ (164,609) $(603,317)
---------- ----------
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation 420,049 263,771
Allowance for doubtful accounts (133,438) (73,438)
Deferred tax asset (31,830) (358,232)
Changes in assets and liabilities:
Accounts receivable - trade 61,048 439,440
Inventories (305,263) (366,172)
Prepaid expenses, deposits and other assets 244,608 (86,961)
Accounts payable - trade (43,477) (136,182)
Accrued Liabilities 130,081 125,517
Reserve for returns (112,439) (38,129)
Income taxes receivable (payable) 329,648
---------- ----------
558,987 (230,386)
---------- ----------
Net cash provided by (used in) operating activities 394,378 (833,703)
---------- -----------
Cash from investing activities
Investment in property and equipment (569,569) (1,009,916)
---------- ----------
Net cash used in investing activities (569,569) (1,009,916)
---------- ----------
Cash from financing activities
Payment on long term debt (8,869) (17,155)
Stock options exercised 48,800
--------- ---------
Net cash provided by (used in) financing activities 39,931 (17,155)
--------- ----------
Net increase (decrease) in cash and cash equivalents (135,260) (1,860,774)
Cash and cash equivalents, beginning of the period 866,432 2,561,108
---------- ----------
Cash and cash equivalents, end of the period $ 731,172 $ 700,334
========== ==========
Cash paid for income taxes was $ 0.00 (2005) and $ 0.00 (2004)
--------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
5
ORALABS HOLDING CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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/A for the year ended December
31, 2004 (the "2004 Form 10-KSB/A") 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.
RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to conform to the 2005 presentation.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and Equipment Property and Equipment Consisted of the following:
Property and Equipment:
------------------------
============================================================================
September 30, 2005
----------------------------------------------------------------------------
Machinery and equipment $3,600,556
Construction in progress 128,656
Leasehold improvements 146,211
----------
3,875,423
Less accumulated depreciation (2,057,228)
----------
$1,818,195
==========
NOTE 3 - LINE-OF-CREDIT
The Company has a $2,000,000 line-of-credit agreement with a bank secured by
substantially all of the Company's assets. The line of credit expires September
2006. As of September 30, 2005, the Company had no outstanding balance on this
line-of-credit.
NOTE 4 - RESERVE FOR RETURNS AND ALLOWANCES
The Company previously had reserved 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. Beginning with the quarter ended June 30, 2005,
after an analysis of favorable historical trends, the Company reduced the
reserve percentage to 1.82%. The amount recorded as a liability on the balance
sheet at September 30, 2005 is $249,902.
NOTE 5- STOCK OPTIONS
The Company has determined the value of stock-based compensation arrangements
under the provisions of APB Opinion No. 25 "Accounting for Stock Issued to
Employees"; and makes pro forma disclosures required under SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 permits the use of
either a fair value based method or the method defined in APB No. 25 which
requires the disclosure of pro forma net income (loss) and earnings per share
that would have resulted from the use of the fair value based method.
3 months ended 9 months ended
September 30, September 30,
------------------------------------ ------------------------------------
2005 2004 2005 2004
----------------- ---------------- ----------------- ----------------
Net (loss) available to common
shareholders - as reported $ (146,018) $ (360,205) $ (164,609) $ (603,317)
Total stock-based employee compensation
expense determined under fair market
value method for an award -- -- (98,931) (7,581)
---------- -------- ---------- --------
Net loss available to common
shareholders - pro forma $ (146,018) $ (360,205) $ (263,540) $ (610,898)
Basic and diluted loss per common
share - as reported $ (.03) $ (.08) $ (.04) $ (.13)
Basic and diluted loss per common
share - pro forma $ (.03) $ (.08) $ (.06) $ (.13)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. All options are granted at fair market value
on the date of the grant. No options have been re-priced or had their maturities
extended during 2005. In terms of the provisions of our 1997 Stock Plan,
employees, with vested options, who leave the employment of the Company, are
required to exercise or forfeit their options within 90 days after leaving
employment regardless of the exercise period of the initial grant.
The following are the weighted-average assumptions used at September 30, 2005
and 2004 for all Black-Scholes calculations in the financial statements:
September 30,
2005 2004
----------- -----------
Approximate risk free rate 3.74% 4%
Average expected life 5 years 5 years
Dividend yield 0% 0%
Volatility 78% 73%
NOTE 6 - CUSTOMER CONCENTRATIONS
The Company's revenues are generated from customers located in the United
States. The following table summarizes sales to individual customers that
comprised more than 10% of the Company's sales for the periods ended September
30.
3 months ended 9 months ended
----------------- -----------------
Customer 9/30/05 9/30/04 9/30/05 9/30/04
-------- ------- ------- ------- -------
A 16% 33% 15% 16%
B 10% 0% 3% 0%
C 6% 3% 12% 12%
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company was a party to a legal proceeding that was brought in the Circuit
Court of the First Judicial District of Heinz County, Mississippi that was
served on the Company on February 26, 2004 as described in the Company's 2004
Annual Report on Form 10-KSB/A. This litigation matter has been setteled and
dismissed.
6
ORALABS HOLDING CORP AND SUBSIDIARIES
ITEM 2 - 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 September 30, 2005.
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 work force, and changes in market conditions.
Results of Operations. For the three month period ending September 30, 2005 as
compared with the three month period ending September 30, 2004.
Product sales increased $112,666 or 4%. This increase in revenue was primarily a
result of expanded distribution. Promotional sales to mass retail were higher in
the third quarter of 2004 than in the same period in 2005. Conversely, the
Company anticipates the reverse effect in the fourth quarter, as it is expected
7
that promotional sales will be higher in 2005 than 2004 The Company believes
that the last quarter of the year will bring a higher level of sales than the
fourth quarter of 2004. The Company believes that it can supply any orders that
it would reasonably expect to receive during the fourth quarter. The Company
cannot be sure that any increased level of sales will occur.
Gross profit increased $365,665. As a percentage of sales, gross profit
increased 12%. A greater concentration of sales were to higher margin customers
resulting in increased gross profit margin. The Company's capital investment in
automation continues, as it did in the second quarter, to make a positive impact
on labor costs. The Company anticipates continued improvements in costs of
operations, which will be a positive factor in managing gross profit. However,
lower selling prices and higher product packaging costs during the fourth
quarter of 2005 will likely keep margins in the same range as second and third
quarters of 2005.
Engineering costs decreased by $14,437 due to a decrease in variable labor costs
to maintain and repair manufacturing equipment. This was partially offset by a
decrease in the amount of engineering salaries being capitalized in 2005 towards
production automation projects.
Selling and marketing increased by $132,096 due to an increase in the accrual of
sales commissions. These accrual costs may decrease in the fourth quarter of
2005 should the Company move forward with a plan to restructure in-house sales
compensation.
Administrative expenses decreased $111,192. In the third quarter of 2004, the
Company had expenses of approximately $180,000 related to patent protection
litigation, while in the third quarter of 2005 there were costs of approximately
$80,000 associated with the proposed stock exchange with NVC Lighting Investment
Holdings Limited ("NVC"). NVC terminated the agreement on November 9, 2005 and
there will be some residual legal costs in the fourth quarter of 2005, but those
costs should not cause a significant increase above normal legal costs in the
fourth quarter of 2005.
Other expense increased $9,867, primarily caused by filing fees associated with
the NVC agreement. The amount of other expenses is expected to remain consistent
going forward.
The Company incurred a net loss from operations for third quarter 2004 of
$577,172, and a net loss from operations for third quarter 2005 of $227,841, as
explained by the above activities. As a percentage of sales, the net loss from
operations for the third quarter of 2004 was 20%, while the third quarter of
2005 shows a loss from operations as a percentage of sales of 8%. The Company
hopes, but cannot guarantee, to be profitable in the fourth quarter of 2005.
The Company had a net loss of $146,018 for third quarter 2005 compared to a net
loss of $360,205 for third quarter 2004. The effective tax rate decreased from
37% to 32%. For the quarter ended September 30, 2005, the Company recognized the
impact of previous tax credits related to enterprise zone credits and foreign
territorial income exclusions not previously reflected.
Results of Operations. For the nine month period ending September 30, 2005 as
compared with the nine month period ending September 30, 2004.
Product sales decreased $553,966 or 6%. This decrease in revenue was primarily a
result of increased competition and slower sales at the retail level during the
first six months of 2005, which was partially offset by an increase in sales
during the third quarter. Promotional sales to mass retail were higher in the
third quarter of 2004 than in the same period in 2005. Conversely, the Company
anticipates the reverse effect in the fourth quarter, as it is expected that
promotional sales will be higher in 2005 than 2004. The Company believes that
the last quarter of the year will bring a higher level of sales than the fourth
quarter of 2004. The Company believes that it can supply any orders that it
would reasonably expect to receive during the fourth quarter. The Company cannot
be sure that any increased level of sales will occur.
Gross profit increased $490,522. As a percentage of sales, gross profit
increased by 7%. A greater concentration of sales were to higher margin
customers. The Company's capital investment in automation continues, as it did
in the second quarter, to make a positive impact on labor costs. The Company
anticipates continued improvements in costs of operations, which will be a
positive factor in managing gross profit. However, lower selling prices and
higher product packaging costs during the fourth quarter of 2005 will likely
keep margins in the same range as second and third quarters of 2005.
Engineering expenses decreased $69,705 due to a decrease in variable labor costs
to maintain and repair manufacturing equipment. This was partially offset by a
decrease in the amount of engineering salaries being capitalized in 2005 towards
production automation projects.
Selling and marketing expenses increased $87,573 due to an increase in the
accrual for sales commissions. These accrual costs may decrease in the fourth
quarter of 2005 should the Company move forward with a plan to restructure
in-house sales compensation.
Administrative expenses decreased $185,088. During 2004 the Company had expenses
of approximately $250,000 related to patent protection litigation, while in
third quarter of 2005 there were costs of approximately $80,000 associated with
the proposed stock exchange with NVC. NVC terminated the agreement on November
9, 2005 and there will be some residual legal costs in fourth quarter of 2005,
but those costs should not cause a significant increase above normal legal cost
in the fourth quarter of 2005.
Other expense increased $7,837, primarily caused by filing related fees
associated with the NVC agreement. The amount of other expenses is expected to
remain consistent going forward.
The Company incurred a net loss from operations for the first nine months of
2004 of $945,344, and a net loss from operations for the first nine months of
2005 of $295,439, as explained by the above activities. As a percentage of
sales, the net loss from operations for the first nine months of 2004 was 10%,
while the first nine months of 2005 shows a net loss from operations as a
percentage of sales of 3%. The Company hopes, but cannot guarantee, to be
profitable in the fourth quarter of 2005.
The Company had a net loss of $164,609 in the first nine months of 2005 compared
to a net loss of $603,317 for the same period in 2004. The effective tax rate
for the first nine months of 2004 was 37%, while the rate for the first nine
months of 2005 was 32%, consistent with management's expectations. For the nine
months ended September 30, 2005, the Company recognized a tax benefit related to
the completion of the Company's previous year's tax return and recognized the
impact of previous tax credits related to enterprise zone credits and foreign
territorial income exclusions not previously reflected.
Liquidity and Capital Resources. Balance Sheet as of September 30, 2005
compared to December 31, 2004.
At September 30, 2005, the Company had $731,172 of cash and its current ratio
was 4 to 1. The Company believes its current capital resources are sufficient to
fund operations for the next twelve months.
Net cash provided by operating activities during the nine months ended September
30, 2005 in the amount of $394,378 consists of the following:
Accounts receivable, net of allowance for doubtful accounts, increased $72,390.
While A/R decreased by $61,048, the allowance for doubtful accounts decreased by
$133,438. The Company reduced past due receivables by over $100,000 from
December 31, 2004 to September 30, 2005 and is working towards comprehensive
customer account reconciliations to reduce the amount of allowances against open
past due balances. The Company anticipates the fourth quarter to have higher
revenue than the third quarter and therefore expects accounts receivable may
increase at the end of fourth quarter.
Inventory increased $305,263. This increase is due to a higher volume of
finished product inventory made to contribute to fourth quarter projected sales.
Prepaid expenses and deposits decreased $244,608 due to first and second quarter
receipt of goods for which deposits existed at year-end.
Accounts payable decreased $43,477 due to timing of payments.
Accrued liabilities increased $130,081 due to timing of accrued payroll.
Reserve for returns decreased $112,439. Beginning with the second quarter of
2005 and based on favorable historical trends, the Company lowered the amount it
is accruing from 2.75% of revenues to 1.82%, on an annualized basis, for returns
and allowances of their product. See Note 4 of the financial statements.
Cash from investing activities:
Investment in property and equipment increased $569,569. This is comprised of
various automation projects designed to reduce production labor costs and
increase capacity, and the addition of a new accounting software package.
Equipment additions of approximately $100,000 are planned for the fourth
quarter.
8
Trends. Revenues from sales of lip balm, the Company's major product line, were
$7,229,202 in the first 9 months of 2005 compared to $7,874,100 for the same
period in 2004, or an 8% decrease. As stated above in results of operations,
this decrease in revenue was primarily a result of a drop off in sales due to
increased competition and slower sales at the retail level. The Company believes
that the last quarter of the year will bring a higher level of sales due to the
seasonality of our primary product line. The Company cannot be sure that any
increased level of sales will occur. The Company's promotional products business
is trending upwards and is estimated to contribute significantly to additional
sales in the final quarter of 2005.
Sales of sour drops and breath fresheners in the first 9 months of 2005 were
$1,344,968 compared to $1,419,318 for the same period in 2004, or a 5% decrease.
The Company continues to maintain a solid base of customers. However, the
Company is uncertain about whether there will be opportunities to increase sales
of this product line.
Sales of EYELIEVE, $258,834 in the third quarter represented 3% of the overall
revenue, but the Company anticipates a material impact on its future business,
as it has made a determination to move forward with this product category. A
capital investment of approximately $200,000 will be made to purchase equipment
and plant and equipment modification.
The nutritional supplements, on a relatively smaller scale, provided revenues of
$223,014. Revenues were down $106,050 in the first nine months of 2005 compared
to 2004, or a 32% decrease. The Company has discontinued the product line Cheat
& Lean(TM). Revenues for the remaining supplements are expected to remain
stable.
Impact of fuel increases. The Company has seen a continued increase in its cost
of plastic components and an increase in fuel surcharges by freight companies.
If these trends continue the Company could see further erosion on margins due to
higher costs.
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 of revenues and could be negatively
impacted by inflation.
The following table shows aggregated information about contractual obligations
as of September 30, 2005:
Payments Due by Period
--------------------------------------------------------------------------------------------
Total Less Than 1 Year 1-3 Years 4-5 Years After 5 Years
--------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $15,787 $8,437 $7,350
Building Lease $445,000 $445,000
Vehicle Lease $1,500 $1,500
--------------------------------------------------------------------------------------------------------------------------------
Total $462,287 $454,937 $7,350
================================================================================================================================
9
ITEM 3. CONTROLS AND PROCEDURES Control deficiencies have been identified by
management in consultation with Ehrhardt Keefe Steiner & Hottman PC, the
Company's prior independent registered public accounting firm. Certain matters
involving internal control deficiencies considered to be material weaknesses
under standards established by the American Institute of Certified Public
Accountants have been reported to the audit committee of the board of directors.
The material weaknesses relate to adjustments identified by the auditors to
properly state certain inventory related balance sheet accounts that are a
result of non-timely account reconciliations and lack of oversight over the
accounting process, financial reporting and a lack of qualified accounting
personnel.
The primary objective of the Company's Inventory Control Program is to
continuously develop and implement systems by which the stated on-hand inventory
levels are both controllable and predictable. This critical objective will be
achieved through the utilization of quarterly physical inventories, regularly
scheduled cycle counts, data processing auditing and Kanban system utilization.
The Company believes the staff in place are capable of carrying out this
objective through 2005 and beyond.
The lack of timely reconciliation of balance sheet accounts can be significantly
attributed to inadequate human resources. The Company did commit significant,
but not adequate, human resources to address this. Meanwhile internal daily
review processes were not followed further impacting the timeliness of
reconciling account balances. The Company has reinstated internal review
requirements and timely monthly account reconciliations in the second quarter of
2005 with full compliance expected in the third quarter of 2005.
The lack of oversight over the accounting process, financial reporting and lack
of qualified accounting personnel is also being addressed through the internal
review process; utilization of improved software capabilities such as automated
reports (Business Alerts) as to daily revenues, sales orders due to ship report,
payroll report, cash flow, etc. that are being reviewed by management on a daily
basis; and although accounting staff is qualified and trained to manage and
process financial information necessary to prepare financial statements in
accordance with generally accepted accounting principles (GAAP), training is
required and planned during 2005 for more extensive education of financial
accounting standards that focus more on proper disclosure and recognition of
financial reporting information.
Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive
Officer and its Chief Financial Officer, after evaluating the effectiveness of
the Company's disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of a date within 90 days
of the filing date of this quarterly report on Form 10-QSB (the "Evaluation
Date")), have concluded that as of the Evaluation Date, and except as provided
above, the Company's disclosure controls and procedures were adequate and
effective to ensure that material information relating to the Company and its
consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this quarterly report on Form
10-QSB was being prepared.
10
PART II - OTHER INFORMATION
Item No. 1. Legal Proceedings. The Company is not a party, nor are its
properties subject to, any material pending legal proceedings other than
ordinary routine litigation incidental to the Company's business. The
Mississippi litigation matter described in the Company's 2004 Annual Report on
Form 10-KSB/A has been settled and dismissed.
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.
The Company announced in its Form 8-K filed on November 10, 2005, that the Stock
Exchange Agreement between OraLabs and NVC Lighting Investment Holdings Limited
("NVC") was terminated by NVC.
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
--- -----------
3.1(i)(1) Articles of Incorporation
3.1(ii)(2) Amended and Restated Bylaws
3.1(ii)(4) Second Amended and Restated Bylaws
4(2) Specimen Certificate for Common Stock
10.1(2) 1997 Stock Plan
10.2(2) 1997 Non-Employee Directors' Option Plan
10.3(3) Amended and Restated Employment Agreement Between the
Company's Subsidiary and Gary Schlatter
10.4(2) 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(iii)(8) Amended Business Lease between the Company's Subsidiary and 2780
South Raritan, LLC effective October 15, 2000.
10.5(iv)(9) Lease between the Company's Subsidiary and 18501 East Plaza Drive,
LLC dated September 4, 2003
10.9(7) Agreement (effective May 1, 2000, amending the Employment Agreement
listed above as Exhibit 10.3).
10.10(10) Amended and Restated Employment Agreement between the Company's
Subsidiary and Gary Schlatter dated May 1, 2003
10.11(11) Stock Exchange Agreement between the Company, NVC Lighting
Investment Holdings Limited and others dated February 23, 2005
11 No statement re: computation of per share earnings is required
since such earnings computation can be clearly determined from the
material contained in this Quarterly Report on Form 10-QSB.
21(2) List of Subsidiaries of the Company
31.1(12) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
31.2(12) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002
32.1(12) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
32.2(12) Certification Pursuant To 18 U.S.C. Section 1350, As Adopted
Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002
11
1 Incorporated herein by reference to Exhibit C of the Definitive Information
Statement filed by the Company's predecessor, SSI Capital Corp., on July 24,
1997.
2 Incorporated herein by reference to the Company's Form 10-K filed for fiscal
year 1997.
3 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.
4 Incorporated herein by reference to the Company's Form 10-KSB filed for fiscal
year 1998.
5 Incorporated herein by reference to the Company's Form 10-QSB filed for the
quarter ended September 30, 2000.
6 N/A
7 Incorporated herein by reference to the Company's Form 10-QSB filed for the
quarter ended March 31, 2000.
8 Incorporated herein by reference to the Company's Form 10-KSB filed for fiscal
year 2000.
9 Incorporated herein by reference to the Company's Form 10-QSB filed for the
quarter ended September 30, 2003.
10 Incorporated herein by reference to the Company's Form 10-QSB filed for the
quarter ended June 30, 2003.
11 Incorporated herein by reference to the Company's Form 8-K filed February 24,
2005.
12 Filed herewith.
(b) A report on Form 8-K was filed by the Company on August 24, 2005, concerning
Item 5.05 (amendments to the Company's Code of Ethics), 7.01 (Regulation FD
disclosure) and Item 9.01 (financial statements for the quarter ended June 30,
2005).
12
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 H. Schlatter
---------------------
Gary H. Schlatter, President
By:/s/ Emile J. Jordan
-------------------
Emile J. Jordan, Chief Financial Officer
Dated November 21, 2005
13
Exhibit Index
Exhibit
No. Description
--------- ------------
31.1 Certification of President Pursuant To 18 U.S.C. Section
1350, As Adopted Pursuant To Section 302 Of The
Sarbanes-Oxley Act Of 2002
31.2 Certification of Chief Financial Officer Pursuant To
18 U.S.C. Section 1350, As Adopted Pursuant To Section
302 Of The Sarbanes-Oxley Act Of 2002
32.1 Certification of President pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002