-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PxyuBcvPjmoNBYO+xzxBP2O5ovIRAnR3JwoyHtqg/Vlm9OhA0mqz++9ZcciajAxd feSFhux56hZEIf56A0Cung== 0000350737-00-000007.txt : 20000317 0000350737-00-000007.hdr.sgml : 20000317 ACCESSION NUMBER: 0000350737-00-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEAN BIO CHEM INC CENTRAL INDEX KEY: 0000350737 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 591564329 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11102 FILM NUMBER: 571285 BUSINESS ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FORT LAUDERDALE STATE: FL ZIP: 33314 BUSINESS PHONE: 9545876280 MAIL ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FT LAUDERDALE STATE: FL ZIP: 33028 FORMER COMPANY: FORMER CONFORMED NAME: STAR BRITE CORP DATE OF NAME CHANGE: 19841204 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10K /x/ Annual Report Pursuant to Section 13 or 15(d) of the SECURITIES EXCHANGE ACT OF 1934 [fee required] For the Fiscal Year Ended December 31, 1999 Commission File 2-70197 OCEAN BIO-CHEM, INC. (Exact Name of Registrant as specified in its charter) Florida 59-1564329 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4041 S. W. 47 Avenue, Fort Lauderdale, Florida 33314 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (954) 587-6280 Securities registered pursuant to Section 12 (g) of the Act Common Stock, Par Value $.01 (Title of Class) Indicate by check mark whether the registrant (x) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. $ 2,223,086 as of February 1, 2000. Indicate the number of shares outstanding of Registrant's common stock as of February 1, 2000. 3,822,499 shares of Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement to be filed within 120 days of December 31, 1999. PART 1 Item l. Business General: The Company was organized on November 13, 1973 under the laws of the state of Florida. The Company is principally engaged in the manufacturing, marketing and distribution of a broad line of appearance and maintenance products for boats, recreational vehicles, automotive, and aircraft under the Star brite name. The Registrant's trade name has been trademarked and the Registrant has had no incidents of infringement. In the event of such infringement, the Registrant would defend its trade name vigorously. The Registrant has two patents which it believes are valuable in limited product lines, but not material to its success or competitiveness in general. Products of the Company: Set forth is a general description of the products which the Company manufactures and markets: Marine: The Marine line consists of polishes, cleaners, protectants and waxes of various formulations. The line also includes various vinyl protectants, cleaners, teak cleaners, teak oils, bilge cleaners, hull cleaners, silicone sealants, polyurethane sealants, polysulfide sealants, gasket materials, lubricants and antifouling additives and anti-freeze coolants. Recreational vehicle: The Recreational vehicle products are made up of cleaners, polishes, detergents, fabric cleaners and protectors, silicone sealants, waterproofers, gasket materials, degreasers, vinyl cleaners and protectors and anti-freeze coolants. Automotive: Through December 31, 1999, this line was primarily composed of anti-freeze, windshield washes, and polishes. The Company intends to introduce a line of oils, lubricants and other engine fluids during the early part of fiscal 2000. Aircraft: The Aircraft product line consists primarily of polishes and cleaners. Although the above products are utilized for different types of vehicles and boats, it is management's view that they all constitute one industry segment. Manufacturing: The Company manufactures and packages its products as well as contracts with unrelated companies to package its products which are manufactured to the Company's specifications, using the Company's formulas for each product. All raw materials used in manufacturing are readily available. Each external packager enters into a confidentiality agreement with the Company. The Company has patent protection on some of its products. The Company designs its own packaging and supplies the external manufacturers with the appropriate design and packaging. Manufacturing is primarily performed by the Company and two independent entities located in the northeastern area of the country. The Company believes that its internal manufacturing capacity as well as the arrangements with the present outside manufacturers are adequate for its present needs. In the event that these arrangements are discontinued with any manufacturer, the Company believes that substitute facilities can be found without substantial adverse effect on manufacturing and distribution. 2 On February 27, 1996, the Registrant, through a wholly-owned operating subsidiary, Kinbright, Inc. (an Alabama corporation), acquired certain assets of Kinpak, Inc.,(a Georgia corporation) ("Kinpak"), and assumed two (2) leases of land and facilities leased by Kinpak from the Industrial Development Board of the city of Montgomery, Alabama and the Alabama State Docks Department. On December 20, 1996, the registrant entered a new agreement with the Industrial Development Board of the City of Montgomery, Alabama to issue new Industrial Development Bonds in the amount of $4,990,000 to repay certain financing costs and to expand the capacity of the Alabama facility. The leased premises consist of a manufacturing and distribution facility containing approximately 110,000 square feet located on approximately 20 acres of real property and a docking facility located on the Alabama River. In addition, Registrant purchased the machinery, equipment and inventory located on the leased premises. Subsequent to the acquisition, the Registrant changed the name of its subsidiary, Kinbright, Inc. to Kinpak Inc. (an Alabama corporation). The Company started producing a private label line of antifreeze and packaging products for the Registrant and unrelated customers during 1997 at such facility. Marketing: The Company's marine products and recreational vehicle products are sold through national retail chains such as Wal-mart and K mart and through specialized marine retailers such as West Marine and Boat America Corporation. The Company also uses distributors who in turn sell its products to specialized retail outlets for that specific market. Currently the Company has one customer (West Marine, Inc.) to which sales exceed 10% of consolidated revenues. The Company markets its products through internal salesmen and approximately 250 independent sales representatives who work on an independent contractor-commission basis. The Officers of the Company also participate in sales. The Company also aids marketing through advertising campaigns in national magazines related to specific marketplaces. The products are distributed primarily from the Company's manufacturing and distribution facility in Alabama. As of this date, the Company has no significant backlog of orders. The Registrant does not give customers the right to return product. The majority of the Company's products are non-seasonal and are sold throughout the year. Competition: The Company has two major and a number of smaller regional competitors in the marine marketplace. The principal elements of competition are brand recognition, price, service and the ability to deliver products on a timely basis. In the opinion of management no one or few competitors holds a dominant market share. Management believes that it can increase or maintain its market share through its present methods of advertising and distribution. The recreation vehicle appearance and maintenance market is parallel to that of the marine market. In this market the Company competes with two major and a number of smaller competitors none of which singly or as a few have a dominant market share. Management is of the opinion that it can increase or maintain the Company's market share by utilizing similar methods as those employed in the marine market. Personnel: The Company employs approximately 19 full time employees at its corporate office in Fort Lauderdale, Florida. These employees are engaged in administration, clerical, and accounting functions. In addition, the Company and/or its subsidiaries employ the following personnel:
Full Time Location Description Employees - -------- ----------- --------- Montgomery, Alabama Manufacturing and distribution 54 Fort Lauderdale, Florida Manufacturing and distribution 35 -- 89 ==
3 New Product Development: The Company continues to develop specialized products for the marine and recreational vehicle trade. During fiscal 2000, the Registrant anticipates launching a line of automotive oils, fluids and related products. The Company believes that its current operations and working capital financing arrangement are sufficient to meet development expenditures without securing external funding. Financial Information Relating to Approximate Domestic and Canadian Gross Sales
Year ended December 31, 1999 1998 1997 ---- ---- ---- United States: Northeast $ 2,829,000 $ 2,526,000 $ 3,780,000 Southeast 4,463,000 3,628,000 1,654,000 Central 4,575,000 4,259,000 4,082,000 West Coast 3,381,000 3,019,000 2,754,000 ----------- ----------- ----------- 15,248,000 13,432,000 12,270,000 Canada (US Dollars) 704,000 646,000 580,000 ----------- ----------- ----------- $15,952,000 $14,078,000 $12,850,000 =========== =========== ===========
Forward-looking Statements: Certain statements contained herein, including without limitation expectations as to future sales and operating results, constitute forward-looking statements. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "will"', "expect"', "anticipate", "intend", "could" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors which may affect the Company's results include, but are not limited to, the highly competitive nature of the Company's industry; reliance on certain key customers; consumer demand for marine, recreational vehicle and automotive products; advertising and promotional efforts, and other factors. The Company will not undertake and specifically declines any obligation to update or correct any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Item 2, Properties The Registrant's executive offices and warehouse are located in Fort Lauderdale, Florida and are held under a lease with an entity owned by officers of the Company. The lease covers approximately 12,700 square feet of office and warehouse space. On May 1, 1998, the Registrant entered into a new lease agreement for a term of ten years. The lease calls for an initial annual rental of $94,800 increasing by 2% per annum on the annual anniversary of the lease for the term thereof. Additionally, the landlord is entitled to its pro-rata share of all taxes, assessments, insurance premiums, operating charges, maintenance charges and any other expenses which arise from ownership. 4 During November 1994, the Company leased an approximately 10,000 square foot building in Fort Lauderdale, Florida for manufacturing, warehousing and office space. Such lease terminates on October 31, 2000. The Company anticipates renewing this lease on a short term basis while it considers alternative real estate options. Rent charged to operations during the year ended December 31, 1999 amounted to approximately $96,000. . The Montgomery, Alabama facility contains approximately 110,000 square feet of office, plant and warehouse space located on 20 acres of land (the "Plant") and also includes a leased 1.5 acre docking facility on the Alabama River located eleven miles from the Plant. The Registrant financed the facility and its improvements with an Industrial Revenue Bond in the amount of $4,990,000. At December 31, 1999, approximately $285,200 was held in trust to pay for equipping the addition to the facility. Item 3. Legal Proceedings The Company from time to time, in the ordinary course of business, is named as a defendant in law suits. In management's opinion, the potential impact of an unfavorable outcome from such lawsuits would not have a material adverse effect on the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Market For the Registrant's Common Equity and Related Stockholder Matters A. The Registrant's Common Stock was sold to the public initially on March 26, 1981. The Common Stock of the Company is traded on the NASDAQ National Market System under the symbol OBCI. A summary of the trading ranges during each quarter of 1999 and 1998 is presented below.
Market Range of Common Stock Bid: 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1999 High $1.19 $1.25 $1.13 $1.25 Low $1.06 $1.06 $ .94 $ .88 1998 High $2.00 $1.88 $2.13 $1.50 Low $1.25 $1.25 $1.25 $1.00
The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. 5 B. The approximate number of Common Stock owners was 700 at December 31, 1999. The aforementioned number was calculated from a list provided by the Transfer Agent and Registrar and indications from broker dealers of shares held by them as nominee for actual shareholders. C. The Registrant has not paid any cash dividends since it has been organized. However, in 1996 the Company issued a 5% stock dividend. During February, 2000, a 5% stock dividend was declared for shareholders of record at the close of business on March 17, 2000 which will be distributed on March 30, 2000. D. The Company has no other dividend policy except as stated in C. directly above. Item 6. Selected Financial Data The following tables set forth selected financial data as of, and for the years ending December 31,
1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Statement of operations - ---------- Gross sales $15,952,165 $14,077,993 $12,849,507 $12,436,918 $9,700,193 Net sales $14,317,485 $12,705,473 $11,599,113 $11,826,340 $9,042,181 Net income(loss) $ 431,484 $ 83,059 $ (168,506) $ 354,672 $ 540,542 Earnings(loss) per common share $ .11 $ .02 $ (.05) $ .09 $ .15 Balance sheet - ------------- Working capital $ 2,797,708 $ 1,956,647 $ 1,976,517 $ 2,737,817 $2,736,587 Total assets $13,547,452 $12,846,794 $13,276,542 $11,955,397 $6,747,770 Long term obligations $ 4,152,332 $ 4,070,000 $ 4,370,000 $ 4,710,000 $ - Total liabilities $ 8,629,991 $ 8,390,036 $ 8,866,122 $ 7,410,913 $2,571,765 Shareholders' equity $ 4,917,461 $ 4,456,758 $ 4,410,420 $ 4,544,484 $4,176,005
6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with the Company's consolidated financial statements contained herein as Item 14. Liquidity and Capital Resources: The primary sources of the Registrant's liquidity are its operations and short-term borrowings from a commercial bank. The Registrant's line of credit aggregates $3.5 million, is due on demand, bears interest at prime less .25%, and is secured by the Registrant's trade receivables, inventory, and other assets. The Registrant is required to maintain a minimum working capital of $1.5 million and meet other financial covenants during the term of the agreement. The Registrant obtained a letter of credit in order to market its Alabama Industrial Revenue Bonds at favorable rates. Under such letter of credit agreement the Company is required to maintain working capital of $1.5 million, debt to tangible net worth of 2 to 1, and a debt service coverage of 1.1 times. As of year end, the Registrant was in compliance with all such terms. In connection with the purchase and expansion of the Alabama facility, the Registrant closed on an Industrial Revenue Bond for the repayment of certain advances used to purchase the Alabama facility and to expand such facility for the Registrant's future needs. During March, 1997, the Registrant refinanced $4,990,000 of such bonds of which approximately $285,200 was held in trust at December 31, 1999 for equipping the expansion. The bonds are marketed weekly at the prevailing rates for such instruments. Currently such bonds carry interest between 5.25% to 5.75% annually. Interest and principal are payable quarterly. The Registrant believes that current operations are sufficient to meet these obligations. The Registrant is involved in making sales in the Canadian market and must deal with the currency fluctuations of the Canadian currency. The Registrant does not engage in currency hedging and deals with such currency risk as a pricing issue. During the past few years, the Registrant has introduced various new products to the marketplace. This has required the Registrant to carry greater amounts of overall inventory and has resulted in lower inventory turnover rates. The effects of such inventory turnover have not been material to the overall operations of the Registrant. The Registrant believes that all required capital to maintain such increases can continue to be provided by operations and current financing arrangements. Year ended December 31, 1999: Fourth Quarter Results: Comparing the quarters ended December 31, 1999 and 1998, net sales increased approximately $530,000 or 18% and similarly gross profit percentages improved from 25.5% to 27.8%. These changes were consistent with those experienced for the entire year; new products and increased private label sales and improved utilization of the Company's manufacturing plant's capacity. Additionally, the trend in Company's selling, general and administrative expenses were consistent with those of the entire year. The pre-tax income (loss) amounts for the fourth quarter of 1999 and 1998 were approximately $10,800 and ($101,000), respectively. 7 Results of Operations: Calendar year 1999/1998: Sales and earnings varied when comparing the year ended December 31, 1999 to 1998 principally due to the factors enumerated below. Net sales - Net sales increased 13% or approximately $1,612,000 comparing the year ended December 31, 1999 with the 1998 period. This was primarily due to increased sales of anti-freeze, private label product sales, and sales of brushes and straps. Cost of goods sold - Cost of goods sold decreased from 71% to 69% as a percentage of net sales when comparing 1999 to 1998. This change was primarily attributable to a differing product mix and improved utilization of the Company's manufacturing plant's capacity. Advertising and promotion - Advertising expense decreased approximately $141,200 or 20% when comparing 1999 to 1998. This was primarily due to planned decreases in media advertising expenditures and lower customer co-op advertising. Selling, general and administrative - Selling, general and administrative expenses increased approximately $175,700 or 7% when comparing 1999 to 1998. This change was attributable to increased personnel costs and normal inflationary trends. Interest expense - Interest expense incurred during 1999 increased by approximately $47,800 or 13% over 1998. The increase was primarily due to increased borrowings and interest rates. Calendar year 1998/1997: - Sales and earnings varied when comparing the year ended December 31, 1998 to 1997 principally due to the factors enumerated below. Net sales - Net sales increased 9.5% or approximately $1,106,000 for the year ended December 31, 1998 over the 1997 period. This was primarily due to increased sales of anti-freeze, private label sales, and sales of brushes and straps. Cost of goods sold - Cost of goods sold decreased 0.6% as a percentage of gross sales when comparing 1998 to 1997. This change is not significant. Advertising and promotion - Advertising expense decreased approximately $114,000 or 14% when comparing 1998 to 1997. This was primarily due to decreased expenditures in customer co-op advertising and magazine advertisement. Selling, general and administrative - Selling, general and administrative expenses increased approximately $50,000 or 1.9% when comparing 1998 to 1997. This change is not significant. Interest expense - Interest expense incurred during 1998 decreased by approximately $61,000 or 14% over 1997. The decrease was primarily due to lower interest rates and lower levels of debt outstanding on the Industrial Revenue Bonds. Item 8. Financial Statements and Supplementary Data See consolidated financial statements as set forth in Item 14. 8 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure (a) The independent certified public accounting firm for Registrant, Infante, Lago and Company, has been dismissed due to the departure of Jesus Lago, the partner in charge of the Registrant's audit. The dismissal was necessary in order for the Registrant to retain Berkovits & Company PA as the Registrant's independent certified public accountants in which Mr.Jesus Lago has become a partner. The dismissal was effective January 5, 2000. (b) (i) Infante, Lago and Company was dismissed solely because of the resignation of the individual partner responsible for the Registrant's audit. (ii) The reports on the financial statements of the Registrant by Infante, Lago and Company over the past two years contain no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. (iii) The decision to change accountants was approved by the Board of Directors of the Registrant. (iv) During Registrant's two most recent fiscal years and any subsequent interim period preceding the dismissal of Infante, Lago and Company there were no disagreements with Infante, Lago and Company on any matter of accounting principles or practices, financial statements, disclosure or auditing scope or procedure. (v) No reportable events referred to in Item 304(a)(v) of Regulation S-K occurred during the two years prior to the dismissal of Infante, Lago and Company. (2) Berkovits & Company PA has been engaged effective January 5, 2000. The Registrant did not, during the two most recent fiscal years or any subsequent interim period prior to engaging Berkovits & Company PA, consult Berkovits & Company PA on any matter. (3) Registrant has provided Infante, Lago and Company with a copy of the foregoing disclosures and Infante, Lago and Company has furnished the Registrant with a letter addressed to the Commission stating that it agrees with the foregoing statements made by Registrant. 9 PART III Item 10. Executive Officers and Directors of the Registrant The following tables set forth the names and ages of all elected directors and officers of the Registrant, as of December 31, 1999. All directors will serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. Each officer serves at the pleasure of the board of directors. There are no arrangements or understandings between any of the officers or directors of the Company and the Company and any other persons pursuant to which any officer or director was or is to be selected as a director or officer.
NAME OFFICE AGE ---- ------ --- Peter G. Dornau President, Chief Executive Officer, and 60 Director since 1973 Jeffrey Tieger Vice President, Secretary and Director 56 since 1977 Edward Anchel Vice President- Finance, Chief Financial 53 Officer since 1999 and Director since 1998 James Kolisch Director since 1998 48 Laz Schneider Director since 1998 60
Peter Dornau, a founder of the Company, has been President and a Director since 1973. Jeffrey Tieger joined the Company in June 1977 as Vice President-Advertising. Edward Anchel joined the Company in March, 1999 as Vice President-Finance. For the five years immediately preceding his employment, he was an officer of a privately owned manufacturing company and in private practice as a Certified Public Accountant. He was elected to serve as an outside Director of the Company during May, 1998. James Kolisch is engaged in the insurance industry and was elected to serve as an outside Director of the Company during May, 1998. Mr. Kolisch provides services to the Company in the capacity of Insurance Agent. Laz Schneider is an attorney in private practice and was elected to serve as an outside Director of the Company during May, 1998. Mr. Schneider is a partner in the law firm that serves as the Company's lead counsel in various corporate and litigation matters. Item 11. Management Remuneration and Transactions The information required by this section has been incorporated by reference to the Registrant's proxy statement in conjunction to the annual stockholder's meeting which shall be sent out to shareholders prior to 120 days past the Registrant's year end of December 31, 1999. 10 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information at December 31, 1999 with respect to the beneficial ownership of the Registrant's Common Stock by holders of more than 5% of such stock and by all directors and officers of the Registrant as a group:
Title of Name and Address of Amount and Nature of Percent Class Beneficial Owner Beneficial Ownership of Class - -------- ------------------- -------------------- -------- Common Peter G. Dornau, President, Director 2,191,713* 54.7% 4041 S. W. 47 Avenue Ft. Lauderdale, FL 33314 Common All directors and officers as a group three (3) individuals 2,387,877* 59.7%
*Includes options to purchase shares of the Company's common stock as follows: On March 25, 1999, the Company granted Messrs. Dornau and Tieger a five year option for 100,000 shares each at an exercise price of $.89 representing the market price at the time of grant. Such grants were awarded in consideration of their making a loan to the Company in the amount of $400,000 from an affiliated company in which they are 50% co-shareholders. Pursuant to the Company's various stock option plans, Mr. Dornau has options to acquire 70,000 shares of the Company's common stock of which 21,000 shares are exercisable within 60 days of the issuance of the Registrant's December 31, 1999 financial statements. Pursuant to the Company's various stock option plans, the Company's directors and officers, as a group, have options to acquire 205,000 shares of the Company's common stock of which 42,000 shares are exercisable within 60 days of the issuance of the Registrant's December 31, 1999 financial statements. Item 13. Certain Relationships and Related Transactions On May 1, 1998, the Company entered into a ten year lease for approximately 12,700 square feet of office and warehouse facilities in Fort Lauderdale, Florida from an entity owned by officers of the Registrant. The lease requires a minimum rental of $94,800 the first year increasing by 2% on the anniversary of the lease throughout the term. Additionally, the landlord is entitled to its pro-rata share of all taxes, assessments, insurance premiums, operating charges, maintenance charges and any other expenses which arise from ownership. The Registrant believes that the terms of this lease are comparable to those of similar properties in the same geographic area of the Company available from unrelated third parties. The Registrant acquired the rights to the "Star brite" name and products only for the United States and Canada in conjunction with its original public offering during March, 1981. The President of the Registrant is the beneficial owner of three companies which market Star brite products outside the United States. The Registrant has advanced monies to assist in such foreign marketing in order to establish an international trademark. As of December 31, 1999 and 1998 amounts owed to Registrant by these companies were approximately $737,800 and $ 691,000, respectively. These amounts have been advanced to such affiliates with repayment requirements of between five and seven years bearing interest at the rate charged to the Registrant pursuant to its line of credit. Sales to such affiliates aggregated approximately $252,500 and $156,500 during the years ended December 31, 1999 and 1998, respectively. 11 A subsidiary of the Registrant currently uses the services of an entity which is owned by its President to conduct product research and development. Such entity received $30,000 per year for the years 1999, 1998 and 1997 under such relationship. Item 14. Exhibits, Financial Statements, Schedules, and Reports Filed on Form 8K The following documents are filed as a part of this report. (A) Consolidated financial statements: (i) Consolidated balance sheets, December 31, 1999 and 1998. (ii) Consolidated statements of operations for each of the three years ended December 31, 1999, 1998, and 1997. (iii) Consolidated statement of shareholders' equity for each of the three years ended December 31, 1999, 1998, and 1997. (iv) Consolidated statements of cash flows for each of the three years ended December 31, 1999, 1998 and 1997. (v) Notes to consolidated financial statements. (a) All schedules are omitted because either they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto. Exhibits: (3) Articles of Incorporation and by-laws are incorporated by reference to the Company's Registration Statement on Form S-18 filed on March 26, 1981. (22) Subsidiaries of the Registrant. (B) Reports Filed on Form 8K 12 OCEAN BIO-CHEM INC., AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 Page ---- Reports of independent auditors 1-2 Consolidated balance sheets 3 Consolidated statements of operations 4 Consolidated statement of shareholders' equity 5 Consolidated statements of cash flow 6 Notes to consolidated financial statements 7-13 BERKOVITS & COMPANY, PA CERTIFIED PUBLIC ACCOUNTANTS 8211 WEST BROWARD BOULEVARD, SUITE 340 PLANTATION, FLORIDA 33324 (954) 475-3199 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders Ocean Bio-Chem, Inc. and its subsidiaries Fort Lauderdale, Florida We have audited the accompanying consolidated balance sheet of Ocean Bio-Chem, Inc. ("the Company") and its Subsidiaries as of December 31, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated balance sheet as of December 31, 1998, and the consolidated statements of operations, shareholders' equity, and cash flows of Ocean Bio-Chem, Inc. and its Subsidiaries for the years ended December 31, 1998 and 1997, were audited by other auditors whose report dated March 19, 1999, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ocean Bio-Chem, Inc. and its subsidiaries at December 31, 1999 and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. March 8, 2000 BERKOVITS & COMPANY, PA 1 INFANTE, LAGO & COMPANY CERTIFIED PUBLIC ACCOUNTANTS 11900 BISCAYNE BOULEVARD SUITE 288 NORTH MIAMI, FLORIDA 33181 (305) 893-4341 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Directors Ocean Bio-Chem, Inc. We have audited the accompanying consolidated balance sheets of Ocean Bio-Chem, Inc. ("the Company") and its subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated 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 the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ocean Bio-Chem, Inc. and its subsidiaries at December 31, 1998 and 1997 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. March 19, 1999 INFANTE, LAGO & COMPANY 2 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 and 1998 ASSETS
Current assets: 1999 1998 ------------ ------------ Cash $ 433,772 $ 8,871 Trade accounts receivable net of allowance for doubtful accounts of approximately $22,500 and $26,000, for 1999 and 1998, respectively 2,804,072 2,329,712 Inventories 3,730,321 3,691,877 Due from officer 161,100 161,100 Prepaid expenses and other current assets 146,102 85,123 ------------ ------------ Total current assets 7,275,367 6,276,683 ------------ ------------ Property, plant and equipment, net 4,515,305 4,374,991 ------------ ------------ Other assets: Funds held in escrow for equipment 285,165 583,432 Trademarks, trade names, and patents, net of accumulated amortization 376,423 399,415 Due from affiliated companies, net 846,979 870,150 Deposits and other assets 248,213 342,123 ------------ ------------ Total other assets 1,756,780 2,195,120 ------------ ------------ Total assets $ 13,547,452 $ 12,846,794 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable trade $ 872,693 $ 932,927 Note payable bank 2,900,000 3,009,118 Current portion of long-term debt 314,359 300,000 Accrued expenses payable 390,607 77,991 ------------ ------------ Total current liabilities 4,477,659 4,320,036 ------------ ------------ Long-term debt less current portion 4,152,332 4,070,000 ------------ ------------ Commitments and contingencies - - Shareholders' equity: Common stock - $.01 par value, 10,000,000 shares authorized, 3,822,499 and 3,753,017 shares issued and outstanding at December 31, 1999 and 1998, respectively 38,225 37,530 Additional paid-in capital 3,282,932 3,232,327 Foreign currency translation adjustment ( 160,872) ( 145,666) Retained earnings 1,764,051 1,332,567 ------------ ------------ 4,924,336 4,456,758 Less treasury stock, 5,789 shares, at cost ( 6,875) - ------------ ------------ Total shareholders' equity 4,917,461 4,456,758 ------------ ------------ Total liabilities and shareholders' equity $ 13,547,452 $ 12,846,794 ============ ============
The accompanying notes are an integral part of these financial statements. 3 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
1999 1998 1997 ----------- ----------- ----------- Gross sales $15,952,165 $14,077,993 $12,849,507 Less returns and allowances 1,634,680 1,372,520 1,250,394 ----------- ----------- ----------- Net sales 14,317,485 12,705,473 11,599,113 Cost of goods sold 9,915,216 9,044,501 8,331,510 ----------- ----------- ----------- Gross profit 4,402,269 3,660,972 3,267,603 ----------- ----------- ----------- Operating expenses: Advertising and promotion 552,028 693,229 807,059 Selling and administrative 2,759,207 2,583,485 2,533,557 Interest 414,785 366,994 427,600 ----------- ----------- ----------- Total Operating Expenses 3,726,020 3,643,708 3,768,216 ----------- ----------- ----------- Operating profit (loss) 676,249 17,264 ( 500,613) Interest and other income 19,635 97,174 236,519 ----------- ----------- ----------- Income (loss) before provision (benefit) for income taxes 695,884 114,438 ( 264,094) Provision (benefit) for income taxes 264,400 31,379 ( 95,588) ----------- ----------- ----------- Net income (loss) 431,484 83,059 ( 168,506) Other comprehensive income: Foreign currency translation, net of taxes ( 15,206) ( 26,652) ( 16,628) ----------- ----------- ----------- Comprehensive Income (loss) $ 416,278 $ 56,407 $( 185,134) =========== =========== =========== Earnings (loss) per share: Basic $ .11 $ .02 $( .05) =========== =========== =========== Diluted $ .11 $ .02 $( .05) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
Additional Foreign Common stock paid-in currency Retained Treasury Shares Amount capital adjustment earnings stock Total --------- ------- ---------- ---------- ---------- --------- ---------- January 1, 3,702,078 $37,020 $3,172,337 $( 82,887) $1,418,014 $ - $4,544,484 1997 Net loss ( 8,506) ( 168,506) Issuance of stock 50,939 510 59,990 60,500 Foreign currency translation adjustment ( 26,058) ( 26,058) --------- ------- ---------- ---------- ---------- --------- ---------- December 31, 1997 3,753,017 37,530 3,232,327 ( 108,945) 1,249,508 - 4,410,420 Net income 83,059 83,059 Foreign currency translation adjustment ( 36,721) ( 36,721) --------- ------- ---------- ---------- ---------- --------- ---------- December 31, 1998 3,753,017 37,530 3,232,327 ( 145,666) 1,332,567 - 4,456,758 Net income 431,484 431,484 Issuance of stock 69,482 695 30,605 51,300 Acquisition of treasury stock, 5,789 shares ( 6,875) ( 6,875) Foreign currency translation adjustment ( 15,206) ( 15,206) --------- ------- ---------- ---------- ---------- --------- ---------- December 31, 1999 3,822,499 $38,225 $3,282,932 $( 160,872) $1,764,051 $( 6,875) $4,917,461 ========= ======= ========== ========== ========== ========= ==========
The accompanying notes are an integral part of these financial statements. 5 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
1999 1998 1997 ----------- ------------- ------------- Cash flows from operating activities: Net income (loss) $ 431,484 $ 83,059 $ ( 168,506) Adjustments to reconcile net income (loss) to net cash (used) provided by operations: Depreciation and amortization 329,501 280,091 232,435 Changes in assets and liabilities: (Increase) decrease in accounts receivable ( 474,360) ( 171,479) 76,950 (Increase) in inventory ( 38,444) ( 454,670) ( 702,345) (Increase) decrease in prepaid expense and other 32,931 85,234 ( 214,233) Increase in accounts payable and accrued expenses 252,382 189,371 58,635 ----------- ------------- ------------- Net cash provided (used) by operating activities 533,494 11,606 ( 717,064) ----------- ------------- ------------- Cash flows from financing activities: Net borrowings (reductions) under line of credit ( 109,118) ( 245,040) 1,596,157 Utilization of trust funds for construction 298,267 459,180 2,057,389 Repayment from (advances to) affiliates, net 23,171 ( 136,506) ( 84,778) Increases in (payments on) long term debt, net 96,691 ( 340,000) ( 280,000) Issuance of common stock, net 44,425 - 60,500 ----------- ------------- ------------- Net cash (used) provided by financing activities 353,436 ( 262,366) 3,349,268 ----------- ------------- ------------- Cash flows used by investing activities: Purchase of property, plant and equipment ( 446,823) ( 491,059) (2,213,304) ----------- ------------- ------------- Net cash used by investing activities ( 446,823) ( 491,059) (2,213,304) ----------- ------------- ------------- Increase (decrease) in cash prior to effect of exchange rate on cash 440,107 ( 741,819) 418,900 Effect of exchange rate on cash ( 15,206) ( 36,721) ( 26,058) ----------- ------------- ------------- Net increase (decrease) in cash 424,901 ( 778,540) 392,842 Cash at beginning of year 8,871 787,411 394,569 ----------- ------------- ------------- Cash at end of year $ 433,772 $ 8,871 $ 787,411 =========== ============= ============= Supplemental Information Cash used for interest during period $ 398,561 $ 338,606 $ 366,519 =========== ============= ============= Cash used for income taxes during period $ 72,000 $ - $ 65,000 =========== ============= =============
The Company had no cash equivalents at December 31, 1999, 1998 and 1997. The accompanying notes are an integral part of these financial statements. 6 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1999, 1998, and 1997 Note 1 - Organization and summary of significant accounting policies: Organization - The Company was organized during November, 1973 under the laws of the state of Florida and operates as a manufacturer and distributor of products to the recreational vehicle and marine aftermarkets. On October 11, 1984, the Board of Directors approved a change in the corporate name to Ocean Bio-Chem, Inc. (the parent company) from its former name, Star Brite Corporation. Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. Inventories - Inventories are primarily composed of raw materials and finished goods and are stated at the lower of cost, using the first-in, first-out method, or market. Prepaid advertising and promotion - During the years ended December 31, 1999 and 1998, the Company introduced certain new products in the marine and recreational vehicle aftermarket industries. In connection therewith, the Company produced new promotional items to be distributed over a period of time and increased its catalog advertising. The Company follows the policy of amortizing these costs over a one year basis. At December 31, 1999 and 1998, the accumulated cost of materials on hand and other deferred promotional costs which will be charged against the subsequent year's operations amounted approximately to $41,000 and $29,000, respectively. Property, plant and equipment - Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. On February 27, 1996, the Registrant purchased the assets of Kinpak, Inc., a subsidiary of Kinark, Inc. The plant currently consists of a manufacturing and distribution facility of approximately 110,000 square feet on approximately 20 acres in Montgomery, Alabama. The facility has filling and blow-molding capacity. The cost of the facility was $1,850,000 including an assumption of debt of $990,000. During October, 1997, the Company completed an addition to the Alabama facility at a cost of $1.7 million to be utilized as a distribution center. Stock based compensation - The Company follows the rules of APB Opinion No. 25, Accounting for Stock Issued to Employees, to record compensation costs. Opinion No. 25 requires that compensation cost be based on the difference, if any, between the quoted market price of the stock and the price the employee must pay to acquire the stock depending on the terms of the award. The Company has not adopted Statement of Financial Accounting Standards No. 123 to record such compensation costs. Statement No. 123 requires accounting for such cost at fair value using an option pricing model such as the Black-Scholes or a bimodal distribution. Use of estimates -The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates. 7 Concentration of credit risk - Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. Concentrations of credit with respect to accounts receivable are limited because the majority of the accounts receivable are with large retail customers. The single largest customer's receivable represents approximately 11% of the consolidated balance. As of December 31, 1999, the Company had funds aggregating approximately $275,000 on deposit at a financial institution in excess of underlying governmental insurance protection. Fair Value of financial instruments - The carrying amount of cash approximates its fair value. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities, and the carrying amount approximates fair value. Income taxes - The Company and its subsidiaries file consolidated income tax returns. The Company has adopted application Statement of Financial Accounting Standards No. 109 in the accompanying consolidated financial statements. The only temporary differences included therein are attributable to differing methods of reflecting depreciation for financial statement and income tax purposes. Trademarks, trade names and patents - The Star brite trade name and trademark were purchased in 1980 for $880,000. The cost of trademarks and trade names is being amortized on a straight-line basis over a useful life of 40 years. The Company has two patents which it believes are valuable in limited product lines, but not material to its success or competitiveness in general. There are no capitalized costs for these two patents. The Company's trade name has been trademarked and there have been no incidents of infringement. Translation of Canadian currency - The accounts of the Company's Canadian subsidiary are translated in accordance with Statement of Financial Accounting Standard No. 52, which requires that foreign currency assets and liabilities be translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as the cumulative translation adjustment in shareholders' equity. Realized gains and losses from foreign currency transactions are included in net earnings for the period. Fluctuations arising from inter-company transactions that are of a long term in nature are accumulated as cumulative translation adjustments. Reclassifications - Certain items in the accompanying consolidated financial statements for the years ended December 31, 1998 and 1997 have been reclassified to conform with the 1999 presentation. 8 Note 2 - Property, plant and equipment: The Company's property, plant and equipment consisted of the following:
December 31, ------------------- 1999 1998 ----------- ------------- Land $ 278,325 $ 278,325 Building 2,920,708 2,920,708 Manufacturing and warehouse equipment 1,673,149 1,495,630 Office equipment and furniture 654,665 474,392 Construction in process 4,100 - Leasehold improvement 145,671 60,739 ----------- ------------- 5,676,618 5,229,794 Accumulated depreciation 1,161,313 854,803 ----------- ------------- Property, plant and equipment, net $ 4,515,305 $ 4,374,991 =========== =============
Depreciation expense for the years ended December 31, 1999, 1998 and 1997 amounted to $306,509, $257,099, $209,695, respectively. Depreciation expense includes the amortization of capital lease assets. Included in property, plant and equipment are the following assets held under capital leases:
1999 1998 ----------- ------------- Land $ 278,325 $ 278,325 Building 2,920,708 2,920,708 Manufacturing and warehouse equipment 1,417,794 1,243,542 ----------- ------------- 4,616,827 4,442,575 Less accumulated amortization 520,297 340,207 ----------- ------------- Total $ 4,096,530 $4,102,368 =========== =============
On February 27, 1996, the Company purchased the assets of Kinpak, Inc. a subsidiary of Kinark, Inc. In order to meet the Company's future needs, it entered into an agreement with the City of Montgomery to issue Industrial Revenue Bonds to cover an expansion of the Alabama facility (see Note 4). The expansion consisted of an additional building, which was completed during October, 1997, bringing the current facility to approximately 110,000 square feet. Such facility serves as a manufacturing and distribution center. Obligations for future payments attributable to this capitalized lease are discussed in Note 4. Note 3 - Note payable, bank: During 1999, the Company secured a revolving line of credit with a credit limit of $3.5 million from a commercial bank. Such financing is due on demand and carries an annual interest rate of prime less .25%. Pursuant to this agreement, the Company is required to maintain minimum working capital of $1.5 million, a ratio of debt to tangible net worth of at least 2.5:1, and debt coverage ratio of at least 1.15 times. The line is collateralized by the Company's inventory, trade receivables, equipment and other assets. As of December 31, 1999, the Company was obligated under this arrangement for $2,900,000 and was in compliance with the applicable loan covenants. 9 Note 4 - Long-term debt: Long term debt at December 31, 1999 consisted of the following: Obligation pursuant to capital lease financed through Industrial Revenue Bonds; principal payable quarterly at various specified amounts. Interest is computed weekly at market rates and is paid quarterly along with prescribed principal amounts. On December 20, 1996, the Company issued $4,990,000 of Industrial Revenue Bonds in order to finance the expansion of the Alabama property and to refinance the original acquisition costs. A certain portion of these bonds were reissued in March of 1997 in order to take advantage of tax free financing. The Bonds have varying maturities beginning on June 1, 1997 and ending on March 1, 2012. In addition, the Company is obligated to an affiliated entity pursuant to a note payable aggregating $396,691 at December 31, 1999. Such obligation requires monthly installments of $3,357 including principal and interest at 7.5% through April 1, 2004 when a balloon payment of $373,089 is due. The composition of these obligations are as follows:
Current Long-Term Portion Portion --------- ----------- Industrial Revenue Bonds $ 310,000 $ 3,760,000 Note payable 4,359 392,332 --------- ----------- $ 314,359 $ 4,152,332 ========= ===========
Required principal payment obligations attributable to the foregoing are tabulated below: Year ending December 31,
2000 $ 314,359 2001 325,182 2002 325,668 2003 326,200 2004 710,282 Thereafter 2,465,000 ---------- Total $4,466,691 ==========
Note 5 - Income taxes: The Components of the income tax provision (benefit) are as follows:
Year ended December 31, ------------------------- 1999 1998 1997 --------- -------- ----------- Income tax provision (benefit): Federal - current $ 195,200 $ 11,193 $ ( 97,218) - deferred 30,800 16,708 18,271 State 38,400 3,478 ( 16,641) --------- -------- ---------- Total $ 264,400 $ 31,379 $ ( 95,588) ========= ======== ==========
10 The reconciliation of income tax provision (benefit) at the statutory rate to the reported income tax expense is as follows:
Year Ended December 31, ------------------------- 1999 1998 1997 ---- ---- ----- Computed at statutory rate 34.0% 34.0% (34.0%) State tax, net of federal benefit 3.6 3.6 ( 3.6 ) Other, net .4 (10.2) 1.4 ------ ------ ------ Effective tax rate 38.0% 27.4% (36.2%) ====== ====== =======
Accrued state and federal income taxes were approximately $203,000 and $31,000 at December 31, 1999 and 1998, respectively. Note 6 - Litigation: The Company from time to time, in the ordinary course of business, is named as a defendant in lawsuits. In management's opinion, the ultimate liability, if any, from such lawsuits is not considered to be material to the Company's financial condition or results of operations. Note 7 - Related party transactions: At December 31, 1999 and 1998, the Company had amounts due from affiliated companies which are directly or beneficially owned by the Company's president aggregating approximately $847,000 and $870,000, respectively. Such advances were made primarily to international affiliates that are in the process of expanding sales of the Company's products in Europe, Asia and South America. These amounts have been advanced by the Company on open account with requirements of repayment between five and seven years. $80,000 of such advances were repaid during February, 2000. Advances and inter-company charges bear interest at the rate of interest charged to the Company on its line of credit. Sales of Company products to such affiliates aggregated approximately $252,500 and $156,500 during the years ended December 31, 1999 and 1998, respectively. Note 8 - Commitments: On May 1, 1998, the Company entered into a ten year lease for approximately 12,700 square feet of office and warehouse facilities in Fort Lauderdale, Florida from an entity owned by certain officers of the Company. The lease required a minimum rental of $94,800 for the first year increasing by 2% on the anniversary of the lease throughout the term. Additionally, the landlord is entitled to its pro-rata share of all taxes, assessments, insurance premiums, operating charges, maintenance charges and any other expenses which arise from ownership. Rent charged to operations during the year ended December 31, 1999 amounted to approximately $94,800. The Company has entered into a corporate guaranty of the mortgage note obligations of such affiliate. The obligations are primarily secured by the real estate leased to the Company. In November, 1994, the Company leased an approximately 10,000 square foot building in Fort Lauderdale, Florida for manufacturing, warehousing and office space. Such lease terminates on October 31, 2000. Rent charged to operations under this lease during the year ended December 31, 1999 amounted to approximately $ 96,000. 11 The following is a schedule of minimum future rentals on the noncancellable operating leases: Year ending December 31,
2000 $ 166,590 2001 97,985 2002 99,944 2003 101,939 2004 103,979 Thereafter 574,880 ---------- Total $1,145,317 ==========
Note 9 - Licensing agreement: During 1984, the Company entered into a licensing agreement for an indefinite period whereby the Company will market a marine anti-fouling product. Such agreement, as amended, requires the Company to pay the licensor a royalty equal to the greater of 7% of net sales to fund future research and development costs of the covered product or a minimum of $4,000 per year. Note 10 - Stock options: During 1991, the Company adopted a non-qualified employee stock option plan covering 200,000 shares of its common stock. During 1992, the Company adopted an incentive stock option plan covering 200,000 shares of its common stock. During 1994, the Company adopted a non-qualified employee stock option plan covering 400,000 shares of its common stock. The following schedule shows the status of outstanding options under the plans.
Date Options Option Expiration Plan granted outstanding price date ---- ------- ----------- ------ ---------- 1994 01/05/95 92,000 $2.000 01/22/00 1994 04/30/96 97,000 $2.000 01/29/01 1994 05/04/99 136,000 $ .790 05/03/04 1992 03/01/99 25,000 $ .870 02/28/04 1991 11/12/99 150,000 $ .875 11/11/04
On March 25, 1999, the Company granted two officers a five year option for 100,000 shares each at an exercise price of $.89 representing the market price at the time of grant. Such grants were awarded in consideration of their making a loan to the Company in the amount of $400,000 from an affiliated company in which they are 50% co-shareholders. Statement of Financial Accounting Standards No. 123 requires that companies that continue to account for employer stock options under APB No. 25 disclose pro forma net income and earnings per share as if such Statement had been applied. The following is disclosed pursuant to such requirement.
1999 1998 1997 ---- ---- ---- Net income (loss) As reported $431,484 $83,059 $(168,506) Pro forma $414,175 $46,959 $(204,606) Earnings per share As reported $ .11 $ .02 $( .05) Pro forma $ .10 $ .01 $( .05)
12 A summary of the Company's stock options as of December 31, 1999, 1998 and 1997, and changes during the years ending on those dates, is presented below:
1999 1998 1997 ----------- ------------ --------------- Weighted avg. Weighted avg. Weighted avg. Shares exercise price Shares exercise price Shares exercise price Options Outstanding at beginning of year 339,000 $2.11 559,000 $2.01 623,000 $1.94 511,000 .85 - - - - Expired (194,500) ( 2.19) (220,000) 1.85 - - Exercised - - - - ( 64,000) $1.38 -------- ----- ------- ----- ------- ----- Outstanding at End of Year 655,500 $1.10 339,000 $2.11 559,000 $2.01 ======== ===== ======= ===== ======= =====
The following table summarizes information about the stock options outstanding at December 31, 1999:
Options outstanding Options exercisable ------------------------------------------------- --------------------- Range of Number Weighted avg. Weighted avg. Number Weighted avg. exercise outstanding remaining exercise exercisable exercise prices at 12/31/99 contractual life price at 12/31/99 price ------- ----------- ---------------- ----------- ----------- ------- $2.000 144,500 .57 yrs. $2.000 100,700 $2.000 .875 350,000 .44 yrs. .875 200,000 .875 .840 25,000 4.17 yrs. .840 - - .790 136,000 4.33 yrs. .790 - - ====== ------- --------- ====== ------- ------ 655,500 2.90 yrs. 300,700 $1.250 ======= ========= ======= ======
Under the three option plans adopted by the Company, at the discretion of the Board of Directors, grants are given to selected executives and other key employees. Options typically have a five year life with vesting occurring at 20% per year on a cumulative basis with forfeiture at the end of the option, if not exercised. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following assumptions for 1999, 1998 and 1997: risk free rate 6.5%, no dividend yield for all years, expected life of five years and volatility of 31.6%. Note 11 - Major customer: The Company has one major customer, West Marine, Inc., with sales in excess of 10% of consolidated revenue for the year ended December 31, 1999. Sales to this customer represent approximately 16%. The Company enjoys good relations with this customer. However, the loss of this customer could have an adverse impact on the Company's operations. 13 Note 12 - Earnings per share: Basic earnings per common share for the years ended December 31, 1999, 1998 and 1997 were calculated on the basis of 3,796,764, 3,753,017 and 3,708,053 weighted average common shares outstanding, respectively pursuant to the provisions of Statement of Financial Accounting Standards No. 128. Fully diluted earnings per common share for the year ended December 31, 1999 were calculated on the basis of 3,869,491 shares. Diluted earnings (loss) per share were not computed for the years ended December 31, 1998 and 1997 as the effect of any common stock equivalents would have been anti-dilutive. Common stock equivalents consist of stock options. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. OCEAN BIO-CHEM, INC. Registrant By: /s/ Peter G. Dornau PETER G. DORNAU Chairman of the Board of Directors and Chief Executive Officer March 16, 2000 By: /s/ Edward Anchel EDWARD ANCHEL Chief Financial Officer March 16,2000 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Jeffrey Tieger JEFFREY TIEGER Director March 16, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has not sent an annual report or proxy material to security-holders as of this date. Subsequent to this filing the Registrant will produce an annual report and proxy for its yearly security-holders meeting. Copies of such shall be sent to the SEC pursuant to current requirements. EX-21 2 SUBSIDIARIES OF REGISTRANT EXHIBIT (See 22) The following is a list of the Registrant's subsidiaries: Name Ownership % ---- ----------- Star brite Distributing, Inc. 100 Star brite Distributing Canada, Inc. 100 D & S Advertising Services, Inc. 100 Star brite Sta-Put, Inc. 100 Star brite Service Centers, Inc. 100 Star brite Marine, Inc. 100 Kinpak Inc. 100 EX-27 3 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OCEAN BIO-CHEM, INC. FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 433,772 0 2,826,572 (22,500) 3,730,321 7,275,367 5,676,618 (1,161,313) 13,547,452 4,477,659 0 0 0 38,225 4,879,236 13,547,452 14,317,485 14,337,120 9,915,216 0 3,311,235 0 414,785 695,884 264,400 431,484 0 0 0 431,484 .11 .11
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