-----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, Ug4fAzxmv9PX1iVjPnqqEfewy6tCgSOTID0KEQweMKPhnyeqB92ah4V5KU9xQyks jqCnqmbOYnGTLvC3xbQzuw== 0000350737-96-000007.txt : 19960506 0000350737-96-000007.hdr.sgml : 19960506 ACCESSION NUMBER: 0000350737-96-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960503 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-11102 FILM NUMBER: 96555791 BUSINESS ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FORT LAUDERDALE STATE: FL ZIP: 33314 BUSINESS PHONE: 3055876280 MAIL ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FT LAUDERDALE STATE: FL ZIP: 33314 FORMER COMPANY: FORMER CONFORMED NAME: STAR BRITE CORP DATE OF NAME CHANGE: 19841204 10-K 1 10k1295 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10K /x/ Annual Report Pursuant to Section 13 or 15(d) ofthe SECURITIES EXCHANGE ACT OF 1934 [fee required] For the Fiscal Year Ended December 31, 1995 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 (305) 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 (a) 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. $3,925,787 as of February 1, 1996. Indicate the number of shares outstanding of registrant's common stock as of February 1, 1996. 3,512,964 shares of Common Stock, par value $.01 per share. DOCUMENTS INCORPORATED BY REFERENCE Proxy Statement to be filed within 120 days of December 31, 1995. 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 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 the Company markets. Marine: The Marine line consists of polishes, cleaners, protectants, 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. Recreational Vehicle: The Recreational products are made up of cleaners, polishes, detergents, fabric cleaners and protectors, silicone sealants, waterproofers, gasket materials, degreasers, vinyl cleaners and protectors. Aircraft: The Aircraft product line consists primarily of polishes and cleaners. Although the above products are utilized for different types of vehicles and boats, they all constitute one industry segment. Manufacturing: The Company manufactures and packages its products as well as contracting unrelated companies to package 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. The Company utilizes four manufacturers located in four states, primarily in the northeastern area of the country. The Company believes that the arrangements with the present manufacturers are adequate for its present needs. In the event the 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 (the "Leases") leased by Kinpak from the industrial Development Board of the city of Montgomery, Alabama and the Alabama State Docks Department. The leased premises consist of a manufacturing facility containing approximately 50,000 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. Marketing: The Company's marine products and recreational products are sold through national retail chains such as Wal-mart and K mart and through specialized marine retailers such as E & B Marine, 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, Wal-Mart Stores, to which sales exceed 10% of consolidated revenues. The Company has a good relationship with this customer. However, the loss of this customer could have an adverse impact on the Company. 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 public warehouse facilities. 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 market share through its present methods of advertising and distribution. The recreation vehicle appearance and maintenance market is parallel to the marine. 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 the Company's market share by employing the same methods as in the marine market. Personnel: The Company employs approximately 28 full time employees at its Ft. Lauderdale office. These employees are engaged in administration, clerical and accounting areas. The Company contracts with approximately 250 independent sales representatives who, along with the management and internal sales staff of the Company, represent the sales staff. New Product Development: The Company continues to develop specialized products for the marine and recreational trade. The Company believes that current operations are sufficient to meet development expenditures without securing external funding. 3
Financial Information Relating to Approximate Domestic and Canadian Total Sales Year Ended December 31, 1995 1994 1993 United States: Northeast $2,776,000 $2,608,000 $2,274,000 Southeast 1,115,000 991,000 1,015,000 Central 3,992,000 4,164,000 3,711,000 West Coast 1,248,000 1,289,000 1,051,000 9,131,000 9,052,000 8,051,000 Canada (US Dollars) 569,000 410,000 275,000 $9,700,000 $9,462,000 $8,326,000
Item 2. Properties The Registrant's executive offices and warehouse are located in Fort Lauderdale, Florida and held under a lease with an entity owned by officers of the Company which expires April 30, 1998. The lease covers approximately 12,000 square feet of office and warehouse space at an annual rental of approximately $84,000 including applicable sales taxes and subject to annual increases/ decreases based on the prevailing prime lending rate. This space has been leased since 1988. In November 1994 the Company leased approximately a 10,000 square foot building for manufacturing, warehousing and office space. The agreement calls for a one year rental renewable yearly for five years. The cancellation requires a one year notification. The annual rental is approximately $69,000 which can be increased at each annual lease anniversary for the change in the consumer price index for the Miami area. The Kinpak facility contains approximately 50,000 square feet of office, plant and warehouse space located on approximately 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. Item 3. Legal Proceedings The Company is involved in two related lawsuits: 1. Duane H. Newville and The Boden Co., d/b/a Adjust-A-Brush v. Star brite Distributing,Inc. ("Star brite") and Peter Dornau, Sr. ("Dornau"), pending in the United States District Court, Middle District of Florida was filed in 1994. In this action, Plaintiffs have sued Star brite and Dornau. This action arises out of Star brite's use of a product called Extend-A- Brush. Plaintiff seeks injunction relief and damages. Registrant and Dornau have filed a counterclaim for declaratory relief and antitrust violations. Registrant intends to pursue its counterclaim vigorously and to vigorously defend against the claim asserted by Plaintiffs. 4 2. Star brite Distributing, Inc. v. The Boden Co., d/b/a Adjust-A-Brush ("Boden"), pending in the Circuit court in and for Pinellas County, Florida was filed in 1993. This action involves the break-up of a business arrangement whereby Star brite was to market adjustable brushes manufactured by Boden, to the marine industry. Star brite has sued Boden for damages and injunctive relief. Boden has filed a counterclaim against Star brite and Dornau, seeking damages and injunctive relief. Registrant intends to vigorously pursue its claims and vigorously defend against the asserted counterclaims. This case has been stayed pending the outcome of the related case set forth in paragraph (1) above. The Registrant does not believe that the results of this litigation would have a material adverse effect on its future results of operations, and it has not accrued any amounts for loss contingencies in this litigation based on its evaluation of the merits thereof. 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 1995 and 1994 is presented below. Market Range of Common Stock Bid: 1st Qtr. 2nd Qtr 3rd Qtr. 4th Qtr. 1995 High $2.88 $4.75 $4.00 $3.88 Low $2.50 $2.75 $2.88 $2.50 1994 High $3.00 $2.88 $2.63 $3.00 Low $2.50 $2.25 $2.25 $2.50
The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. B. The approximate number of Common Stock owners was 600 at December 31, 1995. 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 dividends since it has been organized. D. The Company has no other dividend policy except as stated in (C) directly above. 5 Item 6. Selected Financial Data The following tables set forth selected financial data as of, and for the years ending December 31, 1995 1994 1993 1992 1991 Income Statement Gross Sales $9,700,193 $9,462,547 $8,326,496 $7,114,873 $6,185,133 Net Sales $9,042,181 $8,915,154 $7,702,687 $6,524,952 $5,662,716 Net Income $ 540,542 $ 694,616 $ 558,210 $ 229,438 $ 380,275 Net Income per share $ .16 $ .20 $ .16 $ .07 $ .12 1995 1994 1993 1992 1991 Balance Sheet Working Capital $2,736,587 $2,355,195 $2,108,696 $1,092,332 $ 913,043 Total Assets $6,747,770 $5,722,028 $4,822,530 $4,314,746 $4,393,475 Long Term Obligation - $ 7,501 $ 118,734 $ 64,177 $ 91,883 Total Liabilities $2,571,765 $2,257,408 $2,059,291 $2,083,180 $2,385,653 Shareholders' Equity $4,176,005 $3,464,620 $2,763,239 $2,231,566 $2,007,822 Net income per share for the years prior to 1995 has been restated to reflect a 5% stock dividend given in 1995 and a 5% dividend given in 1994. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources The primary sources of the Registrant's liquidity are its operations and short-terms borrowings from a commercial bank. In November of 1995 the Registrant's line of credit commitment was increased from $1.5 million to $2 million by its commercial bank. On February 27, 1996 the Registrant obtained an increase to the line of credit for an additional $900,000 for temporary financing of the Registrant's asset purchase from Kinpak, Inc. in Alabama. The total borrowings under such line can aggregate up to $2,900,000 and are subject to renewal in April 1997. The Registrant is required to maintain minimum working capital of $1,500,000, debt to 6 tangible net worth of 2 to 1 and debt service coverage of 1.5 times. As of year end Registrant was in compliance with all terms. 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 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 Registrant. Registrant believes that all required capital to maintain such increases can continue to be provided from operations and current lending arrangements. Fourth Quarter Results: For the fourth quarter ended December 31, 1995 and 1994, Gross Margin percentages were 37.8% and 34.3%. This is primarily due to the product sales mix during these quarters since the yearly gross profit percentage was approximately 39% for both years. Result of Operations: Calendar Year 1995/1994: Sales and earnings varied when comparing the year ended 1995 to 1994 principally due to the factors enumerated below. Gross Sales - Gross sales increased 2.5% or approximately $238,000 for the year ended 1995 over 1994. This is due to the results of the record sales levels experienced in the first quarter. Marine and RV sales in the U.S. remained relatively even with last year while Canadian sales increased by approximately 39%. Cost of Good Sold - Cost of goods sold decreased 1.2% or approximately $11,000 as a percentage of gross sales when comparing 1995 to 1994. Management attributes this to a change in the product sales mix. Advertising and Promotion - Advertising expense increased approximately $121,000 or 17% when comparing 1995 to 1994. This was primarily due to increased expenditures in catalog advertising and television advertising for the year. Selling, General and Administrative - Selling, general and administrative expenses rose approximately $244,000 or 13.4% when compared to 1994. Such increase was not attributable to any one particular category but consisted of increases in sales representative costs, salaries and general operating expenses. Interest Expense - Interest expense increased by approximately $31,000 or 47.9% over 1994. The increase was primarily due to increased borrowing levels and increased rates on the Registrant's line of credit. Calendar Year 1994/1993: Sales and earnings varied when comparing the year ended 1994 to 1993 principally due to the factors enumerated below: 7 Gross Sales - Gross sales increased approximately $1,136,000 or 13.6% when comparing 1994 to 1993. Marine gross sales increased approximately 11% while recreational vehicle gross sales increased approximately 18%. These increases are attributed to the continued market penetration of the Registrant's products. Accordingly, Canadian sales increased by approximately 49%. Cost of goods sold - Cost of goods sold increased 1.7% or nearly $768,000 as a percentage of sales when comparing 1994 with 1993. This increase was principally due to short term excess manufacturing capacity and higher shipping costs. Advertising and Promotion - Advertising and promotional expenses increased approximately $101,000 or 16.7% when 1994 is compared to 1993. This increase is primarily due to increased customer co-operative advertising as well as increased magazine advertising. Selling General and Administrative - Selling, general and administrative expenses rose 4.7% when compared to 1993. Such increase was not attributed to any one factor but included increased expenditures in personnel, insurance, repairs and depreciation expense. Interest Expense - Interest expense increased 7.7% or approximately $4,600 due to increasing interest rates on the line of credit. Item 8. Financial Statements and Supplementary Data See financial statement as set forth in item 14. Item 9. Changes in and Disagreements on Accounting and Financial Disclosure The Registrant dismissed its independent public accounting firm of Levi, Rattner, Cahlin & Co., P.A. which audited the 1994 and 1993 financial statements and replaced it with the independent public accounting firm of Infante, Lago & Company. The firm of Levi, Rattner, Cahlin & Company, P.A.'s report on the financial statements of Registrant for the past two (2) years contained no adverse opinion, no disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. The change of accountants was recommended and approved by the Board of Directors of Registrant. There were no disagreements or "reportable events" (as described in Item 304(a)(i)(iv) and (v) of regulation S-K) with the firm of Levi, Rattner, Cahlin & Co., P.A. during the two most recent fiscal years and any subsequent interim period through the date of such dismissal (September 26, 1995) as to any matter of accounting principles, practices, financial statement disclosure or auditing scope or procedure. PART III Item 10. Executive Officer 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, 1995. 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. 8 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 and Director 56 Since 1973 Jeffrey Tieger Vice President-Secretary & Director 52 Since 1977 Julio DeLeon Vice President, Finance 44 Since 1994
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. Julio DeLeon joined the Company in June 1988 as Corporate Controller. In 1994 the Board of Directors elected Mr. DeLeon to serve as Vice President of Finance. 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 stockholders prior to 120 days past the Registrant's year end of December 31, 1995. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information at December 31, 1995 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 Name and Address of Amount andNature Percent of Beneficial of Beneficial of Class Owner Ownership Class Common Peter G. Dornau, President, Director 2,222,866* 63.3% 4041 S. W. 47 Avenue Ft. Lauderdale, FL 33314 Common All Directors and officers as a group 2,326,426 66.2% 2 individuals Common First Wilshire 237,629 6.8% Securities Management, Inc. 727 West Seventh Street Los Angeles, CA
*Includes Options to purchase 273,000 shares as follows: 9 On February 3, 1993 the Company granted Mr. Dornau an option to purchase 100,000 shares of the Company's common stock at $1.38 per share. The option expires 5 years from grant. The option was granted in consideration of Mr. Dornau personally guaranteeing $1,300,000 of bank loans to the Company. The option exercise price of $1.38 is 100% of the price of the Company's common stock on the date of grant. On April 13, 1994 the Company granted Mr. Dornau a five year option for 150,000 shares at a price of $2.25 representing 100% of the price at the time of grant in consideration of his personally guaranteeing the Company's $1,500,000 loan from its commercial bank. Pursuant to the Company's various stock option plans Mr. Dornau may exercise 23,000 shares within 60 days of the issuance of the Registrant's financial statements. Item 13. Certain Relationships and Related Transactions On April 4, 1988, the Company entered a five year lease with a five year option for approximately 12,000 square feet of office and warehouse facilities in Ft. Lauderdale, Florida from an entity owned by officers of the Registrant. The lease requires a minimum rental of $84,000 with provision for yearly increases based on the Consumer Price Index (base: March 1988=100) and has provision for real estate taxes, operating and maintenance charge pass through. Additionally, the annual rental can increase or decrease 7% annually for every 1% increase or decrease in the lessor's commercial bank's rate from a base of 8.5%. The Registrant has rights to the "Star brite" name and products only for the United States and Canada as a condition to its original public offering. The President of the Registrant is the beneficial owner of three companies which market Star brite products outside the United States. Registrant has advanced monies to assist in such foreign marketing in order to establish an international trademark. As of December 31, 1995 and 1994 amounts owed to Registrant by the two companies was approximately $547,000 and $302,000, respectively. These amounts have been advanced by the Registran on open account with requirements of repayment between five and seven years. Advances bear interest at the rate of interest charged to the Registrant on its bank line of credit. A subsidiary of the Registrant currently uses the services of an entity which is owned by the President of the Registrant to conduct product research and development. The entity received $30,000 per year for the years 1995, 1994 and 1993 under such relationship. 10 Item 14. Exhibits and Financial Statement Schedules The following documents are filed as a part of this report. (A) Consolidated Financial Statements. (i) Consolidated Balance Sheets, December 31, 1995 and 1994. (ii) Consolidated Statements of Income for each of the three years ended December 31, 1995, 1994, and 1993. (iii) Consolidated Statement of Shareholders' Equity for each of the three years ended December 31, 1995, 1994, and 1993. (iv) Consolidated Statements of Cash Flows for each of the three years ended December 31, 1995, 1994 and 1993. (v) Notes to Consolidated Financial Statements. (vi) Schedules for each of the three years Ended December 31, 1995, 1994 and 1993. (a) All other schedules are omitted because either they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto. (B) 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. (16.1) Letter re: change in certifying accountant incorporated by reference as filed with form 8-K dated September 26,1995. (22) Subsidiaries of the Registrant. 11 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, thereunto duly authorized. OCEAN BIO-CHEM, INC. Registrant By: /S/ PETER G. DORNAU PETER G. DORNAU Chairman of the Board ofDirectors and Chief Executive Officer March 28, 1996 By:/S/ PETER G. DORNAU PETER G. DORNAU Chief Financial Officer March 28, 1996 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 28, 1996 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 wil 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. 12 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
OCEAN BIO-CHEM INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 Page Accountants' report 1-2 Consolidated balance sheets 3 Consolidated statements of income 4 Consolidated statement of shareholders' equity 5 Consolidated statements of cash flow 6 Notes to financial statements 7-12
INFANTE, LAGO & COMPANY ILC CERTIFIED PUBLIC ACCOUNTANTS A. ROGER INFANTE, C.P.A. Biscayne Centre Suite 288 JESUS A. LAGO, JR., C.P.A. 11900 Biscayne Boulevard North Miami, Florida 33181 Telephone [305] 893-4341 Fax [305] 893-4507 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Directors Ocean Bio-Chem, Inc. We have audited the accompanying consolidated balance sheet of Ocean Bio-Chem, Inc. ("The Company") and its subsidiaries as of December 31, 1995 and the related consolidated statements of income, shareholders' equity and cash flows for the year in the period ended December 31, 1995. 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 financial statements of the Company as of and for the years ended December 31, 1994 and 1993 were audited by other auditors whose report dated February 22, 1995, expressed an unqualified opinion on those statement. 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 provides 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 as of December 31, 1995 and the consolidated results of its operations and its cash flows for the year in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /S/ INFANTE, LAGO & COMPANY May 11, 1996 1 LEVI, RATTNER, CAHLIN & CO. Certified Public Accountants Allen S. Levi, C.P.A. Members of: Stephen J. Rattner, C.P.A American Institute of Richard A. Cahlin, C.P.A. Certified Public Accountants Florida Institute of Certified Public Accountants Report of Independent Certified Public Accountants Shareholders and Board of Directors Ocean Bio-Chem, Inc. and Subsidiaries Fort Lauderdale, FL 33314 We have audited the accompanying consolidated balance sheet of Ocean Bio-Chem, Inc. and subsidiaries as of December 31, 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the two years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Ocean Bio-Chem, Inc. and subsidiaries as of December 31, 1994, and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. /S/ LEVI, RATTNER, CAHLIN & CO. Miami, Florida February 22, 1995 Dade (304) 937-2272 Broward (305) 921-2272 Fax (305) 937-4721 20590 W. Dixie Highway North Miami Beach, Florida 33180-1129
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 and 1994 1995 1994 ASSETS Current assets: Cash $ 997,309 $ 571,411 Trade accounts receivable net of allowance for doubtful accounts of approximately $48,000 and $35,000, respectively (Note 3) 2,006,418 1,990,558 Inventories (Note 3) 2,038,750 1,927,646 Due from Officers 154,420 12,520 Prepaid expenses and other current assets 111,455 102,967 Total current assets 5,308,352 4,605,102 Office equipment and furnishings , net (Note 2) 321,475 244,119 Other assets: Trademarks, trade names, and patents, net of accumulated amortization 466,746 489,738 Due from affiliated companies, net (Note 7) 632,379 370,747 Deposits and other assets 18,818 12,322 Total other assets 1,117,943 872,807 Total Assets $6,747,770 $5,722,028 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable trade $ 485,105 $ 536,611 Note payable bank (Note 3) 1,990,000 1,566,667 Current portion of long-term debt (Note 4) 7,592 29,570 Accrued expenses payable (Note 5) 89,068 117,059 Total current liabilities 2,571,765 2,249,907 Long-term debt less current portion (Note 4) - 7,501 Commitments and contingencies (Notes 5, 8, 9 and 10) Shareholders' equity (Note 10): Common stock - $.01 par value, 10,000,000 shares authorized, 3,512,964 and 3,044,812 shares issued and outstanding at December 31, 1995 and 1994 respectively 35,130 30,448 Additional paid-in capital 2,650,754 2,016,915 Foreign currency translation adjustment ( 78,525) ( 67,551) Retained Earnings 1,568,646 1,484,808 Total shareholders' equity 4,176,005 3,464,620 Total Liabilities and Shareholders Equity $6,747,770 $5,722,028
The accompanying notes are an integral part of these financial statements. 3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1994, and 1993 1995 1994 1993 Gross sales $9,700,193 $9,462,547 $8,326,496 Less returns and allowances 658,012 547,393 623,809 Net sales 9,042,181 8,915,154 7,702,687 Cost of goods sold 5,218,566 5,207,675 4,439,883 Gross profit 3,823,615 3,707,479 3,262,804 Operating expenses: Advertising and promotion 828,302 707,543 606,313 Selling and administrative 2,060,409 1,816,196 1,735,011 Interest (Notes 3 and 4) 95,280 64,423 59,821 Total Operating Expenses 2,983,991 2,588,162 2,401,145 Operating profit 839,624 1,119,317 861,659 Interest income 26,755 5,503 36,278 Income before provision for income taxes 866,379 1,124,820 897,937 Provision for income taxes 325,837 430,204 339,727 Net income $ 540,542 $ 694,616 $ 558,210 Net earnings per common and common equivalent share, diluted $ .16 $ .20 $ .16
Net income per share for the years prior to 1995 has been restated to reflect a 5% stock dividend distributed on April 15, 1995. The accompanying notes are an integral part of these financial statements. 4 Foreign Additional currency Common Stock paid-in Retained translation Balances Shares Amount capital Earnings adjustments Total January 2,824,841 $28,248 $1,648,270 $ 568,098 ($ 13,050) $2,231,566 1,1993 Net Income 558,210 558,210 Foreign currency translation adjustment ( 26,537) ( 26,537) December 31,1993 2,824,841 $28,248 $1,648,270 $1,126,308 ($ 39,587) $2,763,239 Net Income 694,616 694,616 Stock Dividend 141,821 1,418 334,698 ( 336,116) - Stock Issue 78,150 782 33,947 34,729 Foreign currency translation adjustment ( 27,964)( 27,964) December 31,1994 3,044,812 $30,448 $2,016,915 $1,484,808 ($ 67,551) $3,464,620 Net Income 540,542 540,542 Stock Dividend 152,122 1,521 454,839 ( 456,704) ( 344) Stock Issue 316,030 3,161 179,000 182,161 Foreign currency translation adjustment ( 10,974) ( 10,974) December 31,1995 3,512,964 $35,130 $2,650,754 $1,568,646 ($ 78,525) $4,176,005
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
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, 1995, 1994, and 1993 1995 1994 1993 Cash flows from operating activities Net income $ 540,542 $ 694,616 $ 558,210 Adjustments to reconcile net income to net cash (used) provided by operations: Depreciation and amortization 97,376 83,802 45,449 Change in assets and liabilities: Increase in accounts receivable ( 15,860) ( 113,279)( 39,529) Increase in inventory ( 111,104) ( 312,285)( 543,265) (Increase) decrease in prepaid expense ( 156,884) ( 33,019) 71,326 Increase (decrease) in accounts payable and accrued expenses ( 79,497) ( 190,048) 25,276 Net cash provided by operating activities: 274,573 129,786 117,467 Cash flows from financing activities: Net borrowings under line of credit 423,333 636,667 ( 242,854) Principal payments under capital lease obligation, net ( 3,624) Advances to affiliates, net ( 261,632) ( 316,896) 416,116 Payments on debt ( 29,479) ( 248,502) 197,314 Issuance of common stock 181,817 34,730 - Net cash provided by financing activities: 314,039 105,999 366,952 Cash flows from investing activities: Purchase of property, plant and equip.( 151,740) ( 153,302) ( 58,256) Net cash used by investing activities: ( 151,740) ( 153,302) ( 58,256) Increase in cash prior to effect of exchange rate on cash 436,872 82,483 426,163 Effect of exchange rate on cash ( 10,974) ( 27,964) ( 26,537) Net increase in cash 425,898 54,519 399,626 Cash at beginning of year 571,411 516,892 117,266 Cash at end of year $ 997,309 $ 571,411 $ 516,892 Supplemental Information Cash used for interest during period $ 90,029 $ 59,257 $ 42,307 Cash used for income taxes during period $ 399,096 $ 363,320 $ 172,699
The Company had no cash equivalents at December 31, 1995, 1994 and 1993. The accompanying notes are an integral part of these financial statements. 6 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994, and 1993 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 corporation) from the former name Star Brite Corporation. Principles of consolidation - The consolidated financialstatements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories - Inventories are primarily composed of finished goods and is 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, 1995 and 1994, the Company introduced several 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, 1995 and 1994, the accumulated cost of materials on hand and other deferred promotional costs that will be charged against subsequent years operations amounted to $23,396 and $29,528, respectively. Office equipment and furnishings - Office equipment and furnishings are stated at cost. Depreciation is provided over thee stimated useful lives of the related assets. In 1993 the Company changed its depreciation policy to the straight line method over the accelerated methods previously used. The effect of such change has not been provided on the financial statements since they are not significant. Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was $74,384, $58,683 and $22,547 respectively. Property and Plant - On February 27, 1996, the Registrant purchased the assets of Kinpak, Inc., a subsidiary of Kinark, Inc. The assets consist of a plant facility of approximately 50,000 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. Income taxes - The Company and its subsidiaries file consolidated income tax returns. During February 1992, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards 109, "Accounting for Income Taxes." The statement is required to be implemented for fiscal years beginning after December 15, 1992. The application of SFAS 109 caused no material changes on the financial statements. There are no significant temporary differences. 7 The Components of income taxes are as follows: Year ended December 31, 1995 1994 1993 Current: Federal $278,461 $367,574 $290,616 State 47,376 62,630 49,111 Total $325,837 $430,204 $339,727
The reconciliation of income tax expense at the statutory rate to the reported income tax expense is as follows: Year Ended December 31, 1995 1994 1993 Computed at statutory rate 34.0% 34.0% 34.0% State tax, net of federal benefit 3.6 3.6 3.6 Other, net - .6 .2 Effective tax rate 37.6% 38.2% 37.8%
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 the prescribed useful life of 40 years. The Registrant 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 Registrant's trade name has been trademarked and the Registrant has had no incidents of infringement. Earnings per share - Earnings per share for the year ended December 31, 1995, 1994, and 1993 were calculated on the basis of 3,476,473, 3,278,241, and 3,240,378 weighted average common stock and common stock equivalent outstanding, respectively. The common stock equivalent consists of options to purchase common stock. The weighted average shares outstanding for the year ended 1994 and 1993 have been restated to reflect a 5% stock dividend given in 1995 and a 5% stock dividend given in 1994. 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 rates 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. 8 Reclassifications - Certain financial statement items for the years ended December 31, 1994 and 1993 have been reclassified to conform with the 1995 presentation. Note 2 - Office equipment and furnishings: The Company's office equipment and furnishings consisted of the following: December 31, 1995 1994 Manufacturing and warehouse equipment $ 211,821 $ 118,408 Office equipment and furniture 356,532 325,689 Leasehold improvements 58,750 54,268 627,103 498,365 Accumulated depreciation 305,628 254,246 $ 321,475 $ 244,119 Note 3 - Note payable, bank: In November 1995, the Registrant obtained an increase in its line of credit from its commercial bank from $1.5 million to $2 million. In February 1996 the Registrant received an additional increase of $900,000 to the line for the purpose of short term financing of the Alabama property. The line of credit was extended to April 1997. Under the new agreement, Registrant is required to maintain a minimum working capital of $1.5 million, debt to tangible net worth of 2.0 to 1.0 and debt coverage of 1.5 times. The line is secured by the Registrant's inventory and accounts receivable. Note 4 - Long-term debt: The Registrant had no long term debt as of December 31, 1995. Note 5 - Income taxes: Accrued state and federal income taxes were approximately $3,000 and $67,000 in 1995 and 1994, respectively. Note 6 - Litigation 1. The Company is involved in two related lawsuits. Duane H. Newville and The Boden Co., d/b/a Adjust-A-Brush v. Star brite Distributing, Inc. ("Star brite") and Peter Dornau, Sr. ("Dornau"), pending in the United States District Court, Middle District of Florida was filed in 1994. In this action, Plaintiffs have sued Star brite and Dornau. This action arises out of Star brite's use of a product called Extend-A-Brush. Plaintiff seeks injunction relief and damages. Registrant and Dornau have filed a counterclaim for declaratory relief and antitrust violations. Registrant intends to pursue its counterclaim vigorously and to vigorously defend against the claim asserted by Plaintiffs. Plaintiffs have alleged damages in amounts which the Company believes are totally hypothetical and has submitted testimonies which would indicate a maximum exposure to the Company if the plaintiff prevailed, of $300,000. The Company doesnot believe plaintiff will prevail. 9 OCEAN BIO CHEM, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 2. Star brite Distributing, Inc. v. The Boden Co., d/b/a Adjust-A-Brush ("Boden"), pending in the Circuit court in and for Pinellas County, Florida was filed in 1993. This action involves the break-up of a business arrangement whereby Star brite was to market adjustable brushes manufactured by Boden, to the marine industry. Star brite has sued Boden for damages and injunctive relief. Boden has filed a counterclaim against Star brite and Dornau, seeking damages and injunctive relief. Registrant intends to vigorously pursue its claims and vigorously defend against the asserted counterclaims. This case has been stayed pending the outcome of the related case set forth in paragraph (1) above. The Registrant does not believe that the results of this litigation would have a material adverse effect on its future results of operations, and it has not accrued any amounts for loss contingencies in this litigation based on its evaluation of the merits thereof. Note 7 - Related party transactions: At December 31, 1995 and 1994, the Company had amounts due from affiliated companies aggregating $547,000 and $302,000, respectively. Such advances were made primarily to international affiliates that are in the process of expanding sales of the Registrant's products in Europe, Asia and South America. These amounts have been advanced by the Registrant on open account with requirements of repayment between five and seven years. Advances bear interest at the rate of interest charged to the Registrant in its bank line of credit. Note 8 - Commitments: On April 4, 1988, the Company entered a five year lease with a five year renewal option for approximately 12,000 square feet of office and warehouse facilities in Ft. Lauderdale, Florida from an entity owned by officers of the Company. The lease provides for a yearly increase based on the Consumer Price Index (base: March 1988=100) and has provision for real estate taxes, operating and maintenance charge pass through. Additionally, the annual rental can increase or decrease 7% annually for every l% increase or decrease in the lessor's commercial bank's rate from a base of 8.5%. Such decrease provision will not cause the minimal annual rental to fall below $84,000. In November 1994 the Company leased an approximately 10,000 square foot building for manufacturing, warehousing and office space. The agreement calls for a one year rental renewable yearly for five years. The cancellation requires a one year notification. The annual rental is approximately $69,000 which can be increased at each annual lease anniversary for the change in the consumer price index for the Miami area. 10 The following is a schedule by years of minimum future rentals on the noncancellable operating lease as of December 31, 1995:
1996 153,000 1997 153,000 1998 90,000 1999 69,000 Thereafter - $ 465,000 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 requires the Company to pay the licensor a royalty equal to the greater of 7% of net sales plus 3% of net sales to fund future research and development costs of the covered product or a minimum of $20,000 per year. During 1993 this arrangement was modified calling for an $8,000 per year minimum. For the years ended December 31, 1995 and 1994 the Company paid $8,000 per year and $20,000 in 1993 pursuant to such agreement. Note 10 - Stock options/warrants: During 1991 the Company adopted a non-qualified employee stock option plan covering 200,000 shares of common stock. The following schedule shows the status of outstanding options under the plan.
Options Outstanding Option Price Expiration Date 74,000 $1.37 December 3, 1997 110,000 $2.25-2.48 November 28, 1998
During 1992 the Company adopted an incentive stock option plan covering 200,000 shares of common stock. The following schedule shows the status of outstanding options under this plan. Options Outstanding Option Price Expiration Date 10,000 $2.25 November 28, 1998 In 1994 the Company adopted a non-qualified employee stock option plan covering 400,000 shares of common stock. The following schedule shows the status of outstanding options under the plan.
Options Outstanding Option Price Expiration Date 92,000 $2.00 January 23, 2000 97,000 $2.00 January 30, 2001
11 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994, and 1993 On February 3, 1993 the Company granted the President an option to purchase 100,000 shares of the Company's common stock at $1.38 per share. The option expires in 5 years. The option exercise price is 100% of the price of the Company's common stock on the date of the grant. The options were granted to Mr. Dornau in connection with his guarantee of the Company's loan from its commercial bank. On April 13, 1994 the Company granted Mr. Dornau an option to purchase 150,000 shares of the Company's common stock at $2.25 per share. The option expires in 5 years The option exercise price is 100% of the price of the Company's common stock on the date of the grant. The options were granted to Mr. Dornau in connection with the guarantee of the Company's current loan from its commercial bank. Note 11 - Major Customers The Company has one major customer, Wal-mart. Sales to this customer represent approximately 20% of revenues. The Company enjoys good relations with this customer. However, the loss of this customer could have an adverse impact on the Company. 12 EX-27 2 ART. 5 FDS FOR YEAR 1995
5 This schedule contains summary financial information extracted from the December 31, 1995 10-K of Ocean Bio-Chem, Inc. and is qualified in its entirety by reference to such financial statements. YEAR DEC-31-1995 DEC-31-1995 997,309 0 2,006,418 48,000 2,038,750 5,308,352 627,103 305,628 6,747,770 2,571,765 0 35,130 0 0 4,140,875 6,747,770 9,700,193 9,726,948 5,218,566 2,983,991 0 0 95,280 866,379 325,837 325,837 0 0 0 540,542 .16 .16
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