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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.