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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
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
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
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