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10k1296.TXT
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, 1996
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. [ ]
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.
$3,170,710 as of February 1, 1997.
Indicate the number of shares outstanding of registrant's
common stock as of February 1, 1997.
3,702,078 shares of Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed within 120 days of December 31, 1996.
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.
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
2
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.
The contract of the Company at its Alabama facility to package antifreeze for
a third party terminated December 31, 1996. Gross packaging revenues from
this operation amounted to approximately $2,100,000 during fiscal 1996. The
Company has no prospects of a third party to replace the terminated
operations. However, the Company intends to produce a private label line of
antifreeze commencing in 1997. At this time the Company cannot estimate the
amount of sales for its product.
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.
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 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 no customer 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 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. An additional 12
persons are employed at the manufacturing facility in Alabama.
3
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.
Financial Information Relating to
Approximate Domestic and Canadian Total Sales
Year Ended December 31,
1996 1995 1994
United States:
Northeast $3,065,000 $2,776,000 $2,608,000
Southeast 3,623,000 1,115,000 991,000
Central 3,678,000 3,992,000 4,164,000
West Coast 1,612,000 1,248,000 1,289,000
----------- ---------- ----------
11,978,000 9,131,000 9,052,000
Canada (US Dollars) 459,000 569,000 410,000
----------- ---------- ----------
$12,437,000 $9,700,000 $9,462,000
=========== ========== ==========
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. On December 20, 1996 the Registrant
obtained an industrial revenue bond in the amount of $4,990,000 (of which
$4,000,000 was taxable) to repay certain amounts used in the financing of the
facility and for expansion of such facility to meet the Registrant's expected
future capacity. This bond, to the extent of $4,000,000, was refinanced with
a tax exempt industrial revenue bond in March 1997. Of this amount,
approximately $3,100,000 is held in trust for the construction and equipping
of an additional 60,000 square foot building.
4
Item 3. Legal Proceedings
- ---------------------------
The Company was 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") in the
United States District Court, Middle District of Florida filed in 1994. This
action arose out of Star brite's use of a product called Extend-A-Brush.
Plaintiff seeks injunctive relief and damages. Registrant and Dornau have
filed a counterclaim for declaratory relief and antitrust violations. On
February 10, 1997, the Court dismissed both parties' suits without any
damages.
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. The registrant believes that this case which
has been stayed pending the outcome of the related case set forth in paragraph
(1) above, will be dismissed by theCourt
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 1996 and 1995 is presented below.
Market Range of
Common Stock Bid:
1st Qtr. 2nd Qtr 3rd Qtr. 4th Qtr.
--------- --------- --------- ---------
1996 High $3.38 $3.25 $2.75 $2.75
Low $2.38 $2.19 $2.25 $2.03
1995 High $2.88 $4.75 $4.00 $3.88
Low $2.50 $2.75 $2.88 $2.50
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 600 at December 31,
1996. 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.
Item 6. Selected Financial Data
The following tables set forth selected financial data as of, and for the
years ending December 31,
1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ----------
Income
Statement
Gross Sales $12,436,918 $9,700,193 $9,462,547 $8,326,496 $7,114,873
Net Sales $11,826,340 $9,042,181 $8,915,154 $7,702,687 $6,524,952
Net Income $ 354,672 $ 540,542 $ 694,616 $ 558,210 $ 229,438
Net Income
per share $ .09 $ .15 $ .19 $ .15 $ .07
Balance Sheet
Working
Capital $ 2,737,817 $2,736,587 $2,355,195 $2,108,696 $1,092,332
Total Assets $11,955,397 $6,747,770 $5,722,028 $4,822,530 $4,314,746
Long Term
Obligation $ 4,710,000 - $ 7,501 $ 118,734 $ 64,177
Total
Liabilities $ 7,410,913 $2,571,765 $2,257,408 $2,059,291 $2,083,180
Shareholders'
Equity $ 4,544,484 $4,176,005 $3,464,620 $2,763,239 $2,231,566
Net income per share for the years prior to 1996 has been restated to reflect
a 5% stock dividend given in 1996 and a 5% dividend given in 1995.
6
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-term borrowings from a commercial bank. During 1996 the Registrant's
line of credit commitment was increased from $2 million to $2.9 million by its
commercial bank. 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 tangible
net worth of 2 to 1 and debt service coverage of 1.7 times. As of year end
Registrant was in compliance with all terms.
Pursuant to 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. On December 20, 1996 the Registrant closed on
$4,990,000 of such bonds of which $3,100,000 is held in trust for construction
of the expansion.
The bonds are marketed weekly at the prevailing rates for such instruments.
Of the amount financed $990,000 were issued as tax free bonds while $4,000,000
were issued as taxable. In March of 1997 the Registrant refinanced the
$4,000,000 to non-taxable status. Currently such bonds carry interest between
5¼% to 5¾% annually. Interest and principal are payable
quarterly. The Registrant feels 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 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, 1996 and 1995, Gross Margin
percentages were 32% and 38%. This is primarily due to the product sales mix
during these quarters. The Alabama operation's lower margin operations
changed the sales mix ratio's during this quarter.
Results of Operations:
Calendar Year 1996/1995: Sales and earnings varied when comparing the year
ended 1996 to 1995 principally due to the factors enumerated below.
Gross Sales - Gross sales increased approximately 49% or $2,736,000 for the
year ended 1996 over 1995. This is due to primarily to the inclusion of the
temporary operating results of the Alabama facility.
7
Cost of Goods Sold - Cost of goods sold increased approximately 49% or
$2,568,000 as a percentage of gross sales when comparing 1996 to 1995.
Management attributes this to the change in the product sales mix enunciated
above.
Advertising and Promotion - Advertising expense decreased approximately
$131,000 or 16% when comparing 1996 to 1995. This was primarily due to
changes in advertising media and aggressive pricing opportunities taken by
Registrant.
Selling, General and Administrative - Selling, general and administrative
expenses increased approximately $507,000 or 25% when compared to 1995.
Such increase was not attributable to any one particular category but
consisted of increases in salaries, selling expenses, litigation, new
facilities expense and general operating expenses.
Interest Expense - Interest expense increased by approximately $155,000 or
162% over 1995. The increase was primarily due to increased borrowing levels
and interest on debt assumed for the purchase of the new facility.
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 Goods 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.
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------
See financial statement as set forth in item 14.
8
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
- ----------------------------------------------------------------------------
None.
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, 1996.
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 and Director 57
Since 1973
Jeffrey Tieger Vice President-Secretary & Director 53
Since 1977
Julio DeLeon Vice President, Finance 45
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, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth information at December 31, 1996 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:
9
Title Name and Address of Amount and Nature Percent
of Beneficial of Beneficial of
Class Owner Ownership Class
- ------ ------------------------------------ ----------------- ------
Common Peter G. Dornau, President, Director 2,333,956* 57.6%
4041 S. W. 47 Avenue
Ft. Lauderdale, FL 33314
Common All Directors and officers as a group 2,465,723 60.9%
3 individuals
Common First Wilshire 237,629 6.4%
Securities Management, Inc.
727 West Seventh Street
Los Angeles, CA
*Includes Options to purchase 287,000 shares as follows:
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
37,000 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, 1996 and 1995 amounts owed to
Registrant by the two companies was approximately $596,000 and $547,000,
respectively. These amounts have
10
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 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 1996, 1995 and
1994 under such relationship.
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, 1996 and 1995.
(ii) Consolidated Statements of Income for each of the three years
ended December 31, 1996, 1995, and 1994.
(iii) Consolidated Statement of Shareholders' Equity for each of the
three years ended December 31, 1996, 1995, and 1994.
(iv) Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1996, 1995 and 1994.
(v) Notes to Consolidated Financial Statements.
(vi) Schedules for each of the three years Ended December 31, 1996,
1995 and 1994.
(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.
(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 of Directors
and Chief Executive Officer
March 26, 1997
By: /S/ PETER G. DORNAU
PETER G. DORNAU
Chief Financial Officer
March 26, 1997
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 26, 1997
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.
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
Kinpak Inc. 100
13
OCEAN BIO-CHEM INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
14
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
Page
----
Accountants' report 1
Consolidated balance sheets 2
Consolidated statements of income 3
Consolidated statement of shareholders' equity 4
Consolidated statements of cash flow 5
Notes to financial statements 6-13
INFANTE, LAGO & COMPANYILC
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 sheets of Ocean
Bio-Chem, Inc. ("the Company") and its subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the two years in the period ended December
31, 1996. 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 audits. The consolidated
financial statements of the Company as of and for the year ended December 31,
1994, were audited by other auditors whose report dated February 22, 1995,
expressed an unqualified opinion on those statements.
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 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, 1996 and 1995,
and the consolidated results of its operations and their cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/S/ INFANTE, LAGO & COMPANY
May 20, 1997
1
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
ASSETS
1996 1995
------------ ------------
Current assets:
Cash $ 394,569 $ 997,309
Trade accounts receivable net of allowance for
doubtful accounts of approximately $27,000
and $48,000, respectively (Note 3) 2,235,183 2,006,418
Inventories (Note 3) 2,534,862 2,038,750
Due from Officers 141,880 154,420
Prepaid expenses and other current assets 132,238 111,455
------------ -----------
Total current assets 5,438,732 5,308,352
------------ -----------
Property, plant and equipment , net (Note 2) 2,138,815 321,475
Other assets:
Funds held in escrow for construction (Note 8) 3,100,001 -
Trademarks, trade names, and patents, net
of accumulated amortization (Note 1) 443,754 466,746
Due from affiliated companies, net (Note 7) 648,866 632,379
Deposits and other assets 185,229 18,818
----------- ----------
Total other assets 4,377,850 1,117,943
----------- ----------
Total Assets $11,955,397 $6,747,770
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 643,409 $ 485,105
Note payable bank (Note 3) 1,658,001 1,990,000
Current portion of long-term debt (Note 4) 280,000 7,592
Accrued expenses payable (Note 5) 119,503 89,068
----------- ----------
Total current liabilities 2,700,913 2,571,765
----------- ----------
Long-term debt less current portion (Note 4) 4,710,000 -
----------- ----------
Commitments and contingencies (Notes 5, 8, 9 and 10)
Shareholders' equity (Note 10):
Common stock - $.01 par value, 10,000,000
shares authorized, 3,702,078 and 3,512,964
shares issued and outstanding at December 31,
1996 and 1995 respectively 37,020 35,130
Additional paid-in capital 3,172,337 2,650,754
Foreign currency translation adjustment ( 82,887) ( 78,525)
Retained Earnings 1,418,014 1,568,646
----------- -----------
Total shareholders' equity 4,544,484 4,176,005
----------- -----------
Total Liabilities and Shareholders Equity $11,955,397 $ 6,747,770
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
1996 1995 1994
----------- ---------- ----------
Gross sales $12,436,918 $9,700,193 $9,462,547
Less returns and allowances 610,578 658,012 547,393
----------- ---------- ----------
Net sales 11,826,340 9,042,181 8,915,154
Cost of goods sold 7,786,510 5,218,566 5,207,675
----------- ---------- ----------
Gross profit 4,039,830 3,823,615 3,707,479
Operating expenses:
Advertising and promotion 697,533 828,302 707,543
Selling and administrative 2,567,295 2,060,409 1,816,196
Interest (Notes 3 and 4) 250,050 95,280 64,423
----------- ---------- ----------
Total Operating Expenses 3,514,878 2,983,991 2,588,162
----------- ---------- ----------
Operating profit 524,952 839,624 1,119,317
Interest income 43,416 26,755 5,503
----------- ---------- ----------
Income before provision for income
taxes 568,368 866,379 1,124,820
Provision for income taxes 213,696 325,837 430,204
----------- ---------- -----------
Net income $ 354,672 $ 540,542 $ 694,616
=========== ========== ===========
Net earnings per common and
common equivalent share, diluted $ .09 $ .15 $ .19
=========== ========== ===========
Net earnings per share for the years prior to 1996 has been restated to
reflect a 5% stock dividend distributed on May 1, 1996.
The accompanying notes are an integral part of these financial statements.
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
Foreign
Common Stock Additional currency
---------------- paid-in Retained translation
Balances Shares Amount capital Earnings adjustments Total
--------- ------- ---------- ---------- ----------- ----------
January 1, 2,824,841 $28,248 $1,648,270 $1,126,308 ($39,587) $2,763,239
1994
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
Net Income 354,672 354,672
Stock Dividend 175,648 1,756 503,217 ( 505,304) ( 331)
Stock Issue 13,466 134 18,366 18,500
Foreign
currency
translation
adjustment ( 4,362) ( 4,362)
December 31, --------- ------- ---------- ---------- -------- ----------
1996 3,702,078 $37,020 $3,172,337 $1,418,014 (82,887) $4,544,484
========= ======= ========== ========== ======== ==========
The accompanying notes are an integral part of these financial statements.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, and 1993
1996 1995 1994
---------- --------- ----------
Cash flows from operating activities
Net income $ 354,672 $ 540,542 $ 694,616
Adjustments to reconcile net income
to net cash (used) provided by operations:
Depreciation and amortization 203,580 97,376 83,802
Change in assets and liabilities:
Increase in accounts receivable ( 228,765) ( 15,860) ( 113,279)
Increase in inventory ( 496,112) ( 111,104) ( 312,285)
Increase in prepaid expense ( 174,654) ( 156,884) ( 33,019)
Increase (decrease) in accounts payable
and accrued expenses 188,739 ( 79,497) ( 190,049)
----------- ---------- ----------
Net cash (used) provided by operating
activities: ( 152,540) 274,573 129,786
----------- ---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit ( 331,999) 423,333 636,667
Borrowings in trust for construction (3,100,001) - -
Issuance of bonds 4,990,000 - -
Advances to affiliates, net ( 16,487) ( 261,632) ( 316,896)
Payments on debt ( 7,592) ( 29,479) ( 248,502)
Issuance of common stock 18,169 181,817 34,730
Net cash provided ----------- ---------- ----------
by financing activities: 1,552,090 314,039 105,999
----------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equip. (1,997,928) ( 151,740) ( 153,302)
----------- ---------- -----------
Net cash used by investing activities: (1,997,928) ( 151,740) ( 153,302)
----------- ---------- -----------
Increase (decrease) in cash prior to
effect of exchange rate on cash ( 598,378) 436,872 82,483
Effect of exchange rate on cash ( 4,362) ( 10,974) ( 27,964)
----------- ---------- -----------
Net increase (decrease) in cash ( 602,740) 425,898 54,519
Cash at beginning of year 997,309 571,411 516,892
----------- ---------- -----------
Cash at end of year $ 394,569 $ 997,309 $ 571,411
=========== ========== ===========
Supplemental Information
Cash used for interest during period $ 241,184 $ 90,029 $ 59,257
Cash used for income taxes during period $ 249,000 $ 399,096 $ 363,320
----------- ---------- -----------
The Company had no cash equivalents at December 31, 1996, 1995 and 1994.
The accompanying notes are an integral part of these financial statements.
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
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 financial statements 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, 1996
and 1995, 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, 1996 and 1995,
the accumulated cost of materials on hand and other deferred promotional costs
that will be charged against subsequent years operations amounted to $60,568
and $23,396, respectively.
Office equipment and furnishings - Office equipment and furnishings are stated
at cost. Depreciation is provided over the estimated useful lives of the
related assets using the straight line method.
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.
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 Black-Scholes or
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.
6
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 and no one customers's receivable exceeds 10% of the total balance.
As of December 31, 1996, the Company had no significant concentration of
credit risk.
Fair Value of Financial Instruments - The carrying amount of cash approximates
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. 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.
The Components of income taxes are as follows:
Year ended December 31,
1996 1995 1994
Current:
Federal $182,711 $278,461 $367,574
State 30,985 47,376 62,630
-------- -------- --------
Total $213,696 $325,837 $430,204
-------- -------- --------
The reconciliation of income tax expense at the statutory rate to the
reported income tax expense is as follows:
Year Ended December 31,
1996 1995 1994
------- ------ ------
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
------ ------ ------
Effective tax rate 37.6% 37.6% 38.2%
------ ------ ------
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.
7
Earnings per share - Earnings per share for the year ended December 31, 1996,
1995, and 1994 were calculated on the basis of 3,799,126, 3,506,580 and
3,599,692 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 1995 and 1994 have been restated to reflect a 5% stock dividend given in
1996 and a 5% stock dividend given in 1995.
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.
Reclassifications - Certain financial statement items for the years ended
December 31, 1995 and 1994 have been reclassified to conform with the 1996
presentation.
Note 2 - Office equipment and furnishings:
The Company's office equipment and furnishings consisted of the following:
December 31,
1996 1995
----------- -----------
Land $ 278,325 $ -
Manufacturing and warehouse equipment 1,828,186 211,821
Office equipment and furniture 457,781 356,532
Leasehold improvements 60,739 58,750
----------- -----------
2,625,031 627,103
Accumulated depreciation 486,216 305,628
----------- -----------
Property, plant and equipment, net $ 2,138,815 $ 321,475
----------- -----------
Depreciation expense for the years ended December 31, 1996, 1995 and 1994 was
$180,588, $74,384 and $58,683 respectively.
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. In order to meet the Registrant's future
need, the Registrant entered into an agreement with the City of Montgomery to
issue Industrial Revenue Bonds to cover the expansion of the Alabama facility
(see Note 4). The expansion consists of an additional building on the site of
approximately 60,000 square feet to facilitate the filling operation.
8
Note 3 - Note payable, bank:
During 1996 the Registrant received an increase of $900,000 to the line from
$2 to $2.9 million. 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
1.7 times. The line is secured by the Registrant's inventory and accounts
receivable. As of year end 1996, Registrant was in compliance with all the
requirements.
Note 4 - Long-term debt:
Long term debt at December 31, 1996 consisted of the following:
Obligation pursuant to capital lease financed through Industrial Revenue
Bonds; principal payable quarterly at various specified amounts. Interest
computed weekly at market rates. Interest and principal payable quarterly.
Long-Term
Current Portion Portion
--------------- -------------
$ 280,000 $ 4,710,000
Payment obligation attributable to the foregoing are tabulated below:
Year Ending December 31,
1997 $ 280,000
1998 340,000
1999 300,000
2000 310,000
2001 320,000
Thereafter 3,440,000
----------
Total $4,990,000
==========
Note 5 - Income taxes:
Accrued state and federal income taxes were approximately $3,000 in 1995.
Note 6 - Litigation
The Company was 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) in the United
States District Court, Middle District of Florida filed in 1994. This action
arose out of Star brite's use of a product called Extend-A-Brush. Plaintiff
seeks injunctive relief and damages. Registrant and Dornau have filed a
counterclaim for declaratory relief and antitrust violations. On February 10,
1997, the Court dismissed both parties' suits without any damages.
9
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 believes this case
which has been stayed pending the outcome of the related case set forth in
paragraph (1) above will be dismissed by this Court.
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, 1996 and 1995, the Company had amounts due from affiliated
companies aggregating $649,000 and $632,000, 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.
On December 20, 1996 the Registrant issued $4,990,000 of Industrial Revenue
Bonds in order to finance the expansion of the Alabama property and to
refinance the acquisition costs. 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 June 1, 2006.
Interest is computed weekly at market rates. Interest and principal are
payable quarterly.
10
The following represents the use of the Bonds' proceeds as of December 31,
1996:
Refinancing of Alabama Project $1,890,000
Funds Held in Trust for Expansion 3,100,000
----------
$4,990,000
----------
The following is a schedule by years of minimum future rentals on the
noncancellable operating lease as of December 31, 1996:
1997 $153,000
1998 90,000
1999 69,000
Thereafter -
--------
$312,000
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 $8,000 per year.
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
------------------- ------------ -----------------
64,000 $1.37 December 3, 1997
120,000 $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
11
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 22, 2000
97,000 $2.00 January 29, 2001
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.
Financial Accounting Standard 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 Statement 123 had been applied. The
following is disclosed pursuant to this requirement.
1996 1995 1994
-------- -------- --------
Net Income As reported $354,672 $540,542 $694,616
Pro forma $314,149 $514,496 $592,929
Earnings per share As reported $ .09 $ .15 $ .19
Pro forma $ .08 $ .15 $ .16
A summary of the Company's three stock option plans as of December 31, 1996,
1995 and 1994, and changes during the years ending on those dates, is
presented below:
1996 1995 1994
------------------ ----------------- -----------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- ------- -------- ------- --------
Options Outstanding
at beginning of year 665,000 $1.10 710,000 $1.44 536,000 $1.92
Granted 150,000 $2.25 92,000 $2.00 97,000 $2.00
Exercised (105,000) (266,000) ( 10,000)
-------- ------- ------- -------- ------- --------
Outstanding at
End of Year 710,000 $1.44 536,000 $1.92 623,000 $1.95
======== ======= ======= ======== ======= ========
12
The following table summarizes information about the stock options outstanding
at December 31, 1996:
Options Outstanding Options Exercisable
-------------------------------------- -------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg.
Exercise Outstanding Contractual Exercise Exercisable Exercis
Price at 12/31/96 Life Price at 12/31/96 Price
- ----------- ----------- ----------- ------------- ------------- -----------
$1.38-$2.00 353,000 2.25 yrs. $1.71 172,400 $1.44
$2.25 270,000 2.6 yrs. $2.25 174,000 2.25
-------- --------
$1.38-$2.25 623,000 2.4 yrs. $1.95 346,400 $1.85
-------- --------
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 1996, 1995 and 1994:
risk free rate 6.5%, no dividend yield for all years, expected life of five
years and volatility of 31.62%.
Note 11 - Major Customers
The Company has one major customer, Wal-mart. Sales to this customer
represent less than 10% of revenues. The Company enjoys good relations with
this customer. However, the loss of this customer could have an adverse
impact on the Company.
13