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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the
SECURITIES EXCHANGE ACT OF 1934 [fee required]
For the Fiscal Year Ended December 31, 1998
Commission File 2-70197
OCEAN BIO-CHEM, INC.
(Exact Name of Registrant as specified in its charter)
Florida 59-1564329
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4041 S. W. 47 Avenue, Fort Lauderdale, Florida 33314
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 587-6280
Securities registered pursuant to Section 12 (g) of the Act
Common Stock, Par Value $.01
(Title of Class)
Indicate by check mark whether the registrant (x) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
$1,807,820 as of February 1, 1999.
Indicate the number of shares outstanding of Registrant's common stock as
of February 1, 1999.
3,753,017 shares of Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed within 120 days of December 31, 1998.
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 and waxes of
various formulations. The line also includes various vinyl protectants,
cleaners, teak cleaners, teak oils, bilge cleaners, hull cleaners, silicone
sealants, polyurethane sealants, polysulfide sealants, gasket materials,
lubricants and antifouling additives and anti-freeze coolants.
Recreational vehicle: The Recreational vehicle products are made up of cleaners,
polishes, detergents, fabric cleaners and protectors, silicone sealants,
waterproofers, gasket materials, degreasers, vinyl cleaners and protectors and
anti-freeze coolants.
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
contracts with 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. Manufacturing is primarily performed by the Company and two
independent entities located in the northeastern area of the country. The
Company believes that its internal manufacturing capacity as well as the
arrangements with the present outside manufacturers are adequate for its present
needs. In the event that these arrangements are discontinued with any
manufacturer, the Company believes that substitute facilities can be found
without substantial adverse effect on manufacturing and distribution.
2
On February 27, 1996, the Registrant, through a wholly-owned operating
subsidiary, Kinbright, Inc. (an Alabama corporation), acquired certain assets of
Kinpak, Inc., (a Georgia corporation) ("Kinpak"), and assumed two (2) leases of
land and facilities leased by Kinpak from the Industrial Development Board of
the city of Montgomery, Alabama and the Alabama State Docks Department. On
December 20, 1996, the registrant entered a new agreement with the Industrial
Development Board of the City of Montgomery, Alabama to issue new Industrial
Development Bonds in the amount of $4,990,000 to repay certain financing costs
and to expand the capacity of the Alabama facility. The leased premises consist
of a manufacturing and distribution facility containing approximately 110,000
square feet located on approximately 20 acres of real property and a docking
facility located on the Alabama River. In addition, Registrant purchased the
machinery, equipment and inventory located on the leased premises. Subsequent to
the acquisition, the Registrant changed the name of its subsidiary, Kinbright,
Inc. to Kinpak Inc. (an Alabama corporation).
A 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
started producing a private label line of antifreeze in 1997. Gross sales of the
Company's antifreeze were approximately $1.7 million in 1997 and $1.9 million in
1998.
Marketing: The Company's marine products and recreational vehicle products are
sold through national retail chains such as Wal-mart and K mart and through
specialized marine retailers such as West Marine and Boat America Corporation.
The Company also uses distributors who in turn sell its products to specialized
retail outlets for that specific market. Currently the Company has one customer
(West Marine, Inc.) to which sales exceed 10% of consolidated revenues. The
Company markets its products through internal salesmen and approximately 250
independent sales representatives who work on an independent
contractor-commission basis. The Officers of the Company also participate in
sales. The Company also aids marketing through advertising campaigns in national
magazines related to specific marketplaces. The products are distributed
primarily from the Company's manufacturing and distribution facility in Alabama.
As of this date, the Company has no significant backlog of orders. The
Registrant does not give customers the right to return product. The majority of
the Company's products are non-seasonal and are sold throughout the year.
Competition: The Company has two major and a number of smaller regional
competitors in the marine marketplace. The principal elements of competition are
brand recognition, price, service and the ability to deliver products on a
timely basis. In the opinion of management no one or few competitors holds a
dominant market share. Management believes that it can increase 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.
3
Personnel: The Company employs approximately 18 full time employees at its
corporate office in Fort Lauderdale, Florida. These employees are engaged in
administration, clerical, and accounting functions. In addition, the Company
and/or its subsidiaries employ the following personnel:
Full Time
Location Description Employees
- -------- ----------- ---------
Montgomery, Alabama Manufacturing and distribution 36
Fort Lauderdale, Florida Manufacturing and distribution 19
--
55
==
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 vehicle 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 Gross Sales
Year Ended December 31,
1998 1997 1996
---- ---- ----
United States:
Northeast $ 2,526,000 $ 3,780,000 $ 3,065,000
Southeast 3,628,000 1,654,000 3,623,000
Central 4,259,000 4,082,000 3,678,000
West Coast 3,019,000 2,754,000 1,612,000
----------- ----------- -----------
13,432,000 12,270,000 11,978,000
Canada (US Dollars) 646,000 580,000 459,000
----------- ----------- -----------
$14,078,000 $12,850,000 $12,437,000
=========== =========== ===========
Item 2, Properties
The Registrant's executive offices and warehouse are located in Fort Lauderdale,
Florida and are held under lease with an entity owned by officers of the
Company. The lease covers approximately 12,700 square feet of office and
warehouse space. On May 1, 1998, the Registrant entered into a new lease
agreement for a term of ten years. The lease calls for an initial annual rental
of $94,800 increasing by 2% per annum on the annual anniversary of the lease for
the term thereof. Additionally, the landlord is entitled to its pro-rata share
of all taxes, assessments, insurance premiums, operating charges, maintenance
charges and any other expenses which arise from ownership.
4
In November 1994 the Company leased an approximately 10,000 square foot building
in Fort Lauderdale, Florida for manufacturing, warehousing and office space. The
agreement calls for a one year rental renewable annually for five years.
Termination requires a one year notification. The annual rental is approximately
$69,000 which can be increased at each annual lease anniversary based on the
change in the consumer price index for the Miami area. Rent charged to
operations during the year ended December 31, 1998 amounted to approximately
$83,000.
The Montgomery, Alabama facility contains approximately 110,000 square feet of
office, plant and warehouse space located on 20 acres of land (the "Plant") and
also includes a leased 1.5 acre docking facility on the Alabama River located
eleven miles from the Plant. The Registrant financed the facility and its
improvements with an Industrial Revenue Bond in the amount of $4,990,000. At
December 31, 1998, approximately $583,000 was held in trust to pay for equipping
the addition to the facility which was completed during October, 1997.
During 1997, the Company modified a rental agreement covering approximately
4,800 square feet it utilizes as a manufacturing facility in Fort Lauderdale,
Florida. The base rent through maturity in September, 1999 aggregates $37,632
annually. In addition to the base rent, the Company is obligated to pay its
pro-rata share of real estate taxes, insurance and common area costs. Rent
charged to operations during the year ended December 31, 1998 amounted to
$42,675.
Item 3. Legal Proceedings
The Company from time to time, in the ordinary course of business, is named as a
defendant in law suits. In management's opinion, the potential impact of an
unfavorable outcome from such lawsuits would not have a material adverse effect
on the Company's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Market For the Registrant's Common Equity and Related Stockholder
Matters
A. The Registrant's Common Stock was sold to the public initially on March 26,
1981. The Common Stock of the Company is traded on the NASDAQ National Market
System under the symbol OBCI. A summary of the trading ranges during each
quarter of 1998 and 1997 is presented below.
Market Range of
Common Stock Bid: 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
1998 High $2.00 $1.88 $2.13 $1.50
Low $1.25 $1.25 $1.25 $1.00
1997 High $3.38 $3.25 $2.75 $2.75
Low $2.38 $2.19 $2.25 $2.03
The quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not represent actual transactions.
5
B. The approximate number of Common Stock owners was 700 at December 31, 1998.
The aforementioned number was calculated from a list provided by the Transfer
Agent and Registrar and indications from broker dealers of shares held by them
as nominee for actual shareholders.
C. The Registrant has not paid any cash dividends since it has been organized.
However, in 1996 the Company issued a 5% stock dividend.
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,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Statement of
Operations
Gross Sales $ 14,077,993 $ 12,849,507 $ 12,436,918 $ 9,700,193 $ 9,462,547
Net Sales $ 12,705,473 $ 11,599,113 $ 11,826,340 $ 9,042,181 $ 8,915,154
Net Income (loss) $ 83,059 $ (168,506) $ 354,672 $ 540,542 $ 694,616
Earnings (loss) per
common share $ .02 $ (.05) $ .09 $ .15 $ .19
Balance Sheet
Working
Capital $ 1,956,647 $ 1,976,517 $ 2,737,817 $ 2,736,587 $ 2,355,195
Total Assets $ 12,846,794 $ 13,276,542 $ 11,955,397 $ 6,747,770 $ 5,722,028
Long Term
Obligation $ 4,070,000 $ 4,370,000 $ 4,710,000 -- $ 7,501
Total
Liabilities $ 8,390,036 $ 8,866,122 $ 7,410,913 $ 2,571,765 $ 2,257,408
Shareholders'
Equity $ 4,456,758 $ 4,410,420 $ 4,544,484 $ 4,176,005 $ 3,464,620
Earnings per common share for the years prior to 1998 have been restated to
reflect the adoption of Statement of Financial Accounting Standard 128 "Earnings
per Share," This statement requires restatement of prior periods presented to
conform with the current year presentation.
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. The Registrant's line of credit
commitment is currently $5 million and is based upon a formula utilizing the
Registrant's trade receivables and inventory balances. The line matures and is
subject to renewal during August, 2001. The Registrant is required to maintain a
minimum working capital of $1.5 million each year during the term of the
agreement.
The Registrant obtained a letter of credit in order to market its Alabama
Industrial Revenue Bonds at favorable rates. Under such letter of credit
agreement the Company is required to maintain working capital of $1.5 million,
debt to tangible net worth of 2 to 1, and a debt service coverage of 1.1 times.
As of year end, the Registrant was in compliance with all such terms.
In connection with the purchase and expansion of the Alabama facility, the
Registrant closed on an Industrial Revenue Bond for the repayment of certain
advances used to purchase the Alabama facility and to expand such facility for
the Registrant's future needs. During March, 1997, the Registrant refinanced
$4,990,000 of such bonds of which $583,482 was held in trust, at December 31,
1998 for equipping the expansion.
The bonds are marketed weekly at the prevailing rates for such instruments.
Currently such bonds carry interest between 5.25% to 5.75% annually. Interest
and principal are payable quarterly. The Registrant believes that current
operations are sufficient to meet these obligations.
The Registrant is involved in making sales in the Canadian market and must deal
with the currency fluctuations of the Canadian currency. The Registrant does not
engage in currency hedging and deals with such currency risk as a pricing issue.
During the past few years, the Registrant has introduced various new products to
the marketplace. This has required the Registrant to carry greater amounts of
overall inventory and has resulted in lower inventory turnover rates. The
effects of such inventory turnover have not been material to the overall
operations of the Registrant. The Registrant believes that all required capital
to maintain such increases can continue to be provided by operations and current
financing arrangements.
Year 2000:
The Registrant is in the process of upgrading its hardware and software to
become year 2000 compliant. The ultimate cost of such upgrades is not
anticipated to be material and is comprised of the normal cost of periodic
ongoing maintenance and general improvements of the computer systems.
The Company has initiated communications with all of its significant suppliers
and large payors to determine the extent to which the Company's operations are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. Many of these entities have responded and the Registrant continues to
monitor their responses. There can be no guarantee that the systems of such
companies or payors will be timely converted and would not have an adverse
impact on
7
the Company's operation. Additionally, general problems such as electric power,
water and sewer etc., are beyond the ability of the Company to determine, and
would affect most other companies in this geographic area.
Fourth Quarter Results:
For the fourth quarter ended December 31, 1998 and 1997, gross profit
percentages remained constant at approximately 22%. This was primarily due to
similar product sales mixes during these quarters. Additionally, interest
expense increased approximately $45,000 advertising and promotion decreased
$104,000 and selling and administrative decreased by $104,000 when comparing the
fourth quarter of 1998 to the fourth quarter of 1997.
Results of Operations:
Calendar Year 1998/1997: Sales and earnings varied when comparing the year ended
December 31, 1998 to 1997 principally due to the factors enumerated below.
Net Sales - Net sales increased 9.5% or approximately $1,106,000 for the year
ended December 31, 1998 over the 1997 period. This was primarily due to
increased sales of anti- freeze, private label sales, and sales of brushes and
straps.
Cost of Goods Sold - Cost of goods sold decreased 0.6% as a percentage of gross
sales when comparing 1998 to 1997. This change is not significant.
Advertising and Promotion - Advertising expense decreased approximately $114,000
or 14% when comparing 1998 to 1997. This was primarily due to decreased
expenditures in customer co-op advertising and magazine advertisement.
Selling, General and Administrative - Selling, general and administrative
expenses increased approximately $50,000 or 1.9% when comparing 1998 to 1997.
This change is not significant.
Interest Expense - Interest expense incurred during 1998 decreased by
approximately $61,000 or 14% over 1997. The decrease was primarily due to lower
interest rates and lower levels of debt outstanding on the Industrial Revenue
Bonds.
Calendar Year 1997/1996: Sales and earnings varied when comparing the year ended
December 31, 1997 to 1996 principally due to the factors enumerated below.
Net Sales - Net sales decreased 1.9% or approximately $227,000 for the year
December 31, 1997 over 1996. This was not due to any one particular factor.
Cost of Goods Sold - Cost of goods sold increased approximately $545,000 or 2%
as a percentage of gross sales when comparing 1997 to 1996. Management
attributes this to the change in the product sales mix.
Advertising and Promotion - Advertising expense increased approximately $110,000
or 16% when comparing 1997 to 1996. This was primarily due to increased
expenditures in catalog advertising.
8
Selling, General and Administrative - Selling, general and administrative
expenses incurred during 1997 decreased approximately $34,000 or 1% when
compared to 1996. This change is not significant.
Interest Expense - Interest expense incurred during 1997 increased by
approximately $178,000 or 71% over 1996. The increase was primarily due to
increased borrowing levels, increased rates on the Registrant's line of credit
and interest on the Industrial Revenue Bonds outstanding.
Item 8. Financial Statements and Supplementary Data
See consolidated financial statements as set forth in item 14.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Executive Officers and Directors of the Registrant
The following tables set forth the names and ages of all elected directors and
officers of the Registrant, as of December 31, 1998.
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 59
Since 1973
Jeffrey Tieger Vice President, Secretary and Director 55
Since 1977
Julio DeLeon Vice President, Finance 47
Since 1994
Edward Anchel Director Since 1998 52
James Kolisch Director Since 1998 47
Laz Schneider Director Since 1998 59
9
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.
Mr. DeLeon left the Company in February, 1999 to pursue other interests.
Edward Anchel joined the Company in March, 1999 as Vice President-Finance. For
the five years immediately preceding his employment, he was an officer of a
privately owned manufacturing company and in private practice as a Certified
Public Accountant. He was elected to serve as an outside Director of the Company
during May, 1998.
James Kolisch is engaged in the insurance industry and was elected to serve as
an outside Director of the Company during May, 1998.
Laz Schneider is an attorney in private practice and was elected to serve as an
outside Director of the Company during May, 1998.
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, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information at December 31, 1998 with respect to
the beneficial ownership of the Registrant's Common Stock by holders of more
than 5% of such stock and by all directors and officers of the Registrant as a
group:
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
- ----- ---------------- -------------------- --------
Common Peter G. Dornau, President, Director 2,247,509* 56.7%
4041 S. W. 47 Avenue
Ft. Lauderdale, FL 33314
Common All Directors and officers as a group 2,359,066 59.5%
3 individuals
Common First Wilshire 267,772 7.21%
Securities Management, Inc.
727 West Seventh Street
Los Angeles, CA
- ----------
* Includes Options to purchase 180,000 shares as follows:
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 a Company loan from its
commercial bank in the amount of $1,500,000.
10
Pursuant to the Company's various stock option plans, Mr. Dornau has options to
acquire 30,000 shares of the Company's common stock and may exercise 15,000
shares within 60 days of the issuance of the Registrant's December 31, 1998
financial statements.
Item 13. Certain Relationships and Related Transactions
On May 1, 1998, the Company entered into a ten year lease for approximately
12,700 square feet of office and warehouse facilities in Fort Lauderdale,
Florida from an entity owned by officers of the Registrant. The lease requires a
minimum rental of $94,800 the first year increasing by 2% on the anniversary of
the lease throughout the term. Additionally, the landlord is entitled to its
pro-rata share of all taxes, assessments, insurance premiums, operating charges,
maintenance charges and any other expenses which arise from ownership.
The Registrant 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. The Registrant has
advanced monies to assist in such foreign marketing in order to establish an
international trademark. As of December 31, 1998 and 1997 amounts owed to
Registrant by these companies were approximately $735,000 and $691,000,
respectively. These amounts have been advanced by the Registrant on open account
with requirements of repayment between five and seven years. $250,000 of such
amount was repaid during February, 1999. 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 1998, 1997 and
1996 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, 1998 and 1997.
(ii) Consolidated Statements of Operations for each of the three years
ended December 31, 1998, 1997, and 1996.
(iii) Consolidated Statement of Shareholders' Equity for each of the
three years ended December 31, 1998, 1997, and 1996.
(iv) Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1998, 1997 and 1996.
(v) Notes to Consolidated Financial Statements.
(a) All schedules are omitted because either they are not applicable or
the required information is shown in the Consolidated Financial
Statements or the Notes thereto.
11
OCEAN BIO-CHEM INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
Page
----
Accountants' report 1
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statement of shareholders' equity 4
Consolidated statements of cash flow 5
Notes to consolidated financial statements 6-13
INFANTE, LAGO & COMPANY
- -------------------------------------------------------------------------------
ILC CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
Members of: Biscayne Centre Suite 288
American Institute of CPAs 11900 Biscayne Boulevard
SEC Practice Section North Miami, Florida 33181
Private Companies Practice Section Telephone [305] 893-4341
Tax Division Fax [305] 893-4507
Personal Financial Planning Section
Florida Institute of CPAs
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors
Ocean Bio-Chem, Inc.
We have audited the accompanying consolidated balance sheets of Ocean Bio-Chem,
Inc. ("the Company") and its subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Ocean
Bio-Chem, Inc. and its subsidiaries at December 31, 1998 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
INFANTE, LAGO & COMPANY
March 19, 1999
1
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 and 1997
ASSETS
Current assets: 1998 1997
----------- -----------
Cash $ 8,871 $ 787,411
Trade accounts receivable net of allowance for
doubtful accounts of approximately $26,000
and $35,000, for 1998 and 1997, respectively (Note 3) 2,329,712 2,158,233
Inventories (Note 3) 3,691,877 3,237,207
Due from Officers 161,100 197,200
Prepaid expenses and other current assets 85,123 92,588
----------- -----------
Total current assets 6,276,683 6,472,639
----------- -----------
Property, plant and equipment , net (Note 2) 4,374,991 4,141,031
----------- -----------
Other assets:
Funds held in escrow for construction (Note 2) 583,432 1,042,612
Trademarks, trade names, and patents, net
of accumulated amortization 399,415 422,407
Due from affiliated companies, net (Note 7) 870,150 733,644
Deposits and other assets 342,123 464,209
----------- -----------
Total other assets 2,195,120 2,662,872
----------- -----------
Total Assets $12,846,794 $13,276,542
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable trade $ 932,927 $ 718,217
Note payable bank (Note 3) 3,009,118 3,254,158
Current portion of long-term debt (Note 4) 300,000 340,000
Accrued expenses payable (Note 5) 77,991 183,747
----------- -----------
Total current liabilities 4,320,036 4,496,122
----------- -----------
Long-term debt less current portion (Note 4) 4,070,000 4,370,000
----------- -----------
Commitments and contingencies (Notes 5, 8, 9 and 10)
Shareholders' equity (Note 10):
Common stock - $.01 par value, 10,000,000 shares
authorized, 3,753,017 shares issued and outstanding
at December 31, 1998 and 1997, respectively 37,530 37,530
Additional paid-in capital 3,232,327 3,232,327
Foreign currency translation adjustment (145,666) (108,945)
Retained earnings 1,332,567 1,249,508
----------- -----------
Total shareholders' equity 4,456,758 4,410,420
----------- -----------
Total Liabilities and shareholders' equity $12,846,794 $13,276,542
=========== ===========
The accompanying notes are an integral part of these financial statements.
2
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997, and 1996
1998 1997 1996
------------ ------------ -------------
Gross sales $ 14,077,993 $ 12,849,507 $ 12,436,918
Less returns and allowances 1,372,520 1,250,394 610,578
------------ ------------ -------------
Net sales 12,705,473 11,599,113 11,826,340
Cost of goods sold 9,044,501 8,331,510 7,786,510
------------ ------------ -------------
Gross profit 3,660,972 3,267,603 4,039,830
------------ ------------ -------------
Operating expenses:
Advertising and promotion 693,229 807,059 697,533
Selling and administrative 2,583,485 2,533,557 2,567,295
Interest (Notes 3 and 4) 366,994 427,600 250,050
------------ ------------ -------------
Total Operating Expenses 3,643,708 3,768,216 3,514,878
------------ ------------ -------------
Operating profit (loss) 17,264 (500,613) 524,952
Interest and other income 97,174 236,519 43,416
------------ ------------ -------------
Income (loss) before provision (credit)
for income taxes 114,438 (264,094) 568,368
Provision (credit) for income taxes 31,379 (95,588) 213,696
------------ ------------ -------------
Net income (loss) 83,059 (168,506) 354,672
Other comprehensive income:
Foreign currency translation,
net of taxes (26,652) (16,628) (2,722)
------------ ------------ -------------
Comprehensive Income (loss) $ 56,407 $ (185,134) $ 351,950
============ ============ =============
Earnings (loss) per share $ .02 $ (.05) $ .10
============ ============ =============
Earnings per common share for the years prior to 1998 has been restated to
reflect implementation of SFAS 128, "Earnings Per Share," which requires the
restatement of prior period earnings per share to conform with the current year
presentation.
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, 1998, 1997, and 1996
Foreign
Additional currency
Common Stock paid-in Retained translation
Balances Shares Amount capital Earnings adjustments Total
- -------- ---------------------------- ----------- -------- ----------- -----------
January 1, 1996 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
Net loss (168,506) (168,506)
Stock Issue 50,939 510 59,990 60,500
Foreign currency
translation adjustment (26,058) (26,058)
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1997 3,753,017 $ 37,530 $ 3,232,327 $ 1,249,508 $ (108,945) $ 4,410,420
Net Income 83,059 83,059
Stock Issue
Foreign currency
translation adjustment (36,721) (36,721)
----------- ----------- ----------- ----------- ----------- -----------
December 31, 1998 3,753,017 $ 37,530 $ 3,232,327 $ 1,332,567 $ (145,666) $ 4,456,758
=========== =========== =========== =========== =========== ===========
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, 1998, 1997, and 1996
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net income (Loss) $ 83,059 $ (168,506) $ 354,672
Adjustments to reconcile net income (loss)
to net cash (used) provided by operations:
Depreciation and amortization 280,091 232,435 203,580
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (171,479) 76,950 (228,765)
(Increase) in inventory (454,670) (702,345) (496,112)
(Increase) decrease in prepaid expense 85,234 (214,233) (174,654)
Increase in accounts payable
and accrued expenses 189,371 58,635 188,739
----------- ----------- -----------
Net cash (used) provided by operating
activities 11,606 (717,064) (152,540)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (reductions) under line of credit (245,040) 1,596,157 (331,999)
Borrowings (reductions) in trust for construction 459,180 2,057,389 (3,100,001)
Issuance of bonds -- -- 4,990,000
Advances to affiliates, net (136,506) (84,778) (16,487)
Payments on long term debt (340,000) (280,000) (7,592)
Issuance of common stock -- 60,500 18,169
----------- ----------- -----------
Net cash (used) provided
by financing activities (262,366) 3,349,268 1,552,090
----------- ----------- -----------
Cash flows used by investing activities:
Purchase of property, plant and equipment (491,059) (2,213,304) (1,997,928)
----------- ----------- -----------
Net cash used by investing activities (491,059) (2,213,304) (1,997,928)
----------- ----------- -----------
Increase (decrease) in cash prior to
effect of exchange rate on cash (741,819) 418,900 (598,378)
Effect of exchange rate on cash (36,721) (26,058) (4,362)
----------- ----------- -----------
Net increase (decrease) in cash (778,540) 392,842 (602,740)
Cash at beginning of year 787,411 394,569 997,309
----------- ----------- -----------
Cash at end of year $ 8,871 $ 787,411 $ 394,569
=========== =========== ===========
Supplemental Information
Cash used for interest during period $ 338,606 $ 366,519 $ 241,184
Cash used for income taxes during period $ -- $ 65,000 $ 249,000
----------- ----------- -----------
The Company had no cash equivalents at December 31, 1998, 1997 and 1996.
The accompanying notes are an integral part of these financial statements.
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, and 1996
Note 1 - Organization and summary of significant accounting policies:
Organization - The Company was organized during November, 1973 under the
laws of the state of Florida and operates as a manufacturer and distributor
of products to the recreational vehicle and marine aftermarkets. On October
11, 1984, the Board of Directors approved a change in the corporate name to
Ocean Bio-Chem, Inc. (the parent company) from its former name, Star Brite
Corporation.
Principles of consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Inventories - Inventories are primarily composed of raw materials and
finished goods and are stated at the lower of cost, using the first-in,
first-out method, or market.
Prepaid advertising and promotion - During the years ended December 31,
1998 and 1997, 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,
1998 and 1997, the accumulated cost of materials on hand and other deferred
promotional costs that will be charged against subsequent year's operations
amounted approximately to $29,000 and $58,000, respectively.
Property, plant and equipment - Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the
related assets using the straight-line method.
Property and Plant - On February 27, 1996, the Registrant purchased the
assets of Kinpak, Inc., a subsidiary of Kinark, Inc. The plant currently
consists of a manufacturing and distribution facility of approximately
110,000 square feet on approximately 20 acres in Montgomery, Alabama. The
facility has filling and blow-molding capacity. The cost of the facility
was $1,850,000 including an assumption of debt of $990,000. During October,
1997, the Company completed an addition to the Alabama facility at a cost
of $1.7 million to be utilized as a distribution center.
Stock Based Compensation - The Company follows the rules of APB Opinion No.
25, Accounting for Stock Issued to Employees, to record compensation costs.
Opinion No. 25 requires that compensation cost be based on the difference,
if any, between the quoted market price of the stock and the price the
employee must pay to acquire the stock depending on the terms of the award.
The Company has not adopted Statement of Financial Accounting Standards No.
123. To record such compensation costs Statement No. 123 requires
accounting for such cost at fair value using an option pricing model such
as the Black-Scholes or a bimodal distribution.
Use of Estimates -The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
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. The single largest customer's receivable
represents approximately 13% of the consolidated balance. As of December
31, 1998, the Company had no other significant concentration of credit
risk.
Fair Value of Financial Instruments - The carrying amount of cash
approximates its fair value. The fair value of long-term debt is based on
current rates at which the Company could borrow funds with similar
remaining maturities, and the carrying amount approximates fair value.
Income taxes - The Company and its subsidiaries file consolidated income
tax returns. The Company has adopted application SFAS 109 which caused no
material changes to the financial statements. The only temporary
differences are attributable to differing methods of reflecting
depreciation for book and income tax purposes.
The Components of income taxes are as follows:
Year ended December 31,
1998 1997 1996
--------- --------- ---------
Income tax Provision (Benefit):
Federal - Current $11,193 $(97,218) $182,711
- Deferred 16,708 18,271 --
State 3,478 (16,641) 30,985
--------- --------- ---------
Total $31,379 $(95,588) $213,696
========= ========= =========
The reconciliation of income tax expense (credit) at the statutory rate to
the reported income tax expense is as follows:
Year Ended December 31,
1998 1997 1996
---- ---- ----
Computed at statutory rate 34.0% (34.0%) 34.0%
State tax, net of federal benefit 3.6 (3.6) 3.6
Other, net (10.2) 1.4 --
---- ---- ----
Effective tax rate 27.4 (36.2%) 37.6%
===== ==== ====
Trademarks, trade names and patents - The Star brite trade name and
trademark were purchased in 1980 for $880,000. The cost of trademarks and
trade names is being amortized on a straight-line basis over a useful life
of 40 years. The Company has two patents which it believes are valuable in
limited product lines, but not material to its success or competitiveness
in general. There are no capitalized costs for these two patents. The
Company's trade name has been trademarked and there have been no incidents
of infringement.
Translation of Canadian currency - The accounts of the Company's Canadian
subsidiary are translated in accordance with Statement of Financial
Accounting Standard No. 52, which requires that foreign currency assets and
liabilities be translated using the exchange rates in effect at the balance
sheet date. Results of operations are translated using the average exchange
rate
7
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, 1997 and 1996 have been reclassified to conform with the 1998
presentation.
Note 2 - Property, plant and equipment:
The Company's property, plant and equipment consisted of the following:
December 31,
1998 1997
---------- ----------
Land $ 278,325 $ 278,325
Building 3,175,221 3,187,383
Manufacturing and warehouse equipment 1,241,117 841,981
Office equipment and furniture 474,392 370,307
Leasehold improvement 60,739 60,739
---------- ----------
5,229,794 4,738,735
Accumulated depreciation 854,803 597,704
---------- ----------
Property, plant and equipment, net $4,374,991 $4,141,031
========== ==========
Depreciation expense for the years ended December 31, 1998, 1997 and 1996
amounted to $257,099, $209,695, $180,588, respectively. Depreciation
expense includes the amortization of capital lease assets.
Included in property, plant and equipment are the following assets held
under capital leases:
1998 1997
---------- ----------
Land $ 278,325 $ 278,325
Building 3,001,268 3,187,383
Manufacturing and warehouse equipment 1,162,982 594,473
---------- ----------
4,442,575 4,060,181
Less accumulated amortization 340,207 174,715
---------- ----------
Total $4,102,368 $3,885,466
========== ==========
On February 27, 1996, the Company purchased the assets of Kinpak, Inc. a
subsidiary of Kinark, Inc. In order to meet the Company's future needs, it
entered into an agreement with the City of Montgomery to issue Industrial
Revenue Bonds to cover an expansion of the Alabama facility (see Note 4).
The expansion consisted of an additional building which was completed
during October, 1997 bring the current facility to approximately 110,000
square feet to serve as a manufacturing and distribution center. For future
payments on this capitalized lease see Note 4.
8
Note 3 - Note payable, bank:
The Company currently has a revolving line of credit with a limit of $5
million from a commercial bank. Borrowing availability is based on a
formula utilizing the Company's trade receivables and inventory balances.
Any unpaid principal and interest becomes due during August, 2001.
Considering the terms of this financing arrangement, the outstanding
balance is classified as a current liability on the accompanying
consolidated balance sheet. Under the agreement, the Company is required to
maintain a minimum working capital of $1.5 million, debt to tangible net
worth of 2:1, and debt coverage of 1.1 times. The line is collateralized by
the Company's inventory, trade receivable, equipment and other assets. As
of December 31, 1998, the Company was in compliance with all of the
applicable loan covenants.
Note 4 - Long-term debt:
Long term debt at December 31, 1998 consisted of the following:
Obligation pursuant to capital lease financed through Industrial Revenue
Bonds; principal payable quarterly at various specified amounts. Interest
is computed weekly at market rates and is paid quarterly along with
prescribed principal amounts.
Long-Term
Current Portion Portion
--------------- ----------
$300,000 $4,070,000
========= ==========
Prescribed principal payment obligations attributable to the foregoing are
tabulated below:
Year Ending December 31,
1999 $ 300,000
2000 310,000
2001 320,000
2002 320,000
2003 320,000
Thereafter 2,800,000
----------
Total $4,370,000
==========
On December 20, 1996, the Company issued $4,990,000 of Industrial Revenue
Bonds in order to finance the expansion of the Alabama property and to
refinance the original acquisition costs. A certain portion of these bonds
were reissued in March of 1997 in order to take advantage of tax free
financing. The Bonds have varying maturities beginning on June 1, 1997 and
ending on March 1, 2012.
Note 5 - Income taxes:
Accrued state and federal income taxes were approximately $22,000 at
December 31, 1998 and 1997.
9
Note 6 - Litigation
The Company from time to time, in the ordinary course of business, is named
as a defendant in lawsuits. In management's opinion, the ultimate
liability, if any, from such lawsuits is not considered to be material to
the Company's financial condition or results of operations.
Note 7 - Related party transactions:
At December 31, 1998 and 1997, the Company had amounts due from affiliated
companies aggregating approximately $870,000, and $734,000, respectively.
Such advances were made primarily to international affiliates that are in
the process of expanding sales of the Company's products in Europe, Asia
and South America. These amounts have been advanced by the Company on open
account with requirements of repayment between five and seven years.
$250,000 of such advances were repaid during February, 1999. Advances and
inter-company charges bear interest at the rate of interest charged to the
Company on its line of credit.
Note 8 - Commitments:
On May 1, 1998, the Company entered into a ten year lease for approximately
12,700 square feet of office and warehouse facilities in Fort Lauderdale,
Florida from an entity owned by certain officers of the Company. The lease
required a minimum rental of $94,800 for the first year increasing by 2% on
the anniversary of the lease throughout the term. Additionally, the
landlord is entitled to its pro-rata share of all taxes, assessments,
insurance premiums, operating charges, maintenance charges and any other
expenses which arise from ownership. Rent charged to operations during the
year ended December 31, 1998 amounted to approximately $92,900.
In November, 1994, the Company leased an approximately 10,000 square foot
building in Fort Lauderdale, Florida for manufacturing, warehousing and
office space. The agreement calls for a one year rental renewable annually
for five years. The termination requires a one year notification. The
annual rental is approximately $69,000 which can be increased at each
annual lease anniversary based on the change in the consumer price index
for the Miami area. Rent charged to operations during the year ended
December 31, 1998 amounted to approximately $83,000.
During 1997, the Company modified a rental agreement covering approximately
4,800 square feet it utilizes as a manufacturing facility in Fort
Lauderdale, Florida. The base rent through maturity in September, 1999
aggregates $37,632 annually. In addition to the base rent, the Company is
obligated to pay its pro-rata share of real estate taxes, insurance and
common area costs. Rent charged to operations during the year ended
December 31, 1998 amounted to approximately $42,700.
The following is a schedule by years of minimum future rentals on the
noncancellable operating leases:
Year ending December 31,
1999 $ 201,352
2000 97,984
2001 99,948
2002 101,944
2003 103,980
Thereafter 475,364
----------
Total $1,080,572
==========
10
Note 9 - Licensing agreement:
During 1984, the Company entered into a licensing agreement for an
indefinite period whereby the Company will market a marine anti-fouling
product. Such agreement, as amended, requires the Company to pay the
licensor a royalty equal to the greater of 7% of net sales to fund future
research and development costs of the covered product or a minimum of
$4,000 per year.
Note 10 - Stock options/warrants:
During 1991, the Company adopted a non-qualified employee stock option plan
covering 200,000 shares of its common stock. During 1992, the Company
adopted an incentive stock option plan covering 200,000 shares of its
common stock. At December 31, 1998, there were no options outstanding under
either of these plans.
During 1994, the Company adopted a non-qualified employee stock option plan
covering 400,000 shares of its common stock. The following schedule shows
the status of outstanding options under the plan.
Options Outstanding Option Price Expiration Date
------------------- ------------ ---------------
92,000 $2.00 January 22, 2000
97,000 $2.00 January 29, 2001
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 then
current loan from its commercial bank.
Common stock equivalents consist of options to purchase common shares. For
the year ended December 31, 1998, the inclusion of such options would have
been anti-dilutive on earnings per share, and therefore, were omitted.
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.
1998 1997 1996
---- ---- ----
Net Income (Loss) As reported $83,059 $(168,506) $354,672
Pro forma $46,959 $(204,606) $314,149
Earnings per share As reported $ .02 $ (.05) $ .10
Pro forma $ .01 $ (.06) $ .08
11
A summary of the Company's three stock option plans as of December 31,
1998, 1997 and 1996, and changes during the years ending on those dates, is
presented below:
1998 1997 1996
---- ---- ----
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Options Outstanding
at beginning of year 559,000 $2.01 623,000 $1.94 536,000 $1.92
Granted -- -- -- 97,000 $2.00
Expired (220,000) 1.85
Exercised -- -- (64,000) $1.38 (10,000) --
------- ----- ------- ----- ------- -----
Outstanding at
End of Year 339,000 $2.11 559,000 $2.01 623,000 $1.94
======== ===== ======= ===== ======= =====
The following table summarizes information about the stock options
outstanding at December 31, 1998:
Options Outstanding Options Exercisable
---------------------------- --------------------------------
Number Weighted Avg. Weighted Avg. Number Weighted Avg.
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Price
--------------- ----------- ---------------- ----- ----------- -----
$2.00 189,000 1.59 yrs. $2.00 94,000 $2.00
$2.25 150,000 .33 yrs. $2.25 150,000 $2.25
===== ------- --------- ===== ------- -----
339,000 1.04 yrs. 244,000 $2.15
======= ========= ======= =====
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 1998, 1997 and 1996: 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, West Marine, Inc., with sales in excess
of 10% of consolidated revenue for the year ended December 31, 1998. Sales
to this customer represent approximately 15%. The Company enjoys good
relations with this customer. However, the loss of this customer could have
an adverse impact on the Company's operations.
Note 12 - Earnings per share
Earnings per common share for the years ended December 31, 1998, 1997 and
1996 were calculated on the basis of 3,753,017, 3,708,053 and 3,634,625
weighted average common shares outstanding, respectively utilizing the
provisions of Financial Accounting Statement 128. Earnings per common share
assuming full dilution for the year ended December 31, 1996 were calculated
on the basis of 3,799,126 shares. Common stock equivalents consist of stock
options. For the year ended December 31, 1998, common stock equivalents
were not considered as the result would have been anti-dilutive.
12
Note 13 - Impact of Year 2000 (Unaudited)
The Company has upgraded certain portions of its software and hardware, and
continues to do so, in order that its systems and equipment will function
properly with respect to dates in the year 2000 and thereafter. The Company
has utilized both internal and external resources to upgrade and test
certain software for year 2000 readiness. The Company anticipates
substantially completing the Year 2000 project by June, 1999. The total
cost of the Year 2000 project is not presently determinable. However, it is
not anticipated to be material.
The costs for the Year 2000 project and the date on which the Company
believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of
certain resources. The Company's operating results could be materially
impacted if actual costs of the Year 2000 project are significantly higher
than management estimates or if the systems and equipment of the Company or
those of other companies on which it relies are not compliant in a timely
manner.
The Company has initiated formal communications with all of its significant
suppliers and large payors to determine the extent to which the Company's
operations are vulnerable to those third parties' failure to correct their
own Year 2000 issues. There can be no guarantee that the systems of other
companies or payors will be timely converted and would not have an adverse
effect on the Company's operations.
13
(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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
OCEAN BIO-CHEM, INC.
Registrant
By::
----------------------------------
PETER G. DORNAU
Chairman of the Board of Directors
and Chief Executive Officer
March 24, 1999
By:
----------------------------------
PETER G. DORNAU
Chief Financial Officer
March 24, 1999
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:
----------------------------------
JEFFREY TIEGER
Director
March 24, 1999
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