-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GjH7Yt1PLujIM/aI5MBNGx74x2ikqlc5f6ySXyCwDF6Muf2mmcCTBMhyjD+86GIQ X1cIQ3Kv4UgyAe9XBJOERA== 0000350737-98-000002.txt : 19980331 0000350737-98-000002.hdr.sgml : 19980331 ACCESSION NUMBER: 0000350737-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEAN BIO CHEM INC CENTRAL INDEX KEY: 0000350737 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 591564329 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11102 FILM NUMBER: 98578688 BUSINESS ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FORT LAUDERDALE STATE: FL ZIP: 33314 BUSINESS PHONE: 3055876280 MAIL ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FT LAUDERDALE STATE: FL ZIP: 33314 FORMER COMPANY: FORMER CONFORMED NAME: STAR BRITE CORP DATE OF NAME CHANGE: 19841204 10-K 1 10k1297.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, 1997 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. $2,208,518 as of February 1, 1998. Indicate the number of shares outstanding of registrant's common stock as of February 1, 1998. 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, 1997. 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 and anti-freeze coolants. 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 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 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. Manufacturing is primarily performed by four entities located in four states, primarily in the northeastern area of the country. The Company believes that the arrangements with the present manufacturers are adequate for its present needs. In the event the arrangements are discontinued with any manufacturer, the Company believes that substitute facilities can be found without substantial adverse effect on manufacturing and distribution. 2 On February 27, 1996, the Registrant, through a wholly-owned operating subsidiary, Kinbright, Inc. an Alabama corporation, acquired certain assets of Kinpak, Inc., a Georgia corporation ("Kinpak"), and assumed two (2) leases of land and facilities (the "Leases") leased by Kinpak from the Industrial Development Board of the city of Montgomery, Alabama and the Alabama State Docks Department. The leased premises consist of a manufacturing facility containing approximately 50,000 square feet located on approximately 20 acres of real property and a docking facility located on the Alabama River. In addition, Registrant purchased the machinery, equipment and inventory located on the leased premises. 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 has no prospects of a third party to replace the terminated operations. The Company believes it will be able to replace this business during the coming years. The Company produced a private label line of antifreeze in 1997. Gross sales of the Company's antifreeze were $1.7 million in 1997. 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 arrangement consisted of $990,000 tax free bonds and $4,000,000 taxable bonds. During 1997 the taxable bonds were refinanced with tax free bonds. 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 two customers 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. 3 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 20 persons are employed at the manufacturing facility in Alabama. 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, 1997 1996 1995 ------- --------- ----------- United States: Northeast $ 3,780,000 $ 3,065,000 $ 2,776,000 Southeast 1,654,000 3,623,000 1,115,000 Central 4,082,000 3,678,000 3,992,000 West Coast 2,754,000 1,612,000 1,248,000 ----------- ----------- ----------- 12,270,000 11,978,000 9,131,000 Canada 580,000 459,000 569,000 (US Dollars) ------------ ------------ ----------- $ 12,850,000 $ 12,437,000 $ 9,700,000 ============ ============ =========== 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 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. The Company expects to renew this lease for another five years at market rates. 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. For the year ended December 31, 1997 the annual rental was approximately $83,000. 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 $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 $1,043,000 is held in trust to pay for the equipping of an additional 60,000 square foot building which was completed in October 1997. 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 gross liability from such lawsuits is not considered to be material to 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 1997 and 1996 is presented below. Market Range of Common Stock Bid: 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. -------- ------- -------- -------- 1997 High $2.38 $2.38 $2.29 $1.94 Low $1.88 $1.75 $1.75 $1.25 1996 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. B. The approximate number of Common Stock owners was 600 at December 31, 1997. 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 1995 and 1996 the Company issued 5% stock dividends. D. The Company has no other dividend policy except as stated in C. directly above. 5 Item 6. Selected Financial Data - ------------------------------- The following tables set forth selected financial data as of, and for the years ending December 31, 1997 1996 1995 1994 1993 ------- ------- -------- -------- ---------- Income Statement Gross Sales $12,849,507 $12,436,918 $ 9,700,193 $ 9,462,547 $ 8,326,496 Net Sales $11,599,113 $11,826,340 $ 9,042,181 $ 8,915,154 $ 7,702,687 Net Income (loss) ($ 168,506) $ 354,672 $ 540,542 $ 694,616 $ 558,210 Earnings (loss) per common share ($.05) $.09 $.15 $.19 $.15 Balance Sheet Working Capital $ 1,976,517 $ 2,737,817 $ 2,736,587 $ 2,355,195 $ 2,108,696 Total Assets $13,276,542 $11,955,397 $ 6,747,770 $ 5,722,028 $ 4,822,530 Long Term Obligation $ 4,370,000 $ 4,710,000 - $ 7,501 $ 118,734 Total Liabilities $ 8,866,122 $ 7,410,913 $ 2,571,765 $ 2,257,408 $ 2,059,291 Shareholders' Equity $ 4,410,420 $ 4,544,484 $ 4,176,005 $ 3,464,620 $ 2,763,239 Earnings per common share for the years prior to 1997 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. 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 $2.9 million by its commercial bank. The total borrowings under the line can aggregate up to $2,900,000 and is subject to renewal in April 1998. 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 not in compliance with some of the terms, however, Registrant has received a waiver from its commercial bank. 6 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. During March 1997 the Registrant refinanced on $4,990,000 of such bonds of which $1,042,612 is held in trust for equipping the expansion. The bonds are marketed weekly at the prevailing rates for such instruments. Currently such bonds carry interest between 5 1/4% to 5 % 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, 1997 and 1996, Gross Margin percentages were 22% and 32%, respectively. This was primarily due to the product sales mix during these quarters. Lower margin antifreeze sales changed the sales mix ratio during this quarter. Additionally, interest expense increased approximately $74,000 due to higher borrowing levels and the interest on the Bonds. Results of Operations: - ---------------------- Calendar Year 1997/1996: Sales and earnings varied when comparing the year ended 1997 to 1996 principally due to the factors enumerated below. Net Sales - Net sales decreased 1.9% or approximately $227,000 for the year ended 1997 over 1996. This was not due to any one particular factor. Cost of Goods Sold - Cost of goods sold increased 2% or approximately $545,000 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. Selling, General and Administrative - Selling, general and administrative expenses decreased approximately $34,000 or 1% when compared to 1996. Such decrease was primarily attributable to a decrease in litigation expenditures. 7 Interest Expense - Interest expense 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. Calendar Year 1996/1995: Sales and earnings varied when comparing the year ended 1996 to 1995 principally due to the factors enumerated below. Net Sales - Net sales increased approximately 31% or $2,784,000 for the year ended 1996 over 1995. This is due to primarily to the inclusion of the temporary operating results of the Alabama facility. 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. Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------- See financial statement as set forth in item 14. Item 9. Changes in and Disagreements on Accounting and Financial Disclosure - ---------------------------------------------------------------------------- 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, 1997. All directors will serve until the next annual meeting of shareholders or until their successors are duly elected and qualified. Each officer serves at the pleasure of the board of directors. 8 There are no arrangements or understandings between any of the officers or directors of the Company and the Company and any other persons pursuant to which any officer or director was or is to be selected as a director or officer. NAME OFFICE AGE - -------------- ---------------------------------- ----- Peter G. Dornau President and Director 58 Since 1973 Jeffrey Tieger Vice President-Secretary & Director 54 Since 1977 Julio DeLeon Vice President, Finance 46 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, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------------------- The following table sets forth information at December 31, 1997 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 2,351,509* 57.4% 4041 S. W. 47 Avenue Ft. Lauderdale, FL 33314 Common All Directors and officers as a group 2,475,591 60.4% 3 individuals Common First Wilshire 267,772 7.21% Securities Management, Inc. 727 West Seventh Street Los Angeles, CA *Includes Options to purchase 281,000 shares as follows: 9 On February 3, 1993 the Company granted Mr. Dornau an option to purchase 100,000 shares of the Company's common stock at $1.38 per share. The option expires 5 years from grant. The option was granted in consideration of Mr. Dornau personally guaranteeing $1,300,000 of bank loans to the Company. The option exercise price of $1.38 is 100% of the price of the Company's common stock on the date of grant. On April 13, 1994 the Company granted Mr. Dornau a five year option for 150,000 shares at a price of $2.25 representing 100% of the price at the time of grant in consideration of his personally guaranteeing the Company's $1,500,000 loan from its commercial bank. Pursuant to the Company's various stock option plans Mr. Dornau may exercise 31,000 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, 1997 and 1996 amounts owed to Registrant by the two companies was approximately $691,000 and $596,000, respectively. 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 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 1997, 1996 and 1995 under such relationship. 10 Item 14. Exhibits and Financial Statement Schedules The following documents are filed as a part of this report. (A) Consolidated Financial Statements. (i) Consolidated Balance Sheets, December 31, 1997 and 1996. (ii) Consolidated Statements of Income for each of the three years ended December 31, 1997, 1996, and 1995. (iii) Consolidated Statement of Shareholders' Equity for each of the three years ended December 31, 1997, 1996, and 1995. (iv) Consolidated Statements of Cash Flows for each of the three years ended December 31, 1997, 1996 and 1995. (v) Notes to Consolidated Financial Statements. (vi) Schedules for each of the three years Ended December 31, 1997, 1996 and 1995. (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 27, 1998 By: /S/ Petre G. Dornau ----------------------------------- PETER G. DORNAU Chief Financial Officer March 27, 1998 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 27, 1998 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 OCEAN BIO-CHEM INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 and 1995 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 & 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, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. March 19, 1998 1 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 and 1996 ASSETS Current assets: 1997 1996 ----------- ------------ Cash $ 787,411 $ 394,569 Trade accounts receivable net of allowance for doubtful accounts of approximately $35,000 and $27,000, respectively (Note 3) 2,158,233 2,235,183 Inventories (Note 3) 3,237,207 2,534,862 Due from Officers 197,200 141,880 Prepaid expenses and other current assets 92,588 132,238 ----------- ------------ Total current assets 6,472,639 5,438,732 ----------- ------------ Property, plant and equipment, net (Note 2) 4,141,031 2,138,815 ----------- ------------ Other assets: Funds held in escrow for construction (Note 4) 1,042,612 3,100,001 Trademarks, trade names, and patents, net of accumulated amortization (Note 1) 422,407 443,754 Due from affiliated companies, net (Note 7) 733,644 648,866 Deposits and other assets 464,209 185,229 ----------- ------------ Total other assets 2,662,872 4,377,850 ----------- ------------ Total Assets $13,276,542 $11,955,397 =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable trade $ 718,217 $ 643,409 Note payable bank (Note 3) 3,254,158 1,658,001 Current portion of long-term debt (Note 4) 340,000 280,000 Accrued expenses payable (Note 5) 183,747 119,503 ----------- ------------ Total current liabilities 4,496,122 2,700,913 ----------- ------------ Long-term debt less current portion (Note 4) 4,370,000 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, 3,753,017 and 3,702,078 shares issued and outstanding at December 31, 1997 and 1996 respectively 37,530 37,020 Additional paid-in capital 3,232,327 3,172,337 Foreign currency translation adjustment ( 108,945) ( 82,887) Retained Earnings 1,249,508 1,418,014 ----------- ------------ Total shareholders' equity 4,410,420 4,544,484 ----------- ------------ Total Liabilities and Shareholders Equity $13,276,542 $11,955,397 =========== ============ 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, 1997, 1996, and 1995 1997 1996 1995 ------------ ------------ ------------ Gross sales $12,849,507 $12,436,918 $9,700,193 Less returns and allowances 1,250,394 610,578 658,012 ----------- ----------- ----------- Net sales 11,599,113 11,826,340 9,042,181 Cost of goods sold 8,331,510 7,786,510 5,218,566 ----------- ----------- ----------- Gross profit 3,267,603 4,039,830 3,823,615 Operating expenses: Advertising and promotion 807,059 697,533 828,302 Selling and administrative 2,533,557 2,567,295 2,060,409 Interest (Notes 3 and 4) 427,600 250,050 95,280 ----------- ----------- ----------- Total Operating Expenses 3,768,216 3,514,878 2,983,991 ----------- ----------- ----------- Operating profit (Loss) ( 500,613) 524,952 839,624 Interest and other income 236,519 43,416 26,755 ----------- ----------- ----------- Income (Loss) before provision (credit) for income taxes ( 264,094) 568,368 866,379 Provision (credit) for income taxes ( 95,588) 213,696 325,837 ------------- ----------- ----------- Net income (Loss) ($ 168,506) $ 354,672 $ 540,542 ============= ============ =========== Earnings (Loss) per common share (Note 12) ($ .05) $ .10 $ .16 ========= ======= ======= Earnings (Loss) per common share assuming dilution (Note 12) ($ .05) $ .09 $ .15 ========= ======= ======== Earnings per common share for the years prior to 1997 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. Accordingly, prior periods have been restated to conform with statement 128. 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, 1997, 1996, and 1995 Foreign Additional currency Common Stock paid-in Retained translation Balances Shares Amount capital Earnings adjustments Total - --------- ------------------ ---------- ---------- ----------- ---------- January 1, 3,044,812 $30,448 $2,016,915 $1,484,808 ($ 67,551) $3,464,620 1995 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 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) $4,410,420 ========= ======= ========== ========== =========== =========== The accompanying notes are an integral part of these financial statements. 4 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996, and 1995 1997 1996 1995 ---------- ---------- ----------- Cash flows from operating activities Net income (Loss) ($ 168,506) $ 354,672 $ 540,542 Adjustments to reconcile net income (loss) to net cash (used) provided by operations: Depreciation and amortization 232,435 203,580 97,376 Change in assets and liabilities: (Increase) decrease in accounts receivable 76,950 ( 228,765) ( 15,860) Increase in inventory ( 702,345) ( 496,112) ( 111,104) Increase in prepaid expense ( 214,233) ( 174,654) ( 156,884) Increase (decrease) in accounts payable and accrued expenses 58,635 188,739 ( 79,497) ---------- ---------- ----------- Net cash (used) provided by operating activities: ( 717,064) ( 152,540) 274,573 ---------- ---------- ----------- Cash flows from financing activities: Net borrowings under line of credit 1,596,157 ( 331,999) 423,333 Borrowings in trust for construction 2,057,389 (3,100,001) - Issuance of bonds - 4,990,000 - Advances to affiliates, net ( 84,778) ( 16,487) ( 261,632) Payments on debt ( 280,000) ( 7,592) ( 29,479) Issuance of common stock 60,500 18,169 181,817 ---------- ----------- ----------- Net cash provided by financing activities: 3,349,268 1,552,090 314,039 ---------- ----------- ----------- Cash flows used by investing activities: Purchase of property, plant and equip. (2,213,304) (1,997,928) ( 151,740) ---------- ----------- ----------- Net cash used by investing activities: (2,213,304) (1,997,928) ( 151,740) ---------- ----------- ----------- Increase (decrease) in cash prior to effect of exchange rate on cash 418,900 ( 598,378) 436,872 Effect of exchange rate on cash ( 26,058) ( 4,362) ( 10,974) ---------- ----------- ----------- Net increase (decrease) in cash 392,842 ( 602,740) 425,898 Cash at beginning of year 394,569 997,309 571,411 ---------- ----------- ----------- Cash at end of year $ 787,411 $ 394,569 $ 997,309 ========== =========== =========== Supplemental Information Cash used for interest during period $ 366,519 $ 241,184 $ 90,029 Cash used for income taxes during period $ 65,000 $ 249,000 $ 399,096 The Company had no cash equivalents at December 31, 1997, 1996 and 1995. 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, 1997, 1996, and 1995 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, 1997 and 1996, 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, 1997 and 1996, the accumulated cost of materials on hand and other deferred promotional costs that will be charged against subsequent years operations amounted approximately to $58,000 and $61,000, 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. In October 1997 the Company completed an addition to the Alabama facility of approximately 60,000 square feet at a cost of $1.7 million. 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, 1997, 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. The Company has adopted application SFAS 109 and this pronouncement 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, 1997 1996 1995 --------- ---------- ---------- Current Provision (Benefit): Federal Current ( $97,218) $182,711 $278,461 Deferred 18,271 - - State ( 16,641) 30,985 47,376 ---------- ---------- ---------- Total ($95,588) $213,696 $325,837 ---------- ---------- ---------- The reconciliation of income tax expense (credit) at the statutory rate to the reported income tax expense is as follows: Year Ended December 31, 1997 1996 1995 -------- ------- -------- Computed at statutory rate (34.0%) 34.0% 34.0% State tax, net of federal benefit (3.6) 3.6 3.6 Other, net 1.4 - - -------- ------- -------- Effective tax rate (36.2%) 37.6% 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 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. 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 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, 1996 and 1995 have been reclassified to conform with the 1997 presentation. Note 2 - Office equipment and furnishings: The Company's office equipment and furnishings consisted of the following: December 31, 1997 1996 ----------- ----------- Land $ 278,325 $ 278,325 Building 3,187,383 1,012,097 Manufacturing and warehouse equipment 841,981 816,089 Office equipment and furniture 370,307 457,781 Leasehold improvements 60,739 60,739 ----------- ----------- 4,738,735 2,625,031 Accumulated depreciation 597,704 486,216 ----------- ----------- Property, plant and equipment, net $4,141,031 $2,138,815 =========== =========== Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was $209,695, $180,588 and $74,384 respectively. Depreciation expense includes the amortization of capital lease assets. Included in property, plant and equipment are the following assets held under capital leases: 1997 1996 ---------- ---------- Land $ 278,325 $ 278,325 Building 3,187,383 1,012,097 Manufacturing and warehouse equipment 594,473 592,455 ---------- ---------- 4,060,181 1,882,877 Less accumulated amortization 174,715 76,694 ---------- ---------- Total $3,885,466 $1,806,183 ========== ========== 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. The addition was completed in October 1997. For future payments on the capitalized lease see Note 4. 8 Note 3 - Note payable, bank: The Registrant currently has a line of credit with a limit of $2.9 million from a commercial bank. Under the 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 1997, Registrant was not in compliance with some of the requirements, however, the Registrant has received a waiver from its commercial bank. Note 4 - Long-term debt: Long term debt at December 31, 1997 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 --------------- -------------------- $ 340,000 $4,370,000 Payment obligation attributable to the foregoing are tabulated below: Year Ending December 31, 1998 $ 340,000 1999 300,000 2000 310,000 2001 320,000 2002 320,000 Thereafter 3,120,000 ------------ Total $4,710,000 ============ 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. Note 5 - Income taxes: Accrued state and federal income taxes were approximately $22,000 in 1997 and $3,000 in 1995. 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 gross liability 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, 1997 and 1996, the Company had amounts due from affiliated companies aggregating $734,000, and $649,000, 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 on its line of credit. The Company expects to renew this lease for another five years at market rates. 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. The following is a schedule by years of minimum future rentals on the noncancellable operating lease as of December 31, 1997: 1998 $ 90,000 1999 69,000 Thereafter - --------- Total $159,000 ========= 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. 10 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 ------------------- ------------ ------------------ 110,000 $2.25-2.48 November 28, 1998 During 1992 the Company adopted an incentive stock option plan covering 200,000 shares of common stock. The following schedule shows the status of outstanding options under this plan. Options Outstanding Option Price Expiration Date ------------------- ------------ ------------------- 10,000 $2.25 November 28, 1998 Common stock equivalents consist of options to purchase common hares. For the year ended December 31, 1997, the inclusion of such options would have been anti-dilutive and therefore were omitted. 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. 11 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. 1997 1996 1995 ---------- ---------- ---------- Net Income (Loss)As reported ($168,506) $354,672 $540,542 Pro forma ($204,606) $314,149 $514,496 Earnings per shareAs reported ($ .05) $ .09 $ .15 Pro forma ($ .06) $ .08 $ .15 A summary of the Company's three stock option plans as of December 31, 1997, 1996 and 1995, and changes during the years ending on those dates, is presented below: 1997 1996 1995 ---------------- ----------------- ----------------- Weighted Weighted Weighted Avg. Avg. Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price ------- -------- ------- -------- ------- -------- Options Outstanding at beginning of year 623,000 $1.94 536,000 $1.92 740,000 $1.44 Granted - - 97,000 $2.00 92,000 $2.00 Exercised ( 64,000) $1.38 (10,000) - (296,000) - -------- -------- ------- -------- -------- -------- Outstanding at End of Year 559,000 $2.01 623,000 $1.94 536,000 $1.92 ======== ======== ======= ======== ======= ======== The following table summarizes information about the stock options outstanding at December 31, 1997: Options Outstanding Options Exercisable -------------------------------- ----------------------- Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise Prices at 12/31/97 Contractual Price at 12/31/97 Price Life ----------- ----------- -------- ----------- ---------- $1.38-$2.25 370,000 9.0 yrs. $2.01 346,000 $2.00 $2.20 189,000 2.6 yrs. $2.00 56,200 $2.00 $1.38-$2.25 559,000 2.4 yrs. $2.01 402,200 $2.00 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 1997, 1996 and 1995: risk free rate 6.5%, no dividend yield for all years, expected life of five years and volatility of 31.62%. 12 Note 11 - Major Customers The Company has two major customer, Wal-mart and West Marine. Sales to these customers represent approximately 11% and 15%, respectively. The Company enjoys good relations with these customers. However, the loss of either customer could have an adverse impact on the Company. Note 12 - Earnings per common share for the years ended December 31, 1997, 1996 and 1995 were calculated on the basis of 3,708,053; 3,634,625 and 3,302,840 weighted average common stock outstanding under the provision stated in Financial Accounting Statement 128. The years prior to 1997 have been restated to conform with the 1997 presentation. Earnings per common share assuming dilution for the years ended 1996 and 1995 were calculated on the basis of 3,799,126 and 3,506,580 shares, respectively. Common stock equivalents consist of stock options. For the years ended December 31, 1997, common stock equivalents were not included since the result would have been anti-dilutive. 13 EX-27 2
5 This schedule contains summary financial information extracted from the December 31, 1997 10-K of Ocean Bio-Chem, Inc. and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1997 DEC-31-1997 787,411 0 2,193,233 35,000 3,237,207 6,472,639 4,738,735 597,704 13,276,542 4,496,122 4,370,000 0 0 37,530 4,372,890 13,276,542 12,849,507 13,086,026 8,331,510 3,768,216 0 0 427,600 (264,094) (95,588) (168,506) 0 0 0 (168,506) (.05) (.05)
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