FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________ to ________________
Commission File No. 0-19670
OCEAN OPTIQUE DISTRIBUTORS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
FLORIDA 65-0052592
- ------------------------------- ---------------------------
(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
14250 S.W. 119 Ave.
Miami, Florida 33186
------------------------ -------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: 305-255-3272
Indicate by check mark whether the Issuer (1) 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 and (2) has been subject to such filing requirements for the
past 90 days.
Y E S X N O__
State the number of shares outstanding of each of the Issuer's classes of common
equity as of the latest practicable date: At November 1, 1996 there were
outstanding 2,902,094 shares of Common Stock, no par value.
Transitional Small Business Disclosure Format: YES__ NO X
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
INDEX TO FORM 10 - QSB
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets as of
September 30, 1996 and June 30, 1996 (Unaudited). 3
Condensed Consolidated Statements of Income
Three Months Ended September 30, 1996 and 1995
(Unaudited). 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1996 and 1995
(Unaudited). 5
Notes to the Condensed Consolidated
Financial Statements (Unaudited). 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
PART II OTHER INFORMATION
- ------- -----------------
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures. 11
2
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
ASSETS
SEPTEMBER 30, JUNE 30,
1996 1996
------------- ---------
(UNAUDITED)
Current assets
Cash & cash equivalents $ 343,327 360,627
Certificate of deposit - restricted 65,000 65,000
Accounts receivable (net of allowance for
doubtful accounts of $182,090 and $173,109
respectively) 2,310,068 2,317,691
Inventory 4,849,684 5,848,481
Prepaid expenses & other current assets 750,018 135,732
Deferred income taxes 93,100 93,100
Income tax receivable 83,809 194,888
------------ ---------
Total current assets 8,495,006 9,015,519
Property and equipment, net 231,937 240,303
Security deposits 14,728 14,728
Debt issue cost, net 137,634 145,310
------------ ---------
Total assets $ 8,879,305 9,415,860
============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit 2,644,500 2,682,500
Accounts payable 1,636,058 2,007,699
Due to related parties 1,043,844 1,153,512
Accrued expenses 516,710 502,443
Notes payable to related party, current portion 391,975 391,975
Notes payable, current portion 81,099 82,766
Capital lease obligations current portion 17,507 29,507
------------ ---------
Total current liabilities 6,331,693 6,850,402
8% Convertible subordinated debentures 843,750 843,750
Notes payable to related party, long-term portion 324,813 444,679
Deferred income taxes 93,100 93,100
------------ ---------
Total liabilities 7,593,356 8,231,931
Commitments and contingencies - -
Stockholders' equity:
Series A cumulative convertible 3% preferred stock
(liquidation value-$1,575,000) 1,474,398 1,474,398
Series B 2% convertible preferred stock
(liquidation value-$1,150,000) 1,150,000 1,150,000
Common Stock, no par value; 10,000,000 shares
authorized 2,808,761 issued and outstanding
at September 30, 1996 and June 30, 1996 7,230,478 7,230,478
Retained earnings (accumulated deficit) (8,568,927) (8,670,947)
------------ ---------
Total stockholders' equity 1,285,949 1,183,929
Total liabilities and stockholders' equity $ 8,879,305 9,415,860
============ =========
The accompanying notes are an integral part of these statements.
3
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
------------ ---------
Net sales $ 3,874,018 3,858,939
Cost of goods sold 2,476,532 2,339,903
------------ ---------
Gross profit 1,397,486 1,519,036
Selling, general and administrative expenses 1,211,167 1,473,005
------------ ---------
186,319 46,031
Interest expense, net (72,599) (94,018)
------------ ---------
Income (loss) before income taxes 113,720 (47,987)
Income tax benefit (expense) - 15,000
------------ ---------
Net income (loss) $ 113,720 (32,987)
Dividends paid on convertible preferred stock 11,700 11,813
------------ ---------
Net income (loss) applicable to common
stockholders $ 102,020 (44,800)
============ =========
Net income (loss) per share of common stock $ 0.03 (0.03)
============ =========
Weighted average number of common shares
outstanding 3,273,530 1,869,420
============ =========
The accompanying notes are an integral part of these statements.
4
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
------------ ---------
Cash flows from operating activities: $ 102,020 (44,800)
Net income (loss)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 26,566 116,092
Deferred income taxes, net - (15,000)
Changes in assets and liabilities, net of
effects from acquisition of business:
Decrease in short-term investments - 79,459
Decrease (increase) in accounts receivable, net 7,623 (472,957)
Decrease (increase) in inventory 998,797 (88,245)
Increase in prepaid expenses, security
deposits and other current assets (614,286) (75,858)
Decrease in accounts payable and accrued expenses (357,374) (196,665)
Increase (decrease) in due to related parties (109,668) 185,197
Increase in income taxes 111,079 102,220
------------ ---------
Net cash provided by (used in) operating
activities 164,757 (410,577)
------------ ---------
Cash flows from investing activities:
Goodwill adjustments - (2,889)
Capital expenditures (10,524) (56,137)
Net cash provided by (used in) investing
activities (10,524) (59,026)
Cash flows from financing activities:
Net borrowings (payments) on bank line of credit and
notes payable (159,533) 167,712
Payments under capital lease obligation (12,000) (8,805)
Proceeds from borrowings from foreign currency
dealer - 279,548
------------ ---------
Net cash provided by (used in) financing
activities (171,533) 438,455
------------ ---------
Net decrease in cash and cash equivalents (17,300) (31,128)
Cash and cash equivalents, beginning of period 360,627 1,748,781
------------ ---------
Cash and cash equivalents, end of period $ 343,327 1,717,653
============ =========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for income
taxes, net $ (111,079) (98,000)
============ =========
Cash paid during the period for interest $ 79,553 91,031
============ =========
The accompanying notes are an integral part of these statements.
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-QSB
and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments), which are, in the
opinion of Management, necessary for a fair statement of results for
the interim periods.
The results of operations for the three months ended September 30, 1996
are not necessarily indicative of the results to be expected for the
full year.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-KSB, for
the fiscal year ended June 30, 1996.
(2) ORGANIZATION
Ocean Optique Distributors, Inc. (the "Company") was incorporated under
the laws of the State of Florida on May 31, 1988. The Company is an
importer and distributor of eyeglass frames.
On June 21, 1995, the Company acquired 100 percent of the capital stock
of European Manufacturers Agency, Inc. ("EMA"), a Florida corporation.
EMA is engaged in the business of distributing and marketing private
label ophthalmic frames and related items and continues to conduct such
business as a wholly-owned subsidiary of the Company.
(3) BANK LINE OF CREDIT
On June 29, 1994, and as subsequently amended in September 1995 and
September 1996, the Company refinanced its credit facility. The new
line of credit, which expires in November 1996 and is expected to be
renewed thru March 31, 1997, allows the Company to borrow up to
$2,750,000, is secured by a pledge of all the Company's assets.
Borrowings under this agreement are limited to the sum of 75 percent of
accounts receivable, and 50 percent of inventory on hand, not to exceed
$2,000,000 of inventory. Interest on the line of credit is 2% above the
bank's prime lending rate.
6
<PAGE>
(4) CALCULATION OF EARNINGS PER SHARE
The Company calculates its earnings per share without including the
375,000 shares held in escrow as of September 30, 1996 pursuant to the
terms of the EMA acquisition agreement. As of that date, 125,000 shares
have been released from the escrow and are included in the calculation.
The EMA acquisition agreement provides for the escrow of 500,000 of the
533,333 total shares of the Company's Common Stock issued in exchange
for the EMA shares, with a portion of such escrowed shares to be
released to the former EMA shareholders, Robert D. Winn and Mary S.
Winn, on each of the first, second, third, and fourth anniversaries of
the acquisition date. The acquisition agreement provides that the
number of shares to be released on any such date will be determined by
dividing 375,000 by the then - current market value of the Company's
Common Stock, provided that the number of shares to be released on any
anniversary date will not be less than 62,500 shares nor more than
150,000 shares. In the event that the number of shares of the Company's
Common Stock to be released from escrow on an anniversary date is
greater than the number of shares then held in escrow, the acquisition
agreement provides that the Company will issue additional shares in the
amount of any such shortfall, and such shares will be deemed to be
issued as part of the original purchase price set forth in the
acquisition agreement. Any shares of Common Stock remaining in escrow
subsequent to the fourth anniversary of the acquisition date will be
released to and canceled by the Company. The acquisition agreement
further provides that the Winns, as beneficial owners of the escrowed
shares, are entitled to all voting, dividend and liquidation rights,
preferences and privileges applicable to all of the escrowed shares,
but will be unable to transfer such shares until released from escrow.
Pursuant to the acquisition agreement, EMA entered into employment
agreements with Robert Winn and Mary Winn relating to their continued
service as executive officers of EMA. Under the terms of the
acquisition agreement, if either of such employment agreements is
terminated by the Company without cause, all shares then maintained in
escrow in the name of the terminated executive officer will be released
and delivered to that person. If either such agreement is terminated
for cause or by the officer, the officer's shares will be released from
escrow according to the above-described schedule.
This escrow arrangement is intended primarily to assure the Company of
a remedy in the event of a claim by the Company to the indemnification
provided by the former EMA shareholders under the acquisition
agreement. Pursuant to the terms of the agreement, any claim to such
indemnification is to be first applied to the escrowed shares. As of
the date hereof, no such claim has been made by the Company.
Future years' earnings per share calculations will include the shares
released from escrow, if any.
7
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is an analysis of the Company's results of operations and
its liquidity and capital resources. To the extent that such analysis contains
statements that are not of a historical nature, such statements are
forward-looking statements, which involve risks and uncertainties. These risks
include: risks of increases in the costs of the Company's products; the
Company's relationships with its suppliers and licensors; the financial
condition and operations of the Company's customers; changes in fashions and
preferences of purchasers of eyewear; competitive and general economic factors
in the markets where the Company's products are manufactured or sold; the impact
of, and changes in, government regulations such as trade restrictions or
prohibitions, or import and other charges and taxes; and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
The following discussion and analysis should be read in conjunction
with the condensed consolidated financial statements and the related notes
thereto of Ocean Optique Distributors, Inc. and subsidiaries (collectively, the
"Company"), included elsewhere herein.
OVERVIEW
During the quarter ended September 30, 1996, the Company continued its
assimilation of the business lines acquired in its June 1995 acquisition of
European Manufacturers Agency, Inc. ("EMA"). The Company intends to continue to
expand its customer base and product lines through the sales of private label
products to retailers. The Company is also continuing the process of reviewing
its SG&A expenses in an effort to control such expenses. Management continues to
examine closely the excessive and slow moving inventory and to increase the
reserves when necessary so that the Company may sell it off and increase its
cash position.
During the quarter ended December 31, 1995, the Company's license
agreement with Revlon was renewed for a one-year term ending December 31, 1996.
The license agreement may be renewed for an additional three-year term if
certain criteria are met. No assurance can be given that such criteria will be
met and that therefore such renewals can be negotiated. However, the Company
believes that there would be no material adverse effect on the Company's
long-term future business should the agreement be terminated.
RESULTS OF OPERATIONS - For the three months ended September 30, 1996 and 1995.
8
<PAGE>
The Company's net sales volume has remained relatively consistent at
$3,874,018 for the three months ended September 30, 1996 compared to net sales
of $3,858,939 for the same period last year, a slight increase of $15,079.
The Company's gross profit for the three months ended September 30,
1996 decreased by $121,550, or 8.0%, when compared to the same period in 1995,
mainly due to some sales at special prices to a few major customers. These
special programs may or may not continue in the future. The Company's gross
profit margin decreased, from 39.4% for the three months ended September 30,
1995 to 36.1% for the three month period ended September 30, 1996.
SG&A expenses for the three months ended September 30, 1996 decreased
by $261,838 (17.8%) over the same period last year. This decrease is mainly due
to the efforts of the Company's management team to lower expenses and monitor
overhead costs closely. Specifically, payroll has decreased $63,627 (15.6%),
travel has decreased $24,042 (32.4%) and depreciation and amortization has
decreased $90,976 (77.4%) mainly due to the writeoff of goodwill and covenant
not to compete. SG&A as a percentage of net sales decreased to 31.3% from 38.2%
for the three months ended September 30, 1996 and 1995, respectively.
For the three months ended September 30, 1996, the Company had a net
profit of $113,720 compared to a net loss of $32,987 for the same period last
year. This increase in profits is mainly due to the decrease in SG&A costs as
the Company continues to closely monitor expenses in an effort to improve
profits.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's working capital was $2,163,313,
and its current ratio was 1.34:1, as compared to the working capital of
$2,165,117 and a current ratio of 1.32:1 as of June 30, 1996.
The change in net cash provided by operating activities was primarily
due to the net profit from operations of $102,020, depreciation of $26,566, a
decrease in inventory of $998,797, an increase in prepaid expenses and other
current assets of $614,286 and a decrease in accounts payable and accrued
expenses and due to related parties of $467,042. Societe Francaise de Lunetterie
("SFL") and D'Arrigo Moda Italia ("Arrigo"), the related parties, are both
principal shareholders of the Company and are major European suppliers of
product to the Company. During the quarter ended March 31, 1996, the Company
agreed to exchange $400,000 of debt to SFL for 246,154 shares of the Company's
Common Stock. During the quarter ended September 30, 1996, the Company, in
consideration of 10,000 eyeglass frames tendered by SFL, granted to
9
<PAGE>
SFL the option to purchase 110,000 Common Shares of the Company at a price of
$1.30 per share. This option is exercisable for three years. Also during the
September quarter D'Arrigo forgave the Company six monthly payments amounting to
$239,729. In return, the Company agreed to reduce by 20% the conversion price of
$3.00 on 70% of the shares of convertible preferred stock owned by D'Arrigo.
During the Company's 1996 fiscal year, it maintained a $3,500,000 line
of credit agreement with Republic National Bank ("RNB"). As of September 30,
1996, total available credit under this line was $855,500. Interest on the line
of credit was 3/4% above the prime lending rate. In September 1996 the line of
credit was renewed and allows the Company to borrow up to $2,750,000 with
interest on the line of credit at 2% above the prime lending rate. RNB and the
Company are working on an agreement that extends the line of credit to March 31,
1997.
Management currently believes that cash from operations and from
available credit sources, are sufficient for the Company to maintain its
operations at current levels, including the operations acquired in the EMA
acquisition.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" under Part I, Item 2
hereof, for information regarding certain options to acquire Common Stock
granted by the Company and a modification to the terms of certain outstanding
securities of the Company, both of which occurred during the three months ended
September 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits.
11.1 Statement re: computation of per share earnings.
27.1 Financial Data Schedule.
(B) Reports on Form 8-K.
None.
10
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
AND SUBSIDIARIES
FORM 10-QSB
SEPTEMBER 30, 1996
S I G N A T U R E S
In accordance with the requirements of the Exchange Act, the Company
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Ocean Optique Distributors, Inc.
/s/ Neil B. Lande
-----------------------------------------
By: Neil B. Lande
Chief Executive Officer
November 13, 1996
-----------------------------------------
Date
/s/ Kenneth Gordon
-----------------------------------------
By: Kenneth Gordon
Principal Financial and
Accounting Officer
November 13, 1996
------------------------------------------
Date
11
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX TO EXHIBITS
-----------------
Exhibit Sequentially
NUMBER Numbered
Page
-------------
11.1 Calculations of earnings per share ...................... 13
27.1 Financial Data Schedule ................................. 14
12
<PAGE>
11.1 Statement re: Computation of per share earnings
Three Months Ended
09/30/96 09/30/95
--------- ---------
Common Stock 2,393,476 1,619,420
Common Stock Equivalents
Dilutive Stock Options 270,054 150,000
Common Stock Equivalents
Dilutive Stock Warrants 610,000 100,000
--------- ---------
Weighted Average Shares and
Common Stock Equivalents 3,273,530 1,869,420
========= =========
Earnings Per Common Share
Net Income 0.03 (0.03)
========= =========
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OCEAN OPTIQUE DISTRIBUTORS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 3,129
<ALLOWANCES> 182
<INVENTORY> 4,850
<CURRENT-ASSETS> 8,495
<PP&E> 896
<DEPRECIATION> 664
<TOTAL-ASSETS> 8,879
<CURRENT-LIABILITIES> 6,332
<BONDS> 0
0
2,624
<COMMON> 7,230
<OTHER-SE> (8,569)
<TOTAL-LIABILITY-AND-EQUITY> 8,879
<SALES> 3,874
<TOTAL-REVENUES> 3,874
<CGS> 2,477
<TOTAL-COSTS> 2,477
<OTHER-EXPENSES> 1,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 114
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
