FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSIONS
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 DECEMBER 31, 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 February 14, 1997 there were
outstanding 3,050,058 shares of Common Stock, no par value.
Transitional Small Business Disclosure Format: YES [ ] NO [X]
1
<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
December 31, 1996 and June 30, 1996 (Unaudited). 3
Condensed Consolidated Statements of Income
Six Months Ended December 31, 1996 and 1995
(Unaudited). 4
Condensed Consolidated Statements of Income
Three Months Ended December 31, 1996 and 1995
(Unaudited). 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 1996 and 1995
(Unaudited). 6
Notes to the Condensed Consolidated
Financial Statements (Unaudited). 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
PART II OTHER INFORMATION
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures. 12
2
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
ASSETS
DECEMBER 31, June 30,
1996 1996
------------ ----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash & cash equivalents $ 181,744 360,627
Certificate of deposit - restricted 65,000 65,000
Accounts receivable (net of allowance for doubtful
accounts of $157,859 and $173,109 respectively) 1,922,152 2,317,691
Inventory 4,736,861 5,848,481
Prepaid expenses & other current assets 1,236,710 135,732
Deferred income taxes 93,100 93,100
Income tax receivable 83,809 194,888
----------- ----------
Total current assets 8,319,376 9,015,519
Property and equipment, net 199,373 240,303
Security deposits 14,853 14,728
Debt issue cost, net 129,958 145,310
----------- ----------
Total assets $ 8,663,560 9,415,860
=========== ==========
LIABILITES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit 2,669,000 2,682,500
Accounts payable 2,205,182 2,007,699
Due to related parties 1,026,043 1,153,512
Accrued expenses 473,766 502,443
Notes payable to related party, current portion 391,975 391,975
Notes payable, current portion 79,389 82,766
Capital lease obligations, current portion 6,170 29,507
----------- ----------
Total current liabilities 6,851,525 6,850,402
8% Convertible subordinated debentures 781,252 843,750
Notes payable to related party, long-term portion 214,147 444,679
Deferred income taxes 93,100 93,100
----------- ----------
Total liabilities 7,940,024 8,231,931
Stockholders' equity:
Series A cumulative convertible 3% preferred stock
(liquidation value - $1,575,000) 1,449,398 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,
2,934,058 and 2,808,761 issued and outstanding at
December 31, 1996 and June 30, 1996 respectively 7,467,976 7,230,478
Retained earnings (accumulated deficit) (9,343,838) (8,670,947)
----------- ----------
Total stockholders' equity 723,536 1,183,929
Total liabilities and stockholders' equity $ 8,663,560 9,415,860
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 6,264,312 6,903,917
Cost of goods sold 4,411,043 4,586,696
----------- -----------
Gross profit 1,853,269 2,317,221
Selling, general and administrative expenses 2,289,283 2,890,860
----------- -----------
(436,014) (573,639)
Interest expense, net (217,377) (254,350)
----------- -----------
Income (loss) before income taxes (653,391) (827,989)
Income tax benefit (expense) -- --
----------- -----------
Net income (loss) $ (653,391) (827,989)
Dividends paid on convertible preferred stock 19,500 23,819
----------- -----------
Net income (loss) applicable to common stockholders $ (672,891) (851,808)
=========== ===========
Net income (loss) per share of common stock $ (0.19) (0.39)
=========== ===========
Weighted average number of common shares outstanding 3,548,994 2,119,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
Net sales $ 2,390,294 3,044,978
Cost of goods sold 1,934,511 2,288,965
----------- -----------
Gross profit 455,783 756,013
Selling, general and administrative expenses 1,078,116 1,417,855
----------- -----------
(622,333) (661,842)
Interest expense, net (144,778) (160,332)
----------- -----------
Income (loss) before income taxes (767,111) (822,174)
Income tax benefit (expense) -- (15,000)
----------- -----------
Net income (loss) $ (767,111) (837,174)
Dividends paid on convertible preferred stock 7,800 12,006
----------- -----------
Net income (loss) applicable to common stockholders $ (774,911) (849,180)
=========== ===========
Net income (loss) per share of common stock $ (0.22) (0.40)
=========== ===========
Weighted average number of common shares outstanding 3,548,994 2,119,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (672,891) (851,808)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 56,282 224,795
Changes in assets and liabilities, net of
effects from acquisition of business:
Decrease in short-term investments -- 348,470
Decrease (increase) in accounts receivable, net 395,539 (194,616)
Decrease (increase) in inventory 1,111,620 (710,334)
Increase in prepaid expenses, security
deposits and intangible assets (1,101,103) (7,584)
Increase (decrease) in accounts payable and accrued expenses 168,806 (267,454)
Increase (decrease) in due to related parties (127,469) 1,170,030
Increase in income taxes 111,079 102,220
----------- -----------
Net cash provided by (used in) operating activities (58,137) (186,281)
----------- -----------
Cash flows from investing activities:
Goodwill adjustments -- (114,329)
Capital expenditures -- (21,300)
----------- -----------
Net cash provided by (used in) investing activities 0 (135,629)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) on bank line of credit and notes payable (247,409) 108,342
Payments under capital lease obligation (23,337) (23,600)
Sale of common stock 150,000 --
Proceeds from borrowings from foreign currency dealer -- 133,898
----------- -----------
Net cash provided by (used in) financing activities (120,746) 218,640
----------- -----------
Net decrease in cash and cash equivalents (178,883) (103,270)
Cash and cash equivalents, beginning of period 360,627 1,748,781
----------- -----------
Cash and cash equivalents, end of period $ 181,744 1,645,511
=========== ===========
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 $ 232,808 207,121
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
6
<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 six months ended December 31, 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, as
amended, 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 on 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. Interest on the line of credit is 2% above
the bank's prime lending rate.
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 December 31, 1996, the Company continued its
assimilation of the business lines acquired in its June 1995 acquisition of
European Manufacturers Agency, Inc. ("EMA"). As discussed more fully below, the
EMA acquisition resulted in increased net sales for the Company, but also
contributed to the Company's lower gross profit margin and higher selling,
general and administrative ("SG&A") expenses for the quarter. With the
acquisition of 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 in the process of reviewing its SG&A expenses in an effort to
control such expenses.
During the month of February 1997, the Company's license agreement with
Revlon was terminated. Management currently believes that the overall gross
margin of the Company will be enhanced with the termination of this contract, as
the Company's other lines carry larger margins than did the Revlon product. As
stated in earlier reports, the Company currently believes that there will be no
material adverse effect on the Company's long-term future business resulting
from the termination of this license agreement.
RESULTS OF OPERATIONS - For the six months ended December 31, 1996 and 1995.
For the six months ended December 31, 1996, the Company had net sales
of $6,264,312, a decrease of $639,605 (9.3%) over the same period in 1995. This
decrease was due to the change over of sales representatives that had not been
producing to new representatives and the time needed to train them.
8
<PAGE>
The Company's gross profit for the six months ended December 31, 1996
decreased by $463,952, or 10.1%, when compared to the same period in 1995,
mainly due to the decrease in the sales volume in the current period. The
Company's gross profit margin decreased, however, from 33.6% for the six months
ended December 31, 1995, to 29.6% for the six month period ended December
31, 1996. This decrease can mainly be attributed to management's decision to be
more price competitive in the market place by lowering the prices of some
existing product, and lower markups of some new product. During the quarter the
Company added $240,000 to its reserve for inventory markdowns to accommodate
consignment - slow moving inventory at EMA. The gross profit margin at EMA is
traditionally lower than the Company's gross profit margin, also contributing to
a lower overall gross margin.
SG&A expenses for the six months ended December 31, 1996 decreased by
$601,577 (20.8%) over the same period last year, largely as a result of a
decrease in payroll of $153,000, depreciation and amortization of $172,000, and
to a lesser extent commissions of $27,000 and travel of $15,000. SG&A as a
percentage of net sales decreased to 36.5% from 41.9% for the six months ended
December 31, 1996 and 1995, respectively.
For the six months ended December 31, 1996 the Company had a net loss
of $653,391 compared to a net loss of $827,989 for the same period last year.
This decrease in the net loss of $174,598 is mainly due to lower SG&A expenses
as discussed above, and a decrease in net interest expense, of $36,973, in the
six month period ended December 31, 1996 versus the same period in 1995. The
decrease in net interest expense was due to lower bank balances and the
conversion of a portion of the outstanding debentures to common stock. During
the quarter the Company added $240,000 to its reserve for inventory markdowns to
accommodate consignment - slow moving inventory at EMA.
Beginning with the 1995 fiscal year, the Company has been selectively
purchasing foreign currency in advance of anticipated inventory purchases in
order to stabilize the Company's cost of goods sold. Management believes at the
present time that its current foreign currency holdings are sufficient for the
Company's anticipated inventory purchases for the next 12 months. The Company's
advance purchases of foreign currencies, however, may limit the Company's
ability to benefit from further favorable changes in exchange rates and may not
offset the impact of possible future increases in the prices of inventories
purchased. The following are the foreign currencies held at December 31, 1996 in
U.S. dollar equivalent: German mark $100,169; Italian lira $641,449; Japanese
yen $388,258; and French franc $189,353.
RESULTS OF OPERATIONS - For the three months ended December 31, 1996 and 1995.
The Company's net sales has decreased to $2,390,294 for the three
months ended December 31, 1996 compared to net sales of $3,044,978 for the same
period last year, a decrease of $654,684. This decrease was primarily due to a
change over of sales representatives and time needed to train them.
The Company's gross profit for the three months ended December 31, 1996
decreased by $300,230, or 39.7%, 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. During the quarter the
Company added $240,000 to its reserve for inventory markdowns to accommodate
consignment - slow moving inventory at EMA. The Company's gross profit margin
decreased, from
9
<PAGE>
24.8% for the three months ended December 31, 1995 to 19.1% for the three-month
period ended December 31, 1996.
SG&A expenses for the three months ended December 31, 1996 decreased by
$339,739 (24.0%) over the same period last year. This decrease is mainly due to
the efforts of the Company's management team to lower expenses and to monitor
overhead costs closely. SG&A as a percentage of net sales decreased to 45.1 %
from 46.6% for the three months ended December 31, 1996 and 1995, respectively.
For the three months ended December 31, 1996, the Company had a net
loss of $767,111 compared to a net loss of $837,174 for the same period last
year. This decrease in loss is mainly due to the decrease in SG&A costs as the
Company continues to closely monitor expenses in an effort to improve profits.
During the quarter the Company added $240,000 to its reserve for inventory
markdowns to accommodate consignment - slow moving inventory at EMA.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's working capital was $1,467,851 and
its current ratio was 1.21:1, as compared to 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 loss from operations of $672,891, depreciation of $56,282, a
decrease in inventory of $1,111,620, an increase in prepaid expenses and other
current assets of $1,101,103 and an increase in accounts payable and accrued
expenses and due to related parties of $41,337. 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 SFL an
option to purchase 110,000 shares of the Company's Common Stock 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. The
Company also during the quarter negotiated the settlement of certain accounts
payable, resulting in a write-off of approximately $96,000 of the Company's
outstanding accounts payable and the acquisition of 77,419 shares of the
Company's Common Stock at $1-15/16 per share.
During the Company's 1996 fiscal year, it maintained a $3,500,000 line
of credit agreement with Republic National Bank ("RNB"). 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
10
<PAGE>
with interest on the line of credit at 2% above the prime lending rate. This
line of credit was extended to March 31, 1997. As of December 31, 1996, total
available credit under this line was $24,000.
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, a modification to the terms of certain outstanding
securities of the Company, and an acquisition of shares of Common Stock
occurring during the six months ended December 31, 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.
11
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
AND SUBSIDIARIES
FORM 10-QSB
DECEMBER 31, 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
February 19, 1997
-------------------------------------
Date
/s/ KENNETH GORDON
-------------------------------------
By: Kenneth Gordon
Principal Financial and
Accounting Officer
February 19, 1997
-------------------------------------
Date
12
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX TO EXIBITS
EXHIBIT SEQUENTIALLY
NUMBER NUMBERED PAGE
- ------- -------------
11.1 Calculations of earnings per share........................... 14
27.1 Financial Data Schedule...................................... 15
13
11.1 Statement re: Computation of per share earnings
Six Months Ended
12/31/96 12/31/95
--------- ---------
Common Stock 2,611,876 2,119,420
Common Stock Equivalents
Dilutive Stock Options 270,054 0
Common Stock Equivalents
Dilutive Stock Warrants 667,064 0
--------- ---------
Weighted Average Shares and
Common Stock Equivalents 3,548,994 2,119,420
========= =========
Earnings Per Common Share
Net Income (0.19) (0.39)
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OCEAN OPTIQUE DISTRIBUTORS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 247
<SECURITIES> 0
<RECEIVABLES> 2,080
<ALLOWANCES> 158
<INVENTORY> 4,737
<CURRENT-ASSETS> 8,319
<PP&E> 870
<DEPRECIATION> 671
<TOTAL-ASSETS> 8,664
<CURRENT-LIABILITIES> 6,852
<BONDS> 0
0
2,599
<COMMON> 7,468
<OTHER-SE> (9,344)
<TOTAL-LIABILITY-AND-EQUITY> 8,664
<SALES> 6,264
<TOTAL-REVENUES> 6,264
<CGS> 4,411
<TOTAL-COSTS> 4,411
<OTHER-EXPENSES> 2,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217
<INCOME-PRETAX> (653)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (673)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
