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 SEPTEMBER 30, 1997
OR
[ ] TRANSACTION 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 of Other Jurisdiction of (I.R.S. Employer I.D. No.)
Incorporation or Organization)
2 N.E. 40th Street
MIAMI, FLORIDA 33137
- --------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: 305-573-0222
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.
YES X NO ___
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, 1997 there were
outstanding 7,784,879 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, 1997 and June 30, 1997 (Unaudited) 3
Condensed Consolidated Statement of Income
Three Months Ended September 30, 1997 and 1996
(unaudited) 4
Condensed Consolidated Statement of Cash Flows
Three Months Ended September 30, 1997 and 1996
(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 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1997
(Unaudited)
ASSETS
SEPTEMBER 30, JUNE 30,
1997 1997
------------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents 111,114 54,868
Certificate of deposit - restricted 65,000 65,000
Accounts receivable (net of allowance for
doubtful accounts of $309,548 and
$289,865 respectively) 2,152,267 2,535,435
Inventory 5,603,899 4,994,655
Prepaid expenses and other current assets 229,143 89,929
Deferred income taxes 130,229 130,229
------------- ----------
Total current assets 8,291,652 7,870,116
Property, plant and equipment, net 422,093 370,795
Security deposits and other assets 23,983 23,983
Debt issue costs, net 70,671 76,522
Deferred income taxes 4,303 4,303
Intangible assets 1,961,654 1,928,980
------------- ----------
Total assets 10,774,356 10,274,699
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Line of credit 3,302,917 3,233,534
Accounts payable and accrued expenses 3,386,881 2,977,841
Income tax payable 84,513 94,029
Current portion of long-term debt 543,512 614,693
Note payable- officers 140,000 140,000
------------- ----------
Total current liabilities 7,457,823 7,060,097
8% Convertible subordinated debentures 260,000 341,250
Long-term debt 128,084 56,869
Deferred income taxes 96,432 96,432
------------- ----------
Total liabilities 7,942,339 7,554,648
Stockholders' equity
Preferred stock, no par value, 5,000,000 shares authorized;
shares issued:
Series A cumulative convertible 3% preferred
stock, 214,500 shares outstanding (liquidation
value-$536,250) 95,151 95,151
Series B-1, 2% convertible preferred stock, 162,478 shares
outstanding (liquidation value-$812,390) 64,016 64,016
Series C non-cumulative convertible preferred stock,
1,000,000 shares outstanding 1,697,037 1,697,037
Common stock, no par value; 10,000,000 shares authorized,
7,618,792 issued and outstanding - -
Paid-in-capital 827,015 744,265
Retained earnings 148,798 119,582
------------- ----------
Total stockholders' equity 2,832,017 2,720,051
------------- ----------
Total liabilities and stockholders' equity 10,774,356 10,274,699
============= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
9/30/97 9/30/96
----------- -----------
<S> <C> <C>
Net Sales $ 2,698,353 $ 561,824
Cost of goods sold 1,480,764 365,828
----------- -----------
Gross profit 1,217,589 195,996
Selling, general and admistrative expenses 1,050,481 130,422
----------- -----------
167,108 65,570
Interest expense 136,892 1,234
Income before income taxes 30,216 64,340
Income tax expense - (3,654)
----------- -----------
Net income 30,216 60,686
Dividends on convertible preferred stock 1,000 -
----------- -----------
Net income applicable to common stockholders $ 29,216 $ 60,686
----------- -----------
Net income per share of common stock $ - $ 0.01
----------- -----------
Weighted average number of common
shares outstanding 15,775,498 10,293,035
=========== ============
</TABLE>
The accompanying notes are integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
OCEAN OPTIQUE DISTRIBUTORS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Three Months Ended Three Months Ended
9/30/97 9/30/96
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 29,216 $ 60,687
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for inventory obsolescence 40,500 -
Depreciation and amortization 79,170 4,474
Bad debt expense 62,749 -
Changes in operating assets and liabilities:
Decrease(increase) in:
Accounts receivable 320,419 48,250
Inventory (649,744) (42,744)
Prepaid expenses and other current assets (139,214) 1,350
Increase(decrease) in:
Accounts payable and accrued expenses 409,040 (23,951)
Income tax payable (9,516) 3,654
------------ ------------
Net cash provided by (used in)
operating activities 142,620 51,720
------------ ------------
Cash Flows From Investing Activities:
Expenditures for property and equipment (75,908) -
Advances to affiliates - (21,829)
Cash for acquisition of business (81,383) -
Acquisition costs - -
------------ ------------
Net cash used in investing activities (157,291) (21,829)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from notes payable 145,908 (17,956)
Repayments of notes payable (145,874) -
Proceeds from line of credit 2,197,514
Repayments of line of credit (2,128,131)
Contributions 1,500
------------ ------------
Net cash provided by (used in) financing activities 70,917 (17,956)
------------ ------------
Increase (Decrease) in Cash 56,246 11,935
Cash, Beginning 54,868 7,360
------------ ------------
Cash, Ending 111,114 19,295
============ ============
Supplemental Disclosure of Cash Flows Information:
Cash paid during the period for interest $ 136,892 $ 1,234
============ ============
Taxes paid during the year $ 9,516 $ -
============ ============
Non-cash financing and investing activities:
Conversion of debt to equity $ 81,250 $ -
============ ============
</TABLE>
5
<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, 1997
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, 1997.
(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.
Effective June 27, 1997, the Company consummated the acquisition of
Solovision Optical, Inc. ("Solovision"), a privately held, Miami-based
company engaged in importing, exporting, marketing and distributing low
to moderately priced eyeglass frames and importing and distributing
optical equipment. In connection with the acquisition of Solovision
(the "Solovision Acquisition"), the Company issued to the shareholders
of Solovision shares of the Company's Common Stock and the Company's
Series C Non-Cumulative Convertible Preferred Stock (the "Series C
Preferred Stock") with an aggregate voting power equal to 60% of the
outstanding voting capital stock of the Company, on a fully diluted
basis, after giving effect to the Solovision Acquisition. The Company
consummated the Solovision Acquisition pursuant to the Agreement and
Plan of Merger dated as of June 26, 1997 (the "Solovision Agreement and
Plan of Merger") by and among the Company, Ocean Acquisition
Corporation ("OAC"), Solovision, Solomon Ovadia, Leon Wildstein, and
Ovadia Family Trust.
The Solovision Acquisition was effected as follows: (1) Solovision and
an affiliated corporation, Sorrento Eyewear, Inc. ("Sorrento"), were
merged pursuant to Florida law, with Solovision as the surviving
corporation (the "Solovision-Sorrento Merger"); (2) immediately
thereafter, Solovision was merged with and into OAC pursuant to Florida
law, with Solovision as the surviving corporation (the "Merger"); and
(3) the shares of the common stock, $1.00 par value per share, of
Solovision (the Solovision Common Stock") outstanding at the effective
time of the Merger were converted into an aggregate of 3,137,977 shares
of the Company's Common Stock and 1,000,000 shares of Series C
Preferred Stock (each share of Solovision Common Stock being converted
as a result of the Merger into 21,346.78 shares of Common Stock and
6,802.72 shares of Series C Preferred Stock). Each share of Series C
Preferred Stock will be
6
<PAGE>
entitled to vote together with the Common Stock as a single class on
all matters presented to a vote of shareholders, except as
provided by law, with each share of Series C Preferred Stock entitled
to 7.155058 votes. Each share of Series C Preferred Stock will be
automatically converted into 7.155058 shares of Common Stock upon the
filing of an amendment to the Company's Articles of Incorporation
increasing the number of authorized shares of Common Stock to not less
than 25,000,000 shares. As a result, the shareholders of Solovision
received, on a pro rata basis, shares with an aggregate voting power
equal to 60% of the outstanding voting capital stock of the Company, on
a fully diluted basis, after giving effect to the Solovision
Acquisition.
For accounting purposes, the Solovision Acquisition has been treated as
an acquisition of Ocean and its subsidiaries, Classic and EMA, by
Solovision. The presentation of the Company's Condensed Consolidated
Financial Statements included in this report reflects the consummation
of the Solovision Acquisition on June 27, 1997.
(3) BANK LINE OF CREDIT
On May 28, 1997, the Company refinanced its credit facility through a
Loan and Security Agreement with Coast Business Credit, a division of
Southern Pacific Thrift & Loan Association ("Coast"). Loans outstanding
under this agreement at any time may not exceed the lesser of either:
(a) $4,000,000 or (b) the sum of: (i) 70% of the Company's receivables
deemed by Coast to be eligible for borrowing (which may be increased to
75% if dilution is less than 15%, subject to certain restrictions); and
(ii) the lesser of up to 55% of the value of the Company's inventory
deemed by Coast to be eligible for borrowing, or $2,000,000. The
interest rate on all loans made under the credit facility is 2% above
the prime rate, with a minimum monthly interest amount equal to said
rate charged on an outstanding daily balance of $2,000,000. The
maturity date is June 30, 2000, subject to automatic renewal for
additional one-year terms upon payment of a renewal fee. The Company
also issued to Coast warrants to acquire 187,500 shares of Common Stock
at an exercise price of $1.625 per share. The credit facility is
secured by all of the Company's assets.
(4) CALCULATION OF EARNINGS PER SHARE
Net (loss) income per share of common stock is computed based upon the
weighted average number of common shares and common stock equivalents
outstanding during the year. Included in the weighted average number of
shares calculation is the retroactive effect of the 3,137,977 Common
shares and the 1,000,000 Series C non-cumulative Convertible Preferred
shares issued in the Solovision Acquisition.
7
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
AND SUBSIDIARIES
MANAGEMENT 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
With the consummation of the Solovision Acquisition in June 1997, the
Company acquired an additional operating subsidiary and strengthened its
management team. The Company is in the process of assimilating its new
subsidiary, including coordination of accounting and computer systems and
deployment of personnel. The Company is not able at this time to estimate the
timetable for completion of such assimilation. Therefore, there can be no
assurances of the Company's ability to realize significant operating
efficiencies, if any, from the Solovision Acquisition in the near future. See
"Note 2. Notes to Condensed Consolidated Financial Statements."
Effective November 14, 1997, the Company announced the appointment of
Ronald L. Darata to serve on the Company's Board of Directors and as the
Company's President and Chief Operating Officer. Mr. Darata has 30 years'
experience in the optical industry, most recently as Executive Vice President
and a director of Physician's Eyecare Network, Inc., a Concord, California
management services organization providing executional expertise and capital
for networks of eye care providers.
During February 1997, the Company's license agreement with Revlon was
terminated. Nevertheless, management currently believes that the Company's
overall gross margin will be enhanced with the termination of this contract, as
all of the Company's other lines carry larger margins than did the Revlon
product. In addition, JH Collectibles, one of the Company's other licensors,
filed for bankruptcy relief under Chapter 11 of the Bankruptcy Code during the
first quarter of 1997. The Company's licensing agreement with JH Collectibles
expired on March 31, 1997, and as a result of the bankruptcy, was not renewed.
The Company believes that there will be no material adverse effect on the
Company's long-term future business from the loss of this licensing agreement.
Additionally, the Company has been in negotiations with Chevrolet and Gitano
with regard to license renewals, although such negotiations have not as yet
resulted in any definitive agreement, and there can be no assurances that such
licenses will be renewed.
In May 1997, the Company refinanced its credit facility. See "Liquidity
and Capital Resources," below.
RESULTS OF OPERATIONS - For the three months ended September 30, 1997 and 1996.
Net sales for the three months ended September 30, 1997 were
$2,698,353, an increase of $2,136,529 or 380.3% from the same period in 1996.
The increase was due primarily to the impact of the Solovision Acquisition. Net
sales at Solovision and the Company for the three months ended September 30,
1997 totaled $1,102,465 and $1,595,888, respectively.
The Company gross profit for the three months ended September 30, 1997
increased by $1,021,593, or 521.23%, when compared to the same period in 1996,
mainly due to the merger. The Company's gross profit margin increased from 34.9%
for the three months ended September 30, 1996 to 45.1% for the three months
ended September 30, 1997. This increase was mainly due to more sales to direct
accounts, through which the Company obtains better margins.
8
<PAGE>
SG&A expenses for the three months ended September 30, 1997 increased
by $920,059 (705.4%) over the same period last year. This increase is mainly due
to the impact of the Solovision Acquisition, and to a lesser extent is due to
additional interest of $135,658 and an increase in amortization and depreciation
of $74,696. SG&A as a percentage of net sales increased to 38.9% from 23.2% for
the three months ended September 30, 1997 and 1996, respectively. This increase
was mainly due to the merger with Solovision Acquisition, and the additional
expenses as mentioned above.
For the three months ended September 30, 1997, the Company had a net
profit of $30,216 compared to a net profit of $60,686 for the same period last
year. This decrease in profits is primarily due to the increase in interest
expense of $135,658, the increase of amortization and depreciation of $74,696,
and to the increases normal operating expenses related to the Solovision
Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's working capital was $838,132, and
its current ratio was 1.11:1, as compared to the working capital of $810,069 and
a current ratio of 1.11:1 as of June 30, 1997.
The change in net cash provided by operating activities was primarily
due to the net profit from operations of $29,216, depreciation of $79,170, a
decrease in accounts receivable of $320,419, an increase in prepaid expenses and
other current assets of $139,214 and an increase in accounts payable and accrued
expenses of $409,040 and an increase in inventory of $649,744. The change
in net cash provided by financing activities was primarily due to the net
increase in proceeds from the Company's credit line of $69,383.
In May 1997, the Company refinanced its credit facility through a
Loan and Security Agreement with Coast Business Credit, a division of Southern
Pacific Thrift & Loan Association ("Coast"). Loans outstanding under this
agreement at any time may not exceed the lesser of either: (a) $4,000,000 or (b)
the sum of: (i) 70% of the Company's receivables deemed by Coast to be eligible
for borrowing (which may be increased to 75% if dilution is less than 15%,
subject to certain restrictions); and (ii) the lesser of up to 55% of the value
of the Company's inventory deemed by Coast to be eligible for borrowing, or
$2,000,000. The interest rate on all loans made under the credit facility is 2%
above the prime rate, with a minimum monthly interest amount equal to said rate
charged on an outstanding daily balance of $2,000,000. The maturity date is June
30, 2000, subject to automatic renewal for additional one-year terms upon
payment of a renewal fee. The Company also issued to Coast warrants to acquire
187,500 shares of Common Stock at an exercise price of $1.625 per share. The
credit facility is secured by all of the Company's assets. Inability to repay
the loans under the credit facility in a timely manner as they become due would
have a materially adverse effect on the Company's ability to continue its
operations and could cause the Company to lose most of its assets. There can be
no assurances that income generated from operations will be sufficient to cover
all operating expenses and meet present and future debt service payments.
In October 1997, the Company's Chairman of the Board invested $250,000
in shares of a new series of the Company's convertible preferred stock, the
terms of which are being finalized.
Management currently believes that cash from operations and from
available credit sources is sufficient for the Company to maintain its
operations at current levels, including the operations acquired in the
Solovision Acquisition and EMA acquisition. The Company is at the present time
seeking other sources of financing to provide additional working capital.
There can be no assurances that such other financing will be available and, if
available, will be at terms favorable to the Company.
9
<PAGE>
PART II
OTHER INFORMATION
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
An amendment to the Company's current report on Form 8-K dated June 27,
1997 was filed on September 12, 1997, setting forth audited and pro
forma financial statements and notes thereto reflecting the Solovision
Acquisition.
10
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
AND SUBSIDIARIES
FORM 10-QSB
SEPTEMBER 30, 1997
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/ Leon Wildstein
--------------------------------
BY: LEON WILDSTEIN
Chairman of the Board
November 14, 1997
---------------------------------
DATE
/s/ Kenneth Gordon
---------------------------------
BY: KENNETH GORDON
Principal Financial and
Accounting Officer
November 14, 1997
---------------------------------
DATE
11
<PAGE>
OCEAN OPTIQUE DISTRIBUTORS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- ------
11.1 Calculations of earnings per share.......
27.1 Financial Data Schedule..................
Exhibit 11.1
Statement re: Computation of per share earnings
THREE MONTHS ENDED
9/30/97 9/30/96
---------- ----------
Common Stock 14,768,498 10,293,035
Common Stock Equivalents
Dilutive Stock Options 234,000 -
Common Stock Equivalents
Dilutive Stock Warrants 773,000 -
---------- ----------
Weighted Average Shares and
Common Stock Equivalents 15,775,498 10,293,035
========== ==========
Earnings Per Common Share
Net Income $ - $ 0.01
========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OCEAN OPTIQUE DISTRIBUTORS, INC. FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 176
<SECURITIES> 0
<RECEIVABLES> 2,462
<ALLOWANCES> 310
<INVENTORY> 5,604
<CURRENT-ASSETS> 8,296
<PP&E> 1,135
<DEPRECIATION> 713
<TOTAL-ASSETS> 10,774
<CURRENT-LIABILITIES> 7,458
<BONDS> 0
0
1,856
<COMMON> 0
<OTHER-SE> 976
<TOTAL-LIABILITY-AND-EQUITY> 10,774
<SALES> 2,698
<TOTAL-REVENUES> 2,698
<CGS> 1,218
<TOTAL-COSTS> 1,218
<OTHER-EXPENSES> 1,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137
<INCOME-PRETAX> 30
<INCOME-TAX> 0
<INCOME-CONTINUING> 30
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
