SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission File No. 2-70197
OCEAN BIO-CHEM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1564329
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4041 S. W. 47 Avenue, Fort Lauderdale, Florida 33314
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (954) 587-6280
Indicate by check mark whether the Registrant (1) 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.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of the latest practicable date.
$.01 Par Value Common Stock 10,000,000 shares authorized; 4,368,889
issued and outstanding at September 30, 2002
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of September
30, 2002 and December 31, 2001 3
Consolidated statements of operations for
the three and nine months ended September 30,
2002 and 2001 4
Consolidated statements of changes in
shareholders' equity for the nine months
ended September 30, 2002 and 2001 5
Consolidated statements of cash flows
for the nine months ended September 30, 2002
and 2001 6
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-8
Part II:
Item 1. - Legal Proceedings 9
Item 2. - Changes in Securities 9
Item 3. - Defaults upon Senior Securities 9
Item 4. - Submission of Matters to Vote by Security Holders 9
Item 5. - Other Information 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 9
Certifications 10-11
2
PART I - Financial Information
Item l. Financial Statements
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- -------------
(Unaudited)
Current assets:
Cash $ 231,877 $ 82,000
Trade accounts receivable net of allowances for
doubtful accounts of approximately $ 152,500
at September 30, 2002 and December 31,
2001, respectively 5,126,748 3,286,848
Inventories 4,958,871 4,296,183
Prepaid expenses and other current assets 209,886 145,354
------------- -------------
Total current assets 10,527,382 7,810,385
------------- -------------
Property, plant and equipment, net 5,950,597 6,002,445
------------- -------------
Other assets:
Funds held in escrow for equipment 2,159,900 9,084
Trademarks, trade names and patents, net 330,439 330,439
Deposits and other assets 407,214 314,122
Due from affiliated companies, net 460,403 563,731
------------- -------------
Total other assets 3,357,956 1,217,376
------------- -------------
Total assets $ 19,835,935 $ 15,030,206
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,534,010 $ 2,163,245
Note payable - bank 4,250,000 3,665,860
Current portion of long-term debt 600,199 470,994
Accrued expenses payable 222,430 138,709
------------- -------------
Total current liabilities 7,606,639 6,438,808
------------- -------------
Deferred income taxes payable 260,197 111,200
------------- -------------
Long-term debt, less current portion 6,719,566 3,718,876
------------- -------------
Shareholders' equity:
Common stock - $.01 par value 10,000,000 shares authorized,
4,368,889 and 4,239,889 shares issued and outstanding
at September 30, 2002 and December 31, 2001, respectively 43,689 42,399
Additional paid-in capital 3,821,654 3,755,219
Foreign currency translation adjustment ( 294,032) ( 262,933)
Retained earnings 1,686,417 1,234,832
------------- -------------
5,257,728 4,769,517
Less cost of common stock in treasury,
7,519 shares at September 30, 2002 and
December 31, 2001, respectively ( 8,195) ( 8,195)
------------- -------------
5,249,533 4,761,322
------------- -------------
Total liabilities and shareholders' equity $ 19,835,935 $ 15,030,206
============= =============
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Gross sales $ 7,658,158 $ 6,159,436 $ 16,587,467 $ 14,737,785
Allowances 810,807 621,860 1,557,210 1,353,694
------------ ------------ ------------- -------------
Net sales 6,847,351 5,537,576 15,030,257 13,384,091
Cost of goods sold 5,489,046 4,481,494 11,469,122 10,329,414
------------ ------------ ------------- -------------
Gross profit 1,358,305 1,056,082 3,561,135 3,054,677
------------ ------------ ------------- -------------
Costs and expenses:
Advertising and promotion 173,128 183,110 553,893 475,922
Selling and administrative 718,497 658,026 2,060,652 2,040,284
Interest expense 95,270 149,102 265,431 434,112
------------ ------------ ------------- -------------
Total costs and expenses 986,895 990,238 2,879,976 2,950,318
------------ ------------ ------------- -------------
Income from operations 371,410 65,844 681,159 104,359
Interest income 3,061 7,556 3,126 9,294
------------ ------------ ------------- -------------
Income before provision
for income taxes 374,471 73,400 684,285 113,653
Provision for income taxes 118,700 23,000 232,700 35,000
------------ ------------ ------------- -------------
Net income 255,771 50,400 451,585 78,653
Other comprehensive income, net
of income taxes:
Foreign currency
translation adjustment ( 25,247) ( 20,765) ( 31,099) ( 38,491)
------------ ------------ ------------- -------------
Comprehensive income $ 230,524 $ 29,635 $ 420,485 $ 40,162
============ ============ ============= =============
Earnings per common share $ .05 $ .01 $ .10 $ .02
============ ============ ============= =============
Earnings per share for the nine and three months ended September 30, 2002
were calculated on the basis of 4,318,370 weighted average shares of common
stock outstanding. For the nine and three months ended September 30, 2001,
earnings per share were calculated using 4,149,037 weighted average shares of
common stock outstanding. The company has adopted Statement of Financial
Accounting Standards No. 130 which requires items of comprehensive income to be
stated as part of the basic financial statements.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002 AND 2001
(UNAUDITED)
Additional Foreign
Common stock paid-in currency Retained Treasury
Shares Amount capital adjustment earnings stock Total
--------- ------- ----------- ----------- ---------- ---------- ----------
January 1,
2002 4,239,889 $42,399 $3,755,219 ($ 262,933) $1,234,832 ($ 8,195) $4,761,322
Net income 451,585 451,585
Issuances of stock 129,000 1,290 66,435 67,725
Foreign currency
translation
adjustment ( 31,099) ( 31,099)
--------- ------- ---------- ----------- ---------- --------- ----------
September 30,
2002 4,368,889 $43,689 $3,821,654 ($ 294,032) $1,686,417 ($ 8,195) $5,249,533
========= ======= ========== =========== ========== ========= ==========
January 1,
2001 4,105,889 $41,060 $3,720,377 ($ 209,398) $1,128,448 ($ 8,195) $4,672,292
Net Income 78,653 78,653
Issuances of stock 134,000 1,340 34,840 36,180
Foreign currency
translation
adjustment ( 38,491) ( 38,491)
--------- ------- ---------- ----------- ---------- --------- ----------
September 30,
2001 4,239,889 $42,400 $3,755,217 ($ 247,889) $1,207,101 ($ 8,195) $4,748,634
========= ======= ========== =========== ========== ========= ==========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
2002 2001
----------- ----------
Cash flows provided by operating activities:
Net Income $ 451,585 $ 78,653
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 446,858 359,465
Changes in operating assets and liabilities:
(Increase) in accounts receivable ( 1,839,900) ( 422,485)
(Increase) decrease in inventories ( 662,688) 4,065
(Increase) in prepaid expenses ( 64,532) ( 99,277)
Increase in accounts payable,
accrued expenses, and other 510,391 279,553
------------ -----------
Net cash provided (used) by operating activities ( 1,158,286) 199,974
------------ -----------
Cash flows from financing activities:
Net increases under line of credit 584,140 227,054
Repayments of advances to affiliates 103,328 155,314
Borrowings (reductions) of debts, net 3,129,895 47,210
Common stock transactions 67,725 36,180
------------ -----------
Net cash provided by financing activities 3,885,088 465,758
------------ -----------
Cash flows from investing activities:
Increase in funds held in escrow for equipment purchases ( 2,150,816) -
Purchase of property, plant, and equipment, net ( 395,010) ( 708,286)
------------ -----------
Net cash used by investing activities ( 2,545,826) ( 708,286)
------------ -----------
Increase (decrease) in cash prior to effect of
foreign currency translation 180,976 ( 42,554)
Effect of foreign currency translation on cash ( 31,099) ( 38,491)
------------ -----------
Net increase (decrease) in cash 149,877 ( 81,045)
Cash at beginning of period 82,000 123,515
------------ -----------
Cash at end of period $ 231,877 $ 42,470
============ ===========
Supplemental Information:
Cash used during the periods for payment of:
Interest $ 265,431 $ 434,112
============ ===========
Income taxes $ - $ -
============ ===========
The Company had no cash equivalents at September 30, 2002 or 2001.
6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The information contained in this Report is unaudited, but reflects all
adjustments which are, in the opinion of the management, necessary for a fair
statement of results of the interim periods, consisting only of normal recurring
accruals. The results for such interim periods are not necessarily indicative of
results to be expected for the full year.
Certain financial statement items for the three and nine months ended September
30, 2001 have been reclassified to conform with the 2002 presentation.
ITEM 2 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,
short-term borrowings from a commercial bank pursuant to a revolving line of
credit arrangement, and other borrowings. The total borrowings under the line
are secured by trade receivables and inventories, and can aggregate a maximum
amount of $5,000,000. Borrowings under the line are due on demand from the bank.
Under the terms of the line, the Registrant is required to comply with certain
financial covenants related to its working capital levels, a maximum debt to
tangible net worth ratio, and minimum debt service coverage factor. As of
September 30, 2002, the amount outstanding pursuant to this facility was
$4,250,000.
During July, 2002, the Registrant finalized the working capital line of
credit discussed in the preceding paragraph as well as an Industrial Revenue
Bond financing issued through the city of Montgomery, AL in the amount of
$3,500,000 to be utilized for a plant expansion and related equipment at the
Registrant"s Montgomery, AL . Such financing was secured with favorable interest
rate terms which float with current conditions. The present interest rate is
approximately 2% per year.
On March 25, 1999, The Registrant borrowed $400,000 from an entity owned by
certain officers of the Company. The obligation requires monthly payments of
principal and interest at prevailing rates through maturity during April, 2004,
when a final balloon payment is due.
The Registrant is involved in making sales in the Canadian market and,
accordingly, is subject to fluctuations of the Canadian currency. The Registrant
does not engage in currency hedging and deals with such risk as a pricing issue.
Results of operations for the three month period July 1- September 30:
Gross sales increased approximately 24% or approximately $1,499,000 for the
quarter ended September 30, 2002 when compared to the same quarter of the
preceding year. This was primarily due to an increase in sales of the Company's
anti-freeze products aggregating approximately $738,000 and increased sales of
other marine and automotive products approximating $761,000.
Cost of goods sold decreased as a percentage of net sales when comparing
the quarter ended September 30, 2002 with the comparable quarter in 2001. The
percentages were 80.2% and 80.9% for the quarters during 2002 and 2001,
respectively. This change was primarily due to more fully absorbing the fixed
overhead at the Registrant's manufacturing facility through increased revenues.
Advertising and promotion decreased approximately $10,000 comparing the
three months ended September 30, 2002 and 2001. This was primarily due to a
planned decreases in the advertising budget.
7
Selling and administrative expenses increased approximately $60,400 or 8.4%
when comparing the quarters ended September 30, 2002 and 2001. Such change was
attributable to increased personnel costs and other normal incremental costs of
operations.
Interest expense, which aggregated approximately $95,300 for the current
quarter, decreased approximately $54,000 when comparing the September 30, 2002
quarter to the corresponding quarter in 2001. Such decrease was primarily
attributable to the recently promulgated interest rate decreases. It should be
noted that the Registrant closed on an new Industrial Revenue Bond financing
aggregating $3,500,000 during late July, 2002. Were it not for this event, the
decrease in interest expense for the period would have been larger.
Results of operations for the nine month period January 1 - September 30:
Gross sales increased 13% or approximately $1,850,000 when comparing the
nine month periods of 2002 and 2001. This was primarily due to an increase in
sales of the Company's anti-freeze products aggregating approximately $738,000
and increased sales of other marine and automotive products approximating
$1,112,000.
Cost of goods sold decreased to 76.3% as a percentage of net sales versus
77.2% when comparing the nine months ended September 30, 2002 to the comparable
period in the preceding year. Cost of goods sold decreased as a percentage of
net sales when comparing the quarter ended September 30, 2002 with the
comparable quarter in 2001. This change was primarily due to improved liquidity
which allowed for more favorable raw material purchasing as well as more fully
absorbing the fixed overhead at the Registrant's manufacturing facility through
increased revenues.
Advertising and promotion expenses increased approximately $78,000 when
comparing the nine months ended September 30, 2002 to the nine months ended
September 30, 2001. This was primarily due to increased co-operative advertising
offered to certain of the Registrant's customers in conjunction with their
increased purchases.
Selling and administrative expenses increased for the nine months ended
September 30, 2002 by approximately $20,400 or 1% when compared to the nine
months ended September 30, 2001. Such change was attributable to increased
personnel costs and other normal incremental costs of operations.
Interest expense decreased during the nine month period in 2002 by
approximately $169,000 when compared to the nine month period of 2001. Such
decrease was primarily attributable to the recently promulgated interest rate
decreases. It should be noted that the Registrant closed on an new Industrial
Revenue Bond financing aggregating $3,500,000 during late July, 2002. Were it
not for this event, the decrease in interest expense for the period would have
been larger.
Forward-looking Statements:
Certain statements contained herein, including without limitation
expectations as to future sales and operating results, constitute
forward-looking statements pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. For this purpose, any statements
contained in this report that are not statements of historical fact may be
deemed forward-looking statements. Without limiting the generality of the
foregoing, words such as "may", "will", "expect", "anticipate", "intend",
"could" or the negative other variations thereof or comparable terminology are
intended to identify forward-looking statements. These statements involve known
and unknown risks, uncertainties and other factors which may cause actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Factors which may affect the Company's results
include, but are not limited to, the highly competitive nature of the Company's
industry; reliance on certain key customers; consumer demand for marine
recreational vehicle and automotive products; advertising and promotional
efforts, and other factors. The Company will not undertake and specifically
declines any obligation to update or correct any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings: On September 17, 2002, the United States Court of
Appeals for the Federal Circuit entered a Judgment on appeal from a Motion for
partial Summary Judgment in the matter of North American Oil Company vs. Star
Brite Distributing, Inc. The Judgment in part found that the United States
District Court had erred in invalidating the Registrant's '598 patent. A more
comprehensive discussion of this litigation can be found in the Registrant's
Form 10-K for the year ended December 31,2001 and Form 8-K as filed with the
United States Securities and Exchange Commission on September 24, 2002.
Item 2 - Changes in Securities: Not Applicable
Item 3 - Defaults Upon Senior Securities: Not Applicable
Item 4 - Submission of Matters to Vote of Security Holders: Not Applicable
Item 5 - Other Information: Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(A) Exhibits: Not Applicable
(B) Reports on Form 8-K:
(a) Form 8-K filed September 18, 2002 reporting Declaration of
Stock Dividend.
(b) Form 8-K filed on September 24, 2002. On September 17, 2002,
the United States Court of Appeals for the Federal Circuit entered a Judgment on
appeal from a Motion for partial Summary Judgment in the matter of North
American Oil Company vs. Star Brite Distributing, Inc. The Judgment in part
found that the United States District Court had erred in invalidating the
Registrant's '598 patent.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the undersigned
there unto duly authorized.
OCEAN BIO-CHEM, INC.
Date: November 13, 2002 /s/ Peter Dornau
----------------------- -----------------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Edward Anchel
-----------------------------------------
Edward Anchel
Chief Financial Officer
9
CERTIFICATIONS
I, Peter Dornau certify that:
1. I have reviewed this quarterly report on Form
10-Q of Ocean Bio-Chem, Inc.;
2. Based on my knowledge, this quarterly report
does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements
and other financial information included in this
quarterly report, fairly present in all material respects the
financial condition, results of operation and cash flows of
the registration as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I
are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a - 14 and 15d - 14) for the registrant and we have:
a) Designed such disclosure controls and
procedures to ensure material information relating
to the registrant, including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the
registrant's disclosure controls and procedures as of
a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluations as of the Evaluation Date;
5. The registrant's other certifying officer and I
have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit
committee or registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the
design or operation of internal controls which could
adversely affect the registrant's ability to record,
process, summarize and report financial data and have
identified for the registrant's auditors any material
weakness in internal controls; and
b) Any fraud, whether or not material,
that involves management or other employees who
have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I
have indicated in this quarterly report whether or not
there were significant changes in internal controls or in
other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
OCEAN BIO-CHEM, INC.
Date: November 13, 2002 /s/ Peter Dornau
----------------------- -------------------------
Peter G. Dornau
Chairman of the Board of
Directors and Chief
Executive Officer
10
CERTIFICATIONS
I, Edward Anchel certify that:
7. I have reviewed this quarterly report on Form
10-Q of Ocean Bio-Chem, Inc.;
8. Based on my knowledge, this quarterly report
does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect
to the period covered by this quarterly report;
9. Based on my knowledge, the financial statements
and other financial information included in this
quarterly report, fairly present in all material respects the
financial condition, results of operation and cash flows of
the registration as of, and for, the periods presented in this
quarterly report;
10. The registrant's other certifying officer and I
are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a - 14 and 15d - 14) for the registrant and we have:
a) Designed such disclosure controls and
procedures to ensure material information relating
to the registrant, including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this quarterly report is being prepared;
b) Evaluated the effectiveness of the
registrant's disclosure controls and procedures as of
a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our
conclusions about the effectiveness of the
disclosure controls and procedures based on our
evaluations as of the Evaluation Date;
11. The registrant's other certifying officer and I
have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit
committee or registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the
design or operation of internal controls which could
adversely affect the registrant's ability to record,
process, summarize and report financial data and have
identified for the registrant's auditors any material
weakness in internal controls; and
b) Any fraud, whether or not material,
that involves management or other employees who
have a significant role in the registrant's internal
controls; and
12. The registrant's other certifying officer and I
have indicated in this quarterly report whether or not
there were significant changes in internal controls or in
other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective
actions with regard to significant deficiencies and material
weaknesses.
OCEAN BIO-CHEM, INC.
Date: November 13, 2002 /s/ Edward Anchel
----------------------- --------------------------
Edward Anchel
Chief Financial Officer
11