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U. S. 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 June 30, 2003
Commission File No. 2-70197
OCEAN BIO-CHEM, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1564329
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 90 days.
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.
4,960,843 shares issued and outstanding at June 30, 2003
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of June
30, 2003 and December 31, 2002 3
Consolidated statements of operations for
the three and six months ended June 30,
2003 and 2002 4
Consolidated statements of changes in
shareholders' equity for the six months
ended June 30, 2003 and 2002 5
Consolidated statements of cash flows
for the six months ended June 30, 2003 and 2002 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 Matters 9
Item 6. - Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit 31.0 Certification of CEO 11
Exhibit 31.1 Certification of CFO 12
Exhibit 32 Certification of CEO and CFO 13
2
PART I - Financial Information
Item l. Financial Statements
OCEAN BIO-CHEM, INC.
ASSETS
JUNE 30, DECEMBER 31,
2003 2002
-------------- -------------
(Unaudited)
Current assets:
Cash $ 53,289 $ 1,093,826
Trade accounts receivable net of allowances for
doubtful accounts of approximately $59,450 and
$200,700 at June 30, 2003 and December 31,
2002, respectively 3,717,709 3,190,357
Inventories 5,934,067 4,541,150
Prepaid expenses and other current assets 146,331 129,622
Recoverable income taxes - 240,000
-------------- -------------
Total current assets 9,851,396 9,194,955
-------------- -------------
Property, plant and equipment, net 7,489,054 6,977,003
-------------- -------------
Other assets:
Funds held in escrow for equipment 367,873 1,161,194
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Due from affiliated companies, net 307,145 612,275
Deposits and other assets 296,707 374,371
-------------- -------------
Total other assets 1,302,164 2,478,279
-------------- -------------
Total assets $ 18,642,614 $ 18,650,237
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,063,065 $ 1,833,895
Note payable - bank 4,600,000 4,250,000
Current portion of long-term debt 582,115 601,766
Accrued expenses payable 166,030 296,422
--------------- --------------
Total current liabilities 7,411,210 6,982,083
--------------- --------------
Deferred income taxes payable 183,139 183,139
--------------- --------------
Long-term debt, less current portion 6,279,835 6,562,093
--------------- --------------
Shareholders' equity:
Common stock - $.01 par value 10,000,000 shares
authorized, 4,960,843 and 4,805,843 shares
issued and outstanding at June 30, 2003 and
December 31, 2002, respectively 49,608 48,058
Additional paid-in capital 4,409,829 4,341,629
Foreign currency translation adjustment ( 253,863) ( 303,575)
Retained earnings 561,051 845,005
--------------- --------------
4,776,625 4,931,117
Less cost of common stock in treasury,
7,519 shares at June 30, 2003 and
December 31, 2002, respectively ( 8,195) ( 8,195)
--------------- --------------
4,768,430 4,922,922
--------------- --------------
Total liabilities and shareholders' equity $ 18,642,614 $ 18,650,237
=============== ==============
3
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2003 2002 2003 2002
------------ ----------- ----------- ------------
Gross sales $ 5,462,282 $ 4,674,323 $ 8,688,052 $ 8,929,309
Allowances 351,531 409,393 706,534 746,403
------------ ----------- ----------- ------------
Net sales 5,110,751 4,264,930 7,981,518 8,182,906
Cost of goods sold 3,630,147 3,061,118 6,175,783 5,980,076
------------ ----------- ----------- ------------
Gross profit 1,480,604 1,203,812 1,805,735 2,202,830
------------ ----------- ----------- ------------
Costs and expenses:
Advertising and promotion 189,775 227,370 327,324 380,765
Selling and administrative 805,967 655,515 1,607,907 1,342,155
Interest expense 77,583 79,188 147,691 170,161
------------ ----------- ----------- ------------
Total cost and expenses 1,073,325 962,073 2,082,922 1,893,081
------------ ----------- ----------- ------------
Income (loss) from operations 407,279 241,739 ( 277,187) 309,749
Interest income 825 31 3,233 64
------------ ----------- ----------- ------------
Income (loss) before income taxes 408,104 241,770 ( 273,954) 309,813
Provision for income taxes - 102,900 - 114,000
------------ ----------- ----------- ------------
Net income (loss) 408,104 138,870 ( 273,954) 195,813
Other comprehensive income
(loss) net of income taxes:
Foreign currency translation
adjustment 28,205 7,570 49,712 ( 5,852)
------------ ----------- ----------- -------------
Comprehensive income (loss) $ 436,309 $ 146,440 ($ 224,242) $ 189,961
============ =========== ============ =============
Earnings (loss) per
common share $ .08 $ .03 ($ .06) $ .05
============ =========== ============ =============
Earnings per share were calculated on the basis of 4,823,549 and 4,296,870
weighted average shares of common stock outstanding for the six months and three
months ended June 30, 2003 and 2002, respectively.
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. The only items of comprehensive income of the registrant
which are reflected in the accompanying financial statements are foreign
currency translation adjustments.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED
JUNE 30, 2003 AND 2002
(UNAUDITED)
Additional Foreign
Common stock paid-in currency Retained Treasury
Shares Amount capital adjustment earnings stock Total
--------- ------- ---------- ---------- ---------- -------- ----------
January 1, 2003 4,805,843 $48,058 $4,341,629 ($ 303,575) $ 845,005 ($ 8,195) $4,922,922
Net loss ( 273,954) ( 273,954)
Issuances of stock 155,000 1,550 68,200 69,750
Foreign currency
translation
adjustment 49,712 49,712
--------- ------- ---------- ----------- ---------- --------- ----------
June 30, 2003 4,960,843 $49,608 $4,409,829 ($ 253,863) $ 571,051 ($ 8,195) $4,768,430
========= ======= ========== =========== ========== ========= ==========
January 1, 2002 4,239,889 $42,399 $3,755,219 ($ 262,933) $1,234,832 ($ 8,195) $4,761,322
Net income 195,813 195,813
Issuances of stock 129,000 1,290 66,435 67,725
Foreign currency
translation
adjustment ( 5,852) ( 5,852)
--------- ------- ---------- ----------- ---------- --------- ----------
June 30, 2002 4,368,889 $43,689 $3,821,654 ($ 268,785) $1,430,645 ($ 8,195) $5,019,008
========= ======= ========== =========== ========== ========= ==========
5
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
2003 2002
---------- ----------
Cash flow provided by operating activities:
Net income (loss) ($ 273,954) $ 195,813
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 314,924 297,662
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ( 527,352) 857,474
(Increase) in inventory (1,392,917) ( 870,661)
(Increase) decrease in prepaid expenses
and other current assets 223,291 ( 4,415)
(Decrease) in accounts payable,
accrued expenses and other 176,442 ( 255,374)
----------- -----------
Net cash provided (used) by operating activities (1,479,566) 220,499
----------- -----------
Cash flows from financing activities:
Net increases under line of credit 350,000 38,275
Reduction in advances from affiliates 305,130 38,336
Payments on debts, net ( 301,909) ( 224,635)
Common stock transactions 69,750 67,725
----------- -----------
Net cash provided (used) by financing activities 422,971 ( 80,299)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant, equipment, net
of funds held in escrow ( 33,654) ( 105,922)
----------- -----------
Net cash (used) by investing activities ( 33,654) ( 105,922)
----------- -----------
Increase (decrease) in cash prior to effect of
foreign currency translation adjustment (1,090,249) 34,278
Effect of foreign currency translation adjustment
on cash 49,712 ( 5,852)
----------- -----------
Net increase (decrease) in cash (1,040,537) 28,426
Cash at beginning of period 1,093,826 82,000
----------- -----------
Cash at end of period $ 53,289 $ 110,426
=========== ===========
Supplemental information:
Cash used for payment of interest during period $ 147,691 $ 170,098
=========== ===========
Cash used for payment of income taxes during
period $ - $ -
=========== ===========
The company had no cash equivalents at June 30, 2003 and 2002.
6
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. 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 six months ended June
30, 2002 have been reclassified to conform with the 2003 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. Advances under the Registrant's line
are secured by trade receivables and inventories, and can aggregate a maximum
amount of $5,000,000 bearing interest at the lender's prime rate plus .25%. The
line, which matures on May 31, 2004, requires the Registrant to maintain certain
financial ratios. As of June 30, 2003, the amount outstanding pursuant to the
working capital line of credit was $4,600,000.
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 facility. Such financing was obtained with favorable
interest rate terms which float with current conditions. The present interest
rate is approximately 1% per year.
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 April 1- June 30:
Gross sales increased approximately 14.4% or $788,000 for the quarter ended
June 30, 2003 when compared to the same quarter of the preceding year.
Management attributes this increase substantially from recently introduced new
marine oil products and, in part due to the timing of customer orders comparing
the 2003 and 2002 periods.
Cost of goods sold decreased as a percentage of net sales when comparing
the quarter ended June 30, 2003 with the comparable quarter in 2002. The
percentages were 71.0% and 71.8% for the respective quarters. This change,
although not significant, represents an improvement and is attributed to an
on-going effort to monitor costs.
Selling and administrative expenses increased approximately $150,500 or
18.7%comparing the quarters ended June 30, 2003 and June 30, 2002. Such change
was primarily due to increased personnel costs and other normal recurring
increases in operating expenses.
7
Advertising and promotion decreased approximately $37,600 or 19.9%
comparing the three months ended June 30, 2003 and 2002. This resulted primarily
from decreased co-op advertising offered certain customers and the timing of
various advertising programs in 2003.
Interest expense was substantially unchanged comparing the quarters ended
June 30, 2003 and 2002 and amounted to approximately $77,600 and $79,200,
respectively.
Results of Operations For the Six Month Period January 1 - June 30:
Gross Sales decreased 2.7% or approximately $241,000 when comparing the six
month periods of 2003 and 2002. Management attributes this to a very weak first
quarter caused by weather problems throughout the United States and a change in
ordering policies by one of the Registrant's larger customers. During the second
quarter of 2003, the Registrant benefited from both new marine oil product sales
as well as resumption of ordering from the aforementioned customer.
Cost of goods sold increased as a percentage of net sales when comparing
the six months ended June 30, 2003 with the comparable period in 2002. The
percentages were 77.4% and 73.1% for the six month periods ended 2003 and 2002,
respectively. This change resulted from various factors, some of which
negatively impacted margins and others which mitigated these factors.
Specifically, petroleum products have costs which are higher than those
experienced in prior periods and currently represent a higher portion of
manufacturing efforts. In addition, a price increase was passed along on certain
products, and margins are impacted by spreading fixed overheads over lower
revenues.
Advertising and promotion expenses decreased approximately $53,400 when
comparing the six months ended June 30, 2003 to the six months ended June 30,
2002. This was primarily due to a planned decrease in the advertising budget.
Selling and administrative expenses increased for the six months ended June
30, 2003 by approximately $ 265,800 or 19.9% when compared to the six months
ended June 30, 2002. Such change was primarily due to increased personnel costs
and other normal recurring increases in operating expenses.
Interest expense decreased during 2003 by approximately $22,400 when
compared to the same six month period of 2002. This change was primarily due to
the impact of decreasing interest rates.
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,
8
receational 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.
PART II: OTHER INFORMATION
Item l - Legal Proceedings: See Registrant's Form 10-K for the year ended
December 31, 2002.
Item 2 - Changes in Securities: On April 1, 2003, 155,000 shares of the
Registrant's common stock were issued pursuant to an employee bonus program.
Item 3 - Defaults Upon Senior Securities: Not applicable
Item 4 - Submission of Matters to Vote of Security Holders: On June 19,
2003, at the Registrant's annual meeting of shareholders, seven directors; Peter
Dornau, Edward Anchel, Jeffrey Tieger, Laz Schneider, James Kolisch, John B.
Turner, and Sonia B. Beard were elected. Shareholders also approved Berkovits,
Lago & Co., LLP, Certified Public Accountants, as independent auditors for the
year ending December 31, 2003 and ratified the adoption of a Qualified Incentive
Stock Option Plan and a Non-qualified Stock Option Plan. The tabulation of
voting for the foregoing was as follows:
For Against Abstain
--------- ----------- ------------
Peter Dornau 3,276,926 1,603 3,334
Edward Anchel 3,276,926 1,603 3,334
Jeffrey Tieger 3,276,926 1,603 3,334
Laz Schneider 3,276,926 1,603 3,334
James Kolisch 3,276,926 1,603 3,334
John B. Turner 3,276,926 1,603 3,334
Sonia B. Beard 3,276,926 1,603 3,334
Berkovits, Lago
& Co.,LLP, CPA's 4,629,299 15,703 4,823
Qualified Incentive
Stock Option Plan 3,276,926 12,892 1,360,007
Non-qualified Stock
Option Plan 3,266,504 21,271 1,362.050
Item 5 - Other Matters: Not applicable
Item 6 - Exhibits:
(A) Exhibits - Exhibits 31.0 and 31.1, Executive Officer Certifications
Exhibit 32 - Certification of CEO and CFO furnished, but not
filed
(B) Reports on Form 8-K - Not applicable
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OCEAN BIO-CHEM, INC.
Date: August 13, 2003 /s/ Peter Dornau
-------------------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
/s/ Edward Anchel
-------------------------
Edward Anchel
Chief Financial Officer
10
EXHIBIT 31
CERTIFICATION
I, Peter Dornau certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ocean Bio-Chem,
Inc. as of and for the periods ended June 30, 2003;
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 periods covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this 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 - 15(e) and 15d - 15(e)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that 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 and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures , as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of Registrant's board of directors
(or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.
OCEAN BIO-CHEM, INC.
Date: August 13, 2003 /s/ Peter Dornau
------------------------
Peter G. Dornau
Chairman of the Board of
Directors and Chief
Executive Officer
EXHIBIT 31.1
CERTIFICATION
I, Edward Anchel certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ocean Bio-Chem,
Inc. as of and for the periods ended June 30, 2003;
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 periods covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as
of, and for, the periods presented in this 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 - 15(e) and 15d - 15(e)) for the Registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that 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 and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures , as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of Registrant's board of directors
(or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.
OCEAN BIO-CHEM, INC.
Date: August 13, 2003 /s/ Edward Anchel
------------------------
Edward Anchel
Chief Financial Officer
Exhibit 32
CERTIFICATION
Pursuant to 18U.S.C.Section 1350, the undersigned officers of Ocean
Bio-Chem, Inc. (the "Company"), hereby certify that the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2003 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operation of the Company.
Dated: August 13, 2003
/s/ Peter Dornau
------------------------
Peter G. Dornau
Chairman of the Board of
Directors and Chief
Executive Office
/s/ Edward Anchel
------------------------
Edward Anchel
Chief Financial Officer