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 March 31, 2004
Commission File No. 2-70197
OCEAN BIO-CHEM, INC.
(Exact name of Registrant as specified in its charter)
Florida 59-1564329
----------- -----------------
(State or 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,
5,277,313 shares issued and outstanding at March 31, 2004.
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of March
31, 2004 and December 31, 2003 3
Consolidated statements of operations for
the three months ended March 31,
2004 and 2003 4
Consolidated statements of changes in
shareholders' equity for the three months
ended March 31, 2004 and 2003 5
Consolidated statements of cash flows
for the three months ended March 31,
2004 and 2003 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 9
Certifications 10-12
2
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DEC. 31,
2004 2003
----------- -----------
(UNAUDITED)
Current assets:
Cash $ 62,980 $ 42,923
Trade accounts receivable net of allowance for doubtful
accounts of approximately $200,700 at March 31, 2004
and December 31, 2003, respectively 3,645,711 4,333,023
Inventories 6,372,019 5,315,741
Prepaid expenses 150,501 193,372
----------- -----------
Total current assets 10,231,211 9,885,059
----------- -----------
Property, plant and equipment, net 7,454,586 7 ,506,586
----------- -----------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Funds held in escrow for equipment 60,575 126,295
Due from affiliated companies, net 402,543 172,925
Deposits and other assets 276,267 281,880
----------- -----------
Total other assets 1,069,824 911,539
----------- -----------
Total assets $18,755,621 $18,303,184
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,000,031 $ 1,305,484
Note payable - bank 4,600,000 4,550,000
Current portion of long term debt 499,604 898,964
Income taxes payable - current - 80,000
Accrued expenses payable 92,681 181,439
----------- -----------
Total Current Liabilities 7,192,316 7,015,887
----------- -----------
Deferred income taxes payable 205,610 205,610
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Long term debt, less current portion 5,925,029 5,677,692
----------- -----------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares
authorized; 5,277,313 and 4,960,843 shares issued
and outstanding at March 31, 2004 and December 31,
2003 respectively 52,773 49,608
Additional paid-in capital 4,636,338 4,409,829
Foreign currency translation adjustment ( 232,785) ( 237,323)
Retained earnings 984,535 1,190,076
----------- ------------
5,440,861 5,412,190
Less cost of common stock in treasury, 7,519 shares
at March 31, 2004 and December 31, 2003 ( 8,195) ( 8,195)
------------ ------------
5,432,666 5,403,995
------------ ------------
Total liabilities and shareholders' equity $18,755,621 $18,303,184
============ ============
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2004 and 2003
(UNAUDITED)
2004 2003
----------- -----------
Gross sales $ 3,903,944 $ 3,225,770
Allowances 466,358 355,003
----------- -----------
Net sales 3,437,586 2,870,767
Cost of goods sold 2,690,637 2,545,636
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Gross profit 746,949 325,131
----------- -----------
Costs and expenses:
Advertising and promotion 134,256 137,549
Selling and administrative 857,403 801,940
Interest expense 67,303 70,108
----------- -----------
Total costs and expenses 1,058,962 1,009,597
----------- -----------
Operating (loss) ( 312,013) ( 684,466)
Interest income 472 2,408
------------ -----------
(Loss) before income taxes ( 311,541) ( 682,058)
(Benefit) attributable to income taxes ( 106,000) -
------------ ------------
Net (loss) ( 205,541) ( 682,058)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 4,538 21,507
------------ -----------
Comprehensive (loss) ($ 201,003) ($ 660,551)
============ ============
(Loss) per common share ($ .04) ($ .14)
============ ============
(Loss) per share was calculated on the basis of 5,171,823 and 4,797,716
weighted average shares of common stock outstanding for the quarters ended March
31, 2004 and 2003, respectively.
The Company has adopted Statement of Financial Accounting Standards No. 130
that requires items of comprehensive income to be stated as part of the basic
financial statements. The only item of comprehensive income that the Registrant
has is its foreign currency translation adjustment.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED
MARCH 31, 2004 AND 2003
(UNAUDITED)
Foreign
Common stock Additional currency Retained Treasury
Shares Amount paid-in capital adjustment earnings stock Total
--------- ------- --------------- --------- ---------- -------- ----------
January 1,
2004 4,960,843 $49,608 $4,409,829 ($237,323) $1,190,076 ($ 8,195) $5,403,995
Net (loss) ( 205,541) ( 205,541)
Common stock issuance 316,470 3,165 226,509 229,674
Foreign currency
translation
adjustment 4,538 4,538
--------- ------- ----------- ---------- ---------- --------- ----------
March 31,
2004 5,277,313 $52,773 $ 4,636,338 ($232,785) $ 984,535 ($8,195) $5,432,666
========= ======= =========== ========== ========== ========= ===========
January 1,
2003 4,805,843 $48,058 $ 4,341,629 ($303,575) $ 845,005 ($ 8,195) $4,922,922
Net (loss) ( 682,058) ( 682,058)
Foreign currency
translation
adjustment 21,507 21,507
--------- ------- ----------- ---------- ----------- -------- -----------
March 31,
2003 4,805,843 $48,058 $ 4,341,629 ($282,068) $ 162,947 ($ 8,195) $4,262,371
========== ======= =========== ========== ========== ========= ===========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2004 and 2003
(UNAUDITED)
2004 2003
----------- -----------
Cash flow provided (used) by operating activities:
Net (loss) ($ 205,541) ($ 682,058)
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 178,025 154,882
Changes in assets and liabilities:
Decrease in accounts receivable 687,312 699,142
(Increase) in inventories ( 1,056,278) ( 1,074,509)
(Increase) decrease in prepaid expenses 42,871 ( 54,743)
(Increase) decrease in accounts payable,
accrued expenses and other 531,402 297,388
------------ ------------
Net cash provided (used) by operating activities 177,791 ( 659,898)
------------ ------------
Cash provided (used) by financing activities:
Net increase under line of credit 50,000 ( 550,000)
Issuance of common stock 229,674 -
Net reduction (increase) in advances to affiliates ( 229,618) 379,905
Net (reduction) in long term borrowings ( 152,023) ( 151,019)
------------ ------------
Net cash (used) by financing activities ( 101,967) ( 321,114)
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Cash provided (used) by investing activities:
Purchase property, plant, equipment, net ( 60,305) 5,688
------------ ------------
Net cash used by investing activities ( 60,305) 5,688
------------ ------------
Increase (decrease) in cash prior to effect of
foreign currency translation on cash 15,519 ( 975,324)
Effect of foreign currency translation on cash 4,538 21,507
------------ ------------
Increase (decrease) in cash 20,057 ( 953,817)
Cash at beginning of period 42,923 1,093,826
------------ ------------
Cash at end of period $ 62,980 $ 140,009
============ ============
Supplemental Information:
Cash used for interest during period $ 67,303 $ 70,108
============ ============
Cash used for income taxes during period $ - $ -
============ ============
The company had no cash equivalents at March 31, 2004 and 2003.
6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED 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 quarter ended March 31, 2003 have
been reclassified to conform to the 2004 presentation.
Item 2. Management's Discussion and Analysis of Financial Conditions 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. The line matures on May 31, 2004. Under the terms of the
line, the Registrant is required to maintain a minimum level of working capital
and meet certain other financial covenants during the term of the agreement. As
of March 31, 2004, the amount outstanding pursuant to this facility was
$4,600,000 and, as of such date, the Registrant was not in compliance with
certain of the applicable loan covenants. The lender has agreed to waive such
non compliance through May 31, 2004.
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 secured with favorable
interest rate terms which float with current conditions. The present interest
rate is approximately 1.5% per year.
The Registrant is currently discussing renewal of the line of credit and
increasing the maximum authorized borrowing under this financing arrangement to
$6,000,000. It is anticipated that these discussions will finalized during May
2004.
During March 1999, The Registrant borrowed $400,000 from an entity owned by
certain officers of the Company. The obligation required monthly payments of
principal and interest at prevailing rates through maturity during April, 2004.
During April 2004 such obligation was refinanced with a principal balance of
approximately $365,800 and required monthly principal and interest payments at
an annual interest rate of prime plus 1% through the revised maturity during
April 2011.
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.
First Quarter Trend:
Resulting principally from the recurring seasonality of the Company's
products, customer promotions offered during the fourth quarter and weather, the
Company's operations historically yield operating losses during the quarters
ending March 31. The following tabulation reflects net sales and net income
(loss) for the Registrants last five first quarters:
Quarter ended Net income
March 31, Net sales (loss)
---------- ---------- ---------
2004 $3,437,586 ($205,541)
2003 2,870,767 ( 682,058)
2002 3,917,975 56,943
2001 3,233,206 ( 309,474)
2000 3,272,135 ( 10,164)
The results for such interim periods are not necessarily indicative of
results to be expected for the full year.
7
Results of Operations:
Net sales increased approximately 20 % or $ 567,000 for the quarter ended
March 31, 2004 when compared to the same quarter of the preceding year. Such
increase was primarily attributed to mild weather in the northern states causing
an early start of the boating season and thereby increased sales of marine
products
Cost of goods sold decreased as a percentage of net sales when comparing
the quarter ended March 31, 2004 with the comparable quarter in 2003. The
percentages were 78.3% and 88.7 % for the quarters ended during 2004 and 2003,
respectively. The ratio was favorably impacted by spreading the fixed element of
manufacturing overhead over the higher sales levels experienced during the
current quarter. This change was unfavorably impacted by increasing costs of
petroleum based raw materials, many of which are key components of the
Registrant's products. In an attempt to offset the foregoing, the Company has
passed on price increases on certain products during the quarter ending June 30,
2004.
Selling and administrative expenses increased approximately $55,000 or 7%
when comparing the quarters ended March 31, 2004 and 2003. Such increase was
primarily attributable to higher personnel costs.
Advertising and promotion increased approximately $ 3,000 comparing the
three months ended March 31, 2004 and 2003.
Interest expense decreased by approximately $3,000 comparing the March 31,
2004 quarter to the corresponding quarter in 2003.
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 "believe", "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, availability of financing 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 l - Legal Proceedings: Not applicable
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 Matters: Not applicable
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: Not applicable
(b) Reports on Form 8-K:
On February 19, 2004 the Registrant filed a Form 8-K with the
United States Securities and Exchange Commission disclosing
that it had terminated the Letter of Intent and contemplated
asset purchase with Clear Cote Corporation of St. Petersburg,
FL without reaching a successful completion.
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 hereunto duly authorized.
OCEAN BIO-CHEM, INC.
Date: May 14, 2004 By: /s/ PETER G. DORNAU
------------------------ ------------------------------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
By: /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:
1) 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;
2) 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
3) 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):
1) 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
2) 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: May 14, 2004 /s/ Peter Dornau
-------------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
10
CERTIFICATIONS
I, Edward Anchel 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:
1) 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;
2) 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
3) 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):
1) 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
2) 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: May 14, 2004 /s/ Edward Anchel
-------------------------------------
Edward Anchel
Chief Financial Officer
11
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 March 31, 2004 (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: May 14, 2004
/s/ Peter Dornau
-------------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive
/s/ Edward Anchel
-------------------------------------
Edward Anchel
Chief Financial Officer
12