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, 2001
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.)
4041 S. W. 47 Avenue, Fort Lauderdale, Florida 33314
- --------------------------------------------------------------------------------
(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;
4,239,889 issued and outstanding at September 30, 2001
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
----------- -----
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of September
30, 2001 and December 31, 2000 3
Consolidated statements of operations for
the three and nine months ended September 30,
2001 and 2000 4
Consolidated statements of changes in
shareholders' equity for the nine months
ended September 30, 2001 and 2000 5
Consolidated statements of cash flows
for the nine months ended September 30, 2001
and 2000 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
2
<page>
PART I - Financial Information
Item l. Financial Statements
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<table>
<caption>
SEPTEMBER 30, DECEMBER 31,
2001 2000
--------------- --------------
(Unaudited)
<s>
Current assets:
Cash $ 42,470 $ 123,515
Trade accounts receivable net of allowances for
doubtful accounts of approximately $123,000
and $23,000 at September 30, 2001 and
December 31, 2000, respectively 3,840,312 3,417,827
Due from officer - 161,100
Inventories 4,502,922 4,506,987
Income taxes receivable - 173,404
Prepaid expenses 215,313 116,037
--------------- --------------
Total current assets 8,601,017 8,498,870
--------------- --------------
Property, plant and equipment, net 6,030,586 5,643,550
--------------- --------------
Other assets:
Funds held in escrow for equipment 20,537 41,506
Trademarks, trade names and patents, net 336,187 353,431
Deposits and other assets 335,943 274,670
Due from affiliated companies, net 442,893 598,237
--------------- --------------
Total other assets 1,135,560 1,267,844
--------------- ---------------
Total assets $ 15,767,163 $ 15,410,264
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable - trade $ 1,974,791 $ 2,119,865
Note payable - bank 4,477,054 4,250,000
Current portion of long-term debt 467,573 355,306
Accrued expenses payable 271,753 120,356
--------------- --------------
Total current liabilities 7,191,171 6,845,527
--------------- --------------
Long-term debt, less current portion 3,827,358 3,892,445
--------------- --------------
Shareholders' equity:
Common stock - $.01 par value 10,000,000 shares authorized,
4,239,889 and 4,105,889 shares issued and outstanding
at September 30, 2001 and December 31, 2000, respectively 42,400 41,060
Additional paid-in capital 3,755,217 3,720,377
Foreign currency translation adjustment ( 247,889) ( 209,398)
Retained earnings 1,207,101 1,128,448
--------------- --------------
4,756,829 4,680,487
Less cost of common stock in treasury,
5,789 shares at September 30, 2001 and
December 31, 2000 ( 8,195) ( 8,195)
--------------- --------------
4,748,634 4,672,292
--------------- --------------
Total liabilities & shareholders' equity $ 15,767,163 $ 15,410,264
=============== ==============
</table>
3
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<table>
<caption>
For the three months For the nine months
ended September 30, ended September 30,
2001 2000 2001 2000
---- ---- ---- ----
<s>
Gross sales $6,159,436 $5,256,263 $14,737,785 $13,080,208
Allowances 621,860 561,620 1,353,694 1,398,366
----------- ----------- ------------ ------------
Net sales 5,537,576 4,694,643 13,384,091 11,681,842
Cost of goods sold 4,481,494 3,735,976 10,329,414 8,528,862
----------- ----------- ------------ ------------
Gross profit 1,056,082 958,667 3,054,677 3,152,980
----------- ----------- ------------ ------------
Costs and expenses:
Advertising and promotion 183,110 198,178 475,922 544,666
Selling and administrative 658,026 738,431 2,040,284 2,292,624
Interest expense 149,102 117,021 434,112 371,221
----------- ----------- ------------ ------------
Total costs and expenses 990,238 1,053,630 2,950,318 3,208,511
----------- ----------- ------------ ------------
Income (loss) from operations 65,844 ( 94,963) 104,359 ( 55,531)
Interest income 7,556 3,845 9,294 12,781
----------- ----------- ------------ ------------
Income (loss) before provision
(benefit) for income taxes 73,400 ( 91,118) 113,653 ( 42,750)
Provision (benefit) for income
taxes 23,000 ( 30,000) 35,000 ( 15,000)
----------- ----------- ------------ ------------
Net income (loss) 50,400 ( 61,118) 78,653 ( 27,750)
Other comprehensive income, net
of income taxes:
Foreign currency
translation adjustment ( 20,765) ( 12,174) ( 38,491) ( 42,374)
----------- ----------- ------------ ------------
Comprehensive income (loss) $ 29,635 ($ 73,292) $ 40,162 ($ 70,124)
=========== =========== ============ ============
Earnings (loss) per
common share $ .01 ($ .02) $ .02 ($ .01)
=========== =========== ============ ============
</table>
Earnings per share for the nine and three months ended September 30, 2001 were
calculated on the basis of 4,199,037 weighted average shares of common stock
outstanding. For the nine and thee months ended September 30, 2000, earnings per
share were calculated using 4,042,913 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
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)
<table>
<caption>
Foreign
Common stock Additional currency Retained Treasury
Shares Amount paid-in capital adjustment earnings stock Total
---------- ---------- ---------------- ---------- ---------- --------- ----------
<s>
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
========== ========== =========== =========== ========== =========== ===========
January 1,
2000 3,822,499 $ 38,225 $3,282,932 ($ 160,872) $1,764,051 ($ 6,875) $4,917,461
Net loss ( 27,750) ( 27,750)
Issuances of stock 283,390 2,835 437,446 ( 390,781) 49,500
Foreign currency
translation
adjustment ( 42,374) ( 42,374)
---------- ---------- ----------- ----------- ----------- ---------- -----------
September 30,
2000 4,105,889 $ 41,060 $3,720,378 ($ 203,246) $1,345,520 ($ 6,875) $4,896,837
========== ========== =========== =========== =========== ========== ===========
</table>
5
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<table>
<caption>
2001 2000
---- ----
<s>
Cash flows provided by operating activities:
Net Income (loss) $ 78,653 ($ 27,750)
Adjustments toreconcile net income
to net cash provided by operations:
Depreciation and amortization 359,465 303,198
Changes in operating assets and liabilities:
(Increase) in accounts receivable ( 422,485) ( 483,567)
(Increase) decrease in inventories 4,065 ( 1,189,933)
(Increase) in prepaid expenses ( 99,277) ( 186,501)
Increase in accounts payable,
accrued expenses, and other 279,553 798,016
------------ -------------
Net cash provided (used) by operating activities 199,974 ( 786,537)
------------ -------------
Cash flows from financing activities:
Net increases under line of credit 227,054 1,323,000
Repayments of advances to affiliates 155,344 326,282
Borrowings (reductions) of debts, net 47,180 ( 138,057)
Common stock transactions 36,180 49,500
------------ -------------
Net cash provided (used) by financing activities 465,758 1,560,725
------------ -------------
Cash flows from investing activities:
Purchase of property, plant, and equipment, net ( 708,286) ( 1,032,571)
------------ -------------
Net cash used by investing activities ( 708,286) ( 1,032,571)
------------ -------------
(Decrease) in cash prior to effect of
foreign currency translation ( 42,554) ( 258,383)
Effect of foreign currency translation on cash ( 38,491) ( 42,374)
------------ -------------
Net (decrease) in cash ( 81,045) ( 300,757)
Cash at beginning of period 123,515 433,772
------------ -------------
Cash at end of period $ 42,470 $ 133,015
============ =============
Supplemental Information:
Cash used during the periods for payment of:
Interest $ 434,112 $ 371,221
============ =============
Income taxes $ - $ 20,000
============ =============
</table>
The Company had no cash equivalents at September 30, 2001.
6
<page>
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, 2000 have been reclassified to conform with the 2001 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, inventories, and other assets, 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 maintain
minimum working capital of $1,500,000, a maximum debt to tangible net worth of
ratio of 2.5 to 1 and a minimum debt service coverage factor of 1.15 times. As
of September 30, 2001, the amount outstanding pursuant to this facility was
$4,477,054 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
violations through November 30, 2001.
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 17% or $903,200 for the quarter ended
September 30, 2001 when compared to the same quarter of the preceding year. This
was primarily due to increased sales of the Company's automotive products as
well as the existing marine product line.
Cost of goods sold increased as a percentage of net sales when comparing the
quarter ended September 30, 2001 with the comparable quarter in 2000. The
percentages were 80.9% and 79.6% for the quarters during 2001 and 2000,
respectively. This change was due to lower than anticipated margins on
automotive products resulting from increased materials costs.
7
<page>
Advertising and promotion decreased approximately $15,000 comparing the three
months ended September 30, 2001 and 2000. This was primarily due to a planned
decrease in the advertising budget.
Selling and administrative expenses decreased approximately $80,400 or 10.8%
when comparing the quarters ended September 30, 2001 and 2000. Such change was
attributable to decreased professional fees and normal incremental costs of
operations.
Interest expense, which aggregated approximately $149,000 for the current
quarter, increased approximately $32,000 when comparing the September 30, 2001
quarter to the corresponding quarter in 2000. Such increase was attributable to
increased borrowings and were mitigated by recently promulgated interest rate
decreases.
Results of operations for the nine month period January 1 - September 30:
Gross sales increased 12.7% or approximately $1,658,000 when comparing the nine
month periods of 2001 and 2000. This was primarily due to increased sales
automotive products as well as of the Company's existing marine product line.
Cost of goods sold increased to 77.1% as a percentage of net sales versus 73.0%
when comparing the nine months ended September 30, 2001 to the comparable period
in the preceding year. This change was due to lower than anticipated margins on
automotive products resulting from increased materials costs.
Advertising and promotion expenses decreased approximately $69,000 when
comparing the nine months ended September 30, 2001 to the nine months ended
September 30, 2000. This was primarily due to a planned decrease in the
advertising budget.
Selling and administrative expenses decreased for the nine months ended
September 30, 2001 by approximately $252,000 or 11% when compared to the nine
months ended September 30, 2000. This was attributable to decreased professional
fees and normal incremental costs of operations.
Interest expense increased during the nine month period in 2001 by approximately
$63,000 when compared to the nine month period of 2000 reflecting the effect of
increased borrowings and were mitigated by recently promulgated interest rate
decreases.
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
<page>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings: See the Registrant's 10K for the year ended
December 31,2000
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: Not Applicable
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 14, 2001 /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