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, 2002
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 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,
4,239,889 shares issued and outstanding at March 31, 2002.
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
----------- -----
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of March
31, 2002 and December 31, 2001 3
Consolidated statements of operations for
the three months ended March 31,
2002 and 2001 4
Consolidated statements of changes in
shareholders' equity for the three months
ended March 31, 2002 and 2001 5
Consolidated statements of cash flows
for the three months ended March 31,
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 8
Item 2. - Changes in Securities 8
Item 3. - Defaults upon Senior Securities 8
Item 4. - Submission of Matters to Vote by Security Holders 8
Item 5. - Other Matters 8
Item 6. - Exhibits and Reports on Form 8-K 8
Signatures 9
2
<page>
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<table>
<caption>
MARCH 31, DEC. 31,
2002 2001
------------ ------------
(UNAUDITED)
<s>
Current assets:
Cash $ 261,853 $ 82,000
Trade accounts receivable net of allowance
for doubtful accounts of approximately $ 152,500 at
March 31, 2002 and December 31, 2001, respectively 2,883,973 3,286,848
Inventories 4,792,642 4,296,183
Prepaid expenses 129,554 145,354
------------ ------------
Total current assets 8,068,022 7,810,385
------------ ------------
Property, plant and equipment, net 5,909,803 6,002,445
------------ ------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Funds held in escrow for equipment 9,117 9,084
Due from affiliated companies, net 534,199 563,731
Deposits and other assets 330,672 314,122
------------ ------------
Total other assets 1,204,427 1,217,376
------------ ------------
Total assets $ 15,182,252 $ 15,030,206
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,345,833 $ 2,163,245
Note payable - bank 3,745,749 3,665,860
Current portion of long term debt 473,898 470,994
Other accrued liabilities 84,431 138,709
------------ ------------
Total Current Liabilities 6,649,911 6,438,808
------------ ------------
Deferred income taxes payable 122,300 111,200
------------ ------------
Long term debt, less current portion 3,605,198 3,718,876
------------ ------------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares
authorized; 4,239,889 shares issued and outstanding
at March 31, 2002 and December 31, 2001, respectively 42,399 42,399
Additional paid-in capital 3,755,219 3,755,219
Foreign currency translation adjustment ( 276,355) ( 262,933)
Retained earnings 1,291,775 1,234,832
------------ ------------
4,813,038 4,769,517
Less cost of common stock in treasury, 7,519 shares
at March 31, 2002 and December 31, 2001 ( 8,195) ( 8,195)
------------ ------------
4,804,843 4,761,322
------------ ------------
Total liabilities and shareholders' equity $ 15,182,252 $ 15,030,206
============ ===========
</table>
3
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2002 and 2001
(UNAUDITED)
<table>
<caption>
2002 2001
------------- --------------
<s>
Gross sales $ 4,254,986 $ 3,544,747
Allowances 337,010 311,541
------------- ---------------
Net sales 3,917,976 3,233,206
Cost of goods sold 2,918,958 2,549,634
------------ --------------
Gross profit 999,018 683,572
------------- --------------
Costs and expenses:
Advertising and promotion 153,395 139,822
Selling and administrative 686,639 709,677
Interest expense 90,974 145,000
------------- --------------
Total costs and expenses 931,008 994,499
------------- --------------
Operating income (loss) 68,010 ( 310,927)
Interest income 33 1,453
------------- --------------
Income (loss) before income taxes 68,043 ( 309,474)
Provision for income taxes 11,100 -
------------- --------------
Net income (loss) 56,943 ( 309,474)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment ( 13,422) ( 23,756)
-------------- ---------------
Comprehensive income (loss) $ 43,521 ($ 333,230)
============= ===============
Earnings (loss) per common share $ .01 ($ .08)
============= ===============
</table>
Earnings loss per share was calculated on the basis of 4,232,370 and
4,098,370 weighted average shares of common stock outstanding for the quarters
ended March 31, 2002 and 2001, 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
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED
MARCH 31, 2002 AND 2001
(UNAUDITED)
<table>
<caption>
<s>
Foreign
Common stock Additional currency Retained Treasury
Shares Amount paid-in 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 56,943 56,943
Foreign currency
translation
adjustment ( 3,422) ( 13,422)
--------- -------- ----------- ----------- ---------- ---------- -----------
March 31,
2002 4,239,889 $ 42,399 $ 3,755,219 ($ 276,355) $1,291,775 ($ 8,195) $4,804,843
========= ======== =========== =========== ========== ========== ===========
January 1,
2001 4,105,889 $41,600 $ 3,720,377 ($ 209,398) $1,128,448 ($ 8,195) $4,672,292
Net loss ( 309,474) ( 309,474)
Foreign currency
translation
adjustment ( 23,756) ( 23,756)
--------- -------- ----------- ----------- ----------- ---------- -----------
March 31,
2001 4,105,889 $ 41,060 $ 3,720,377 ($ 233,154) $ 818,974 ($ 8,195) $4,339,062
========= ======== =========== =========== ========== ========== ===========
</table>
5
<page>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2002 and 2001
(UNAUDITED)
<table>
<caption>
2002 2001
---------- ----------
<s>
Cash flow provided (used) by operating activities:
Net income (loss) $ 56,943 ($ 309,474)
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 148,578 100,153
Changes in assets and liabilities:
Decrease in accounts receivable 402,875 443,525
(Increase) in inventories ( 496,459) ( 251,496)
Decrease in prepaid expenses 15,800 21,461
(Increase) decrease in accounts payable,
accrued expenses and other 122,828 69,668
---------- -----------
Net cash provided by operating activities 250,565 73,837
---------- -----------
Cash provided (used) by financing activities:
Net increase under line of credit 79,889 100,000
Net reduction in advances to affiliates 29,532 361,235
Net increase (reduction) in current portion
of long term debt 2,904 ( 29,967)
Net (reduction) in long term borrowings ( 113,679) ( 59,647)
----------- -----------
Net cash provided (used) by financing activities ( 1,354) 371,621
------------ -----------
Cash provided (used) by investing activities:
Purchase property, plant, equipment, net ( 55,936) ( 520,447)
----------- -----------
Net cash used by investing activities ( 55,936) ( 520,447)
----------- -----------
Increase (decrease) in cash prior to effect of
foreign currency translation on cash 193,275 ( 74,989)
Effect of foreign currency translation on cash ( 13,422) ( 23,756)
----------- -----------
Increase (decrease) in cash 179,853 ( 98,745)
Cash at beginning of period 82,000 123,515
----------- -----------
Cash at end of period $261, 853 $ 24,770
========== ===========
Supplemental Information:
Cash used for interest during period $ 90,974 $ 145,000
=========== ===========
Cash used for income taxes during period $ - $ -
=========== ===========
</table>
The company had no cash equivalents at March 31, 2002 and 2001.
6
<page>
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, 2001 have
been reclassified to conform to the 2002 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, 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 and meet certain other financial
covenants during the term of the agreement.. As of March 31, 2002, the amount
outstanding pursuant to this facility was approximately $3,746,000 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 violations through June 30,
2002.
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:
- ---------------------
Net sales increased approximately 21% or $685,000 for the quarter ended
March 31, 2002 when compared to the same quarter of the preceding year. Such
increase was primarily associated with sales of new automotive and marine oil
products.
Cost of goods sold decreased as a percentage of net sales when comparing
the quarter ended March 31, 2002 with the comparable quarter in 2001. The
percentages were 74.5% and 78.9% for the quarters ended during 2002 and 2001,
respectively. This change was attributable to a shift in product mix towards
higher margin items, increased revenue volume thereby favorably absorbing fixed
manufacturing overhead, and a sales price increase on selected products passed
on to certain customers.
Selling and administrative expenses decreased approximately $23,000 or 3%
when comparing the quarters ended March 31, 2002 and 2001. This change was not
viewed as significant.
7
<page>
Advertising and promotion increased approximately $ 13,500 or 10 %
comparing the three months ended March 31, 2002 and 2001. This was primarily due
to increased co-op advertising offered to certain customers.
Interest expense decreased by approximately $ 54,000 when comparing the
March 31, 2002 quarter to the corresponding quarter in 2001. This was the result
of lower borrowing costs due to recently promulgated prime 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 "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. .
PART II - Other Information
Item l - Legal Proceedings:
See the Registrant's Form 10-K for the year ended December 31, 2001
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: Not applicable
8
<page>
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 10, 2002 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