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, 2003
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,
4,805,843 shares issued and outstanding at March 31, 2003.
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of March
31, 2003 and December 31, 2002 3
Consolidated statements of operations for
the three months ended March 31,
2003 and 2002 4
Consolidated statements of changes in
shareholders' equity for the three months
ended March 31, 2003 and 2002 5
Consolidated statements of cash flows
for the three months ended March 31,
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 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
Certifications 10-11
2
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DEC. 31,
2003 2002
------------ -----------
(UNAUDITED)
Current assets:
Cash $ 140,009 $ 1,093,826
Trade accounts receivable net of allowance
for doubtful accounts of approximately $200,700
March 31, 2003 and December 31, 2002, respectively 2,491,215 3,190,357
Inventories 5,615,659 4,541,150
Prepaid expenses 184,365 129,622
Recoverable income taxes 240,000 240,000
------------ -----------
Total current assets 8,671,248 9,194,955
------------ -----------
Property, plant and equipment, net 7,455,725 6,977,003
------------ -----------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Funds held in escrow for equipment 521,902 1,161,194
Due from affiliated companies, net 232,370 612,275
Deposits and other assets 301,256 374,371
------------ -----------
Total other assets 1,385,967 2,478,279
------------ -----------
Total assets $ 17,512,940 $18,650,237
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,193,215 1,833,895
Note payable - bank 3,700,000 4,250,000
Current portion of long term debt 600,840 601,766
Other accrued liabilities 161,375 296,422
------------ -----------
Total Current Liabilities 6,655,430 6,982,083
------------ -----------
Deferred income taxes payable 183,139 183,139
------------ -----------
Long term debt, less current portion 6,412,000 6,562,093
------------ -----------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares authorized;
4,805,843 shares issued and outstanding at March 31, 2003
and December 31, 2002, respectively 48,058 48,058
Additional paid-in capital 4,341,629 4,341,629
Foreign currency translation adjustment ( 282,068) ( 303,575)
Retained earnings 162,947 845,005
------------ -----------
4,270,566 4,931,117
Less cost of common stock in treasury, 7,519 shares
at March 31, 2003 and December 31, 2002 ( 8,195) ( 8,195)
------------ -----------
4,262,371 4,922,922
------------ -----------
Total liabilities and shareholders' equity $ 17,512,940 $18,650,237
============ ===========
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2003 and 2002
(UNAUDITED)
2003 2002
------------ -----------
Gross sales $ 3,225,770 $ 4,254,986
Allowances 355,003 337,010
------------ -----------
Net sales 2,870,767 3,917,976
Cost of goods sold 2,545,636 2,918,958
------------ -----------
Gross profit 325,131 999,018
------------ -----------
Costs and expenses:
Advertising and promotion 137,549 153,395
Selling and administrative 801,940 686,639
Interest expense 70,108 90,974
------------ -----------
Total costs and expenses 1,009,597 931,008
------------ -----------
Operating income (loss) ( 684,466) 68,010
Interest income 2,408 33
------------- -----------
Income (loss) before income taxes ( 682,058) 68,043
Provision for income taxes - 11,100
------------- -----------
Net income (loss) ( 682,058) 56,943
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 21,507 ( 13,422)
------------- -----------
Comprehensive income (loss) ($ 660,551) $ 43,521
============= ===========
Earnings (loss) per common share ($ .14) $ .01
============= ===========
Earnings loss per share was calculated on the basis of 4,797,716 and 4,232,370
weighted average shares of common stock outstanding for the quarters ended March
31, 2003 and 2002, 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, 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) ( 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
========= ======= ========== ========== ========== ========= ==========
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 ( 13,422) ( 13,422)
--------- ------- ---------- ---------- ---------- --------- ----------
March 31, 2002 4,239,889 $42,399 $3,755,219 ($276,355) $1,291,775 ($ 8,195) $4,804,843
========= ======= ========== ========== ========== ========= ==========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2003 and 2002
(UNAUDITED)
2003 2002
----------- ----------
Cash flow provided (used) by operating activities:
Net income (loss) ($ 682,058) $ 56,943
Adjustments to reconcile net income to net cash provided (used) by operations:
Depreciation and amortization 154,882 148,578
Changes in assets and liabilities:
Decrease in accounts receivable 699,142 402,875
(Increase) in inventories ( 1,074,509) ( 496,459)
Decrease in prepaid expenses ( 54,743) 15,800
(Increase) decrease in accounts payable,
accrued expenses and other 297,388 122,828
------------ -----------
Net cash provided by operating activities ( 659,898) 250,565
------------ -----------
Cash provided (used) by financing activities:
Net increase under line of credit ( 550,000) 79,889
Net reduction in advances to affiliates 379,905 29,532
Net increase (reduction) in current portion
of long term debt 66 2,904
Net (reduction) in long term borrowings ( 151,085) ( 113,679)
------------ -----------
Net cash provided (used) by financing activities ( 321,114) ( 1,354)
------------ -----------
Cash provided (used) by investing activities:
Purchase property, plant, equipment, net 5,688 ( 55,936)
------------ -----------
Net cash used by investing activities 5,688 ( 55,936)
------------ -----------
Increase (decrease) in cash prior to effect of
foreign currency translation on cash ( 975,324) 193,275
Effect of foreign currency translation on cash 21,507 ( 13,422)
------------ -----------
Increase (decrease) in cash ( 953,817) 179,853
Cash at beginning of period 1,093,826 82,000
------------ -----------
Cash at end of period $ 140,009 $ 261,853
============ ===========
Supplemental Information:
Cash used for interest during period $ 70,108 $ 90,974
============ ===========
Cash used for income taxes during period $ - $ -
============ ===========
The company had no cash equivalents at March 31, 2003 and 2002.
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, 2002 have
been reclassified to conform to the 2003 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, 2003. 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, 2003, the amount outstanding pursuant to this facility was
$3,700,000 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.
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 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:
Net sales decreased approximately 26.7% or $1,047,000 for the quarter ended
March 31, 2003 when compared to the same quarter of the preceding year. Such
decrease was primarily attributed to colder weather in the northern states
causing delays in the start of the boating season and thereby sales of marine
products coupled with a change in on-hand inventory requirements of one of the
Registrant's larger customers resulting in a hiatus in shipping to such customer
until they reduced their inventory to desired levels. Both of these factors have
returned to normal during the March/April time frame.
Cost of goods sold increased as a percentage of net sales when comparing
the quarter ended March 31, 2003 with the comparable quarter in 2002. The
percentages were 88.7% and 74.5% for the quarters ended during 2003 and 2002,
respectively. This change was attributable to increasing costs of petroleum
based raw materials, many of which are key components of the Registrant's
products. The percentage was also adversely impacted by spreading the fixed
7
element of manufacturing overhead over the lower sales levels experienced during
the current quarter. In an attempt to offset the foregoing, the Company has
passed on price increases on certain products during the quarter ending June 30,
2003. It should also be noted that subsequent to the first quarter and as a
result of the termination of the war in Iraq, petroleum pricing has stabilized
and has started drifting lower.
Selling and administrative expenses increased approximately $115,300 or 17%
when comparing the quarters ended March 31, 2003 and 2002. This change was
primarily due to increased personnel costs and other normal recurring increases
in operating expenses.
Advertising and promotion decreased approximately $ 15,800 or 10 %
comparing the three months ended March 31, 2003 and 2002. This was caused by
decreased co-op advertising offered to certain customers.
Interest expense decreased by approximately $ 20,900 when comparing the
March 31, 2003 quarter to the corresponding quarter in 2002. This was the result
of lower borrowing costs resulting from the current low interest rate
environment.
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:
The long standing litigation over the Company's patented Liquid Electric
Tape was settled during the quarter ended March 31, 2003. See the Registrant's
Form 10-K for the year ended December 31, 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 Matters: Not applicable
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: Not applicable
(b) Reports on Form 8-K:
8
Form 8-K was filed on March 14, 2003 disclosing the resolution of the North
American Oil Company litigation. See the Registrant's Form 10-K for the year
ended December 31, 2002.
Form 8-K was filed on April 14, 2003 disclosing the Board of Directors'
election of a new outside director, Sonia B. Beard. Ms. Beard will serve until
the upcoming Annual Meeting of Shareholders when she will be presented to the
shareholders, along with the other directors for election for a new term.
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, 2003 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:
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: May 14, 2003 /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:
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: May 14, 2003 /s/ Edward Anchel
------------ ----------------------------------
Edward Anchel
Chief Financial Officer
11