SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACTOF 1934
For the quarterly period ended March 31, 2006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-11102
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 SW 47 Avenue, Fort Lauderdale, Florida 33314-4023
954-587-6280
(Address and telephone number, including area code of Registrant's
Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 12, 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 by check mark whether the Registrant (1) Is a Shell Company (As
Defined In rule 12b-2 of the Exchange Act).
Yes [ ] No [x ]
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of
1934), or a non-accelerated filer
Large Accelerated Filer [ ] Accelerated Filer [ ] Non- Accelerated Filer [x]
Indicate the number of shares outstanding of each class of the Issuer's
common stock, as of the latest practicable date::
$.01 par value common stock,10,000,000 shares authorized,
5,978,316 shares issued and outstanding at May 10, 2006
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I - Financial Information:
Item 1. - Financial Statements:
Consolidated balance sheets as of March 31, 2006
and December 31, 2005 3
Consolidated statements of operations for
the three months ended March 31,2006 and 2005 4
Consolidated statements of changes in shareholders'
equity for the three months ended March 31, 2006
and 2005 5
Consolidated statements of cash flows for the three
months ended March 31, 2006 and 2005 6
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-11
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 11
Item 4 - Controls and Procedures 11
Part II - Other Information:
Item 1. - Legal Proceedings 12
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 12
Item 3. - Defaults upon Senior Securities 12
Item 4. - Submission of Matters to a Vote by Security Holders 12
Item 5. - Other Matters 12
Item 6. - Exhibits 12
Signatures 12
Certifications
2
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
2006 2005
------------ ------------
(UNAUDITED)
Current assets:
Cash $ 120,587 $ 204,543
Trade accounts receivable net of allowance for doubtful
accounts of approximately $131,000 at March 31,
2006 and December 31, 2005, respectively 2,171,080 2,027,162
Inventories 6,899,457 6,260,813
Prepaid expenses and other current assets 471,216 510,074
------------- -------------
Total current assets 9,662,340 9,002,592
------------- -------------
Property, plant and equipment, net 7,272,858 7,310,640
------------- -------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Due from affiliated companies, net 322,585 29,022
Deposits and other assets 214,170 230,329
------------- -------------
Total other assets 867,194 589,790
------------- -------------
Total assets $ 17,802,392 $ 16,903,022
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,067,845 $ 1,256,640
Note payable - bank 3,850,000 4,000,000
Current portion of long term debt 582,798 580,852
Accrued expenses payable 315,779 512,977
------------- -------------
Total Current Liabilities 6,816,422 6,350,469
------------- -------------
Long term debt, less current portion 6,201,182 6,261,856
------------- -------------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares authorized;
5,849,316 shares issued and outstanding at March 31, 2006
and December 31, 2005, respectively 58,493 58,493
Additional paid-in capital 5,204,367 4,908,615
Foreign currency translation adjustment ( 174,154) ( 179,653)
Deficit ( 295,723) ( 488,563)
------------- -------------
4,792,983 4,298,892
Less cost of common stock in treasury, 7,519 shares
at March 31, 2006 and December 31, 2005 ( 8,195) ( 8,195)
------------- -------------
4,784,788 4,290,697
------------- -------------
Total liabilities and shareholders' equity $ 17,802,392 $ 16,903,022
============= =============
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2006 AND 2005
(UNAUDITED)
2006 2005
---------- ----------
Gross sales $4,788,822 $3,477,511
Allowances 379,230 381,733
---------- -----------
Net sales 4,409,592 3,095,778
Cost of goods sold 3,060,522 2,740,504
---------- -----------
Gross profit 1,349,070 355,274
---------- -----------
Costs and expenses:
Advertising and promotion 186,920 106,405
Selling and administrative 828,086 1,010,970
Interest expense 142,510 103,934
---------- -----------
Total costs and expenses 1,157,516 1,221,309
---------- -----------
Operating income (loss) 191,554 ( 866,035)
Other income 1,286 819
---------- -----------
Income (loss) before income taxes 192,840 ( 865,216)
Income taxes (benefit) - ( 294,000)
---------- -----------
Net income (loss) 192,840 ( 571,216)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment 5,499 6,483
---------- -----------
Comprehensive income (loss) $ 198,339 ($ 564,733)
========== ===========
Earnings (loss) per common share $ .03 ($ .10)
========== ===========
Earnings (loss) per share was calculated on the basis of 5,849,316 and
5,467,814 weighted average shares of common stock outstanding for the quarters
ended March 31, 2006 and 2005, 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, 2006 AND 2005
(UNAUDITED)
Foreign Retained
Common stock Additional currency earnings Treasury
Shares Amount paid-in capital adjustment (deficit) stock Total
--------- ------- --------------- ---------- --------- -------- ----------
January 1,
2006 5,849,316 $58,493 $4,908,615 ($179,653) ($ 488,563) ($8,195) $4,290,697
Net income 192,840 192,840
Debt forgiveness -
Affiliate 295,752 295,752
Foreign currency
translation
adjustment 5,499 5,499
--------- ------- ---------- --------- ----------- -------- ----------
March 31,
2006 5,849,316 $58,493 $5,204,367 ($174,154) ($ 295,723) ($8,195) $4,784,788
========= ======= ========== ========== =========== ======== ==========
January 1,
2005 5,417,813 $54,178 $4,722,746 ($204,864) $1,324,630 ($8,195) $5,888,495
Net (loss) ( 571,216) ( 571,216)
Common stock
issuance 150,003 1,500 ( 1,500) -
Foreign currency
translation 6,483 6,483
--------- ------- ----------- --------- ----------- -------- -----------
March 31,
2005 5,567,816 $55,678 $4,721,246 ($198,381) $ 753,414 ($8,195) $5,323,762
========= ======= ========== ========== =========== ======== ===========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2006 AND 2005
(UNAUDITED)
2006 2005
---------- ----------
Cash flow provided (used) by operating activities:
Net income (loss) $ 192,840 ($ 571,216)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operations:
Depreciation and amortization 193,637 184,720
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ( 143,918) 1,916,984
(Increase) in inventories ( 638,645) (1,417,394)
Decrease in prepaid expenses and other current assets 38,859 4,553
Increase (decrease) in accounts payable, accrued
expenses and other 630,166 ( 99,495)
----------- -----------
Net cash provided by operating activities 272,939 18,152
----------- ----------
Cash provided (used) by financing activities:
Net increase (decrease) under line of credit ( 150,000) ( 250,000)
Net reduction (increase) in advances to affiliates, net 2,189 ( 203,116)
Net (reduction) in long term borrowings ( 58,728) ( 121,772)
----------- -----------
Net cash (used) by financing activities ( 206,539) ( 574,888)
----------- -----------
Cash provided (used) by investing activities:
Purchase property, plant, equipment, net ( 155,855) ( 334,279)
----------- -----------
Net cash provided (used) by investing activities ( 155,855) ( 334,279)
----------- -----------
Increase (decrease) in cash prior to effect of
foreign currency translation on cash ( 89,455) ( 891,015)
Effect of foreign currency translation on cash 5,499 6,483
----------- -----------
Increase (decrease) in cash ( 83,956) ( 884,532)
Cash at beginning of period 204,543 988,106
----------- -----------
Cash at end of period $ 120,587 $ 103,574
=========== ===========
Supplemental Information:
Cash used for interest during period $ 83,656 $ 83,656
=========== ==========
Cash used for income taxes during period - $ 52,000
=========== ============
Non-cash investing and financing activities:
Debt forgiven by affiliated entity $ 295,752 $ -
=========== ===========
6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Interim Reporting
The accompanying unaudited consolidated financial statements include the
accounts of Ocean Bio-Chem, Inc. and its subsidiaries. All significant
intercompany transactions and balances have been eliminated. The unaudited
consolidated financial statements have been prepared in conformity with Rule
10-01 of Regulation S-X of the Securities and Exchange Commission and,
therefore, do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. However, all adjustments (consisting of normal recurring accruals)
that, in the opinion of management, are necessary for a fair presentation of the
financial statements, have been included. Operating results for the period ended
March 31, 2006 are not necessarily indicative of the results that may be
expected for the future fiscal quarters in 2006 or the full year ending December
31, 2006 due to seasonal fluctuations in our business, changes in economic
conditions and other factors. For further information, please refer to the
Consolidated Financial Statements and Notes thereto contained in our Annual
Report on Form 10-K for the year ended December 31, 2005.
Certain financial statement items for the quarter ended March 31, 2005 have
been reclassified to conform to the 2006 presentation.
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 Litigations 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.
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations
Overview:
We are a leading manufacturer and distributor of chemical formulations
serving the appearance and functional categories of the marine, automotive,
recreational vehicle and home care markets. We were founded in 1973 and have
conducted operations within the aforementioned categories since then. During
1984, we changed our corporate name to Ocean Bio-Chem, Inc. (the parent company)
from our former name, Star brite Corporation. Our operations were conducted as a
privately owned company through March, 1981 when we completed our initial public
offering of common stock.
Critical accounting policies and estimates:
Principles of consolidation - Our consolidated financial statements include
the accounts of the parent company and its wholly owned subsidiaries. All
significant inter-company accounts and transactions are eliminated in
consolidation.
Revenue recognition - Revenue from product sales is recognized when
persuasive evidence of an arrangement exists, delivery to customer has occurred,
the sales price is fixed and determinable, and collectibility of the related
receivable is probable.
7
Inventories - Inventories are primarily composed of raw materials and
finished goods and are stated at the lower of cost, using the first-in,
first-out method, or market.
Prepaid advertising and promotion - In any given year we introduce certain
new products to our customers. In connection therewith, we produce new
promotional items to be distributed over a period of time. We follow the policy
of amortizing these costs over a one-year basis.
Property, plant and equipment - Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the related
assets using the straight-line method.
Stock based compensation - Prior to January 1, 2006 we followed the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, to
record compensation costs. Opinion No. 25 requires that compensation cost be
based on the difference, if any, between the quoted market price of the stock
and the price the employee must pay to acquire the stock depending on the terms
of the award. Effective January 1, 2006 we adopted the provisions Statement of
Financial Accounting Standards No. 123R to record such compensation costs.
However, the impact of this pronoucement to our first quarter's operations was
deemed to be not material. Prior thereto, such matters were disclosed in the
notes to our consolidated financial statements.
Concentration of credit risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of
accounts receivable. Over the past three years, our five largest customers
historically represented a range of approximately 45% to 55% of consolidated
gross revenues and 25% to 77% of consolidated accounts receivable, respectively.
We have experienced a longstanding relationship with each of these entities and
have always collected open receivable balances in a timely manner. However, the
loss of any of these customers could have an adverse impact on our operations.
Fair value of financial instruments - The carrying amount of cash
approximates its fair value. The fair value of long-term debt is based on
current rates at which we could borrow funds with similar remaining maturities,
and the carrying amount approximates fair value.
Income taxes - We file consolidated federal and state income tax returns.
We have adopted Statement of Financial Accounting Standards No. 109 in the
accompanying consolidated financial statements. The only temporary differences
included therein are attributable to differing methods of reflecting
depreciation for financial statement and income tax purposes.
Trademarks, trade names and patents - The Star brite trade name and
trademark were purchased in 1980 for $880,000. The cost of such intangible
assets was amortized on a straight-line basis over an estimated useful life of
40 years through December 31, 2001. Effective January 1, 2002 and pursuant to
Statement of Financial Accounting Standards No. 142, we have determined that the
carrying value of such intangible assets relating to its Star brite brand does
not require further amortization. In addition, we own two patents that we
believe are valuable in limited product lines, but not material to our success
or competitiveness in general. There are no capitalized costs of these two
patents.
Translation of Canadian currency - The accounts of our Canadian subsidiary
are translated in accordance with Statement of Financial Accounting Standards
No. 52, which requires that foreign currency assets and liabilities be
translated using the exchange rates in effect at the balance sheet date. Results
of operations are translated using the average exchange rate prevailing
throughout the period. The effects of unrealized exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
accumulated as the translation adjustment in shareholders' equity. Realized
gains and losses from foreign currency transactions, if any, are included in net
earnings of the period.
Liquidity and Capital Resources:
The primary sources of our liquidity are our operations and short-term
borrowings from Regions Bank pursuant to a revolving line of credit aggregating
$6 million. Such line matures May 31, 2006, bears interest at the 30 Day LIBOR
plus 275 basis points (approximately 7.38% at March 31, 2006) and is secured by
our trade receivables, inventory and intangible assets. As of each year-end,
December 31, we are required to maintain a minimum working capital of $1.5
million and meet certain other financial covenants during the term of the
agreement. As of March 31, 2006, we were obligated under this arrangement in the
amount of $3,850,000. Based on discussions with our bank, we expect, but cannot
give assurance , that such line will be renewed on May 31, 2006.
8
In connection with the purchase and expansion of the Alabama facility, we
closed on Industrial Development Bonds during 1997 aggregating approximately $5
million. The proceeds were utilized for both the repayment of certain advances
used to purchase the Alabama facility and to expand such facility for our future
needs. During July 2002, we completed a second Industrial Development Bond
financing aggregating $3.5 million through the City of Montgomery, Alabama. Such
transaction funded an approximate 70,000 square foot addition to the
manufacturing facility as well as the remaining machinery and equipment
additions required therein. This project was substantially completed during
2003.
In order to market the Industrial Development Bonds at favorable rates, we
obtained a substitute irrevocable letter of credit for the 1997 issue and a new
irrevocable letter of credit for the 2002 issue. Under such letters of credit
agreements, maturing on July 31, 2006, we are required to maintain a stipulated
level of working capital, a designated maximum debt to tangible ratio, and a
required debt service coverage ratio. Such letters of credit are secured by a
first priority mortgage on the underlying Alabama facility and equipment. Based
on discussions with our bank, we expect, but cannot give assurance , that such
letters of credit will be renewed on maturity.
The bonds are marketed weekly at the prevailing rates for such tax-exempt
instruments. During the three months ended March 31, 2006 such bonds carried
interest ranging between 3.3% and 3.7% annually. Interest and principal are
payable quarterly. We believe current operations are sufficient to meet these
obligations.
On April 12, 2005 we entered into a financing obligation with Regions Bank
whereby they advanced us $500,000 to finance equipment acquisitions at our
Kinpak facility. Such obligation is due in monthly installments of principal
aggregating approximately $8,300 plus interest at prevailing rates (the
outstanding balance and interest rate on this obligation at March 31, 2006 were
approximately $408,300 and 7.13% per annum, respectively). The maturity on this
obligation is April 15, 2010.
During the quarter ended December 31, 2005, we finalized a revolving credit
facility with our president and CEO, Peter G. Dornau. In connection with his
offering to loan a maximum of $1.5 million to the Company in order to bolster
working capital, we issued warrants to Mr. Dornau to purchase a maximum of 1
million shares of our common stock. Such warrants are exercisable 500,000 shares
at $1.13 and 500,000 shares at $.863. The exercise prices were determined by the
closing bid of our stock plus ten (10) percent on each date of grant. In
addition, he has the right, at his sole discretion, to convert such debt into a
maximum of 1.5 million shares of our common stock at the rate of $1.00 per
share. At March 31, 2006, $1,225,000 was the outstanding principal balance
pursuant to this obligation which is due in October 2010 along with accrued
interest at the rate of prime plus 2% aggregating approximately $42,100 at such
date. This obligation is subordinate to all borrowings from Regions Bank.
We are involved in making sales in the Canadian market and must deal with
the currency fluctuations of the Canadian currency. We do not engage in currency
hedging and deal with such currency risk as a pricing issue.
During the past few years, we have introduced various new products to our
customers. At times this has required us to carry greater amounts of overall
inventory and has resulted in lower inventory turnover rates. The effects of
such inventory turnover have not been material to our overall operations. We
believe that all required capital to maintain such increases can continue to be
provided by operations and current financing arrangements.
Many of the raw materials that we use in the manufacturing process are
commodities that are subject to fluctuating prices. We react to long-term
increases by passing along all or a portion of such increases to our customers.
As of March 31, 2006 and through the date hereof, we did not and do not
have any material commitments for capital expenditures, nor do we have any other
present commitment that is likely to result in our liquidity increasing or
decreasing in any material way. In addition, except for our need for additional
capital to finance inventory purchases, we know of no trend, additional demand,
event or uncertainty that will result in, or that is reasonably likely to result
in, our liquidity increasing or decreasing in any material way.
As disclosed in our Form 10-Q for the quarter ended March 31, 2005, our
largest customer, West Marine, publicly announced their adoption of a policy to
reduce their overall inventory levels. This resulted in an approximate
$4,294,000 decrease in sales to them for the year ended December 31, 2005
compared to 2004. Our products have historically sold well at their retail
stores and they have indicated to us that such was the case during 2005.
Accordingly, it appears that they are approaching their inventory goals as they
relate to our products and the increase in our consolidated gross sales for the
three months ended March 31, 2006 compared to 2005's figures were favorably
impacted by our current period's sales to West Marine.
9
Corporate management has enhanced its analysis, supervision and overall
involvement with our manufacturing facility. We have identified several areas
that require improvement and through increased on-site management presence,
major personnel changes, adoption of certain strategic enhancements to our
manufacturing process, and a renewed commitment from our team in Alabama to
strive for improved efficiency and cost savings, we believe that we will achieve
a material reduction in manufacturing cost thereby improving product margins and
operating results at Kinpak during 2006.
On March 25, 1999, the Company entered into a loan arrangement with an
entity owned 50% each by our President and Vice President - Advertising, Messrs.
Peter G. Dornau and Jeffrey J. Tieger, respectively whereby we borrowed
$400,000.00 to be repaid in monthly installments of $3,356.79 plus prevailing
interest at prime plus 1%. On March 9, 2006 we received notification from the
shareholders of said entity that they were forgiving this obligation and,
accordingly, the Company has no further obligation associated with this debt. At
that date the principal balance outstanding amounted to $295,752 and such amount
is reflected on the accompany consolidated statement of shareholders' equity as
additional paid-in capital.
First Quarter Trend:
Resulting principally from the recurring seasonality of retail consumer
purchases of the Company's products, promotions offered to our wholesale
customer during the fourth quarter and the unpredictability of weather during
the first quarter, the Company historically experiences operating losses during
the quarters ending March 31. The following tabulation reflects our operating
results for net sales and net income (loss) for our first quarters during the
past five years:
Quarter ended
March 31, Net sales Net income (loss)
------------ --------- -----------------
2006 $4,409,592 $ 192,840
2005 3,095,778 ( 571,216)
2004 3,437,586 ( 205,541)
2003 2,870,767 ( 682,058)
2002 3,917,975 56,943
The results for such interim periods are not necessarily indicative of
results to be expected for the full year.
Results of Operations:
Net sales increased approximately $1,313,800 or 42.4% for the quarter ended
March 31, 2006 compared to $3,477,511 for the same quarter of the preceding
year. The consolidated net sales aggregated approximately $4,409,600 and
$3,095,800, respectively. As disclosed in our Form 10-Q for the quarter ended
March 31, 2005, our largest customer, West Marine, publicly announced their
adoption of a policy to reduce their overall inventory levels. This policy
adversely impacted our revenues for all of 2005. It appears that they have
achieved their goals and increased their purchases from us significantly during
the three months ended March 31, 2006 as compared to the comparable perios in
2005. Sales to West Marine represented a significant portion of our increased
revenues for the quarter ended March 31, 2006 as compared to 2005. The
improvement in revenues experienced in the current period was also impacted by a
sales price increase passed along to substantially all customers effective
January, 2006.
Cost of goods sold amounted to approximately $3,060,500 or 69.4% of net
sales compared to $3,095,800 or 88.5% of net sales for the quarters ended March
31, 2006 and 2005, respectively. These results were favorably effected by a
sales price increase passed along to substantially all customers effective
January, 2006, modifications initiated in certain manufacturing processes as
well as the results of spreading the fixed element of our manufacturing overhead
over the enhanced sales levels experienced during the current quarter.
Selling and administrative expenses decreased approximately $182,900 or 18%
when comparing the quarters ended March 31, 2006 and 2005. Certain expenses
which are components of this grouping increased and others decreased. However,
the significant changes were reduced personnel costs, principally at Kinpak, and
lower consulting fees, outside services, other professional fees and outsourced
data processing services.
Advertising and promotion increased approximately $80,500 or approximately
75.6% comparing the three months ended March 31, 2006 and 2005. This was the
result of contractual co-operative advertising programs related to the increased
sales experienced during the current period. In addition, we strategically
placed increased levels of media and print advertising promoting our Startron(R)
enzyme fuel additive.
10
Interest expense increased by approximately $38,600 comparing the quarter
ended March 31, 2006 to the corresponding quarter in 2005. This principally
resulted from increasing interest rates and the accrual of interest on the
revolving line loaned to the Company by our president and CEO, Peter G. Dornau.
Our net income for the quarter ended March 31, 2006 amounted to $192,840
compared to a loss of ($630,216) for the comparable period in 2005. There was no
provision for income taxes in the current quarter as the Company had sufficient
carryover amounts to offset any potential taxes that would otherwise be due on
the earnings.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our financial
position, results of operations or cash flows due to adverse changes in
financial and commodity, principally petroleum based raw materials, market
prices and interest rates. We are exposed to market risk in the areas of changes
in borrowing rates in the United States and changes in foreign currency exchange
rates. Historically, and as of March 31, 2006, we have not used derivative
instruments or engaged in hedging activities to minimize market risk.
Interest rate risk
As of March 31, 2006, we had floating interest rates on our industrial
development revenue bonds and our working capital line of credit facility. As of
March 31, 2006 the interest rate on our $5,550,000 outstanding balance of
industrial revenue bonds was approximately 3.7% per annum and the interest rate
on our line of credit facility was based on the 30 day LIBOR rate plus 275 basis
points (the effective interest rate at March 31, 2006 was 7.38%). We do not
expect any changes in interest rates to have a material impact on our operations
during the year ending December 31, 2006.
Foreign currency risk
We sell products in Canada, based on the Canadian dollar. Thereby, we have
exposure to changes in exchange rates. Changes in the Canadian dollar/U.S.
dollar exchange rates may positively or negatively affect our gross margins,
operating income and retained earnings. We do not believe that near-term changes
in the exchange rates, if any, will result in a material effect on our future
earnings, fair values or cash flows, and therefore, we have chosen not to enter
into foreign currency hedging transactions. We cannot assure you that this
approach will be successful, especially in the event of a significant and sudden
change in the value of the Canadian dollar.
Concentration and credit risk
We maintain cash balances at several financial institutions which are
insured by the Federal Deposit Insurance Corporation up to $100,000. At times,
our cash balances may exceed federally insured limits. We have not experienced
any losses in such accounts and we believe the risk related to these deposits is
minimal.
Item 4. Controls and Procedures
We carried out an evaluation required by the Securities Exchange Act of
1934 ("Exchange Act"), under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rule 13a-15(e) of the 1934 Exchange Act, as of the end of the period covered by
this report. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective in providing reasonable assurance that material information required
to be included in our periodic SEC reports is made known to them in a timely
manner. Management does not expect that our disclosure controls and procedures
will prevent or detect all error and fraud. Any control system, no matter how
well designed and operated, is based upon certain assumptions and can provide
only reasonable, not absolute, assurance that its objectives will be met.
Further, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the Company have been detected.
During the most recent fiscal quarter, there has not occurred any change in
our internal control over financial reporting that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
11
PART II - OTHER INFORMATION
Item 1. - Legal Proceedings:
We are not a party to any material litigation presently pending nor, to the
best knowledge of the Company, have any such proceedings been threatened.
Item 1A. - Risk Factors
Set forth any material changes from Risk Factors as previously reported in
the Registrant's Form 10-K in response to Item 1A. in Part 1 of Form 10-K.
There have been no material changes
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds.
On February 21, 2005, we issued 150,003 shares of our common stock to Nico
P. Pronk pursuant to the cashless exercise of a Warrant dated January 29, 2002.
The Warrant was exercisable for a total of 150,003 shares of the Company's
common stock at an exercise price of $1.2727 per share. In connection with the
cashless exercise, Mr. Pronk tendered shares of the Company's common stock
issuable pursuant to the Warrant as consideration to pay the exercise price. The
issuance of the shares was exempt from registration under the Securities Act of
1933 in reliance on Section 4(2) promulgated thereunder as a transaction not
involving any public offering.
Item 3. - Defaults Upon Senior Securities: Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders: Not applicable
Item 5. - Other Information: Not applicable
Item 6. - Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of Sarbanes-Oxley
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: May 12, 2006 /s/ Peter G. Dornau
------------------------ -------------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Edward Anchel
--------------------------------------
Edward Anchel
Chief Financial Officer
12
Exhibit 31.1
CERTIFICATION
I, Peter G. Dornau certify that:
1. I have reviewed this Form 10-Q of Ocean Bio-Chem, Inc. as of and for the
period ended March 31, 2006;
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 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a -15(i) and 15d -
15(f))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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) 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
d) 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 (the registrant's fourth fiscal quarter in the case of an annual
report) 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.
Dated: May 12, 2006 /s/ Peter G. Dornau
--------------------------------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Edward Anchel certify that:
1. I have reviewed this Form 10-Q of Ocean Bio-Chem, Inc. as of and for the
period ended March 31, 2006;
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 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a -15(i) and 15d -
15(f))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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) 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
d) 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 (the registrant's fourth fiscal quarter in the case of an annual
report) 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.
Date: May 12, 2006 /s/ Edward Anchel
--------------------------------------
Edward Anchel
Chief Financial Officer
Exhibit 32.1
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, 2006 (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 12, 2006
/s/ Peter G. Dornau
--------------------------------------
Peter G. Dornau
Chairman of the Board of
Directors and Chief Executive Officer
/s/ Edward Anchel
--------------------------------------
Edward Anchel
Chief Financial Officer