10q997 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, 1997 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 S. W. 47 Avenue, Ft. Lauderdale, FL 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 (l) 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, 3,706,709 issued and outstanding at September 30, 1997 PART I - FINANCIAL INFORMATION Item l. Financial Statements OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS SEPT. 30, DEC.31, 1997 1996 Current Assets: Cash $ 152,143 $ 394,569 Trade Accounts Receivable Net Of Allowances For Doubtful Accounts Of $26,000 And $27,000 At September 30,1997 And December 31, 1996, Respectively 2,761,808 2,235,183 Due From Officers 157,100 141,880 Inventories 3,819,307 2,534,862 Prepaid Expenses 189,029 132,238 ------------ ----------- Total Current Assets 7,079,387 5,438,732 ------------ ----------- Property, Plant and Equipment, Net 3,949,772 2,138,815 ------------ ----------- Other Assets: Funds held in escrow for construction 1,303,552 3,100,001 Trademarks, Trade Names And Patents, Net 428,155 443,754 Due From Affiliated Companies, Net 657,516 648,866 Deposits And Other Assets 333,593 185,229 ----------- ----------- Total Other Assets 2,722,816 4,377,850 ----------- ----------- Total Assets $13,751,975 $11,955,397 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable Trade $ 1,591,851 $ 643,409 Notes Payable - Bank 2,704,001 1,658,001 Current Portion Of Long-Term Debt 350,000 280,000 Accrued Expenses Payable 89,491 119,503 ----------- ----------- Total Current Liabilities 4,735,343 2,700,913 ----------- ----------- Long-term Debt, Less Current Portion 4,450,000 4,710,000 ---------- ----------- Shareholders' Equity: Common Stock 37,067 37,020 Additional Paid-In Capital 3,177,790 3,172,337 Retained Earnings 1,446,505 1,418,014 Foreign Currency Translation Adjustment ( 94,730) ( 82,887) ----------- ----------- Total Shareholders' Equity $ 4,566,632 $ 4,544,484 ----------- ----------- Total Liabilities & Shareholders' Equity $13,751,975 $11,955,397 =========== =========== 2 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1997 1996 1997 1996 ------ ------ ------ ------ Gross Sales $3,929,232 $ 2,972,020 $9,533,416 $9,274,884 Allowances 318,331 123,267 845,415 355,413 ---------- ----------- ---------- ---------- Net Sales 3,610,901 2,848,753 8,688,001 8,919,471 Cost Of Goods Sold 2,634,352 1,916,677 6,148,457 5,896,449 ---------- ----------- ---------- ---------- Gross Profit 976,549 932,076 2,539,544 3,023,022 Cost And Expenses Adv. And Promotion 219,716 138,035 525,476 395,587 Selling And Admin. 637,726 555,548 1,795,631 1,699,238 Interest Expense 87,090 67,863 276,091 171,877 ---------- ----------- ---------- ---------- Total Expenses 944,532 761,446 2,597,198 2,266,702 ---------- ----------- ---------- ---------- Income (Loss) From Operations 32,017 170,630 ( 57,654) 756,320 Interest Income 29,222 2,152 95,146 5,983 ---------- ----------- ---------- ---------- Income before provision for income taxes 61,239 172,782 37,492 762,303 Provision for Income taxes 13,672 64,000 9,000 286,000 ---------- ----------- ---------- ---------- Net Income $ 47,567 $ 108,782 $ 28,492 $ 476,303 ========== =========== ========== ========== Earnings Per Share: Net Income Per Share $ .01 $ .03 $ .01 $ .13 ========== =========== ========== =========== Earnings per share for the nine months ended September 30, 1997 and the three months ended September 30, 1997 were calculated on the basis of 3,744,201 weighted average common stock and common stock equivalent outstanding. For the nine and three months ended September 30, 1996, earnings per share were calculated using 3,791,283 weighted average common stock and common stock equivalent outstanding. Common stock equivalents consist of options to purchase common stock. 3 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 1996 ------ ------ CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net Income $ 28,492 $ 476,303 Adjustment to Reconcile Net Income To Net Cash Provided by Operations: Depreciation and Amortization: 164,185 139,821 Change in Assets and Liabilities: Increase in Accounts Receivable ( 526,625) ( 442,741) Increase in Inventory ( 1,284,445) ( 618,494) Decrease (Increase) in Prepaid Expenses And other assets 1,576,074 ( 105,601) Decrease in Accounts Payable And Accrued Expenses 918,430 655,978 ----------- ----------- Net Cash Provided by Operating Activities 876,111 105,266 ----------- ----------- Cash Flows From Financing Activities: Net Borrowings Under Line of Credit 1,046,000 900,000 Advances to (from) Affiliates ( 8,650) 28,115 Borrowings (Repayment) of Debt, Net ( 190,000) 762,408 Sale of Stock 5,500 7,169 ----------- ----------- Net Cash Provided by Financing Activities 852,850 1,697,692 ----------- ----------- Cash Flows From Investing Activities Purchase Property, Plant, Equipment ( 1,959,544) ( 1,957,760) ----------- ------------ Net Cash Used by Investing Activities ( 1,959,544) ( 1,957,760) ----------- ------------ Decrease in Cash Prior to Effect of Exchange Rate on Cash ( 230,583) ( 154,802) Effect of Exchange Rate on Cash ( 11,843) 2,673 ----------- ----------- Net Decrease in Cash ( 242,426) ( 152,129) Cash at Beginning of Period 394,569 997,309 ----------- ----------- Cash at September 30, $ 152,143 $ 845,180 =========== =========== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amount capitalized) $ 276,091 $ 132,000 Income taxes $ 70,000 $ 271,000 ----------- ----------- Disclosure of accounting policy: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchases with a maturity of three months or less to be cash equivalents. 4 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. 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. 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 and short term borrowings from a commercial bank to a limit of $2.9 million. The Registrant is required to maintain minimum working capital of $1,500,000, debt to tangible net worth of 2 to 1 and debt service coverage of 1.7 times. As of year end Registrant was in compliance with all terms. For the fourth quarter of 1997 the Registrant received a temporary increase of $400,000 on the line of credit to finance a seasonal increase in inventory and receivables. Such increase expires on December 31, 1997. The Registrant is involved in making sales in the Canadian market and must deal with the currency fluctuations of the Canadian currency. The Registrant does not engage in currency hedging and deals with such risks as a pricing issue. During the past few years the Registrant has introduced various new products to the marketplace. This has required the Registrant 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 the overall operations of Registrant. Registrant believes that all required capital to maintain such increases can continue to be provided from operations and current lending arrangements. Results of Operations For The Three Month Period July 1-September 30 - -------------------------------------------------------------------- Gross sales increased approximately $957,000 or 32% comparing the quarter ended September 30, 1997 with the comparable period of the preceding year. Management attributes this primarily to the packaging and sales of antifreeze products during the quarter. Cost of Goods Sold increased 2.5% as a percentage of gross sales for the quarter ended September 30, 1997 when compared to the 1996 quarter. This reflects the effect of the anti-freeze sales for the quarter. Advertising and promotion expenses increased approximately $82,000 comparing the three month period ended September 30, 1997 to 1996. This is primarily due to customer advertising allowances. Selling and administrative expenses increased approximately $82,000 or 14.7% comparing the quarter ended September 30, 1997 to the comparable period in 1996. This was not attributed to any particular factor. Interest expense increased approximately $19,000 comparing the quarter ended September 30, 1997 to the comparable period in 1996. This was primarily due to higher interest rates and debt levels outstanding, and interest on the borrowings assumed for the purchase and expansion of the Alabama facility. 5 Results Of Operations For The Nine Month Period January 1-September 30 - ---------------------------------------------------------------------- Gross sales increased approximately $258,000 or 2.7% comparing the nine month periods in 1997 and 1996. This is primarily due to the sales and packaging of anti-freeze. Cost of goods sold increased approximately 1% as a percentage of gross sales when comparing the nine months ended September 30, 1997 and 1996. This reflects the effects of the antifreeze sales during this period. Advertising and promotion expenses increased approximately $130,000 or 33% when comparing the nine months ended September 30, 1997 and 1996. This reflects seasonal variations. Selling and administrative expenses increased during 1997 by approximately $96,000 or 5.6% when compared to 1996. This was primarily due to the expenses associated with the Alabama operations. Interest expense increased in 1997 for the nine month period by approximately $104,000 reflecting increased borrowings outstanding during the period and the interest on the borrowings assumed in the purchase of the Alabama Plant. 6 PART II - OTHER INFORMATION Item 1 - Legal Proceedings: See the Registrant's 10K for the year ended December 31, 1996 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 thereunto duly authorized. OCEAN BIO-CHEM, INC. Date: NOVEMBER 10, 1997 /s/ Peter Dornau ------------------------- ------------------------ Peter G. Dornau Chairman of the Board of Directors and Chief Executive Officer /s/ Peter Dornau ------------------------- Peter G. Dornau Chief Financial Officer 7