U. S. 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 June 30, 1999 Commission File No. 2-70197 OCEAN BIO-CHEM, INC. (Exact name of registrant as specified in its charter) Florida 59-1564329 (State of 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, 3,822,499 shares issued and outstanding at June 30, 1999. PART I - Financial Information Item l. Financial Statements OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS JUNE 30, DEC. 31, 1999 1998 ---- ---- Current assets: Cash $ 256,970 $ 8,871 Trade accounts receivable net of allowances for doubtful accounts of approximately $13,500 and $26,000 at June 30, 1999 and December 31, 1998, respectively 2,090,473 2,329,712 Due from officer 161,100 161,100 Inventories 3,720,125 3,691,877 Prepaid expenses 111,680 85,123 ------------ ------------ Total current assets 6,340,348 6,276,683 ------------ ------------ Property, plant and equipment, net 4,425,465 4,374,991 ------------ ------------ Other assets: Funds held in escrow for equipment 413,913 583,432 Trademarks, trade names and patents, net 387,919 399,415 Deposits and other assets 304,324 342,123 Due from affiliated companies, net 573,297 870,150 ------------ ------------ Total other assets 1,679,453 2,195,120 ------------ ------------ Total assets $ 12,445,266 $ 12,846,794 ============ ============ Liabilities and shareholders' equity Current liabilities: Accounts payable - trade $ 775,885 $ 932,927 Note payable - bank 2,156,696 3,009,118 Current portion of long-term debt 299,564 300,000 Accrued expenses payable 226,785 77,991 ------------ ------------ Total current liabilities 3,458,930 4,320,036 ------------ ------------ Long-term debt, less current portion 4,314,358 4,070,000 ------------ ------------ Shareholders' equity: Common stock - $.01 par value 10,000,000 shares authorized, 3,822,499 and 3,753,017 shares issued and outstanding at June 30, 1999 and December 31, 1998, respectively 38,225 37,530 Additional paid-in capital 3,282,932 3,232,327 Retained earnings 1,525,829 1,332,567 Foreign currency translation adjustment ( 168,133) ( 145,666) ------------ ------------ 4,678,853 4,456,758 Less cost of common stock in treasury, 5,789 shares at June 30, 1999 ( 6,875) 0 ------------ ------------ 4,671,978 4,456,758 ------------ ------------ Total liabilities & shareholders' equity $ 12,445,266 $ 12,846,794 ============ ============ OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1999 1998 1999 1998 ---- ---- ---- ---- Gross sales $3,674,386 $3,167,782 $7,093,200 $5,955,223 Allowances 312,316 273,508 691,438 533,467 ---------- ---------- ---------- ---------- Net sales 3,362,070 2,894,274 6,401,762 5,421,756 Cost of goods sold 2,186,708 1,830,335 4,293,931 3,650,639 ---------- ---------- ---------- ---------- Gross profit 1,175,362 1,063,939 2,107,831 1,771,117 ---------- ---------- ---------- ---------- Cost and expenses: Advertising and promotion 154,094 249,963 252,334 320,763 Selling and administrative 718,064 716,931 1,355,921 1,284,558 Interest expense 103,012 102,268 201,646 161,550 ---------- ---------- ---------- ---------- Total cost and expenses 975,170 1,069,162 1,809,901 1,766,871 ---------- ---------- ---------- ---------- Income (loss) from operations 200,192 5,223 297,930 4,246 Interest income 5,672 8,485 11,832 24,167 ---------- ---------- ---------- ---------- Income before income taxes 205,864 3,262 309,762 28,413 Provision for income taxes 77,500 307 116,500 5,473 ---------- ---------- ---------- ---------- Net income 128,364 2,955 193,262 22,940 Other comprehensive income, net of income taxes: Foreign currency translation adjustment ( 9,723) ( 5,183 ) ( 22,467) ( 8,444) ---------- ---------- ---------- ---------- Comprehensive income (loss) $ 118,641 $( 2,228 ) $ 170,795 $ 14,496 ========== ========== ========== ========== Basic earnings per Common share $ .03 $ .00 $ .05 $ .01 ========== ========== ========== ========== Earnings per share were calculated on the basis of 3,780,678 and 3,753,017 weighted average shares of common stock outstanding for the six months and three months ended June 30, 1999 and 1998, respectively. The Company has adopted Statement of Financial Accounting Standards No. 130 which requires items of comprehensive income to be stated as part of the basic financial statements. The only items of comprehensive income that the registrant which are reflected in the accompanying financial statements are foreign currency translation adjustments. OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (Unaudited) 1999 1998 ---- ---- Cash flow provided by operating activities: Net income $ 193,262 $ 22,940 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 159,496 136,416 Changes in assets and liabilities: Decrease in accounts receivable 239,239 54,513 (Increase) in inventory ( 28,248) ( 141,463) (Increase) decrease in prepaid expenses ( 26,557) 339,886 Increase (decrease) in accounts payable, accrued expenses and other 29,551 ( 10,081) ------------- ------------ Net cash provided by operating activities 566,743 402,211 ------------- ------------ Cash flows from financing activities: Net reductions under line of credit ( 852,422) ( 630,213) Reduction in advances from affiliates 296,853 27,716 Borrowings (payments) on debts, net 243,922 ( 235,963) Common stock transactions 44,425 0 ------------- ------------ Net cash (used) by financing activities ( 267,222) ( 838,460) ------------- ------------ Cash flows from investing activities: Purchases of property, plant, equipment, net of funds held in escrow ( 28,955) ( 198,064) ------------- ------------ Net cash (used) by investing activities ( 28,955) ( 198,064) ------------- ------------ Increase (decrease) in cash prior to effect of foreign currency translation adjustments 270,566 ( 634,313) Effect of foreign currency translation adjustments on cash ( 22,467) ( 10,459) ------------- ------------ Net increase (decrease) in cash 248,099 ( 644,772) Cash at beginning of period 8,871 787,411 ------------- ----------- Cash at end of period $ 256,970 $ 142,639 ============= =========== Supplemental information: Cash used for payment of interest during period $ 193,534 $ 206,817 ------------- ------------ Cash used for payment of income taxes during period $ 16,000 $ 0 ------------- ------------ The company had no cash equivalents at June 30, 1999 and 1998. OCEAN BIO-CHEM, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS l. 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, 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 in August, 2001. Under the terms of the line, the Registrant is required to maintain minimum working capital of $1,500,000, a debt to tangible net worth of ratio 2 to 1 and debt service coverage of 1.1 times. 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 the fluctuations of the Canadian currency. The Registrant does not engage in currency hedging and deals with such risk as a pricing issue. Results of Operations For The Three Month Period April 1- June 30: Gross sales increased approximately 16% or $506,600 for the quarter ended June 30, 1999 when compared to the same quarter of the preceding year. Management attributes this primarily to increased sales of new products introduced last year and a sales price increase on selected products. Cost of goods sold increased as a percentage of gross sales when comparing the quarter ended June 30, 1999 with the comparable quarter in 1998. The percentages were 59.5 % and 57.8% for the quarters ended 1999 and 1998, respectively. This change was primarily due to increasing raw chemical costs and manufacturing overhead at the Company's Alabama plant. Selling and administrative expenses aggregated approximately $718,000 which is substantially identical to the prior year when comparing the quarters ended June 30, 1999 and June 30, 1998. Advertising and promotion decreased approximately $95,900 comparing the three months ended June 30, 1999 and 1998. This was primarily due to a planned decrease in the advertising budget. Interest expense which aggregated approximately $103,000 for the current quarter was substantially unchanged when comparing the June 30, 1999 quarter to the corresponding quarter in 1998. Results of Operations For the Six Month Period January 1 - June 30: Gross Sales increased 19% or approximately $1,138,000 when comparing the six month periods of 1999 and 1998. Management attributes this primarily to increased sales of new products introduced last year and a sales price increase on selected products. Cost of Goods Sold decreased to 60.5% as a percentage of gross sales versus 61.3% when comparing the six months ended June 30, 1999 to the comparable period in the preceding year. This change is not viewed as significant. Advertising and promotion expenses decreased approximately 21% or $68,400 when comparing the six months ended June 30, 1999 to the six months ended June 30, 1998. This was primarily due to a planned decrease in the advertising budget. Selling and administrative expenses increased for the six months ended June 30, 1999 by approximately $71,400 or 5.5 % when compared to the six months ended June 30, 1998. This was not due to any one factor other than anticipated increased administrative expenses. Interest expense increased during the six month period in 1999 by approximately $40,100 when compared to the six month period of 1998 reflecting the higher levels of borrowings in the first quarter of 1999. PART II: OTHER INFORMATION Item l - Legal Proceedings: See the Registrant's 10K for the year ended December 31, 1998 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: On June 11, 1999, at the Registrant's annual meeting, shareholders elected five directors; Peter Dornau, Jeffrey Tieger, Edward Anchel, Laz Schneider, and James Kolisch. 1,346,434 voted for all directors and 4,522 voted against. Shareholders also approved Infante, Lago & Co., Certified Public Accountants, by a vote of 3,559,010 for and 231 shares against, as the Registrant's auditors for 1999. Item 5 - Other Matters: Not applicable Item 6 - Exhibits: Not applicable (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 its behalf by the undersigned thereunto duly authorized. OCEAN BIO-CHEM, INC. Date: August 9, 1999 /s/ Peter Dornau ----------------- Peter G. Dornau Chairman of the Board and Chief Executive Officer /s/Edward Anchel ----------------- Edward Anchel Chief Financial Officer