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, 2001
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,
4,105,889 shares issued and outstanding at March 31, 2001.
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
----------- -----
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of March
31, 2001 and December 31, 2000 3
Consolidated statements of operations for
the three months ended March 31,
2001 and 2000 4
Consolidated statements of changes in
shareholders' equity for the three months
ended March 31, 2001 and 2000 5
Consolidated statements of cash flows
for the three months ended March 31,
2001 and 2000 6
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-8
Part II:
Item 1. - Legal Proceedings 8-9
Item 2. - Changes in Securities 9
Item 3. - Defaults upon Senior Securities 9
Item 4. - Submission of Matters to Vote by Security Holders 9
Item 5. - Other Matters 9
Item 6. - Exhibits and Reports on Form 8-k 9
Signatures 9
2
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DEC. 31,
2001 2000
------------ ------------
(UNAUDITED)
Current assets:
Cash $ 24,770 $ 123,515
Trade accounts receivable net of allowance
for doubtful accounts of approximately $ 23,000 at
March 31, 2001 and December 31, 2000, respectively 2,974,302 3,417,827
Inventories 4,758,483 4,506,987
Due from officer 161,100 161,100
Income taxes receivable 173,404 173,404
Prepaid expenses 94,577 116,037
------------ ------------
Total current assets 8,186,636 8,498,870
------------ ------------
Property, plant and equipment, net 6,084,026 5,643,550
------------ ------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 347,683 353,431
Funds held in escrow for equipment 27,071 41,506
Due from affiliated companies, net 237,002 598,237
Deposits and other assets 284,069 274,670
------------ ------------
Total Other Assets 895,825 1,267,844
------------ ------------
Total assets $ 15,166,487 $ 15,410,264
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,266,028 $ 2,119,865
Note payable - bank 4,350,000 4,250,000
Current portion of long term debt 325,339 355,306
Other accrued liabilities 53,260 120,356
------------ ------------
Total Current Liabilities 6,994,627 6,845,527
------------ ------------
Long term debt, less current portion 3,832,798 3,892,445
------------ ------------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares
authorized; 4,105,889 shares
issued and outstanding at March 31, 2001 and
December 31, 2000, respectively 41,060 41,060
Additional paid-in capital 3,720,377 3,720,377
Foreign currency translation adjustment (233,154) (209,398)
Retained earnings 818,974 1,128,448
------------ ------------
4,347,257 4,680,487
------------ ------------
Less cost of common stock in treasury, 7,519 shares
at March 31, 2001 and December 31, 2000 (8,195) (8,195)
------------ ------------
4,339,062 4,672,292
------------ ------------
Total liabilities and shareholders' equity $ 15,166,487 $ 15,410,264
============ ============
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 and 2000
(UNAUDITED)
2001 2000
----------- -----------
Gross sales $ 3,544,747 $ 3,705,163
Allowances 311,541 433,028
----------- -----------
Net sales 3,233,206 3,272,135
Cost of goods sold 2,549,634 2,262,198
----------- -----------
Gross profit 683,572 1,009,937
----------- -----------
Costs and expenses:
Advertising and promotion 139,822 183,152
Selling and administrative 709,677 727,334
Interest expense 145,000 121,906
----------- -----------
Total costs and expenses 994,499 1,032,392
----------- -----------
Operating loss (310,927) (22,455)
Interest income 1,453 5,791
----------- -----------
Loss before income taxes (309,474) (16,664)
Benefit for income taxes -- 6,500
----------- -----------
Net loss (309,474) (10,164)
Other comprehensive income, net of tax:
Foreign currency translation adjustment (23,756) (6,689)
----------- -----------
Comprehensive loss $ (333,230) $ (16,853)
=========== ===========
Loss per common share $ (.08) $ --
=========== ===========
Loss per share was calculated on the basis of 4,098,370 and 3,915,033 weighted
average shares of common stock outstanding for the quarters ended March 31, 2001
and 2000, 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, 2001 AND 2000
(UNAUDITED)
Foreign
Common stock Additional currency Retained Treasury
Shares Amount paid-in capital adjustment earnings stock Total
---------- -------- --------------- ---------- ----------- --------- -----------
January 1, 2001 4,105,889 $ 41,060 $ 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
========== ======== =========== --------- =========== ========= ===========
January 1, 2000 3,822,499 $ 38,225 $ 3,282,932 $(160,872) $ 1,764,051 $ (6,875) $ 4,917,461
Net loss (10,164) (10,164)
Issuance of stock 283,390 2,835 437,446 (390,781) 49,500
Foreign currency
translation
adjustment (6,689) (6,689)
---------- -------- ----------- --------- ----------- --------- -----------
March 31, 2000 4,105,889 $ 41,060 $ 3,720,378 ($167,561) $ 1,363,106 $ (6,875) $ 4,950,108
========== ======== =========== --------- =========== ========= ===========
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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 and 2000
(UNAUDITED)
2001 2000
--------- ---------
Cash flow provided (used) by operating activities:
Net loss $(309,474) $ (10,164)
Adjustments to reconcile net income
to net cash provided (used) by operations:
Depreciation and amortization 100,153 82,939
Changes in assets and liabilities:
Decrease in accounts receivable 443,525 277,821
(Increase) in inventories (251,496) (331,659)
Decrease in prepaid expenses 21,461 49,819
(Increase) decrease in accounts payable,
accrued expenses and other 69,668 (153,575)
--------- ---------
Net cash provided (used) by operating activities 73,837 (84,819)
--------- ---------
Cash provided (used) by financing activities:
Net increase (reduction) under line of credit 100,000 (60,000)
Net reduction in advances to affiliates 361,235 107,751
Net increase (reduction) in current portion of
long term debt (29,967) 10,522
Net (reduction) in long term borrowings (59,647) (81,676)
Common stock transactions, net -- 49,500
--------- ---------
Net cash provided by financing activities 371,621 26,097
--------- ---------
Cash provided (used) by investing activities:
Purchase property, plant, equipment, net (520,447) (21,436)
--------- ---------
Net cash used by investing activities (520,447) (21,436)
--------- ---------
(Decrease) in cash prior to effect of
foreign currency translation on cash (74,989) (80,158)
Effect of foreign currency translation on cash (23,756) (6,689)
--------- ---------
(Decrease) in cash (98,745) (86,847)
Cash at beginning of period 123,515 433,772
--------- ---------
Cash at end of period $ 24,770 $ 346,925
========= =========
Supplemental Information:
Cash used for interest during period $ 145,000 $ 121,906
========= =========
Cash used for income taxes during period $ -- $ 204,743
========= =========
The company had no cash equivalents at March 31, 2001 and 2000.
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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, 2000 have been
reclassified to conform to the 2001 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 $2,500,000, a maximum debt to tangible net worth of
ratio of 2.5 to 1 and a minimum debt service coverage factor of 1.15 times. As
of March 31, 2001, the amount outstanding pursuant to this facility was
$4,350,000 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, 2001.
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 1% or $38,900 for the quarter ended March 31,
2001 when compared to the same quarter of the preceding year. Such decrease was
not associated with any single product or customer.
Cost of goods sold increased as a percentage of net sales when comparing the
quarter ended March 31, 2001 with the comparable quarter in 2000. The
percentages were 79% and 69% for the quarters ended during 2001 and 2000,
respectively. This change was attributable to increasing raw material costs as
well as direct manufacturing costs at the Registrant's plant. Price adjustments
have been made on certain affected products commencing late in the first quarter
and thereafter.
Selling and administrative expenses decreased approximately $17,700 or 2% when
comparing the quarters ended March 31, 2001 and 2000. This change was not viewed
as significant.
7
Advertising and promotion decreased approximately $43,300 or 24% comparing the
three months ended March 31, 2001 and 2000. This was primarily due to planned
decreases in advertising.
Interest expense increased by approximately $23,100 or 19% when comparing the
March 31, 2001 quarter to the corresponding quarter in 2000. This increase
resulted primarily due to increased borrowings and should be reduced
prospectively pursuant 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
"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.
PART II - Other Information
Item l - Legal Proceedings:
On March 30, 2001, the Federal District Court for the Northern District of
Georgia entered an order granting North American Oil Company's ("North
American") motion for partial summary judgment and declaring Patent 5,250,598
(the '598 Patent) held by the Registrant's wholly owned subsidiary, Star Brite
Distributing, Inc. ("Star Brite") invalid and unenforceable in the matter of
North American Oil Company, Inc. v. Star Brite Distributing, Inc., Civil Action
No. 1-98-CV-1589-RWS, pending in the United States District Court, Northern
District of Georgia, Atlanta Division. North American filed a complaint against
Star Brite seeking declaratory judgments of invalidity, unenforceability, and
non-infringement of the '598 Patent, entitled "Liquid Electrical Tape
Formulation" and alleging claims for antitrust violation, tortuous interference,
unfair competition and trade slander. As a result of the order declaring the
'598 patent invalid and unenforceable, Star Brite's counterclaim for patent
infringement cannot succeed. Further, North American may make a claim for
attorney's fees. The outcome of such a request, if made, is unknown. The '598
patent is held by Star Brite for its liquid electrical tape formulation, and the
invalidity and unenforceability of such patent would not materially adversely
affect the sales and profits of the Company. This decision, unless reversed on
appeal, will increase the financial exposure of the Company although no amount
of potential damage is now known. North American's claim against Star Brite for
antitrust violation, which seeks treble damages and attorney's fees, and its
claims for tortuous interference, unfair competition and trade slander remains
stayed at this time. It is difficult to assess
8
the amount or range of potential damages sought by North American as to these
remaining claims because discovery into these claims was stayed during the
court's consideration of the patent issues discussed above. If the stay is
lifted, Star Brite intends to vigorously defend against North American's claims
for antitrust violation, tortuous interference, unfair competition and trade
slander. The Company believes that these claims are frivolous and not supported
factually, despite the fact that its '598 patent is now invalidated. Star Brite
intends to appeal the order granting North American's motion for partial summary
judgment at the appropriate time. Star Brite, based upon discussions with patent
counsel, believes that the Order of Partial Summary Judgment is erroneous and
should be reversed on appeal.
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:
On April 12, 2001, the Registrant filed a Current Report on Form
8-K disclosing the event discussed in Item 1, above.
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 11, 2001 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