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, 2001
Commission File No. 2-70197
OCEAN BIO-CHEM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
-------------------------------------------------------------------------------
Florida 59-156432
(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.
4,199,899 shares issued and outstanding at June 30, 2001
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I:
Item 1. - Financial Statements:
Consolidated balance sheets as of June
30, 2001 and December 31, 2000 3
Consolidated statements of operations for
the three and six months ended June 30,
2001 and 2000 4
Consolidated statements of changes in
shareholders' equity for the six months
ended June 30, 2001 and 2000 5
Consolidated statements of cash flows
for the six months ended June 30, 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 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 10
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
2
PART I - Financial Information
Item l. Financial Statements
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2001 2000
----------- -------------
(Unaudited)
<s> <c> <c>
Current assets:
Cash $ 164,728 $ 123,515
Trade accounts receivable net of allowances for
doubtful accounts of approximately $23,000
at June 30, 2001 and December 31, 2000,
respectively 3,096,578 3,417,827
Inventories 4,662,124 4,506,987
Due from officer -- 161,100
Prepaid expenses and other current assets 378,284 289,441
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Total current assets 8,301,714 8,498,870
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Property, plant and equipment, net 6,070,659 5,643,550
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Other assets:
Funds held in escrow for equipment 27,380 41,506
Trademarks, trade names and patents, net 341,935 353,431
Deposits and other assets 333,115 274,670
Due from affiliated companies, net 398,934 598,237
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Total other assets 1,101,364 1,267,844
----------- -----------
Total assets $15,473,737 $15,410,264
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,999,480 $ 2,119,865
Note payable - bank 4,122,388 4,250,000
Current portion of long-term debt 464,982 355,306
Accrued expenses payable 231,979 120,356
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Total current liabilities 6,818,829 6,845,527
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Long-term debt, less current portion 3,946,708 3,892,445
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Shareholders' equity:
Common stock - $.01 par value 10,000,000 shares
authorized, 4,199,889 and 4,105,889 shares
issued and outstanding at June 30, 2001 and
December 31, 2000, respectively 41,999 41,060
Additional paid-in capital 3,744,819 3,720,377
Foreign currency translation adjustment ( 227,124) ( 209,398)
Retained earnings 1,156,701 1,128,448
----------- -----------
4,716,395 4,680,487
Less cost of common stock in treasury,
5,789 shares at June 30, 2001 and
December 31, 2000, respectively ( 8,195) ( 8,195)
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4,708,200 4,672,292
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Total liabilities and shareholders' equity $15,473,737 $15,410,264
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3
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
-------------------- ------------------
ENDED JUNE 30, ENDED JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
<s> <c> <c> <c> <c>
Gross sales $5,033,602 $4,118,783 $8,578,349 $7,823,945
Allowances 420,293 403,718 731,834 836,746
---------- ---------- ---------- ----------
Net sales 4,613,309 3,715,065 7,846,515 6,987,199
Cost of goods sold 3,298,286 2,530,688 5,847,920 4,792,886
---------- ---------- ---------- ----------
Gross profit 1,315,023 1,184,377 1,998,595 2,194,313
---------- ---------- ---------- ----------
Costs and expenses:
Advertising and promotion 152,990 163,336 292,812 346,488
Selling and administrative 672,581 826,858 1,382,258 1,554,193
Interest expense 140,010 132,294 285,010 254,200
---------- ---------- ---------- ----------
Total cost and expenses 965,581 1,122,488 1,960,080 2,154,881
---------- ---------- ---------- ----------
Income from operations 349,442 61,889 38,515 39,432
Interest income 285 3,144 1,738 8,936
---------- ---------- ---------- ----------
Income before income taxes 349,727 65,033 40,253 48,368
Provision for income taxes 12,000 21,500 12,000 15,000
---------- ---------- ---------- ----------
Net income 337,727 43,533 28,253 33,368
Other comprehensive income,
net of income taxes:
Foreign currency translation
adjustment 6,030 (23,511) (17,726) (30,200)
---------- ---------- ---------- ----------
Comprehensive income $ 343,757 $ 20,022 $ 10,527 $ 3,168
========== ========== ========== ==========
Earnings per
common share $ .09 $ .01 $ .01 $ .01
========== ========== =========== ==========
Earnings per share were calculated on the basis of 4,114,037 and 4,011,426
weighted average shares of common stock outstanding for the six months and three
months ended June 30, 2001 and 2000, 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 of the registrant
which are reflected in the accompanying financial statements are foreign
currency translation adjustments.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED
JUNE 30, 2001 AND 2000
(UNAUDITED)
Foreign
Common stock Additional currency Retained Treasury
Shares Amount paid-in capital adjustment earnings stock Total
------ ------ --------------- ---------- -------- -------- -----
<s> <c> <c> <c> <c> <c> <c> <c>
January 1,
2000 3,822,499 $38,225 $3,282,932 ($ 160,872) $1,764,051 ($ 6,875) $4,917,461
Net income 33,368 33,368
Issuances of stock 283,390 2,835 437,446 ( 390,781) 49,500
Foreign currency
translation
adjustment ( 30,200) ( 30,200)
June 30,
2000 4,105,889 $41,060 $3,720,378 ($ 191,072) $1,406,638 ($ 6,875) $4,970,129
---- --------- ------- ---------- ----------- ---------- --------- ----------
January 1,
2001 4,105,889 $41,060 $3,720,377 ($ 209,398) $1,128,448 ($ 8,195) $4,672,292
==== ========= ======= ========== =========== ========== ========= ==========
Net income 28,253 28,253
Issuances of stock 94,000 939 24,442 25,381
Foreign currency
translation
adjustment ( 17,726) ( 17,726)
--------- ------- ---------- ------------ --------- --------- ----------
June 30,
2001 4,199,889 $41,999 $3,744,819 ($ 227,124) $1,156,701 ($ 8,195) $4,708.200
==== ========= ======= ========== =========== ========== ========= ==========
5
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
2001 2000
<s> <c> <c>
Cash flow provided by operating activities:
Net income $ 28,253 $ 33,368
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Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 215,145 168,997
Changes in assets and liabilities:
Decrease in accounts receivable 321,249 652,051
(Increase) in inventory ( 155,137) ( 616,213)
(Increase) decrease in prepaid expenses
and other current assets 72,257 ( 141,198)
Increase (decrease) in accounts payable,
accrued expenses and other ( 67,208) ( 166,689)
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Net cash provided (used) by operating activities 414,559 ( 69,684)
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Cash flows from financing activities:
Net increases (reductions) under line of credit ( 127,611) 200,000
Reduction in advances from affiliates 199,303 235,362
Borrowings (payments) on debts, net 163,939 ( 152,333)
Common stock transactions 25,381 49,500
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Net cash provided by financing activities 261,012 332,529
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Cash flows from investing activities:
Purchases of property, plant, equipment, net
of funds held in escrow ( 616,632) ( 504,658)
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Net cash (used) by investing activities ( 616,632) ( 504,658)
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Increase (decrease) in cash prior to effect of
foreign currency translation adjustment 58,939 ( 241,813)
Effect of foreign currency translation adjustment
on cash ( 17,726) ( 30,200)
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Net increase (decrease) in cash 41,213 ( 272,013)
Cash at beginning of period 123,515 433,772
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Cash at end of period $ 164,728 $ 161,759
============= ============
Supplemental information:
Cash used for payment of interest during period $ 285,010 $ 254,200
============= ============
Cash used for payment of income taxes during
period $ -0- $ 257,800
============= ============
The company had no cash equivalents at June 30, 2001 and 2000.
6
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.
Certain financial statement items for the three and six months ended June 30,
2000 have been reclassified to conform with the 2001 presentation.
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, 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 $1,500,000, 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 June 30, 2001, the amount outstanding pursuant to this facility was
$4,122,388 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 September 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 For The Three Month Period April 1- June 30:
- -----------------------------------------------------------------
Gross sales increased approximately 22.2 % or $914,800 for the quarter ended
June 30, 2001 when compared to the same quarter of the preceding year.
Management attributes this primarily to increased sales of new automotive fluids
products and a sales price increase implemented late in the first quarter of
2001.
7
Cost of goods sold increased as a percentage of net sales when comparing the
quarter ended June 30, 2001 with the comparable quarter in 2000. The percentages
were 71.5% and 68.1% for the quarters ended 2001 and 2000, respectively. This
change was primarily due to higher raw chemical costs, anticipated lower
margins on the automotive fluids as compared to the marine product line and
higher manufacturing overhead at the Company's Alabama plant.
Selling and administrative expenses decreased approximately $154,300 or 18.7%
comparing the quarters ended June 30, 2001 and June 30, 2000. Such decrease was
primarily due to decreased professional fees offset by increased personnel costs
associated with the new automotive line of products.
Advertising and promotion decreased approximately $10,300 or 6.3% comparing the
three months ended June 30, 2001 and 2000. This was primarily due to timing of
advertising in 2001. The overall program for 2001 is lower than 2000.
Interest expense increased approximately $7,700 during the current quarter.
This change was primarily due to costs associated with increased borrowings
which were mitigated by the impact of decreasing interest rates.
Results of Operations For the Six Month Period January 1 - June 30:
- ------------------------------------------------------------------
Gross Sales increased 9.6% or approximately $754,400 when comparing the six
month periods of 2001 and 2000. Management attributes this primarily to
increased sales of new automotive fluids products and a sales price increase
implemented late in the first quarter of 2001.
Cost of goods sold increased as a percentage of net sales when comparing the six
months ended June 30, 2001 with the comparable period in 2000. The percentages
were 74.5% and 68.6% for the six month periods ended 2001 and 2000,
respectively. This change was primarily due to higher raw chemical costs,
anticipated lower margins on the automotive fluids as compared to the marine
product line and higher manufacturing overhead at the Company's Alabama plant.
Advertising and promotion expenses decreased approximately 15.5% or $53,700 when
comparing the six months ended June 30, 2001 to the six months ended June 30,
2000. This was primarily due to a planned increase in the advertising budget.
Selling and administrative expenses decreased for the six months ended June 30,
2001 by approximately $171,900 or 11.1% when compared to the six months ended
June 30, 2000. Such decrease was primarily due to decreased professional fees
offset by increased personnel costs associated with the new automotive line of
products.
Interest expense increased during the six month period in 2001 by approximately
$30,800 when compared to the six month period of 2000. This change was primarily
due to costs associated with increased borrowings which were mitigated by the
impact of decreasing interest rates.
8
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: See the Registrant's Form 10-Q for the quarter ended
March 31, 2001 for disclosure of matters associated with North American Oil
Company, Inc. v. Star Brite Distributing, Inc. with respect to a court
ruling dated March 30, 2001. Subsequent thereto, the court ruled to defer
ruling on further issues related to the case, specifically including the
subject of awarding legal fees to the plaintiff, until the Company's appeal
is resolved.
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 15, 2001, at
the Registrant's annual meeting of shareholders, six directors; Peter
Dornau, Jeffrey Tieger, Edward Anchel, Laz Schneider, James Kolisch and
John B. Turner were elected. Shareholders also approved Berkovits, Lago &
Co., LLP, Certified Public Accountants, as independent auditors for the
year ending December 31, 2001. The tabulation of voting for the foregoing
was as follows:
For Against Abstain
Peter Dornau 3,852,651 4,748 12,198
Edward Anchel 3,852,651 4,748 12,198
Jeffrey Tieger 3,852,651 4,748 12,198
Laz Schneider 3,852,441 4,958 12,198
James Kolisch 3,852,441 4,958 12,198
John B. Turner 3,852,441 4,958 12,198
Berkovits, Lago
& Co.,LLP, CPA's 3,865,477 3,879 242
9
Item 5 - Other Matters: Not applicable
Item 6 - Exhibits: Not applicable
(A) Exhibits - Not applicable
(B) Reports on Form 8-K - Not applicable
10
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 13, 2001 /s/ Peter Dornau
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
/s/ Edward Anchel
Edward Anchel
Chief Financial Officer