10-Q 1 form10q-0901.txt FORM 10-Q 09-30-01 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, 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.) 4041 S. W. 47 Avenue, Fort Lauderdale, Florida 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 (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. 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; 4,239,889 issued and outstanding at September 30, 2001 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES INDEX Description Page ----------- ----- Part I: Item 1. - Financial Statements: Consolidated balance sheets as of September 30, 2001 and December 31, 2000 3 Consolidated statements of operations for the three and nine months ended September 30, 2001 and 2000 4 Consolidated statements of changes in shareholders' equity for the nine months ended September 30, 2001 and 2000 5 Consolidated statements of cash flows for the nine months ended September 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 Information 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
SEPTEMBER 30, DECEMBER 31, 2001 2000 --------------- -------------- (Unaudited) Current assets: Cash $ 42,470 $ 123,515 Trade accounts receivable net of allowances for doubtful accounts of approximately $123,000 and $23,000 at September 30, 2001 and December 31, 2000, respectively 3,840,312 3,417,827 Due from officer - 161,100 Inventories 4,502,922 4,506,987 Income taxes receivable - 173,404 Prepaid expenses 215,313 116,037 --------------- -------------- Total current assets 8,601,017 8,498,870 --------------- -------------- Property, plant and equipment, net 6,030,586 5,643,550 --------------- -------------- Other assets: Funds held in escrow for equipment 20,537 41,506 Trademarks, trade names and patents, net 336,187 353,431 Deposits and other assets 335,943 274,670 Due from affiliated companies, net 442,893 598,237 --------------- -------------- Total other assets 1,135,560 1,267,844 --------------- --------------- Total assets $ 15,767,163 $ 15,410,264 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable - trade $ 1,974,791 $ 2,119,865 Note payable - bank 4,477,054 4,250,000 Current portion of long-term debt 467,573 355,306 Accrued expenses payable 271,753 120,356 --------------- -------------- Total current liabilities 7,191,171 6,845,527 --------------- -------------- Long-term debt, less current portion 3,827,358 3,892,445 --------------- -------------- Shareholders' equity: Common stock - $.01 par value 10,000,000 shares authorized, 4,239,889 and 4,105,889 shares issued and outstanding at September 30, 2001 and December 31, 2000, respectively 42,400 41,060 Additional paid-in capital 3,755,217 3,720,377 Foreign currency translation adjustment ( 247,889) ( 209,398) Retained earnings 1,207,101 1,128,448 --------------- -------------- 4,756,829 4,680,487 Less cost of common stock in treasury, 5,789 shares at September 30, 2001 and December 31, 2000 ( 8,195) ( 8,195) --------------- -------------- 4,748,634 4,672,292 --------------- -------------- Total liabilities & shareholders' equity $ 15,767,163 $ 15,410,264 =============== ==============
3 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the three months For the nine months ended September 30, ended September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Gross sales $6,159,436 $5,256,263 $14,737,785 $13,080,208 Allowances 621,860 561,620 1,353,694 1,398,366 ----------- ----------- ------------ ------------ Net sales 5,537,576 4,694,643 13,384,091 11,681,842 Cost of goods sold 4,481,494 3,735,976 10,329,414 8,528,862 ----------- ----------- ------------ ------------ Gross profit 1,056,082 958,667 3,054,677 3,152,980 ----------- ----------- ------------ ------------ Costs and expenses: Advertising and promotion 183,110 198,178 475,922 544,666 Selling and administrative 658,026 738,431 2,040,284 2,292,624 Interest expense 149,102 117,021 434,112 371,221 ----------- ----------- ------------ ------------ Total costs and expenses 990,238 1,053,630 2,950,318 3,208,511 ----------- ----------- ------------ ------------ Income (loss) from operations 65,844 ( 94,963) 104,359 ( 55,531) Interest income 7,556 3,845 9,294 12,781 ----------- ----------- ------------ ------------ Income (loss) before provision (benefit) for income taxes 73,400 ( 91,118) 113,653 ( 42,750) Provision (benefit) for income taxes 23,000 ( 30,000) 35,000 ( 15,000) ----------- ----------- ------------ ------------ Net income (loss) 50,400 ( 61,118) 78,653 ( 27,750) Other comprehensive income, net of income taxes: Foreign currency translation adjustment ( 20,765) ( 12,174) ( 38,491) ( 42,374) ----------- ----------- ------------ ------------ Comprehensive income (loss) $ 29,635 ($ 73,292) $ 40,162 ($ 70,124) =========== =========== ============ ============ Earnings (loss) per common share $ .01 ($ .02) $ .02 ($ .01) =========== =========== ============ ============
Earnings per share for the nine and three months ended September 30, 2001 were calculated on the basis of 4,199,037 weighted average shares of common stock outstanding. For the nine and thee months ended September 30, 2000, earnings per share were calculated using 4,042,913 weighted average shares of common stock outstanding. 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. 4 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 Income 78,653 78,653 Issuances of stock 134,000 1,340 34,840 36,180 Foreign currency translation adjustment ( 38,491) ( 38,491) ---------- ---------- ----------- ----------- ---------- ---------- ----------- September 30, 2001 4,239,889 $ 42,400 $3,755,217 ($ 247,889) $1,207,101 ($ 8,195) $4,748,634 ========== ========== =========== =========== ========== =========== =========== January 1, 2000 3,822,499 $ 38,225 $3,282,932 ($ 160,872) $1,764,051 ($ 6,875) $4,917,461 Net loss ( 27,750) ( 27,750) Issuances of stock 283,390 2,835 437,446 ( 390,781) 49,500 Foreign currency translation adjustment ( 42,374) ( 42,374) ---------- ---------- ----------- ----------- ----------- ---------- ----------- September 30, 2000 4,105,889 $ 41,060 $3,720,378 ($ 203,246) $1,345,520 ($ 6,875) $4,896,837 ========== ========== =========== =========== =========== ========== ===========
5 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
2001 2000 ---- ---- Cash flows provided by operating activities: Net Income (loss) $ 78,653 ($ 27,750) Adjustments toreconcile net income to net cash provided by operations: Depreciation and amortization 359,465 303,198 Changes in operating assets and liabilities: (Increase) in accounts receivable ( 422,485) ( 483,567) (Increase) decrease in inventories 4,065 ( 1,189,933) (Increase) in prepaid expenses ( 99,277) ( 186,501) Increase in accounts payable, accrued expenses, and other 279,553 798,016 ------------ ------------- Net cash provided (used) by operating activities 199,974 ( 786,537) ------------ ------------- Cash flows from financing activities: Net increases under line of credit 227,054 1,323,000 Repayments of advances to affiliates 155,344 326,282 Borrowings (reductions) of debts, net 47,180 ( 138,057) Common stock transactions 36,180 49,500 ------------ ------------- Net cash provided (used) by financing activities 465,758 1,560,725 ------------ ------------- Cash flows from investing activities: Purchase of property, plant, and equipment, net ( 708,286) ( 1,032,571) ------------ ------------- Net cash used by investing activities ( 708,286) ( 1,032,571) ------------ ------------- (Decrease) in cash prior to effect of foreign currency translation ( 42,554) ( 258,383) Effect of foreign currency translation on cash ( 38,491) ( 42,374) ------------ ------------- Net (decrease) in cash ( 81,045) ( 300,757) Cash at beginning of period 123,515 433,772 ------------ ------------- Cash at end of period $ 42,470 $ 133,015 ============ ============= Supplemental Information: Cash used during the periods for payment of: Interest $ 434,112 $ 371,221 ============ ============= Income taxes $ - $ 20,000 ============ =============
The Company had no cash equivalents at September 30, 2001. 6 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED CONDENSED 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 three and nine months ended September 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 September 30, 2001, the amount outstanding pursuant to this facility was $4,477,054 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 November 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 July 1- September 30: Gross sales increased approximately 17% or $903,200 for the quarter ended September 30, 2001 when compared to the same quarter of the preceding year. This was primarily due to increased sales of the Company's automotive products as well as the existing marine product line. Cost of goods sold increased as a percentage of net sales when comparing the quarter ended September 30, 2001 with the comparable quarter in 2000. The percentages were 80.9% and 79.6% for the quarters during 2001 and 2000, respectively. This change was due to lower than anticipated margins on automotive products resulting from increased materials costs. 7 Advertising and promotion decreased approximately $15,000 comparing the three months ended September 30, 2001 and 2000. This was primarily due to a planned decrease in the advertising budget. Selling and administrative expenses decreased approximately $80,400 or 10.8% when comparing the quarters ended September 30, 2001 and 2000. Such change was attributable to decreased professional fees and normal incremental costs of operations. Interest expense, which aggregated approximately $149,000 for the current quarter, increased approximately $32,000 when comparing the September 30, 2001 quarter to the corresponding quarter in 2000. Such increase was attributable to increased borrowings and were mitigated by recently promulgated interest rate decreases. Results of operations for the nine month period January 1 - September 30: Gross sales increased 12.7% or approximately $1,658,000 when comparing the nine month periods of 2001 and 2000. This was primarily due to increased sales automotive products as well as of the Company's existing marine product line. Cost of goods sold increased to 77.1% as a percentage of net sales versus 73.0% when comparing the nine months ended September 30, 2001 to the comparable period in the preceding year. This change was due to lower than anticipated margins on automotive products resulting from increased materials costs. Advertising and promotion expenses decreased approximately $69,000 when comparing the nine months ended September 30, 2001 to the nine months ended September 30, 2000. This was primarily due to a planned decrease in the advertising budget. Selling and administrative expenses decreased for the nine months ended September 30, 2001 by approximately $252,000 or 11% when compared to the nine months ended September 30, 2000. This was attributable to decreased professional fees and normal incremental costs of operations. Interest expense increased during the nine month period in 2001 by approximately $63,000 when compared to the nine month period of 2000 reflecting the effect of increased borrowings and were mitigated by recently promulgated 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. 8 PART II - OTHER INFORMATION Item 1 - Legal Proceedings: See the Registrant's 10K for the year ended December 31,2000 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 there unto duly authorized. OCEAN BIO-CHEM, INC. Date: November 14, 2001 /s/ Peter Dornau ----------------------- --------------------------- Peter G. Dornau Chairman of the Board of Directors and Chief Executive Officer /s/ Edward Anchel --------------------------- Edward Anchel Chief Financial Officer 9