10-Q 1 form10q-0302.txt 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, 2002 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 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, 4,239,889 shares issued and outstanding at March 31, 2002. OCEAN BIO-CHEM, INC. AND SUBSIDIARIES INDEX Description Page ----------- ----- Part I: Item 1. - Financial Statements: Consolidated balance sheets as of March 31, 2002 and December 31, 2001 3 Consolidated statements of operations for the three months ended March 31, 2002 and 2001 4 Consolidated statements of changes in shareholders' equity for the three months ended March 31, 2002 and 2001 5 Consolidated statements of cash flows for the three months ended March 31, 2002 and 2001 6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 Part II: Item 1. - Legal Proceedings 8 Item 2. - Changes in Securities 8 Item 3. - Defaults upon Senior Securities 8 Item 4. - Submission of Matters to Vote by Security Holders 8 Item 5. - Other Matters 8 Item 6. - Exhibits and Reports on Form 8-K 8 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, 2002 2001 ------------ ------------ (UNAUDITED) Current assets: Cash $ 261,853 $ 82,000 Trade accounts receivable net of allowance for doubtful accounts of approximately $ 152,500 at March 31, 2002 and December 31, 2001, respectively 2,883,973 3,286,848 Inventories 4,792,642 4,296,183 Prepaid expenses 129,554 145,354 ------------ ------------ Total current assets 8,068,022 7,810,385 ------------ ------------ Property, plant and equipment, net 5,909,803 6,002,445 ------------ ------------ Other assets: Trademarks, trade names and patents, net of accumulated amortization 330,439 330,439 Funds held in escrow for equipment 9,117 9,084 Due from affiliated companies, net 534,199 563,731 Deposits and other assets 330,672 314,122 ------------ ------------ Total other assets 1,204,427 1,217,376 ------------ ------------ Total assets $ 15,182,252 $ 15,030,206 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 2,345,833 $ 2,163,245 Note payable - bank 3,745,749 3,665,860 Current portion of long term debt 473,898 470,994 Other accrued liabilities 84,431 138,709 ------------ ------------ Total Current Liabilities 6,649,911 6,438,808 ------------ ------------ Deferred income taxes payable 122,300 111,200 ------------ ------------ Long term debt, less current portion 3,605,198 3,718,876 ------------ ------------ Shareholders' equity: Common stock - $.01 par value, 10,000,000 shares authorized; 4,239,889 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively 42,399 42,399 Additional paid-in capital 3,755,219 3,755,219 Foreign currency translation adjustment ( 276,355) ( 262,933) Retained earnings 1,291,775 1,234,832 ------------ ------------ 4,813,038 4,769,517 Less cost of common stock in treasury, 7,519 shares at March 31, 2002 and December 31, 2001 ( 8,195) ( 8,195) ------------ ------------ 4,804,843 4,761,322 ------------ ------------ Total liabilities and shareholders' equity $ 15,182,252 $ 15,030,206 ============ ===========
3 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 and 2001 (UNAUDITED)
2002 2001 ------------- -------------- Gross sales $ 4,254,986 $ 3,544,747 Allowances 337,010 311,541 ------------- --------------- Net sales 3,917,976 3,233,206 Cost of goods sold 2,918,958 2,549,634 ------------ -------------- Gross profit 999,018 683,572 ------------- -------------- Costs and expenses: Advertising and promotion 153,395 139,822 Selling and administrative 686,639 709,677 Interest expense 90,974 145,000 ------------- -------------- Total costs and expenses 931,008 994,499 ------------- -------------- Operating income (loss) 68,010 ( 310,927) Interest income 33 1,453 ------------- -------------- Income (loss) before income taxes 68,043 ( 309,474) Provision for income taxes 11,100 - ------------- -------------- Net income (loss) 56,943 ( 309,474) Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 13,422) ( 23,756) -------------- --------------- Comprehensive income (loss) $ 43,521 ($ 333,230) ============= =============== Earnings (loss) per common share $ .01 ($ .08) ============= ===============
Earnings loss per share was calculated on the basis of 4,232,370 and 4,098,370 weighted average shares of common stock outstanding for the quarters ended March 31, 2002 and 2001, 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, 2002 AND 2001 (UNAUDITED)
Foreign Common stock Additional currency Retained Treasury Shares Amount paid-in capital adjustment earnings stock Total --------- -------- --------------- ---------- ---------- --------- ---------- January 1, 2002 4,239,889 $ 42,399 $ 3,755,219 ($ 262,933) $1,234,832 ($ 8,195) $4,761,322 Net income 56,943 56,943 Foreign currency translation adjustment ( 3,422) ( 13,422) --------- -------- ----------- ----------- ---------- ---------- ----------- March 31, 2002 4,239,889 $ 42,399 $ 3,755,219 ($ 276,355) $1,291,775 ($ 8,195) $4,804,843 ========= ======== =========== =========== ========== ========== =========== January 1, 2001 4,105,889 $41,600 $ 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 ========= ======== =========== =========== ========== ========== ===========
5 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 and 2001 (UNAUDITED)
2002 2001 ---------- ---------- Cash flow provided (used) by operating activities: Net income (loss) $ 56,943 ($ 309,474) Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation and amortization 148,578 100,153 Changes in assets and liabilities: Decrease in accounts receivable 402,875 443,525 (Increase) in inventories ( 496,459) ( 251,496) Decrease in prepaid expenses 15,800 21,461 (Increase) decrease in accounts payable, accrued expenses and other 122,828 69,668 ---------- ----------- Net cash provided by operating activities 250,565 73,837 ---------- ----------- Cash provided (used) by financing activities: Net increase under line of credit 79,889 100,000 Net reduction in advances to affiliates 29,532 361,235 Net increase (reduction) in current portion of long term debt 2,904 ( 29,967) Net (reduction) in long term borrowings ( 113,679) ( 59,647) ----------- ----------- Net cash provided (used) by financing activities ( 1,354) 371,621 ------------ ----------- Cash provided (used) by investing activities: Purchase property, plant, equipment, net ( 55,936) ( 520,447) ----------- ----------- Net cash used by investing activities ( 55,936) ( 520,447) ----------- ----------- Increase (decrease) in cash prior to effect of foreign currency translation on cash 193,275 ( 74,989) Effect of foreign currency translation on cash ( 13,422) ( 23,756) ----------- ----------- Increase (decrease) in cash 179,853 ( 98,745) Cash at beginning of period 82,000 123,515 ----------- ----------- Cash at end of period $261, 853 $ 24,770 ========== =========== Supplemental Information: Cash used for interest during period $ 90,974 $ 145,000 =========== =========== Cash used for income taxes during period $ - $ - =========== ===========
The company had no cash equivalents at March 31, 2002 and 2001. 6 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, 2001 have been reclassified to conform to the 2002 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 $1,500,000 and meet certain other financial covenants during the term of the agreement.. As of March 31, 2002, the amount outstanding pursuant to this facility was approximately $3,746,000 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, 2002. 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 increased approximately 21% or $685,000 for the quarter ended March 31, 2002 when compared to the same quarter of the preceding year. Such increase was primarily associated with sales of new automotive and marine oil products. Cost of goods sold decreased as a percentage of net sales when comparing the quarter ended March 31, 2002 with the comparable quarter in 2001. The percentages were 74.5% and 78.9% for the quarters ended during 2002 and 2001, respectively. This change was attributable to a shift in product mix towards higher margin items, increased revenue volume thereby favorably absorbing fixed manufacturing overhead, and a sales price increase on selected products passed on to certain customers. Selling and administrative expenses decreased approximately $23,000 or 3% when comparing the quarters ended March 31, 2002 and 2001. This change was not viewed as significant. 7 Advertising and promotion increased approximately $ 13,500 or 10 % comparing the three months ended March 31, 2002 and 2001. This was primarily due to increased co-op advertising offered to certain customers. Interest expense decreased by approximately $ 54,000 when comparing the March 31, 2002 quarter to the corresponding quarter in 2001. This was the result of lower borrowing costs due 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 "believe","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, availability of financing 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-K for the year ended December 31, 2001 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: Not applicable 8 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 10, 2002 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