10-Q 1 form10q-0903.txt FORM 10Q 0903 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, 2003 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 by check mark whether the Registrant ia an Accelerated Filer (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [ X ] 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; 4,960,843 issued and outstanding at September 30, 2003. OCEAN BIO-CHEM AND SUBSIDIARIES INDEX Description Page ---- Part I: Item 1. - Financial Statements: Consolidated balance sheets as of September 30, 2003 and December 31, 2002 3 Consolidated statements of operations for the three and nine months ended September 30, 2003 and 2002 4 Consolidated statements of changes in shareholders' equity for the nine months ended September 30, 2003 And 2002 5 Consolidated statements of cash flows for the nine months Ended September 30, 2003 and 2002 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 Certifications 10-13 2 Part I - Financial Information Item I. Financial Statements OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
SEPTEMBER 30, DECEMBER 31, 2003 2002 -------------- ------------- (Unaudited) Current assets: Cash $ 240,025 $ 1,093,826 Trade accounts receivable net of allowances for doubtful accounts of approximately $ 81,500 and $ 200,700 at September 30, and December 31, 2002, respectively 4,374,276 3,190,357 Inventories 6,151,101 4,541,150 Prepaid expenses and other current assets 216,957 129,622 Recoverable income taxes - 240,000 -------------- ------------- Total current assets 10,982,359 9,194,955 -------------- ------------- Property, plant and equipment, net 7,578,052 6,977,003 -------------- ------------- Other assets: Funds held in escrow for equipment, net 203,320 1,161,194 Trademarks, trade names and patents, net of accumulated amortization 330,439 330,439 Deposits and other assets 306,468 374,371 Due from affiliated companies, net 314,234 612,275 -------------- ------------- Total other assets 1,154,461 2,478,279 -------------- ------------- Total assets $ 19,714,872 $ 18,650,237 ============== ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 2,517,337 $ 1,833,895 Note payable - bank 4,750,000 4,250,000 Current portion of long-term debt 557,022 601,766 Accrued expenses payable 189,953 296,422 -------------- ------------- Total current liabilities 8,014,312 6,982,083 -------------- ------------- Deferred income taxes payable 253,139 183,139 -------------- ------------- Long term debt, less current portion 6,172,930 6,562,093 -------------- ------------- Shareholders' equity: Common stock - $.01 par value 10,000,000 shares authorized, 4,960,843 and 4,805,843 issued and outstanding at September 30, 2003 and December 31, 2002, respectively 49,608 48,058 Additional paid-in capital 4,409,829 4,341,629 Foreign currency translation adjustment ( 254,571) ( 303,575) Retained earnings 1,077,820 845,005 -------------- ------------- 5,282,686 4,931,117 Less cost of common stock in treasury, 7,519 shares at September 30, 2003 and December 31, 2002, respectively ( 8,195) ( 8,195) -------------- ------------- 5,274,491 4,922,922 -------------- ------------- Total liabilities and shareholders' equity $ 19,714,872 $ 18,650,237 ============== =============
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, 2003 2002 2003 2002 ---- ---- ---- ---- Gross sales $7,147,944 $ 7,658,158 $15,835,996 $16,587,467 Allowances 715,394 810,807 1,421,928 1,557,210 ---------- ----------- ----------- ----------- Net sales 6,432,550 6,847,351 14,414,068 15,030,257 Cost of goods sold 4,675,359 5,489,046 10,851,142 11,469,122 ---------- ----------- ----------- ----------- Gross profit 1,757,191 1,358,305 3,562,926 3,561,135 ---------- ------------- ----------- ----------- Cost and expenses: Advertising and promotion 313,256 173,128 640,580 553,893 Selling and administrative 754,069 718,497 2,361,976 2,060,652 Interest expense 70,642 95,270 218,333 265,431 ---------- ----------- ----------- ----------- Total costs and expenses 1,137,967 986,895 3,220,889 2,879,976 ---------- ----------- ----------- ----------- Income from operations 619,224 371,410 342,037 681,159 Interest income 7,544 3,061 10,778 3,126 ---------- ----------- ----------- ----------- Income before provision For income taxes 626,768 374,471 352,815 684,285 Provision for income taxes 120,000 118,700 120,000 232,700 ---------- ----------- ----------- ----------- Net income 506,768 255,771 232,815 451,585 Other comprehensive income, net of income taxes: Foreign currency translation adjustment ( 708) ( 25,247) 49,004 ( 31,099) ---------- ----------- ----------- ----------- Comprehensive income $ 506,060 $ 230,524 $ 281,819 $ 420,486 ========== =========== =========== =========== Earnings per common share $ .10 $ .05 $ .05 $ .10 ========== =========== =========== =========== Earnings per share for the nine and three months ended September 30, 2003 were calculated on the basis of 4,866,605 weighted average shares of common stock outstanding. For the nine and three months ended September 30, 2002, earnings per share were calculated using 4,318,370 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. 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 STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
Additional Foreign Common stock paid-in currency Retained Treasury Shares Amount capital adjustment earnings stock Total --------- ---------- ----------- ---------- --------- ---------- ------------ January 1, 2003 4,805,843 $ 48,058 $ 4,341,629 ($ 303,575) $ 845,005 ($ 8,195) $ 4,922,922 Net Income 232,815 32,815 Issuances of stock 155,000 1,550 68,200 69,750 Foreign currency translation adjustment 49,004 49,004 --------- ---------- ----------- ----------- ---------- ---------- ------------ September 30, 2003 4,960,843 $ 49,608 $ 4,409,829 ($ 254,571) $1,077,820 ($ 8,195) $ 5,274,491 ========= ========== =========== =========== ========== ========== ============ January 1, 2002 4,239,889 $ 42,399 $ 3,755,219 ($ 262,933) $1,234,832 ($ 8,195) $ 4,761,322 Net income 451,585 451,585 Issuances of stock 129,000 1,290 66,435 67,725 Foreign currency translation adjustment ( 31,099) 31,099 --------- ---------- ----------- ---------- ---------- ---------- ------------ September 30, 2002 4,368,889 $ 43,689 $ 3,821,654 ($ 294,032) $1,686,417 ($ 8,195) $ 5,249,533 ========= ========== =========== =========== ========== ========= ============
5 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED)
2003 2002 ----------- ----------- Cash flows provided by operating activities: Net Income $ 232,815 $ 451,585 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 495,420 446,858 Changes in operating assets and liabilities: (Increase) in accounts receivable ( 1,183,919) ( 1,839,900) (Increase) in inventories ( 1,609,951) ( 662,688) (Increase) in prepaid expenses ( 87,335) ( 64,532) Increase in accounts payable, Accrued expenses, and other 954,876 510,391 ------------ ------------ Net cash provided (used) by operating activities ( 1,198,094) ( 1,158,286) ------------ ------------ Cash flows from financing activities: Net increases under line of credit 500,000 584,140 Repayments of advances to affiliates 298,041 103,328 Borrowings (reductions) of debts, net ( 433,907) 3,129,895 Common stock transactions 69,750 67,725 ------------ ----------- Net cash provided by financing activities 433,884 3,885,088 ------------ ----------- Cash flows from investing activities: Increase in funds held in escrow for equipment purchases - ( 2,150,816) Purchase of property, plant and equipment, net ( 138,595) ( 395,010) ------------ ------------ Net cash used by investing activities ( 138,595) ( 2,545,826) ------------ ------------ Increase (decrease) in cash prior to effect of Foreign currency translation ( 902,805) 180,976 Effect of foreign currency translation on cash 49,004 ( 31,099) ------------ ------------ Net increase (decrease) in cash ( 853,801) 149,877 Cash at beginning of period 1,093,826 82,000 ------------ ----------- Cash at end of period $ 240,025 $ 231,877 ============ =========== Supplemental Information: Cash used during the periods for payment of: Interest $ 218,333 $ 265,431 =========== =========== Income taxes $ - $ - =========== ===========
The Company had no cash equivalents at September 30, 2003 or 2002 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 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, 2002 have been reclassified in order to conform with the 2003 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 and inventories, and can aggregate a maximum amount of $5,500,000. Borrowings under the line are due on demand from the bank. Under the terms of the line, the Registrant is required to comply with certain financial covenants related to its working capital levels, a maximum debt to tangible net worth ratio, and minimum debt service coverage factor. As of September 30, 2003, the amount outstanding pursuant to this facility was $4,750,000. During July, 2002, the Registrant finalized the working capital line of credit discussed in the preceding paragraph as well as an Industrial Revenue Bond financing issued through the city of Montgomery, AL in the amount of $3,500,000 to be utilized for a plant expansion and related purchase of equipment at the Registrant's Montgomery, AL facility. Such financing was secured with favorable interest rate terms which float with current conditions. The present interest rate is approximately 2% per year. 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 periods July 1 - September 30: Net sales decreased approximately 6% or approximately $415,000 for the quarter ended September 30, 2003 when compared to the same quarter of the preceding year. This was primarily due to decreased sales of the Company's marine anti-freeze and automotive products. The anti-freeze decrease was attributed to commodity pricing of raw materials and related freight issues, and the automotive decrease resulted from initial customer reaction to the Company's strategic decision to achieve higher margins on these products. Gross margins improved and cost of goods sold decreased as a percentage of net sales when comparing the quarters ended September 30, 2003 and 2002. The percentages were 73% and 80% for the periods during 2003 and 2002, respectively. This change was primarily due to management's on-going initiatives towards improving operating margins including a general sales price increase, utilization of cash discounts offered by suppliers, and product pricing in response to current commodity costs. Advertising and promotion increased approximately $140,000 or 81% comparing the three months ended September 30, 2003 and 2002. This was primarily due to increased co-operative advertising programs and other planned increases in the advertising budget. 7 Selling and administrative expenses increased approximately $35,500 or 5% when comparing the quarters ended September 30, 2003 and 2002. Such changes are attributable to normal incremental costs of operations. Interest expense, which aggregated approximately $70,600 for the current three month period, decreased approximately $24,600 when comparing the September 30, 2003 quarter to the corresponding period in 2002. Such decrease was primarily attributed to the current economic environment of low interest rates. Results of operations for the nine month periods January 1 - September 30: Net sales decreased 4% or approximately $616,200 when comparing the nine month periods of 2003 and 2002. This was primarily due to a decrease in sales of the Company's marine anti-freeze and automotive products. The anti-freeze decrease was attributed to commodity pricing of raw materials and related freight issues, and the automotive decrease resulted from initial customer reaction to the Company's strategic decision to achieve higher margins on these products. Gross margins improved and cost of goods sold decreased as a percentage of net sales when comparing the nine month periods ended September 30, 2003 and 2002. The percentages were 75% and 76% for the periods during 2003 and 2002, respectively. This change was impacted by cost increases experienced during the earlier quarters of 2003 and management's on-going initiatives towards improving operating margins including a general sales price increase, utilization of cash discounts offered by suppliers, and product pricing in response to current commodity costs. Advertising and promotion expenses increased approximately $86,700 when comparing the nine months ended September 30, 2003 to the nine months ended September 30, 2002. This was primarily due to increased co-operative advertising programs and other planned increases in the advertising budget. Selling and administrative expenses increased for the nine months ended September 30, 2003 by approximately $301,300 or 15% when compared to the nine months ended September 30, 2002. Such change was attributable to increased personnel costs and other incremental costs of operations. Interest expense decreased during the nine month period in 2003 by approximately $47,000 when compared to the nine month period of 2002. Such decrease was primarily attributed to the current economic environment of low interest rates. 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 Litigations 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 Form 10-K for the year ended December 31, 2002. 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: 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 behalf by the Undersigned there unto duly authorized. OCEAN BIO-CHEM, INC. Date: November 12, 2003 /s/ Peter G. Dornau ---------------------------------- ------------------------------ Peter G. Dornau Chairman of the Board of Directors and Chief Executive Officer /s/ Edward Anchel ------------------------------- Edward Anchel Chief Financial Officer 9 Exhibit 31 CERTIFICATION I, Peter G. Dornau certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ocean Bio-Chem, Inc.: 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report: 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and we have: i. Designed such disclosure controls and procedures to ensure material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; ii. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and iii. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluations as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee or registrant's board of directors (or persons performing the equivalent function): i. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and ii. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of or most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. OCEAN BIO-CHEM, INC. Date: November 12, 2003 /s/ Peter G. Dornau ------------------- ---------------------- Peter D. Dornau Chairman of the Board and Chief Executive Officer Exhibit 31.1 CERTIFICATION I, Edward Anchel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ocean Bio-Chem, Inc.: 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report: 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and we have: i. Designed such disclosure controls and procedures to ensure material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; ii. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and iii. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluations as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee or registrant's board of directors (or persons performing the equivalent function): i. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and ii. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of or most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. OCEAN BIO-CHEM, INC. Date: November 12, 2003 /s/ Edward Anchel ------------------- ---------------------- Edward Anchel Chief Financial Officer Exhibit 32 CERTIFICATION Pursuant to 18U.S.C.Section 1350, the undersigned officers of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. Dated: November 12, 2003 /s/ Peter G. Dornau ------------------------ Peter G. Dornau Chairman of the Board of Directors and Chief Executive Office /s/ Edward Anchel ------------------------ Edward Anchel Chief Financial Officer