-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKL/lCtINf/AMywk9JIVF91OO+wyw8ow8TPKSrv7W1sp9RUe010VeFEQ3hgLxzRs VrcOHanDw+alnvCFEKlffw== 0000350737-05-000030.txt : 20051114 0000350737-05-000030.hdr.sgml : 20051111 20051114102029 ACCESSION NUMBER: 0000350737-05-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051114 DATE AS OF CHANGE: 20051114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCEAN BIO CHEM INC CENTRAL INDEX KEY: 0000350737 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 591564329 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11102 FILM NUMBER: 051197522 BUSINESS ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FORT LAUDERDALE STATE: FL ZIP: 33314 BUSINESS PHONE: 9545876280 MAIL ADDRESS: STREET 1: 4041 SW 47TH AVE CITY: FT LAUDERDALE STATE: FL ZIP: 33028 FORMER COMPANY: FORMER CONFORMED NAME: STAR BRITE CORP DATE OF NAME CHANGE: 19841204 10-Q 1 form10q-0905.txt FORM10Q 0905 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 SW 47 Avenue, Fort Lauderdale, Florida 33314-4023 954-587-6280 (Address and telephone number, including area code of Registrant's Principal Executive Offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock, par value $.01 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 12, 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 is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934) YES [ ] NO [x] Indicate the number of shares outstanding of each of the Issuer's classes 5,849,316 of common stock as of the latest practicable date $.01 par value common stock, 10,000,000 shares authorized, 5,849,316 shares issued and outstanding at September 30, 2005 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES INDEX Description Page Part I: Item 1. - Financial Statements: Consolidated balance sheets as of September 30, 2005 and December 31, 2004 3 Consolidated statements of operations for the three and nine months ended September 30, 2005 and 2004 4 Consolidated statements of changes in shareholders' equity for the nine months ended September 30, 2005 and 2004 5 Consolidated statements of cash flows for the nine months ended September 30, 2005 and 2004 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 9 Item 4. Controls and Procedures 9 Part II: Item 1. - Legal Proceedings 10 Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 10 Item 3. - Defaults upon Senior Securities 10 Item 4. - Submission of Matters to Vote by Security Holders 10 Item 5. - Other Matters 11 Item 6. - Exhibits 11 Signatures 11 2 PART I - Financial Information Item l. Financial Statements OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 30, DECEMBER 31, 2005 2004 ------------- ------------ (Unaudited) Current assets: Cash $ 433,729 $ 988,106 Trade accounts receivable net of allowances for doubtful accounts of approximately $ 108,300 and $201,000 at September 30, 2005 and December 31, 2004, respectively 4,238,735 4,652,144 Inventories 6,904,614 5,218,431 Prepaid expenses and other current assets 244,047 214,492 ------------- ------------ Total current assets 11,821,125 11,073,173 ------------- ------------ Property, plant and equipment, net 7,419,188 7,337,600 ------------- ------------ Other assets: Funds held in escrow for equipment 1,881 1,853 Trademarks, trade names and patents, net of accumulated amortization 330,439 330,439 Due from affiliated companies, net 182,844 408,476 Deposits and other assets 248,195 246,803 ------------- ------------ Total other assets 763,359 987,571 ------------- ------------ Total assets $ 20,003,672 $19,398,344 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $ 2,482,180 $ 2,251,287 Note payable - bank 5,775,000 4,500,000 Current portion of long-term debt 586,102 483,112 Accrued expenses and income taxes payable 207,983 435,200 ------------- ------------- Total current liabilities 9,051,265 7,669,599 ------------- ------------ Deferred income taxes payable 260,000 260,000 ------------- ------------ Long-term debt, less current portion 5,897,128 5,580,250 ------------- ------------ Shareholders' equity: Common stock - $.01 par value 10,000,000 shares authorized, 5,849,316 and 5,417,813 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively 58,493 54,178 Additional paid-in capital 4,908,615 4,722,746 Foreign currency translation adjustment ( 182,566) ( 204,864) Retained earnings 18,932 1,324,630 -------------- ------------- 4,803,474 5,896,690 Less cost of common stock in treasury, 7,519 shares at September 30, 2005 and December 31, 2004, respectively ( 8,195) ( 8,195) -------------- ------------- 4,795,279 5,888,495 -------------- ------------- Total liabilities and shareholders' equity $ 20,003,672 $ 19,398,344 ============== =============
3
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 2005 2004 2005 2004 --------- -------- -------- -------- Gross sales $6,574,073 $ 6,513,76 $15,200,391 $16,713,144 Allowances 621,242 626,276 1,564,667 1,942,509 ---------- ---------- ----------- ------------ Net sales 5,952,831 5,887,488 13,635,724 14,770,635 Cost of goods sold 4,940,843 4,671,283 10,946,024 11,414,361 ---------- ---------- ----------- ------------ Gross profit 1,011,988 1,216,205 2,689,700 3,355,274 ---------- ---------- ----------- ------------ Costs and expenses: Advertising and promotion 353,620 370,879 1,025,022 838,309 Selling and administrative 950,143 864,241 2,916,683 2,586,392 Interest expense 132,989 81,285 344,463 222,227 ---------- ---------- ----------- ----------- Total cost and expenses 1,436,752 1,316,405 4,286,168 3,646,928 ---------- ---------- ----------- ----------- Income (loss) from operations ( 424,764) ( 100,200) ( 1,596,468) ( 290,654) Interest and other income 6,510 151 16,270 730 ----------- ----------- ------------ ------------ Income (loss) before income taxes ( 418,254) ( 100,049) ( 1,541,598) ( 289,924) Provision (benefit) for income taxes - ( 16 ( 274,500) ( 62,500) ----------- ----------- ------------ ------------ Net income (loss) ($ 418,254) ($ 84,049) ($1,305,698) ($ 227,424) Other comprehensive income (loss) net of income taxes: Foreign currency translation Adjustment 18,177 24,711 22,298 ( 12,690) ----------- ----------- ------------ ------------ Comprehensive income (loss) ($ 400,077) $ 59,338 ($1,283,400) ($ 214,734) =========== =========== ============ ============ Earnings (loss) per common share ($ .07) $ .02 ($ .23) ($ .04) =========== ========== ============ ============
Earnings per share were calculated on the basis of 5,651,260 and 5,335,816 weighted average shares of common stock outstanding for the nine months and three months ended September 30, 2005 and 2004, 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 items of comprehensive income that the Registrant has are its foreign currency translation adjustments. 4 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (UNAUDITED)
Foreign Common stock Additional currency Retained Treasury Shares Amount paid-in capital adjustment earnings stock Total --------- ------- ---------- --------- ---------- ------- ---------- January 1, 2005 5,417,813 $54,178 $4,722,746 ($204,864) $1,324,630 ($8,195) $5,888,495 Net loss (1,305,698) (1,305,698) Common stock issuances 431,503 4,315 185,869 190,184 Foreign currency translation adjustment 22,298 22,298 --------- ------- ---------- ---------- ----------- -------- ----------- September 30, 2005 5,849,316 $58,493 $4,908,615 ($182,566) $ 18,932 ($8,195) $4,795,279 ========= ======= ========== ========= ========== ======== =========== January 1, 2004 4,960,843 $49,608 $4,409,829 ($237,323) $1,190,076 ($8,195) $5,403,995 Net (loss) ( 143,375) ( 143,375) Common stock issuances 456,970 4,570 312,917 317,487 Foreign currency translation adjustment ( 12,021) ( 12,021) --------- ------- ---------- ---------- ----------- -------- ----------- September 30, 2004 5,417,813 $54,178 $4,722,746 ($249,344) $1,046,701 ($8,195) $5,566,086 ========= ======= ========== ========== ========== ======== ===========
5 OCEAN BIO-CHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (Unaudited)
2005 2004 ----------- ------------ Cash flow used by operating activities: Net (loss) ($1,305,698) ($ 227,424) Adjustments to reconcile net loss to net cash utilized by operations: Depreciation and amortization 555,095 545,422 Changes in assets and liabilities: Decrease (increase) in accounts receivable 413,409 ( 543,251) (Increase) in inventory ( 1,686,183) ( 1,168,803) (Increase) decrease in prepaid expenses and other current assets ( 29,555) 31,422 (Decrease) increase in accounts payable, accrued expenses and other 2,257 1,493,319 ------------ ------------- Net cash provided (used) by operating activities ( 2,050,675) 130,685 ------------ ------------- Cash flows from financing activities: Net increases under line of credit 1,275,000 425,000 Reduction (increases) in due from affiliates 225,632 ( 208,077) Additions to long term debt, net 800,000 - Payments on long term debt, net ( 380,133) ( 390,926) Common stock transactions 190,184 317,487 ------------ ------------- Net cash provided by financing activities 2,110,683 143,484 ------------ ------------- Cash flows used by investing activities: Purchases of property, plant, equipment, net of funds held in escrow ( 636,683) ( 276,235) ------------ ------------- Net cash used by investing activities ( 636,683) ( 276,235) ------------ ------------- Increase (decrease) in cash prior to effect of foreign currency translation adjustment ( 776,675) ( 2,066) Effect of foreign currency translation adjustment on cash 22,298 12,690 ------------ ------------- Net increase (decrease) in cash ( 554,377) 10,624 Cash at beginning of period 988,106 49,923 ------------ ------------- Cash at end of period $ 433,729 $ 53,547 ============ ============= Supplemental information: Cash used for payment of interest during period $ 344,463 $ 222,227 ============ ============= Cash used for payment of income taxes during period $ 110,734 $ 48,000 ============ ============= The company had no cash equivalents at September 30, 2005 and 2004
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 that 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, 2004 have been reclassified to conform with the 2005 presentation. 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 Ocean Bio-Chem, Inc. (the "Company," `we" or "us") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors which may affect our results include, but are not limited to, the highly competitive nature of our industry; reliance on certain key customers; consumer demand for marine, recreational vehicle and automotive products; advertising and promotional efforts, and other factors. We will not undertake and specifically decline 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. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The primary sources of our liquidity and capital resources are operations, short-term borrowings under our revolving line of credit with Regions Bank, a commercial bank, and other borrowings. We renewed our $6 million working capital line of credit with Regions Bank on May 25, 2005. This line of credit is secured by a security interest in our accounts receivable and inventory. The line of credit bears interest based on the 30 day LIBOR rate plus 275 basis points (approximately 6.4 % at September 30, 2005) and matures on May 31, 2006. The maximum amount of credit that can be extended under the agreement is $6 million ($6.5 million through December 31, 2005). Under this line of credit, we are required to maintain certain financial ratios as of the end of each fiscal year. As of September 30, 2005, the amount outstanding pursuant to the working capital line of credit was $5,775.000. We are obligated under two separate series of industrial development revenue bonds from the city of Montgomery, AL in 1997 and 2002. As of September 30, 2005, the amount outstanding under our industrial development revenue bonds aggregated $5,320,000. The interest rate on the bonds floats and as of September 30, 2005 it was approximately 3.1%. On April 12, 2005 we entered into a financing obligation with Regions Bank whereby they advanced us $500,000 to finance equipment acquisitions at our Kinpak facility. Such obligation is due in monthly installments of principal aggregating approximately $8,300 plus interest at prevailing rates (the interest rate on this obligation at September 30, 2005 was 6.1% per annum) through maturity on April 15, 2010. As of September 30, 2005 and through the date hereof, we did not and do not have any material commitments for capital expenditures, nor do we have any other present commitment that is likely to result in our liquidity increasing or decreasing in any material way. In addition, except for our need for additional capital to finance inventory purchases, we know of no trend, additional demand, event or uncertainty that will result in, or that is reasonably likely to result in, our liquidity increasing or decreasing in any material way. Our operations during the first nine months of 2005 have been adversely impacted by four significant challenges; an increasingly unstable commodity market causing increased cost for petroleum related products, the announcement by our largest customer that they have adopted a policy of reducing their inventory levels, our immediate geographic area sustaining three separate major hurricanes, and a decrease in our manufacturing efficiency resulting in higher product 7 costs. As a result of the foregoing, we have sustained material losses during each of the three quarters of the current year and anticipate another loss during the fourth quarter. Management has analyzed the foregoing and has adopted a necessary, but flexible strategy to provide the required working capital to cover these losses, maintain a pricing model that more closely follows the commodity fluctuations that we are exposed to, and address those areas of our operations that can be improved. As disclosed in our Form 10-Q for the quarter ended March 31, 2005, our largest customer, West Marine, has publicly announced their adoption of a policy to reduce their overall inventory levels. This has resulted in an approximate $1,652,000 decrease in sales to them during the first three quarters of 2005 compared to 2004. Moreover, their heaviest purchases from us have generally taken place in the fourth quarter in prior years. Our sales to them during the three months ended December 31, 2004 aggregated approximately $4.5 million. We expect that our sales to them during this year's fourth quarter will fall short of that amount. Our products have historically sold well at their retail stores and they have indicated to us that such is the case during 2005. Accordingly, it appears that they are approaching their inventory goals as it relates to our products and we expect that our historical recurring sales levels to them will resume during 2006. Fortunately this season's hurricanes caused only minimal direct damages to our facilities and operations, principally power outages and the related down-time. However, the devastation sustained in the geographic areas that were impacted were significant and contributed to a reduction in sales to our retail and distribution customers both in that region and nationally. In addition, the cost of petroleum related products, major components in many of our products, which were already in an increasing cost spiral, became even more unstable. The practical dynamics of our business does not afford us the same pricing flexibility available to our supplies, i.e. a major petroleum supplier tells us the new price, however we can not as immediately pass along the increase to our national retailers and distributors. Aside from our previously reported sales price increase to our customers, we have recently announced another sales price increase to become effective during the fourth quarter of this year. In addition, we have alerted customers who purchase products, which are heavily dependent on this petroleum related issue, that we will be more responsive to commodity pricing and they must be receptive to short-term price swings or accept our refusal to ship at previously established pricing. Our Chairman and CEO, Peter G. Dornau has offered either personally or through affiliates under his control to advance funds aggregating from $1 million to $1.5 million to the Company in order to bolster working capital during this, what we believe to be, a temporary, period of adjustment. We expect that the terms and other arrangements under this program will be finalized during the upcoming quarter and once finalized appropriate public disclosures will be made. As of September 30, 2005, advances under this commitment amounted to $300,000 and are included in long-term debt on the accompanying financial statements. Although we contemplate that the amount available under this arrangement is adequate, our CEO has indicated a willingness to increase these levels if required. Corporate management has enhanced its analysis, supervision and overall involvement with our manufacturing facility. We have identified several areas that require improvement and through increased on-site management presence, major personnel changes, adoption of certain strategic enhancements to our manufacturing process, and a renewed commitment from our team in Alabama to strive for improved efficiency and cost savings, we believe that we will achieve a material reduction in manufacturing cost thereby improving product margins and operating profits during 2006. Results of Operations For The Three Months Ended September 30, 2005 compared to the Three Months ended September 30, 2004 Net sales increased 1.1% to approximately $5,952,800 for the three months ended September 30, 2005 compared to net sales of approximately $5,887,500 for the three months ended September 30, 2004. Management attributes such increase to an enhanced level of ant-freeze business during the third quarter which was partially offset by the previously announced action of our largest customer adopting a policy of reducing their inventory levels. Cost of goods sold increased to 83% of net sales during the three months ended September 30, 2005 compared to 79.3% of net sales in the three months ended September 30, 2004. The increase in the cost of goods is attributed largely to the mix of business during the current quarter. Although we experienced higher levels of anti-freeze product sales than last year, such products carry lower gross margins than our core marine products from which we experienced decreased sales compared to the comparable period in 2004. Selling and administrative expenses increased approximately $85,900 or 9.9% in the three months ended September 30, 2005 compared to the same period in the prior year. Such change was primarily due to increased personnel costs and other normal recurring increases in operating expenses. Advertising and promotion decreased approximately $17,300 or 4.7% in the three months ended September 30, 2005 compared to the same period in the prior year. This resulted primarily from planned decreases in media and co-op advertising programs for the current year. 8 Interest expense increased by $51,700 or 63.6% comparing the three months ended September 30, 2005 and 2004. This resulted from increasing interest rates and higher levels of borrowing under our working capital line of credit and other borrowings. Our loss from operations was approximately $424,800 for the three months ended September 30, 2005 compared to income of approximately $100,200 during the three months ended September 30, 2004. Our net loss was approximately $ 418,300 for the three months ended September 30, 2005 compared to loss of approximately $84,000 during the three months ended September 30, 2004. Results of Operations for the Nine Months Ended September 30, 2005 Compared To The Nine Months Ended September 30, 2004 Net sales decreased 7.7% to approximately $13,635,700 for the nine months ended September 30, 2005 compared to approximately $14,770,600 for the nine months ended September 30, 2004. Management attributes such decrease significantly to our largest customer adopting a policy of reducing their inventory levels, the unusually cold weather earlier in the year in various regions of our country resulting in a delay in the start of the 2005 recreational boating season, and the hurricanes experienced during the third and fourth quarters of this year. Cost of goods sold decreased to 19.7% of net sales for the nine months ended September 30, 2005 compared to 22.3% of net sales for the nine months ended September 30, 2004. Such improvement is attributed to the sales price increases passed along to customers during the second quarter of 2005. Advertising and promotion expenses increased approximately $186,700 or 22.2% for the 2005 period when compared to comparable expenses in the same time period in the previous year. This resulted primarily from planned increases in media and co-op advertising programs for the current year, principally during the first and second quarters Selling and administrative expenses increased by approximately $330,300 or 12.8% for the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. Such change was primarily due to increased personnel costs and other normal recurring increases in operating expenses. Interest expense for the 2005 period increased approximately $122,200 or 55 % when compared to the same nine month period of 2004. This resulted from increasing interest rates and higher levels of borrowing under our working capital line of credit and other borrowings. Our loss before income taxes was approximately $1,580,200 for the nine months ended September 30, 2005 compared to approximately $289,900 for the nine months ended September 30, 2004. Our estimated benefit from income taxes amounted to approximately $274,500 for the nine months ended September 30, 2005, and reflects available tax net loss carry-back provisions based on the interim operations of the Company. The comparable amount for the nine months ended September 30, 2004 was approximately $62,500. As a result of the foregoing, our net loss amounted to approximately $1,305,700 for the nine months ended September 30, 2005 compared to a net loss of approximately $227,400 for the nine months ended September 30, 2004. Item 3. Quantitative And Qualitative Disclosures About Market Risk Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and interest rates. We are exposed to market risk in the areas of changes in borrowing rates in the United States and changes in foreign currency exchange rates Historically, and as of September 30, 2005, we have not used derivative instruments or engaged in hedging activities to minimize market risk. INTEREST RATE RISK As or September 30, 2005, we had floating interest rates on our industrial development revenue bonds and other credit facilities. As of September 30, 2005, the interest rate on our $5,320,000 outstanding balance of industrial revenue bonds was approximately 3.1% per annum and the interest rate on our line of credit facility's outstanding balance of $5,775,000 as of September 30, 2005 approximated 6.4%, which is based on the 30 day LIBOR rate plus 275 basis points. Our remaining debt obligations aggregating approximately $1,163,200 bear interest at rates approximating 6.2%. We do not expect any changes in interest rates to have a significant impact on our operations during fiscal 2005. 9 FOREIGN CURRENCY RISK We sell products in Canada, based on the Canadian dollar. Thereby, we have exposure to changes in exchange rates. Changes in the Canadian dollar/U.S. dollar exchange rates may positively or negatively affect our gross margins, operating income and retained earnings. We do not believe that near-term changes in the exchange rates, if any, will result in a material effect on our future earnings, fair values or cash flows, and therefore, we have chosen not to enter into foreign currency hedging transactions. We cannot be assured that this approach will be successful, especially in the event of a significant and sudden change in the value of the Canadian dollar. CONCENTRATION AND CREDIT RISK We maintain cash balances at several financial institutions that are insured by the Federal Deposit Insurance Corporation up to $100,000. At times, our cash balances may exceed federally insured limits. We have not experienced any losses in such accounts and we believe the risk related to these deposits is minimal. At September 30, 2005, approximately $193,000 of the Company's cash was subject to such risk. Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. Our five largest customers represented approximately 55%, of consolidated gross revenues for the years ended December 31, 2004 and 2003; and 77% and 76% of consolidated accounts receivable at December 31, 2004 and 2003, respectively. We have had a longstanding relationship with each of these entities and have always collected open receivable balances. However, the loss of any of these customers could have an adverse impact on our operations. RAW MATERIAL COMMODITY RISK Many of the raw materials that we use in the manufacturing process are commodities that are subject to fluctuating prices. Most notable in this regard are petroleum and its derivatives which are heavily used in our product line. We react to long-term increases by passing along all or a portion of such increases to our customers as competitive conditions permit. Item 4. Controls And Procedures Within 90 days prior to the date of this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions in the future , regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. During the most recent fiscal quarter, there has not occurred any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II: OTHER INFORMATION Item l - Legal Proceedings: We are not a party to any material litigation presently pending nor, to the best knowledge of the Company, have any such proceedings been threatened. Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds: During August 2005, we issued 159,500 shares of the our authorized, but previously unissued shares of common stock to approximately seven of our employees upon their respective exercises of previously issued stock options. The issuance of the shares was exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) promulgated thereunder as a transaction not involving any public offering. Item 3 - Defaults Upon Senior Securities: Not applicable Item 4 - Submission of Matters to Vote of Security Holders: Not applicable 10 Item 5 - Other Matters: Not applicable Item 6 - Exhibits: 31.1 Certification of CEO pursuant to Section 302 of Sarbanes Oxley Act of 2002 31.2 Certification of CFO pursuant to Section 302 of Sarbanes Oxley Act of 2002 32.1 Certification of CEO and CFO pursuant to USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 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: November 14, 2005 /s/ Peter Dornau ------------------------------ Peter G. Dornau Chairman of the Board and Chief Executive Officer /s/ Edward Anchel ------------------------------ Edward Anchel Chief Financial Officer 11 EXHIBIT 31.1 CERTIFICATION I, Peter Dornau certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ocean Bio-Chem, Inc. as of and for the periods ended September 30, 2005; 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 periods covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this 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 - 15(e) and 15d - 15(e)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that 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; b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. OCEAN BIO-CHEM, INC. Date: November 14, 2005 /s/ Peter Dornau ------------------------------ Peter G. Dornau Chairman of the Board of Directors and Chief Executive Officer EXHIBIT 31.2 CERTIFICATION I, Edward Anchel certify that: 1. I have reviewed this quarterly report on Form 10-Q of Ocean Bio-Chem, Inc. as of and for the periods ended September 30, 2005; 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 periods covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this 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 - 15(e) and 15d - 15(e)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that 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; b) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. OCEAN BIO-CHEM, INC. Date: November 14, 2005 /s/ Edward Anchel ------------------------------ Edward Anchel Chief Financial Officer Exhibit 32.1 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, 2005 (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 14, 2005 /s/ Peter Dornau ------------------------------ Peter G. Dornau Chairman of the Board of Directors and Chief Executive Officer /s/ Edward Anchel ------------------------------ Edward Anchel Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----