10q998
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, 1998
Commission File No. 0-11102
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, Ft. Lauderdale, FL 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, 3,753,017 issued
and outstanding at September 30, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item l. Financial Statements
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------- SEPT. 30, DEC.31,
1998 1997
------------ -----------
Current Assets:
Cash $ 106,154 $ 787,411
Trade Accounts Receivable Net of
Allowances for Doubtful Accounts of
$34,000 and $26,000 at September 30, 1998
And December 31, 1997 Respectively 3,123,446 2,158,233
Due From Officers 179,100 197,200
Inventories 3,580,806 3,237,207
Prepaid Expenses 143,491 92,588
------------ -----------
Total Current Assets 7,132,997 6,472,639
------------ -----------
Property, Plant and Equipment, Net 4,200,373 4,141,031
------------ -----------
Other Assets:
Funds held in escrow for construction 785,270 1,042,612
Trademarks, Trade Names And Patents, Net 405,163 422,407
Due From Affiliated Companies, Net 681,147 733,644
Deposits And Other Assets 299,472 464,209
------------ -----------
Total Other Assets 2,171,052 2,662,872
------------ -----------
Total Assets $13,504,422 $13,276,542
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable Trade $ 1,585,113 $ 718,217
Notes Payable - Bank 2,835,945 3,254,158
Current Portion Of Long-Term Debt 310,000 340,000
Accrued Expenses Payable 117,697 183,747
----------- -----------
Total Current Liabilities 4,848,755 4,496,122
----------- -----------
Long-term Debt, Less Current Portion 4,140,000 4,370,000
----------- -----------
Shareholders' Equity:
Common Stock 37,530 37,530
Additional Paid-In Capital 3,232,327 3,232,327
Retained Earnings 1,386,351 1,249,508
Foreign Currency Translation Adjustment ( 140,541) ( 108,945)
----------- -----------
Total Shareholders' Equity 4,515,667 4,410,420
----------- -----------
Total Liabilities & Shareholders' Equity $13,504,422 $13,276,542
=========== ===========
2
<PAGE>
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
---------- ---------- ----------- ------------
Gross Sales $4,751,365 $3,929,232 $10,706,588 $9,533,416
Allowances 425,187 318,331 958,654 845,415
---------- ---------- ----------- ------------
Net Sales 4,326,178 3,610,901 9,747,934 8,688,001
Cost Of Goods Sold 3,191,618 2,634,352 6,842,257 6,148,457
---------- ---------- ----------- -----------
Gross Profit 1,134,560 976,549 2,905,677 2,539,544
Cost And Expenses
Adv. And Promotion 193,856 219,716 514,619 525,476
Selling And Admin. 664,706 637,726 1,949,264 1,795,631
Interest Expense 98,408 87,090 259,958 276,091
---------- ---------- ----------- -----------
Total Expenses 956,970 944,532 2,723,841 2,597,198
---------- ---------- ----------- -----------
Income (Loss) From
Operations 177,590 32,017 181,836 ( 57,654)
Interest Income 9,841 29,222 34,008 95,146
---------- ---------- ----------- -----------
Income before provision
for income taxes 187,431 61,239 215,844 37,492
Provision for income taxes 73,527 13,672 79,000 9,000
---------- ---------- ----------- -----------
Net Income $ 113,904 $ 47,567 $ 136,844 $ 28,492
Other Comprehensive Income:
Foreign Currency Translation
Adjustment net of tax: ( 11,588) ( 3,379) ( 20,032) ( 9,001)
----------- ---------- ----------- -----------
Comprehensive income $ 102,316 $ 44,188 $ 116,812 $ 19,491
=========== ========== =========== ===========
Earnings Per Share:
Net Income Per Share $ .03 $ .01 $ .04 $ .01
=========== ========== =========== ===========
Earnings per share for the nine and three months ended September 30, 1998 were
calculated on the basis of 3,753,017 weighted average common stock outstanding.
For the nine and three months ended September 30, 1996, earnings per share were
calculated using 3,746,718 weighted average common stock outstanding. The
company has adopted Statement of Financial Accounting Standards No. 130 which
requires items ofcomprehensive income to be stated as part of the basic
financial statements. Prior periods have been restated to conform to statement
No. 130.
3
<PAGE>
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
CASH FLOWS PROVIDED BY 1998 1997
------------ -------------
OPERATING ACTIVITIES:
Net Income $ 136,844 $ 28,492
Adjustment to Reconcile Net Income
To Net Cash Provided by Operations:
Depreciation and Amortization: 198,190 164,185
Change in Assets and Liabilities:
Increase in Accounts Receivable ( 965,213) ( 526,625)
Increase in Inventory ( 343,599) (1,284,445)
Decrease in Prepaid Expenses
And other assets 389,276 1,576,074
Decrease in Accounts Payable
And Accrued Expenses 800,846 918,430
----------- -----------
Net Cash Provided by Operating Activities 216,344 876,111
----------- -----------
Cash Flows From Financing Activities:
Net Borrowings Under Line of Credit ( 418,213) 1,046,000
Advances ( to) from Affiliates 52,497 ( 8,650)
Borrowings (Repayment) of Debt, Net ( 260,000) ( 190,000)
Sale of Stock - 5,500
Net Cash Provided (used) by ----------- -----------
Financing Activities ( 625,716) 852,850
----------- -----------
Cash Flows From Investing Activities
Purchase Property, Plant, Equipment ( 240,289) (1,959,544)
------------ -----------
Net Cash Used by Investing Activities ( 240,289) (1,959,544)
------------ -----------
Decrease in Cash Prior
to Effect of Exchange Rate on Cash ( 649,661) ( 230,583)
Effect of Exchange Rate on Cash ( 31,596) ( 11,843)
------------ -----------
Net Decrease in Cash ( 681,257) ( 242,426)
Cash at Beginning of Period 787,411 394,569
------------ -----------
Cash at September 30, $ 106,154 $ 152,143
============ ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (Net of Amount capitalized) $ 259,000 $ 276,000
Income taxes - $ 70,000
----------- -----------
Disclosure of accounting policy:
For purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchases with a maturity of three months or less to be
cash equivalents.
4
<PAGE>
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. The information contained in this Report is unaudited, but reflects all
adjustments which are, in the opinion of the management, necessary for a fair
statement of results of the interim periods, consisting only of normal
recurring accruals. The results for such interim periods are not necessarily
indicative of results to be expected for the full year.
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 and short
term borrowings from a commercial bank. During October the registrant changed
its commercial banking relations. The new credit facilities enable the
registrant to borrow up to $5.0 million based on a combination of accounts
receivable and inventories. The Registrant is required to maintain minimum
working capital of $1,500,000, debt to tangible net worth of 2 to 1 and debt
service coverage of 1.1 times. As of sEPTEMBER 30, 1998 the Registrant was in
compliance with all terms.
The Registrant is involved in making sales in the Canadian market and must deal
with the currency fluctuations of the Canadian currency. The Registrant does
not engage in currency hedging and deals with such risks as a pricing issue.
During the past few years the Registrant has introduced various new products to
the marketplace. This has required the Registrant to carry greater amounts of
overall inventory and has resulted in lower inventory turnover rates. The
effects of such inventory turnover have not been material to the overall
operations of Registrant. Registrant believes that all required capital to
maintain such increases can continue to be provided from operations and current
lending arrangements.
Results of Operations For The Three Month Period July 1-September 30 Gross sales
increased approximately $ 822,000 or 20.9 % comparing the quarter ended
September 30, 1998 with the comparable period of the preceding year. Management
attributes this primarily to increased sales of the marine and antifreeze lines
during the quarter.
Cost of Goods Sold remained constant as a percentage of gross sales for the
quarter ended September 30, 1998 when compared to the 1997 quarter.
Advertising and promotion expenses decreased approximately $ 26,000 or 11.7%
comparing the three month period ended September 30, 1998 to 1997. This is
primarily due to lower customer advertising allowances.
Selling and administrative expenses increased approximately $ 27,000 or 4.2 %
comparing the quarter ended September 30, 1998 to the comparable period in 1997.
This was not attributed to any particular factor.
Interest expense increased approximately $ 11,000 comparing the quarter ended
September 30, 1998 to the comparable period in 1997. This reflects the effects
of financing the Alabama facility and higher debt levels outstanding during the
period.
5
<PAGE>
Results Of Operations For The Nine Month Period January 1-September 30
Gross sales increased approximately $ 1,173,000 or 12.3 % comparing the nine
month periods in 1998 and 1997. This is due to the increased sales of the
antifreeze, private label, brush, and strap lines.
Cost of goods sold decreased approximately 0.5 % as a percentage of gross sales
when comparing the nine months ended September 30, 1998 and 1997. This is not
due to any one factor.
Advertising and promotion expenses decreased approximately $ 11,000 or 2.0 %
when comparing the nine months ended September 30, 1998 and 1997. This reflects
seasonal variations.
Selling and administrative expenses increased during 1998 by approximately
$ 154,000 or 8.6 % when compared to 1997. This was primarily due to expenses
associated with the Alabama operations.
Interest expense increased in 1998 for the nine month period by approximately
$16,000 reflecting increased borrowings outstanding during the period and the
interest on the borrowings associated with the purchase of the Alabama Plant.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings: See the Registrant's 10K for the year ended
December 31, 1997
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 10, 1998 /s/ Peter Dornau
-----------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Peter Dornau
-----------------------------------
Peter G. Dornau
Chief Financial Officer
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 106,154
<SECURITIES> 0
<RECEIVABLES> 3,157,446
<ALLOWANCES> 34,000
<INVENTORY> 3,580,806
<CURRENT-ASSETS> 7,132,997
<PP&E> 4,979,024
<DEPRECIATION> 778,651
<TOTAL-ASSETS> 13,504,422
<CURRENT-LIABILITIES> 4,848,755
<BONDS> 0
0
0
<COMMON> 37,530
<OTHER-SE> 4,478,137
<TOTAL-LIABILITY-AND-EQUITY> 13,504,422
<SALES> 10,706,588
<TOTAL-REVENUES> 10,740,596
<CGS> 6,842,257
<TOTAL-COSTS> 2,723,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 259,958
<INCOME-PRETAX> 215,844
<INCOME-TAX> 79,000
<INCOME-CONTINUING> 181,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,844
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
