U. S. 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 June 30, 1998
Commission File No. 2-70197
OCEAN BIO-CHEM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-1564329
----------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
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 June 30, 1998.
<PAGE>
PART I - Financial Information
Item l. Financial Statement
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
------
JUNE 30, DEC. 31,
1998 1997
----------- -----------
Current Assets:
Cash $ 142,639 $ 787,411
Trade Accounts Receivable Net of Allowances for
Doubtful Accounts of approximately $31,000
and $27,000 at June 30, 1998 and
December 31, 1997, Respectively 2,103,720 2,158,233
Due from officers 171,100 197,200
Inventories 3,378,670 3,237,207
Prepaid Expenses 188,845 92,588
---------- ----------
Total Current Assets 5,984,974 6,472,639
---------- ----------
Property, plant and equipment, Net 4,214,175 4,141,031
---------- ----------
Other Assets:
Funds held in escrow for construction 842,552 1,042,612
Trademarks, Trade Names and Patents, Net 410,911 422,407
Deposits and Other Assets 254,226 464,209
Due From Affiliated Companies, Net 705,928 733,644
---------- ----------
Total Other Assets 2,213,617 2,662,872
---------- ----------
Total Assets $12,412,766 $13,276,542
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable - Trade $ 804,220 $ 718,217
Note Payable - Bank 2,623,945 3,254,158
Current Portion of Long-Term Debt 320,000 340,000
Accrued Expenses Payable 26,700 183,747
----------- -----------
Total Current Liabilities 3,774,865 4,496,122
----------- -----------
Long-term Debt, Less Current Portion 4,215,000 4,370,000
----------- -----------
Shareholders' Equity:
Common Stock 37,530 37,530
Additional Paid-in Capital 3,232,327 3,232,327
Retained Earnings 1,272,448 1,249,508
Foreign Currency Translation Adjustment ( 119,404) ( 108,945)
------------ ------------
Total Shareholders' Equity 4,422,901 4,410,420
------------ ------------
Total Liabilities & Shareholders' Equity $12,412,766 $13,276,542
============ ============
<PAGE>
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Gross Sales $3,167,782 $3,031,391 $5,955,223 $5,604,184
Allowances 273,508 238,170 533,467 527,084
---------- ---------- ---------- ----------
Net Sales 2,894,274 2,793,221 5,421,756 5,077,100
Cost of Goods Sold 1,830,335 1,852,222 3,650,639 3,514,105
---------- ---------- ---------- ----------
Gross Profit 1,063,939 940,999 1,771,117 1,562,995
Cost and Expenses:
Advertising and Promotion 249,963 188,053 320,763 305,760
Selling and Administrative 716,931 543,796 1,284,558 1,157,905
Interest Expense 102,268 89,449 162,550 189,001
--------- ---------- ---------- ----------
Total Cost and Expenses 1,069,162 821,298 1,766,871 1,652,666
--------- ---------- ---------- ----------
Income (Loss) From
Operations ( 5,223) 119,701 4,246 ( 89,671)
Interest Income 8,485 35,127 24,167 65,924
---------- ---------- ---------- ----------
Income Before Income Taxes 3,262 154,828 28,413 ( 23,747)
Provision for Income Taxes 307 62,526 5,473 ( 4,672)
---------- ---------- ---------- -----------
Net Income (Loss) $ 2,955 $ 92,302 $ 22,940 $( 19,075)
Other Comprehensive Income,
net of tax:
Foreign currency translation
adjustment ( 5,183) ( 770) ( 8,444) ( 5,622)
---------- ----------- ----------- ----------
Comprehensive Income (Loss) $( 2,228) $ 91,532 $ 14,496 $( 24,697)
========== =========== ========== ===========
Basic earnings (loss) per
common share $ - $ .02 $ .01 $ (.01)
========== =========== ========== ===========
Earnings per share were calculated on the basis of 3,753,017 and 3,746,718
weighted average shares of common stock outstanding for the six months and three
months ended June 30, 1998 and 1997, respectively. 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 item of comprehensive income that the registrant has are foreign
currency translation adjustments. The prior periods have been restated to
conform with statement No. 130.
<PAGE>
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30
(Unaudited)
1998 1997
Cash Flow used by Operating Activities: ----------- ------------
Net Income (Loss) $ 22,940 ($ 19,075)
Adjustments to Reconcile Net Income
to Net Cash Provided by Operations:
Depreciation and Amortization 136,416 107,776
Change in Assets and Liabilities:
Decrease in Accounts Receivable 54,513 548,556
Increase in Inventory ( 141,463) ( 549,573)
Decrease in Prepaid Expenses 339,886 511,227
Increase (Decrease) in Accounts Payable
and Accrued Expenses: ( 10,081) 198,738
----------- ----------
Net Cash Provided by
Operating Activities: 402,211 797,649
----------- ----------
Cash Flows From Financing Activities:
Net Borrowings Under Line of Credit ( 630,213) ( 155,000)
Advances (to) From Affiliates 27,716 ( 17,672)
Borrowings (Payment) on Debts, Net ( 235,963) ( 138,454)
Sale of Stock - 5,500
----------- ----------
Net Cash (Used) by
Financing Activities ( 838,460) ( 305,626)
----------- ----------
Cash Flows From Investing Activities:
Purchase Property, Plant, Equipment ( 198,064) ( 783,867)
----------- ----------
Net Cash Used by Investing Activities: ( 198,064) ( 783,867)
----------- ----------
Decrease in Cash Prior to
Effect of Exchange Rate on Cash ( 634,313) ( 291,844)
Effect of Exchange Rate on Cash ( 10,459) ( 9,427)
----------- -----------
Net Decrease in Cash ( 644,772) ( 301,271)
Cash at Beginning of Period 787,411 394,567
----------- -----------
Cash at June 30, $ 142,639 $ 93,296
=========== ===========
Supplemental Information
Cash Used for Interest During Period $ 206,817 $ 173,710
Cash Used for Income Taxes During Period $ - $ 70,000
The company had no cash equivalents at June 30, 1998 and 1997.
<PAGE>
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
l. 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 OPERATION
Liquidity and Capital Resources
The primary sources of the Registrant's liquidity are its operations and a
line of credit from a commercial bank to a limit of $2.9 million. 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 1.7 times.
As of June 30, 1998 Registrant was not in compliance with all terms, however,
registrant has received a waiver from it's commercial bank. The registrant is
in the process of negotiating a new line of credit to replace the current line.
Registrant expects to complete this change within the next few weeks.
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 currency risk as a
pricing issue.
During the past few years 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 April 1-June 30:
Gross Sales increased approximately $136,000 or 5% when comparing the quarter
ended June 30, 1998 with the comparable period of the preceding year.
Management attributes this to increased sales of the brush and private label
lines.
Cost of Goods Sold decreased approximately 3% as a percentage of gross sales
when comparing the quarter ended June 30, 1998 with the quarter ended June 30,
1997. This decrease was due to changes in the product sales mix.
Advertising and Promotion expenses increased approximately $61,000 or 33% when
comparing the three months ended June 30, 1998 to the three months ended June
30, 1997. This was not due to any one factor, but reflects the effect of timing
differences.
Selling and Administrative expenses increased approximately $173,000 or 32 %
when comparing the quarter ended June 30, 1998 to the comparable period in 1997.
The increase was not attributable to any one factor.
<PAGE>
Interest Expense increased approximately $13,000 comparing the quarter ended
June 30, 1998 to the comparable period in 1997. This was primarily due to the
interest on the borrowings to purchase the Alabama Plant.
Results of Operations For the Six Month Period January 1 - June 30
Gross Sales increased 6% or approximately $351,000 when comparing the six
month periods of 1998 and 1997. Management attributes this to increased sales
of the Company's private label and brush product lines.
Cost of Goods Sold decreased approximately 1% as a percentage of gross sales
when comparing the six months ended June 30, 1998 to the six months ended June
30, 1997. This decrease corresponds to the change in product sales mix.
Advertising and promotion expenses increased approximately 5% or $15,000 when
comparing the six months ended June 30, 1998 to the six months ended June 30,
1997. This was primarily due to timing variations.
Selling and administrative expenses increased for the six months ended June
30, 1998 by approximately $127,000 or 11% when compared to the six months ended
June 30, 1997. This was not due to any one factor but included
cost of implementing new data processing system, legal and travel costs.
Interest expense decreased in 1998 for the six month period by approximately
$27,000 when compared to the six month period of 1997 reflecting the lower
costs achieved in the first quarter of 1998 due primarily to reduced levels of
borrowing during that quarter.
<PAGE>
PART II: OTHER INFORMATION
Item l - 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:
On May 8, 1998, at the Registrant's annual meeting, shareholders
elected five directors; Peter Dornau, Jeffrey Tieger, Ed Anchel, Laz
Schneider, and James Kolish. The results of the voting is as follows;
2,121,125 voted for all directors and 578 voted against.
Shareholders also approved Infante, Lago & Co., Certified Public
Accountants, by a vote of 2,121,125 for and 578 shares against, as the
Registrant's auditors for 1998.
Item 5 - Other Matters: 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 its behalf by the
undersigned thereunto duly authorized.
OCEAN BIO-CHEM, INC.
Date: August 11, 1998 /s/ Peter Dornau
-------------------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
/s/ Peter Dornau
--------------------------
Peter G. Dornau
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 142,639
<SECURITIES> 0
<RECEIVABLES> 2,134,720
<ALLOWANCES> 31,000
<INVENTORY> 3,378,670
<CURRENT-ASSETS> 5,984,974
<PP&E> 4,925,249
<DEPRECIATION> 711,078
<TOTAL-ASSETS> 12,412,766
<CURRENT-LIABILITIES> 3,774,865
<BONDS> 0
0
0
<COMMON> 37,530
<OTHER-SE> 4,385,371
<TOTAL-LIABILITY-AND-EQUITY> 12,412,766
<SALES> 5,955,223
<TOTAL-REVENUES> 5,979,390
<CGS> 3,650,639
<TOTAL-COSTS> 1,766,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 162,550
<INCOME-PRETAX> 28,413
<INCOME-TAX> 5,473
<INCOME-CONTINUING> 4,246
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,940
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
