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, 1999
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,
3,822,499 shares issued and outstanding at June 30, 1999.
<PAGE>
PART I - Financial Information
Item l. Financial Statements
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DEC. 31,
1999 1998
---- ----
Current assets:
<S> <C> <C>
Cash $ 256,970 $ 8,871
Trade accounts receivable net of allowances for
doubtful accounts of approximately $13,500
and $26,000 at June 30, 1999 and December
31, 1998, respectively 2,090,473 2,329,712
Due from officer 161,100 161,100
Inventories 3,720,125 3,691,877
Prepaid expenses 111,680 85,123
------------ ------------
Total current assets 6,340,348 6,276,683
------------ ------------
Property, plant and equipment, net 4,425,465 4,374,991
------------ ------------
Other assets:
Funds held in escrow for equipment 413,913 583,432
Trademarks, trade names and patents, net 387,919 399,415
Deposits and other assets 304,324 342,123
Due from affiliated companies, net 573,297 870,150
------------ ------------
Total other assets 1,679,453 2,195,120
------------ ------------
Total assets $ 12,445,266 $ 12,846,794
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable - trade $ 775,885 $ 932,927
Note payable - bank 2,156,696 3,009,118
Current portion of long-term debt 299,564 300,000
Accrued expenses payable 226,785 77,991
------------ ------------
Total current liabilities 3,458,930 4,320,036
------------ ------------
Long-term debt, less current portion 4,314,358 4,070,000
------------ ------------
Shareholders' equity:
Common stock - $.01 par value 10,000,000 shares
authorized, 3,822,499 and 3,753,017 shares
issued and outstanding at June 30, 1999 and
December 31, 1998, respectively 38,225 37,530
Additional paid-in capital 3,282,932 3,232,327
Retained earnings 1,525,829 1,332,567
Foreign currency translation adjustment ( 168,133) ( 145,666)
------------ ------------
4,678,853 4,456,758
Less cost of common stock in treasury,
5,789 shares at June 30, 1999 ( 6,875) 0
------------ ------------
4,671,978 4,456,758
------------ ------------
Total liabilities & shareholders' equity $ 12,445,266 $ 12,846,794
============ ============
</TABLE>
<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,
1999 1998 1999 1998
---- ---- ---- ----
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross sales $3,674,386 $3,167,782 $7,093,200 $5,955,223
Allowances 312,316 273,508 691,438 533,467
---------- ---------- ---------- ----------
Net sales 3,362,070 2,894,274 6,401,762 5,421,756
Cost of goods sold 2,186,708 1,830,335 4,293,931 3,650,639
---------- ---------- ---------- ----------
Gross profit 1,175,362 1,063,939 2,107,831 1,771,117
---------- ---------- ---------- ----------
Cost and expenses:
Advertising and promotion 154,094 249,963 252,334 320,763
Selling and administrative 718,064 716,931 1,355,921 1,284,558
Interest expense 103,012 102,268 201,646 161,550
---------- ---------- ---------- ----------
Total cost and expenses 975,170 1,069,162 1,809,901 1,766,871
---------- ---------- ---------- ----------
Income (loss) from
operations 200,192 5,223 297,930 4,246
Interest income 5,672 8,485 11,832 24,167
---------- ---------- ---------- ----------
Income before income taxes 205,864 3,262 309,762 28,413
Provision for income taxes 77,500 307 116,500 5,473
---------- ---------- ---------- ----------
Net income 128,364 2,955 193,262 22,940
Other comprehensive income,
net of income taxes:
Foreign currency translation
adjustment ( 9,723) ( 5,183 ) ( 22,467) ( 8,444)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 118,641 $( 2,228 ) $ 170,795 $ 14,496
========== ========== ========== ==========
Basic earnings per
Common share $ .03 $ .00 $ .05 $ .01
========== ========== ========== ==========
Earnings per share were calculated on the basis of 3,780,678 and 3,753,017
weighted average shares of common stock outstanding for the six months and three
months ended June 30, 1999 and 1998, 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 items of comprehensive income that the registrant which are reflected in
the accompanying financial statements are foreign currency translation
adjustments.
</TABLE>
<PAGE>
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited)
1999 1998
---- ----
<TABLE>
<CAPTION>
Cash flow provided by operating activities:
<S> <C> <C>
Net income $ 193,262 $ 22,940
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 159,496 136,416
Changes in assets and liabilities:
Decrease in accounts receivable 239,239 54,513
(Increase) in inventory ( 28,248) ( 141,463)
(Increase) decrease in prepaid expenses ( 26,557) 339,886
Increase (decrease) in accounts payable,
accrued expenses and other 29,551 ( 10,081)
------------- ------------
Net cash provided by operating activities 566,743 402,211
------------- ------------
Cash flows from financing activities:
Net reductions under line of credit ( 852,422) ( 630,213)
Reduction in advances from affiliates 296,853 27,716
Borrowings (payments) on debts, net 243,922 ( 235,963)
Common stock transactions 44,425 0
------------- ------------
Net cash (used) by financing activities ( 267,222) ( 838,460)
------------- ------------
Cash flows from investing activities:
Purchases of property, plant, equipment, net
of funds held in escrow ( 28,955) ( 198,064)
------------- ------------
Net cash (used) by investing activities ( 28,955) ( 198,064)
------------- ------------
Increase (decrease) in cash prior to effect of
foreign currency translation adjustments 270,566 ( 634,313)
Effect of foreign currency translation
adjustments on cash ( 22,467) ( 10,459)
------------- ------------
Net increase (decrease) in cash 248,099 ( 644,772)
Cash at beginning of period 8,871 787,411
------------- -----------
Cash at end of period $ 256,970 $ 142,639
============= ===========
Supplemental information:
Cash used for payment of interest during period $ 193,534 $ 206,817
------------- ------------
Cash used for payment of income taxes during
period $ 16,000 $ 0
------------- ------------
The company had no cash equivalents at June 30, 1999 and 1998.
</TABLE>
<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 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 $5,000,000. The line matures
in August, 2001. Under the terms of the line, the Registrant is required to
maintain minimum working capital of $1,500,000, a debt to tangible net worth of
ratio 2 to 1 and debt service coverage of 1.1 times.
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 the 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 Period April 1- June 30:
Gross sales increased approximately 16% or $506,600 for the quarter ended June
30, 1999 when compared to the same quarter of the preceding year. Management
attributes this primarily to increased sales of new products introduced last
year and a sales price increase on selected products.
Cost of goods sold increased as a percentage of gross sales when comparing the
quarter ended June 30, 1999 with the comparable quarter in 1998. The percentages
were 59.5 % and 57.8% for the quarters ended 1999 and 1998, respectively. This
change was primarily due to increasing raw chemical costs and manufacturing
overhead at the Company's Alabama plant.
Selling and administrative expenses aggregated approximately $718,000 which is
substantially identical to the prior year when comparing the quarters ended June
30, 1999 and June 30, 1998.
Advertising and promotion decreased approximately $95,900 comparing the three
months ended June 30, 1999 and 1998. This was primarily due to a planned
decrease in the advertising budget.
<PAGE>
Interest expense which aggregated approximately $103,000 for the current quarter
was substantially unchanged when comparing the June 30, 1999 quarter to the
corresponding quarter in 1998.
Results of Operations For the Six Month Period January 1 - June 30:
Gross Sales increased 19% or approximately $1,138,000 when comparing the six
month periods of 1999 and 1998. Management attributes this primarily to
increased sales of new products introduced last year and a sales price increase
on selected products.
Cost of Goods Sold decreased to 60.5% as a percentage of gross sales versus
61.3% when comparing the six months ended June 30, 1999 to the comparable period
in the preceding year.
This change is not viewed as significant.
Advertising and promotion expenses decreased approximately 21% or $68,400 when
comparing the six months ended June 30, 1999 to the six months ended June 30,
1998. This was primarily due to a planned decrease in the advertising budget.
Selling and administrative expenses increased for the six months ended June 30,
1999 by approximately $71,400 or 5.5 % when compared to the six months ended
June 30, 1998. This was not due to any one factor other than anticipated
increased administrative expenses.
Interest expense increased during the six month period in 1999 by approximately
$40,100 when compared to the six month period of 1998 reflecting the higher
levels of borrowings in the first quarter of 1999.
<PAGE>
PART II: OTHER INFORMATION
Item l - Legal Proceedings: See the Registrant's 10K for the year ended
December 31, 1998
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 June 11, 1999, at the Registrant's annual meeting, shareholders
elected five directors; Peter Dornau, Jeffrey Tieger, Edward Anchel,
Laz Schneider, and James Kolisch. 1,346,434 voted for all directors
and 4,522 voted against. Shareholders also approved Infante, Lago &
Co., Certified Public Accountants, by a vote of 3,559,010 for and 231
shares against, as the Registrant's auditors for 1999.
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 9, 1999 /s/ Peter Dornau
-----------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
/s/Edward Anchel
-----------------
Edward Anchel
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 256,970
<SECURITIES> 0
<RECEIVABLES> 2,103,973
<ALLOWANCES> (13,500)
<INVENTORY> 3,720,125
<CURRENT-ASSETS> 6,340,348
<PP&E> 5,428,268
<DEPRECIATION> (1,002,803)
<TOTAL-ASSETS> 12,445,266
<CURRENT-LIABILITIES> 3,458,930
<BONDS> 0
0
0
<COMMON> 38,225
<OTHER-SE> 4,633,753
<TOTAL-LIABILITY-AND-EQUITY> 12,445,266
<SALES> 7,093,200
<TOTAL-REVENUES> 7,105,032
<CGS> 4,293,931
<TOTAL-COSTS> 2,299,693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,646
<INCOME-PRETAX> 309,762
<INCOME-TAX> 116,500
<INCOME-CONTINUING> 193,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 193,262
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
