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, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 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:
Common stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
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 (1) is a Shell Company (As
Defined In rule 12b-2 of the Exchange Act).
Yes [ ] No [x ]
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of
1934), or a non-accelerated filer
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ x ]
Indicate the number of shares outstanding of each class of the Issuer's
common stock, as of the latest practicable date:
$.01 par value common stock, 10,000,000 shares authorized,
7,723,316 shares issued and outstanding at November 1, 2007
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I - Financial Information:
Item 1. - Financial Statements:
Consolidated balance sheets as of September 30, 2007
and December 31, 2006 3
Consolidated statements of operations for the three
months and nine months ended September 30, 2007 and 2006 4
Consolidated statements of changes in shareholders' equity
for the nine months ended September 30, 2007 and 2006 5
Consolidated statements of cash flows for the nine months
ended September 30, 2007 and 2006 6
Notes to consolidated financial statements 7-12
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 16-17
Item 4 - Controls and Procedure 17
Part II - Other Information 18
Item 1. - Legal Proceeding 18
Item 2. - Unregistered Sales of Equity Securities and Use
of Proceeds 18
Item 3. - Defaults upon Senior Securities 18
Item 4. - Submission of Matters to a Vote by Security Holders 18
Item 5. - Other Matters 18
Item 6. - Exhibits 18
Signatures 18
Certifications 19-21
PART I - Financial Information
Item 1. Financial Statements
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September December
30, 2007 31, 2006
------------ -------------
ASSETS (UNAUDITED)
Current Assets:
Cash $ 754,251 $ 71,080
Trade accounts receivable net of allowance for doubtful
accounts of approximately $88,337 and $192,700 at September 30,
2007 and December 31, 2006 respectively 4,282,133 2,026,870
Inventories (net) 6,254,877 5,647,933
Prepaid expenses and other current assets 391,675 218,151
------------ -------------
Total current assets 11,682,936 7,964,034
------------ -------------
Property, plant and equipment, net 6,389,393 6,800,176
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 331,695 330,439
Due from affiliated companies, net 48,712 231,200
Deposits and other assets 158,962 203,510
------------ -------------
Total Other Assets 539,369 765,149
Total Assets $18,611,698 $ 15,529,359
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,266,181 $ 943,907
Note payable - bank 3,750,000 2,150,000
Current portion of long term debt 591,926 586,060
Accrued expenses payable 953,462 363,669
------------ -------------
Total Current Liabilities 6,561,569 4,043,636
------------ -------------
Long term debt, less current portion 4,140,819 4,550,190
------------ -------------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares authorized;
7,723,316 and 7,621,316 shares issued and outstanding at
September 30, 2007 and December 31, 2006, respectively 77,233 76,213
Additional paid in capital 7,434,506 7,257,447
Foreign currency translation adjustment (276,550) (176,094)
Retained earnings (deficit) 682,316 (213,838)
------------ -------------
7,917,505 6,943,728
Less cost of common stock in treasury, 7,519 shares
at September 30, 2007 and December 31, 2006 ( 8,195) ( 8,195)
------------ -------------
7,909,310 6,935,533
Total Shareholders' equity
------------ -------------
Total Liabilities and Shareholders' equity $18,611,698 $ 15,529,359
============ ==============
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
2007 2006 2007 2006
------------ ------------ ------------- -------------
Gross Sales $ 7,517,154 $ 8,491,859 $ 17,905,549 $ 17,939,676
Allowances 566,210 766,770 1,498,194 1,473,486
------------ ------------ ------------- -------------
Net sales 6,950,944 7,725,089 16,407,355 16,466,190
Cost of goods sold 4,722,777 5,606,551 10,845,546 11,821,106
------------ ------------ ------------- -------------
Gross profit 2,228,167 2,118,538 5,561,809 4,645,084
Expenses:
Advertising and promotion 571,524 428,254 1,245,556 900,611
Selling and administrative 965,655 889,005 3,190,707 2,629,776
Interest expense 44,891 141,914 247,989 477,015
------------ ------------ ------------- -------------
Total expenses 1,582,070 1,459,173 4,684,252 4,007,402
------------ ------------ ------------- -------------
Operating Income 646,097 659,365 877,557 637,682
Other income 18,597 11,316 18,597 12,603
------------ ------------ ------------- -------------
Income before income taxes 664,694 670,681 896,154 650,285
Income taxes (benefit) - - - -
------------ ------------ ------------- --------------
Net Income 664,694 670,681 896,154 650,285
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment ( 66,611) 1,042 ( 100,456) 14,774
------------ ------------ ------------- --------------
Comprehensive income $ 598,083 $ 671,723 $ 795,698 $ 665,059
============ ============ ============= =============
Income per common share - basic $ 0.09 $ 0.11 $ 0.12 $ 0.11
------------ ------------ ------------- -------------
Income per common share - diluted $ 0.08 $ 0.11 $ 0.10 $ 0.10
------------ ------------ ------------- -------------
Weighted average shares - basic 7,723,316 5,978,316 7,677,983 5,935,316
------------ ------------ ------------- -------------
Weighted average shares - diluted 8,759,009 6,369,933 8,886,256 6,106,214
------------ ------------ ------------- -------------
The Company has adopted Statement of Financial Accout 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 is its foreign
currency translation adjustment.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
Foreign Retained
Common stock Additional currency earnings Treasury
Shares Amount paid-in capital adjustment (deficit) stock Total
--------- ------- --------------- ---------- --------- ------- ----------
January 1,
2007 7,621,316 $76,213 $7,257,447 ( $176,094) ($ 213,838) ($8,195) $6,935,533
Net Income 896,154 896,154
Common stock, issuances 102,000 1,020 142,902 143,922
Stock based compensation 34,157 34,157
Foreign currency
translation adjustment ( 100,456) ( 100,456)
--------- ------- ---------- ----------- ----------- -------- -----------
September 30, 2007 7,723,316 $77,233 $7,434,506 $( 276,550) $ 682,316 $(8,195) $7,909,310
========= ======= ========== =========== ========== ======== ===========
January 1, 2006
as restated 5,849,316 58,493 5,397,845 ( 179,653) ( 605,895) ( 8,195) 4,662,595
Net Income 650,285 650,285
Debt forgiveness -
affiliate 295,752 295,752
Common stock, issuances 129,000 1,290 118,132 119,422
Stock based compensation 58,468 58,468
Foreign currency
translation adjustment 14,774 14,774
--------- ------- ---------- ----------- ----------- -------- -----------
September 30, 2006 5,978,316 $59,783 $5,870,197 $( 164,879) $ 44,390 $(8,195) $5,801,296
========= ======= ========== =========== ========== ======== ===========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
2007 2006
------------ -------------
Cash flows from operating activities:
Net income $ 896,154 $ 650,285
Adjustment to reconcile net income
to net cash provided used by operations:
Depreciation and amortization 588,965 582,971
Amortization of imputed interest - 46,636
Compensation cost associated with stock
options and stock awards 171,025 177,890
Accounts Receivable - allowance for doubtful accounts 180,499 190,876
Changes in assets and liabilities:
Accounts Receivable (2,435,763) ( 3,732,127)
Inventory (606,944) 393,257
Prepaid Expenses (130,232) 298,704
Accounts Payable and accrued taxes and other 947,415 ( 216,005)
------------ -------------
Net cash used in operating activities (388,881) ( 1,607,513)
------------ -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (181,870) ( 252,065)
------------ -------------
Net cash used in investing activities (181,870) ( 252,065)
------------ -------------
Cash flows from financing activities:
Borrowings line of credit 4,550,000 2,625,000
Principal payments - line of credit (2,950,000) ( 1,100,000)
Amounts due from affiliates 189,814 366,605
Principal payments - Long-term debt (435,436) ( 160,243)
------------ -------------
Net cash provided by financing activities 1,354,378 1,731,362
------------ -------------
Cash prior to effect of exchange rate on cash 783,627 (100,456)
Effect of exchange rate on cash (100,456) 14,774
------------ -------------
Net cash effected by exchange rate 683,171 ( 113,442)
Cash at beginning of period 71,080 204,543
------------ -------------
Cash at end of period $ 754,251 $ 91,101
============ =============
Supplemental disclosure of cash transactions:
Cash paid for interest during period $ 270,154 $ 539,874
----------- -------------
Cash paid for income taxes during period $ - $ -
------------ -------------
Supplemental disclosure of non-cash transactions:
Forgiveness of indebtedness to an affiliate $ - $ 295,752
------------ -------------
The company had no cash equivalents at September 30, 2007 and 2006
6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Interim Reporting
The accompanying unaudited consolidated financial statements include the
accounts of Ocean Bio-Chem, Inc. and its subsidiaries ("the Company"). All
significant inter-company transactions and balances have been eliminated. The
unaudited consolidated financial statements have been prepared in conformity
with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and,
therefore, do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. However, all adjustments (consisting of normal recurring accruals)
that, in the opinion of management, are necessary for a fair presentation of the
financial statements have been included. Operating results for the period ended
September 30, 2007 are not necessarily indicative of the results that may be
expected for the future fiscal quarters in 2007 or the full year ending
December 31, 2007 due to seasonal fluctuations in the Company's business,
changes in economic conditions and other factors. For further information,
please refer to the Consolidated Financial Statements and Notes thereto
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2006.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amount of assets, liabilities, revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition
Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, delivery to customer has occurred, the sales price is fixed
and determinable, and collectibility of the related receivable is probable.
Reported net sales are net of customer prompt pay discounts, contractual
allowances, authorized customer returns, consumer rebates and other allowable
deductions from our invoices. Cooperative advertising deductions, based on our
customers' promotion of our products is recognized as an advertising cost and
charged against operations as an operating expense.
Cost of goods sold/Selling, general and administrative expenses
Cost of goods sold includes all of the direct and indirect costs of
manufacturing our products. Included therein specifically are warehousing costs
of raw materials, in-bound freight, out-bound freight (in those instances that
we absorb such costs), purchasing, receiving, and inspection costs. Other costs
of the distribution network are reflected in Selling, General and Administrative
expenses. Also included therein are managerial and clerical wages and related
expenses, office and administrative occupancy costs, taxes, professional fees,
insurance coverage's and other related expenses.
Inventories
Inventories are comprised of finished goods and stated at the lower of cost
or market. Cost is determined by the first-in first-out method. The composition
of inventories at September 30, 2007 and December 31, 2006 are as follows:
2007 2006
-------------- --------------
Raw Materials $ 2,535,460 $ 3,423,030
Finished Goods 3,784,417 2,244,903
Less Inventory Reserve (65,000) (20,000)
--------------- ---------------
Inventory - Net $ 6,254,877 $ 5,647,933
=============== ===============
7
Income Taxes
Effective January 1, 2007, the Company adopted Financial Accounting
Standards Board ("FASB) Interpretation No. (FIN) 48, "Accounting for Uncertainty
in Income Taxes" and FSP FIN 48-1, which amended certain provisions of FIN 48.
FFN 48 clarifies the accounting for uncertainty in income taxes recognized in
financial statements in accordance with SFAS No. 109, "Accounting for Income
Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 requires that the Company determine
whether the benefits of the Company's tax positions are more likely than not of
being sustained upon audit based on the technical merits of the tax position.
The provisions of FIN 48 also provide guidance on de-recognition,
classification, interest and penalties, accounting in interim periods and
disclosure. The Company did not have any unrecognized tax benefits and there was
no effect on the financial condition or results of operations for the three and
nine months ended September 30,2007 as a result of implementing FIN 48, or FIN
48-1.
Stock Based Compensation
At September30, 2007, the Company had options outstanding under four
stock-based compensation plans, which are described below. On January 1, 2006,
The Company adopted Statement of Financial Accounting Standards No. 123R
(revised 2004), "Share Based Payment" ("SFAS No. 123R"), which requires the
measurement and recognition of compensation cost for all share-based payment
awards made to employees and directors based on estimated fair values.
The Company has elected to use the modified prospective transition method
for adopting SFAS No. 123R, which requires the recognition of stock-based
compensation cost on a prospective basis; therefore, prior period financial
statements have not been restated. Under this method, the provisions of SFAS No.
123R are applied to all awards granted after the adoption date and to awards not
yet vested with unrecognized expense at the adoption date based on the estimated
fair value at grant date as determined under the original provisions of SFAS No.
123. The impact of forfeitures that may occur prior to vesting is also estimated
and considered in the amount recognized.
Under various plans, The Company may grant incentive or non-qualified stock
options to employees and directors. The terms of stock options granted under the
plans are determined by the Directors at the time of grant, including the
exercise price, term and any restrictions on the exercisability of such option.
The exercise price of all options granted under the plans equals the market
price at the date of grant, except for options granted to Mr. Dornau, our
President and CEO, which are generally granted at a premium of 10% above the
market price of the underlying common stock, and no option is exercisable after
the expiration of five or ten years from the date of grant, depending on the
Plan under which it was awarded. The stock options outstanding under our
qualified or incentive plans were generally granted for terms of five years and
vest on a straight line basis over such period. The stock options outstanding
under our 2002 non qualified plan were generally granted for terms of ten years
and vested immediately. No employee compensation expense was recognized in the
financial statements upon either the grant or exercise of these stock options.
Prior to January 1, 2006 we followed the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, to record compensation costs.
As of September 30, 2007, the number of options outstanding and the number
of shares available for grant under each Stock Option Plan and non-plan options
is presented below:
Plan Options Options available
Outstanding for grant
------------ -----------------
1994 Plan 159,500 shares None
2002 Plan 400,000 shares None
2007 Plan 164,500 shares 235,500 shares
2002 Non-qualified plan 155,000 shares 45,000 shares
Non-plan options 231,000 shares N/A
----------
Total 1,110,000 shares
=========
Information with respect to our Stock Option Plan activity is as follows:
Weighted average
Shares exercise price
------ ----------------
Options outstanding at
January 1, 2007 945,600 $ 1.21
Options granted 164,500 1.68
Options exercised - -
Options forfeited - -
--------- -------
Options outstansing at
September 30, 2007 1,110,000 $ 1.28
========= =======
For the nine-month period ended September 30, 2007, The Company recognized
$34,157 in stock-based compensation costs, which is reflected in operating
expenses. No tax benefits were attributed to the stock-based compensation
8
expense because a valuation allowance was maintained for substantially all net
deferred tax assets. The Company elected to adopt the alternative method of
calculating the historical pool of windfall tax benefits as permitted by FASB
Staff Position (FSP) No.SFAS 123R-c, "Transition Election Related to Accounting
for the Tax Effects of Share-Based Payment Awards." This is a simplified method
to determine the pool of windfall tax benefits that is used in determining the
tax effects of stock compensation in the results of operations and cash flow
reporting for awards that were outstanding as of the adoption of SFAS No. 123R.
As of September 30, 2007, The Company had $168,425 of unrecognized compensation
costs related to non-vested stock option awards that is expected to be
recognized over a weighted average period of 2.9 years.
The following information applies to options outstanding and exercisable as
of September 30, 2007:
OPTIONS: OPTIONS EXERCISABLE EXERCISE WEIGHTED
OUTSTANDING 09/30/07 PRICE YEARS
----------------- ---------- ---------- --------- -----------
NON PLAN OPTIONS 231,000 231,000 $ 0.760 1.5
1994 PLAN 159,500 63,800 1.050 2.1
2002 PLAN 125,000 100,000 1.260 -
2002 PLAN 140,000 84,000 1.680 1.4
2002 PLAN 135,000 - 0.930 4.1
2007 PLAN 164,500 - 1.660 4.6
2002 PLAN (NQ) 35,000 35,000 1.260 5.1
2002 PLAN (NQ) 40,000 40,000 1.030 5.7
2002 PLAN (NQ) 40,000 40,000 1.460 6.7
2002 PLAN (NQ) 40,000 40,000 1.090 8.5
----------- -------- -------
1,110,000 633,800 3.2
=========== ======= =======
The Company utilizes a Black-Scholes option-pricing model to determine the
fair value of stock options on the date of grant. This model derives the fair
value of stock options based on certain assumptions related to expected stock
price volatility, expected option life, risk-free interest rate and dividend
yield. The Company's expected volatility is based on the historical volatility
of The Company's stock price over the most recent period commensurate with the
expected term of the stock option award. The estimated expected option life is
based primarily on historical employee exercise patterns and considers whether
and the extent to which the options are in-the-money. The risk-free interest
rate assumption is based upon the U.S. Treasury yield curve appropriate for the
term of The Company's stock options awards and the selected dividend yield
assumption was determined in view of The Company's historical and estimated
dividend payout. The Company has no reason to believe that the expected
volatility of its stock price or its option exercise patterns will differ
significantly from historical volatility or option exercises.
Restricted Stock Awards as Compensation
During May 2007 we issued 102,000 shares of our common stock bearing a
restricted legend to certain officers and other key employees as a component of
their compensation. At the date of award the shares had a market value of $1.68
each.
Shares were awarded as follows:
Officers:
Peter G. Dornau, President and CEO 15,000 shares
Jeffrey Barocas, Vice President and CFO 5,000 shares
William Dudman, Vice President, Operations 15,000 shares
Gregor M. Dornau, Vice President, Marketing
and Sales 15,000 shares
-------
50,000 shares
Other employees, as a group (16 individuals) 52,000 shares
-------
Total restricted shares awarded 102,000 shares
=======
These restricted stock awards were approved by our shareholders at our
Annual Meeting of Shareholders held on August 3, 2007. The Company recorded
approximately $144,000 of compensation expense in the second quarter 2007. In
the second quarter ended June 30, 2006 the Company issued 129,000 shares of
restricted stock at market value of $1.08 per share, bearing a restricted legend
to certain officers and other key employees as a component of their
compensation. 105,000 shares were issued to officers and 24,000 shares were
issued to other employees. Approximately $118,400 of compensation expense was
recorded in the comparable period of 2006.
9
2. PROPERTY, PLANT & EQUIPMENT
The Company's property, plant and equipment consisted of the following at
September 30, 2007 and December 31, 2006:
Estimated
Useful Life-Years 2007 2006
----------------- ------------ ------------
Land N/A $ 278,325 $ 278,325
Building 30 4,389,154 4,389,154
Manufacturing and warehouse
equipment 6-20 6,611,339 6,521,010
Office equipment and furniture 3-5 743,172 678,537
Construction in process N/A 40,291 47,798
Leasehold improvements 10-15 178,402 145,505
------------- ------------
12,240,683 12,060,329
Less Accumulated depreciation 5,851,290 5,260,153
------------- ------------
Total property, plant and equipment - net $ 6,389,393 $ 6,800,176
============= ============
3. LONG-TERM DEBT
Long-term debt at September 30, 2007 consisted of the following:
The Company is obligated pursuant to capital leases financed through
Industrial Development Bonds. Such obligations were incurred during 1997 and
2002 in connection with building and equipment expansion at the Company's
Alabama manufacturing and distribution facility. Both bear interest at tax-free
rates that adjust weekly. At September 30, 2007, $1,530,000 and $2,870,000 were
outstanding attributable to the 1997 and 2002 series, respectively. During the
nine months ended September 30, 2007 interest rates ranged between 3.3% and
4.1%. Principal and accrued interest retiring the underlying bonds are payable
quarterly through March, 2012 and July, 2017 for the 1997 and 2002 series,
respectively. Repayment of the bonds is guaranteed by a Letter of Credit issued
by the Company's primary commercial bank. Security for the Letter of Credit is a
priority first mortgage on the Kinpak facility and manufacturing equipment.
The Company, through its subsidiaries, Kinpak Inc., and Starbrite
Distributing, Inc. are obligated pursuant to various capital lease agreements
covering manufacturing and office equipment utilized in the Company's
facilities. Such obligations, aggregating approximately $74,400 at September 30,
2007, have varying maturities through 2010 and carry interest rates ranging from
7% to 12%.
During April 2005 we entered into a financing obligation with Regions Bank
whereby they advanced the Company $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
outstanding balance and interest rate on this obligation at September 30, 2007
were approximately $258,350 and 7.8% per annum, respectively) through maturity
on April 15, 2010.
During the quarter ended December 31, 2005, we finalized a $1.5 million
revolving credit facility with our president and CEO, Peter G. Dornau. At
September 30, 2006 the gross obligation aggregating $1,150,000 was outstanding
pursuant to this obligation, which was due in October 2010 along with accrued
interest at the rate of prime plus 2%. In connection with his offering this
financing arrangement to the Company, we issued warrants to Mr. Dornau to
purchase a maximum of 1 million shares of our common stock. Such warrants are
exercisable 500,000 shares at $1.13 and 500,000 shares at $.863 with an
expiration date of March 25, 2009. The exercise prices were determined by the
closing bid of our stock plus ten (10) percent on each date of grant. In
addition, he has the right, at his sole discretion, to convert such debt into a
maximum of 1.5 million shares of our common stock at the rate of $1.00 per
share. The gross obligation was reduced by an allocation of imputed interest
associated with the warrants issued to Mr. Dornau.
The initial amount of such allocation was $310,898 which will be amortized
and charged against operations as additional interest expense over the sixty
(60) month term of this financing. During the nine months ended September 30,
2006, amortization of $46,600 was charged against operations. This obligation
was subordinate to all borrowings from Regions Bank. As of December 4, 2006 all
loans have been converted into equity.
On November 10, 2006, our President and CEO, Peter G. Dornau indicated that
he was exercising his right to convert our indebtedness to him into common stock
pursuant to the terms of the Subordinated Revolving Line of Credit he entered
into with the Company. Our total long-term debt was reduced and shareholders'
equity was increased by approximately $1,241,000, respectively.
10
The composition of these obligations at September 30, 2007 and December 31,
2006 were as follows:
Current Portion Long Term Portion
---------------------- ---------------------------
2007 2006 2007 2006
--------- --------- ----------- -----------
Industrial Development Bonds $ 460,000 $ 460,000 $ 3,940,000 $ 4,283,107
Notes Payable 99,996 99,996 158,347 233,344
Capitalized equipment leases 31,930 26,064 42,472 33,739
--------- --------- ----------- ------------
$ 591,926 $ 586,060 $ 4,140,819 $ 4,550,190
========= ========= =========== ============
Required principal payment obligations attributable tabulated below:
Year Ending December 31,
2007 $ 591,926
2008 579,490
2009 572,051
2010 495,540
2011 460,000
Thereafter 2,033,738
----------
Total $4,732,745
==========
4. RELATED PARTY TRANSACTIONS
At September 30, 2007 and December 31, 2006, the Company had amounts
receivable from affiliated companies, which are directly or beneficially owned
by the Company's president, aggregating $ 48,712 and of $231,200 respectively.
Such amounts result from sales to the affiliates, allocations of expenses
incurred by the Company on the affiliates' behalf and funds advanced to or from
the Company.
Sales to such affiliates aggregated approximately $ 39,700, $ 46,700 during
the three months ended September 30, 2007 and 2006, and $ 310,600, $ 290,700 for
the nine months ended September 30, 2007 and 2006, respectively.
During March 2006, an affiliate offered to forgive the Company's
indebtedness to such entity in the approximate amount of $295,000. Accordingly,
during the first quarter of 2006, such amount was credited to Additional paid-in
capital and increased the net amount due from affiliates.
Commitments:
On May 1, 1998, the Company entered into a ten year lease for approximately
12,700 square feet of office and warehouse facilities in Fort Lauderdale,
Florida from an entity owned by certain officers of the Company. The lease
required a minimum rental of $94,800 for the first year and provides for a
maximum 2% increase on the anniversary of the lease throughout the term, which
has been waived through December 31, 2007. The lease has been renewed for an
additional ten year period expiring May 1, 2018 with the same terms as contained
in the original lease. Additionally, the landlord is entitled to its pro-rata
share of all taxes, assessments and any other expenses that arise from
ownership. Rent charged to operations aggregated approximately $ 27,800, $
25,100, during the three months ended September 30, 2007 and 2006 and $ 81,400,
and $ 75,400, for the nine months ended September 30, 2007 and 2006,
respectively. The Company has entered into a corporate guaranty of a mortgage
note obligation of such affiliate. The obligation aggregating approximately $
282,300 and $ 307,000 at September 30, 2007 and December 31, 2006, respectively
is primarily secured by the real estate leased to the Company.
11
The following is a schedule of minimum future rentals on the non-cancelable
operating leases.
Year Ending December 31,
2007 $ 26,649
2008 94,800
2009 94,800
2010 94,800
2011 94,800
Thereafter 600,400
----------
Total $1,006,249
==========
5. EARNINGS (LOSS) PER SHARE
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Weighted-average common shares
outstanding 7,723,316 5,978,316 7,677,983 5,935,316
Dilutive effect of stock plans,
other options & conversion rights 1,035,693 391,617 1,208,273 170,898
--------- --------- --------- ---------
Dilutive weighted-average
shares outstanding 8,759,009 6,369,933 8,886,256 6,106,214
========= ========= ========= =========
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 that 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.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Overview:
We are a leading manufacturer and distributor of chemical formulations
serving the appearance and functional categories of the marine, automotive,
recreational vehicle and home care markets. We were founded in 1973 and have
conducted operations within the aforementioned categories since then. During
1984, we changed our corporate name to Ocean Bio-Chem, Inc. (the parent company)
from our former name, Star Brite Corporation. Our operations were conducted as a
privately owned company through March, 1981 when we completed our initial public
offering of common stock.
12
Critical accounting policies and estimates:
Principles of consolidation - Our consolidated financial statements include
the accounts of the parent company and its wholly owned subsidiaries. All
significant inter-company accounts and transactions are eliminated in
consolidation.
Revenue recognition - Revenue from product sales is recognized when
persuasive evidence of an arrangement exists, delivery to customer has occurred,
the sales price is fixed and determinable, and collectibility of the related
receivable is probable.
Prepaid advertising and promotion - In any given year we introduce certain
new products to our customers. We produce new promotional items to be
distributed over a period of time. We follow the policy of amortizing these
costs as a promotional expense as they are consumed. Advertising is expensed in
the period the advertisement is run.
Property, plant and equipment - Property, plant and equipment are stated at
cost. Depreciation is provided over the estimated useful lives of the related
assets using the straight-line method.
Stock based compensation - The Company follows the provisions of Statement
of Financial Accounting Standards No. 123R to record such compensation costs.
Concentration of credit risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of
accounts receivable. The Company's five largest customers represented
approximately 51%, and 52% of consolidated gross revenues for the nine months
ended September 30, 2007, and 2006; and 55% and 62% of consolidated accounts
receivable at September 30, 2007 and 2006, respectively. The Company has a
longstanding relationship with each of these entities and has always collected
open receivable balances. However, the loss of any of these customers could have
an adverse impact on the Company's operations.
Fair value of financial instruments - The carrying amount of cash
approximates its fair value. The fair value of long-term debt is based on
current rates at which we could borrow funds with similar remaining maturities,
and the carrying amount approximates fair value.
Income taxes - We file consolidated federal and state income tax returns.
We have adopted Statement of Financial Accounting Standards No. 109 and FIN 48
in the accompanying consolidated financial statements. The only temporary
differences included therein are attributable to differing methods of reflecting
depreciation for financial statement and income tax purposes.
Trademarks, trade names and patents - The Star Brite trade name and
trademark were purchased in 1980 for $880,000. The cost of such intangible
assets was amortized on a straight-line basis over an estimated useful life of
40 years through December 31, 2001. Effective January 1, 2002 and pursuant to
Statement of Financial Accounting Standards No. 142, we have determined that the
carrying value of such intangible assets relating to its Star Brite brand does
not require further amortization. In addition, we own two patents that we
believe are valuable in limited product lines, but not material to our success
or competitiveness in general. There are no capitalized costs of these two
patents.
Translation of Canadian currency - The accounts of our Canadian subsidiary
are translated in accordance with Statement of Financial Accounting Standards
No. 52, which requires that foreign currency assets and liabilities be
translated using the exchange rates in effect at the balance sheet date. Results
of operations are translated using the average exchange rate prevailing
throughout the period. The effects of unrealized exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
accumulated as the translation adjustment in shareholders' equity. Realized
gains and losses from foreign currency transactions, if any, are included in net
earnings of the period.
13
Liquidity and Capital Resources:
The primary sources of our liquidity are our operations and short-term
borrowings from Regions Bank pursuant to a revolving line of credit aggregating
$6 million. Such line matures May 31, 2008, bears interest at the 30 Day LIBOR
plus 275 basis points (approximately 8.3% at September 30, 2007) and is secured
by our trade receivables, inventory and intangible assets. As of each year-end,
December 31, we are required to maintain a minimum working capital of $1.5
million and meet certain other financial covenants during the term of the
agreement. As of September 30, 2007, we were obligated under this arrangement in
the amount of $ 3,750, 000.
In connection with the purchase and expansion of the Alabama facility, we
closed on Industrial Development Bonds during 1997 aggregating approximately $5
million. The proceeds were utilized for both the repayment of certain advances
used to purchase the Alabama facility and to expand such facility. During July
2002, we completed a second Industrial Development Bond financing aggregating
$3.5 million through the City of Montgomery, Alabama. Such transaction funded an
approximate 70,000 square foot addition to the manufacturing facility as well as
the remaining machinery and equipment additions required therein. This project
was substantially completed during 2003.
In order to market the Industrial Development Bonds at favorable rates, we
obtained a substitute irrevocable letter of credit for the 1997 issue and a new
irrevocable letter of credit for the 2002 issue. Under such letters of credit
agreements, maturing on July 31, 2008, we are required to maintain a stipulated
level of working capital, a designated maximum debt to tangible ratio, and a
required debt service coverage ratio. Such letters of credit are secured by a
first priority mortgage on the underlying Alabama facility and equipment.
The bonds are marketed weekly at the prevailing rates for such tax-exempt
instruments. During the nine months ended September 30, 2007 such bonds carried
interest ranging between 3.3% and 4.1% annually. Interest and principal are
payable quarterly. We believe current operations are sufficient to meet these
obligations.
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
outstanding balance and interest rate on this obligation at September 30, 2007
were approximately $258,350. The maturity on this obligation is April 15, 2010.
During the quarter ended December 31, 2005, we finalized a $ 1.5 million
revolving credit facility with our president and CEO, Peter G. Dornau. At
September 30, 2006, the gross obligation aggregating was $ 1,275,000 outstanding
pursuant to this obligation which is due in October 2010 along with accrued
interest at the rate of prime plus 2%. In connection with his offering this
financing arrangement to the Company, we issued warrants to Mr. Dornau to
purchase a maximum of 1 million shares of our common stock. Such warrants are
exercisable 500,000 shares at $1.13 and 500,000 shares at $.863.
The exercise prices were determined by the closing bid of our stock plus
ten (10) percent on each date of grant. In addition, he has the right, at his
sole discretion, to convert such debt into a maximum of 1.5 million shares of
our common stock at the rate of $1.00 per share. The gross obligation was
reduced by an allocation of imputed interest associated with the warrants issued
to Mr. Dornau. The initial amount of such allocation was $ 310,898 which will be
amortized and charged against operations as additional interest expense over the
sixty (60) month term of this financing During the nine months ended September
30, 2006, amortization of $ 46,600 was charged against operations. This
obligation is subordinate to all borrowings from Regions Bank.
On November 10, 2006, our President and CEO, Peter G. Dornau indicated that
he was exercising his right to convert our indebtedness to him into common stock
pursuant to the terms of the Subordinated Revolving Line of Credit he entered
into with the Company. Our total long-term debt was reduced and shareholders'
equity was increased by approximately $ 1,241,000, respectively.
We are involved in making sales in the Canadian market and must deal with
the currency fluctuations of the Canadian currency.
14
We do not engage in currency hedging and deal with such currency risk as a
pricing issue.
During the past few years, we have introduced various new products to our
customers. At times this has required us 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 our overall operations. We
believe that all required capital to maintain such increases can continue to be
provided by operations and current financing arrangements.
Many of the raw materials that we use in the manufacturing process are
commodities that are subject to fluctuating prices. We react to long-term
increases by passing along all or a portion of such increases to our customers.
As of September 30, 2007 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.
On March 25, 1999, the Company entered into a loan arrangement with an
entity owned 50% each by our President and former Vice President - Advertising,
Messrs. Peter G. Dornau and Jeffrey J. Tieger, respectively whereby we borrowed
$ 400,000.00 to be repaid in monthly installments of $3,356.79 plus prevailing
interest at prime plus 1%. On March 9, 2006 we received notification from the
shareholders of said entity that they were forgiving this obligation and,
accordingly, the Company has no further obligation associated with this debt. At
that date the principal balance outstanding amounted to $ 295,752 and such
amount is reflected on the accompanying consolidated statement of shareholders'
equity as additional paid-in capital.
Results of Operations:
For The Three Months Ended September 30, 2007 compared to the Three Months
ended September 30, 2006
The consolidated net sales aggregated approximately $6,951,000 and
$7,725,000, respectively. Net sales decreased approximately $ 774,000 or 10.0%
for the quarter ended September 30, 2007, compared to the same quarter of the
preceding year. The consolidated net sales aggregated approximately $ 6,951,000,
and $ 7,725,000 respectively. The primary reason for the decreased sales, was on
a comparative basis the 3rd quarter of 2006, was a strong quarter for our
winterizing products (antifreeze). We are cautiously optimistic, that as the
weather turns colder, in the northern parts of the United States, the Company
will increase sales in these products in the 4th quarter 2007.
Cost of goods sold amounted to approximately $ 4,722,800 or 67.9 % of net
sales for the three months ended September 30, 2007, compared to $ 5,543,700 or
71.8% of net sales for the quarter ended September 30, 2006. The cost of sales
percent improvement was a result of several factors including improved sales mix
with higher sales of the Company's higher margin products. The Company also had
lower operating expenses, in our Kinpak manufacturing facilities, in addition to
lower material cost as a percentage of sales.
Selling and administrative expenses increased approximately $ 77,000 to $
966,000 or 17.9% of sales for the quarters ended September 30, 2007, compared to
$889,000 for comparative 2006. The significant increases were an increase in
sales expenses relating to the addition of a new VP of sales. In addition the
Company increased administrative personnel costs and outsourced computer
services.
Advertising and promotion expenses increased to approximately $572,000, an
increase of $143,000 or approximately 33.5% from approximately $ 428,000 in
2006. The Company continued, in the 3rd quarter to run print and TV media
advertising for its products, in boating, auto and industrial farming magazines.
Interest expense decreased by approximately $159,900, comparing the quarter
ended September 30, 2007 to the corresponding quarter of 2006. This principally
resulted from conversion of a loan to equity in the 4th quarter 2006, to the
Company by our president and CEO, Peter G. Dornau, reducing debt by $1,241,000
and associated interest expense.
15
Our net income for the quarter ended September 30, 2007 amounted to $
665,000 compared to $ 671,000 for the comparable period in 2006. There was no
provision or benefit for income taxes in the current quarter.
For the Nine Months Ended September 30, 2007 Compared To The Nine Months
Ended September 30, 2006
Net sales were approximately $16,407,000 for the nine months ended
September 30, 2007 compared to approximately $16,466,000 for the nine months
ended September 30, 2006. For the nine months ended September 30, 2007 higher
sales of marine chemical and auto products were offset by lower sales of
antifreeze products.
Cost of goods sold decreased to 66.1% of net sales for the nine months
ended September 30, 2007, compared to 71.8% of net sales for the nine months
ended September 30, 2006. This change resulted was attributed improved sales
mix, with higher sales of the Company's higher margin products. In addition to
lower operating expenses in our manufacturing facilities, and lower material
cost as a percentage of sales.
Advertising and promotion expenses increased to approximately $1,245,600 or
7.6% of sales for the 2007, compared to $900,600 or 5.5% of net sales for the
previous year. The Company placed increased levels of TV media and print
advertising during the nine month period of 2007, as discussed above.
Selling and administrative expenses increased to approximately $ 3,190,700
for the nine months ended September 30, 2007, compared to $2,629,800 for the
nine months ended September 30, 2006, an increase of $560,900 or 21.3%. The
expenses were in higher relating to the addition to a new VP of sales in
addition to increased administrative expenses relating to increased personnel
expenses and computer services.
Interest expense for 2007 decreased $ 292,000 to $ 248,000 from $540,000
for the same nine month period of 2006. This principally resulted the conversion
of a loan to equity by our president and CEO, Peter G. Dornau in December 2006
in addition to improved cash flow and less need for borrowings..
The net income was approximately $ 896,000 for the nine months ended
September 30, 2007 compared to a net income of approximately $ 650,000 for the
nine months ended September 30, 2006.
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, principally petroleum based raw materials, 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, 2007, we have not used derivative
instruments or engaged in hedging activities to minimize market risk.
Interest rate risk
As of September 30, 2007, we had floating interest rates on our industrial
development revenue bonds and our working capital line of credit facility. As of
September 30, 2007 the interest rate on our approximate $ 4,400,000 outstanding
balance of industrial revenue bonds was approximately 3.7% per annum and the
interest rate on our line of credit facility was based on the 30 day LIBOR rate
plus 275 basis points (the effective interest rate at September 30, 2007 was
4.1%). We do not expect any changes in interest rates to have a material impact
on our operations during the year ending December 31, 2007.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable. The Company's five
largest customers represented approximately 51%, and 52% of consolidated gross
revenues for the nine months ended September 30, 2007, and 2006; and 55% and 62%
of consolidated accounts receivable at September 30, 2007 and 2006,
respectively. The Company has a longstanding relationship with each of these
entities and has always collected open receivable balances. However, the loss of
any of these customers could have an adverse impact on the Company's operations.
16
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 assure you 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, which 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We have carried out an
evaluation under the supervision of management, including the President and
Chief Executive Officer ("CEO") and the Chief Operating Officer and Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on that evaluation, our CEO and
CFO have concluded that, as of September 30, 2007, our disclosure controls and
procedures were effective to ensure that information required to be disclosed by
us in the reports filed or submitted by us under the Securities Exchange Act of
1934, as amended, was recorded, processed, summarized and reported within the
time periods specified in the rules and regulations of the SEC, and include
controls and procedures designed to ensure that information required to be
disclosed by us in such reports was accumulated and communicated to management,
including the CEO and CFO, as appropriate to allow timely decisions regarding
required disclosures.
Since the evaluation date by management of our internal controls over
financial reporting, there have not been any changes in our internal control
over financial reporting that have materially affected, or are reasonably likely
to materially affect our internal control over financial reporting.
Limitations on the Effectiveness of Controls. Our management, including the
CEO and CFO, does not expect that our disclosure or internal controls will
prevent all errors or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. Despite these limitations, our CEO
and CFO have concluded that our disclosure controls and procedures (1) are
designed to provide reasonable assurance of achieving their objectives and
(2) do provide reasonable assurance of achieving their objectives.
Recent Accounting Pronouncements.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115" (SFAS 159), which is effective for fiscal years beginning
after November 15, 2007. SFAS 159 permits an entity to choose to measure many
financial instruments and certain other items at fair value at specified
election dates. Subsequent unrealized gains and losses on items for which the
fair value option has been elected will be reported in earnings. The Company is
currently evaluating the potential impact, if any, that SFAS 159 will have on
the consolidated financial statements.
In September 2006, the FASB issued Statement 157 ("SFAS 157"), Fair Value
Measurements . This Statement establishes a framework for measuring fair value
in generally accepted accounting principles and expands disclosures about fair
value measurements. While SFAS 157 does not require any new fair value
measurements, it may change the application of fair value measurements embodied
in other accounting standards. SFAS 157 will be effective at the beginning of
the Company's 2008 fiscal year. The Company is currently assessing the effect of
this pronouncement on the consolidated financial statements.
17
PART II - OTHER INFORMATION
Item 1. - 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 1A. - Risk Factors
Set forth any material changes from Risk Factors as previously reported in
the Registrant's Form 10-K in response to Item 1A. in Part 1 of Form 10-K.
There have been no material changes
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds - Not
Applicable
Item 3. - Defaults Upon Senior Securities: Not applicable
Item 4 - Submission of Matters to a Vote by Security Holders -Not
applicable
Item 5 - Other Matters - Not applicable
Item 6.- Exhibits:
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
Sarbanes-Oxley
31.2 Certification of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of Sarbanes-Oxley
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 09, 2007 /s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Chief Financial Officer
18
Exhibit 31.1
CERTIFICATION
I, Peter G. Dornau certify that:
1. I have reviewed this Form 10-Q of Ocean Bio-Chem, Inc. as of and for the
period ended September 30, 2007;
2. Based on my knowledge, this 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 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)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we 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 report is being prepared;
b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) 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
d) 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 (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
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.
Dated: November 09, 2007 /s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
19
Exhibit 31.2
CERTIFICATION
I, Jeffrey S. Barocas certify that:
1. I have reviewed this Form 10-Q of Ocean Bio-Chem, Inc. as of and for the
period ended September 30, 2007;
2. Based on my knowledge, this 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 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)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we 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 report is being prepared;
b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) 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
d) 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 (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
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.
Dated: November 09, 2007 /s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Chief Financial Officer
20
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, 2007 (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 09, 2007
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board of
Directors and Chief Executive Officer
/s/ Jeffrey S. Barocas
Jeffrey s. Barocas
Chief Financial Officer
21