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 June 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 August 9, 2007
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I - Financial Information:
Item 1. - Financial Statements:
Consolidated balance sheets as of June 30, 2007
and December 31, 2006 3
Consolidated statements of operations for
the three and six month periods ended June 30,
2007 and 2006 4
Consolidated statements of changes in
shareholders' equity for the six months
ended June 30, 2007 and 2006 5
Consolidated statements of cash flows
for the six months ended June 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 Procedures 17-18
Part II - Other Information:
Item 1. - Legal Proceedings 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 l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2007 2006
----------- ------------
(UNAUDITED)
Current assets:
Cash $ 840,508 $ 71,080
Trade accounts receivable net of allowance for doubtful
accounts of approximately $50,300 and $192,700 at June 30,
2007 and December 31, 2006, respectively 2,479,135 2,026,870
Inventories (net) 6,513,007 5,647,933
Prepaid expenses and other current assets 269,486 218,151
----------- ------------
Total current assets 10,102,136 7,964,034
----------- ------------
Property, plant and equipment, net 6,486,378 6.800,176
----------- ------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 331,695 330,439
Due from affiliated companies, net - 231,200
Deposits and other assets 177,569 203,510
----------- ------------
Total other assets 509,264 765,149
----------- ------------
Total assets $17,097,778 $ 15,529,359
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,235,278 $ 943,907
Note payable - bank 3,000,000 2,150,000
Current portion of long term debt 586,555 586,060
Accrued expenses payable 719,192 363,669
----------- ------------
Total Current Liabilities 5,541,025 4,043,636
----------- ------------
Long term debt, less current portion 4,256,911 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
June 30, 2007 and December 31, 2006, respectively 77,233 76,213
Additional paid-in capital 7,423,121 7,257,447
Foreign currency translation adjustment ( 209,939) ( 176,094)
Retained earnings (deficit) 17,622 ( 213,838)
7,308,037 6,943,728
------------ -------------
Less treasury stock, 7,519 shares at cost ( 8,195) ( 8,195)
------------ -------------
7,299,842 6,935,533
Total liabilities and shareholders' equity $17,097,778 $ 15,529,359
============ =============
3
OCEAN BIO-CHEM, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2007 2006 2007 2006
---------- ----------- ----------- -----------
Gross sales $5,968,738 $4,658,995 $10,388,395 $9,447,817
Allowances 534,735 327,486 931,984 706,716
---------- ----------- ----------- -----------
Net sales 5,434,003 4,331,509 9,456,411 8,741,101
Cost of goods sold 3,275,260 3,154,032 6,122,769 6,214,554
---------- ----------- ----------- -----------
Gross profit 2,158,743 1,177,477 3,333,642 2,526,547
---------- ----------- ----------- -----------
Costs and expenses:
Advertising and promotion 467,380 285,437 674,032 472,357
Selling and administrative 1,190,910 912,685 2,225,052 1,740,771
Interest expense 105,860 192,591 203,098 335,102
---------- ----------- ----------- -----------
Total cost and expenses 1,764,150 1,390,713 3,102,182 2,548,230
---------- ----------- ----------- -----------
Operating Income (loss) 394,593 ( 213,236) 231,460 ( 21,683)
Other income - - - 1,287
---------- ----------- ----------- -----------
Income (loss) before income taxes 394,593 ( 213,236) 231,460 ( 20,396)
Income taxes (benefit) - - - -
---------- ----------- ----------- -----------
Net Income (loss) 394,593 ( 213,236) 231,460 ( 20,396)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 34,912 8,23 ( 33,845) 13,732
---------- ----------- ----------- -----------
Comprehensive income (loss) $ 429,505 ($ 205,003) $ 197,615 ($ 6,664)
========== =========== ============ ===========
Income (loss) per common share - basic $ .06 ($ .03) $ .03 $ .00
========== =========== ============ ===========
Income (loss) per common share - diluted $ .05 ($ .03) $ .02 $ .00
========== =========== ============ ===========
The Company has adopted Statement of Financial Accounting Standards No. 130
that requires items of comprehensive income to be stated as part of the basic
financial statements. The only 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 SIX MONTHS ENDED
JUNE 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 231,460 231,460
Common stock
issuances 102,000 1,020 142,902 143,922
Stock based compensation 22,772 22,772
Foreign currency
translation
adjustment ( 33,845) ( 33,845)
--------- ------- ---------- ----------- ----------- -------- -----------
June 30,
2007 7,723,316 $77,233 $7,423,121 ($ 209,939) $ 17,622 ($8,195) $7,299,842
========= ======= ========== =========== =========== ======== ===========
January 1, 2006,
as previously
reported 5,849,316 $58,493 $4,908,615 ($179,653) ($ 488,563) ($8,195) $4,290,697
Compensation cost
associated with the
modification of stock
options 178,332 ( 178,332)
Compensation cost
associated with
stock warrants 310,898 310,898
January 1, 2006, --------- ------- ---------- ----------- ----------- -------- -----------
as restated 5,849,316 58,493 5,397,845 ( 179,653) ( 666,895) ( 8,195) 4,601,595
Net loss ( 20,396) ( 20,396)
Debt forgiveness -
affiliate 295,752 295,752
Common stock
issuances 129,000 1,290 118,132 119,422
Stock based compensation 23,257 23,257
Foreign currency
translation adjustment 13,732 13,732
June 30, --------- ------- ---------- ----------- ----------- -------- -----------
2006 5,978,316 $59,783 $5,834,986 ($ 165,921) ($ 687,291) ($8,195) $5,033,362
========= ======= ========== =========== =========== ======== ===========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
2007 2006
------------ -------------
Cash flows from operating activities:
Net income (loss) $ 231,460 ($ 20,396)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operations:
Depreciation and amortization 388,498 388,174
Compensation cost associated with stock
options and stock awards 166,694 142,679
Amortization of imputed interest - 31,090
Decrease in accounts receivable -
allowance for doubtful account 142,431 46,600
Changes in assets and liabilities:
(Increase) in accounts receivable ( 594,696) ( 65,511)
(Increase) in inventory ( 865,075) ( 842,872)
(Increase) decrease in prepaid expenses ( 26,650) 98,768
Increase in accounts payable
and accrued taxes and other 644,898 228,519
------------ -------------
Net cash provided by operating activities 87,560 7,051
------------ -------------
Cash flows used by investing activities:
Purchases of property, plant and equipment ( 74,700) ( 219,478)
------------ -------------
Net cash used in investing activities ( 74,700) ( 219,478)
------------ -------------
Cash flows from financing activities:
Borrowings line of credit 1,300,000 1,000,000
Principal payments - line of credit ( 448,002) ( 800,000)
Decrease in amounts due from affiliates 231,200 80,091
Increase in Long-term debt - 125,000
Principal payments long-term debt ( 292,785) ( 263,305)
------------ -------------
Net cash provided (used) by financing activities 715,713 141,786
------------ -------------
Increase (decrease) in cash prior to effect of
exchange rate on cash 803,273 ( 70,641)
Effect of exchange rate on cash ( 33,845) 13,732
------------ -------------
Net increase (decrease) in cash 769,428 ( 56,909)
Cash at beginning of year 71,080 204,543
------------ -------------
Cash at end of period $ 840,508 $ 147,634
============ =============
Supplemental disclosure of cash transactions:
Cash paid for interest during period $ 208,579 $ 304,012
============ =============
Cash paid for income taxes during period $ - $ -
============ =============
Supplemental information-disclosure of non-cash
transactions:
Compensation cost associated with stock options and warrants $ 22,772 $ 23,257
============ =============
Forgiveness of indebtedness to an affiliate $ - $ 295,752
============ =============
The Company had no cash equivalents at June 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
June 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 both raw and finished 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 June 30, 2007 and December 31, 2006 were as follows:
2007 2006
---- ----
Raw materials $ 2,252,656 $ 3,423,030
Finished goods 4,310,351 2,244,903
Less Inventory Reserve ( 50,000) ( 20,000)
-------------- ------------
Inventory - net $ 6,513,007 $ 5,647,933
============== ============
7
Stock Based Compensation
At June 30, 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. 123, "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. In addition, the
realization of tax benefits in excess of amounts recognized for financial
reporting purposes will be recognized as a financing activity rather than an
operating activity as in the past.
Stock Compensation Plans
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 Company's Board of 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.
As of June 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: ptions outstanding
Plan Options outstanding Options available for grant
----------------------- ------------------- ---------------------------
1994 Plan 159,500 shares None - terminated 2004
2002 Plan 400,000 shares None
2002 Non-qualified
Plan 155,000 shares 45,000 shares
2007 Plan 164,500 shares 235,500 shares
Non-plan options 231,000 shares N/A
---------
1,110,000 shares
=========
Information with respect to our Stock Option Plan activity is as follows:
Weighted average
Shares exercise price
Outstanding at December 31, 2006 945,500 $1.21
Granted 164,500 $1.66
Exercised - -
Forfeited - -
--------- -----
Outstanding at June 30, 2007 1,110,000 $1.27
========= =====
8
For the six-month period ended June 30, 2007, The Company recognized
$22,772 in stock-based compensation costs, which is reflected in operating
expenses. No tax benefits were attributed to the stock-based compensation
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 June 30, 2007, The Company had $224,467 of unrecognized compensation costs
related to non-vested stock option awards that is expected to be recognized over
a weighted average period of 5 years.
The following information applies to options outstanding and exercisable as
of June 30, 2007:
Options Exercisable Exercise Weighted
outstanding 06/30/07 price years
Options: ----------- ----------- -------- --------
Non Plan Options 231,000 231,000 .760
1994 Plan 159,500 63,800 1.050 2.3
2002 Plan 125,000 100,000 1.260 0.3
2002 Plan 140,000 84,000 1.620 1.7
2002 Plan 135,000 - 0.930 4.4
2007 Plan 164,500 - 1.660 5.0
2002 Plan (NQ) 35,000 35,000 1.260 5.4
2002 Plan (NQ) 40,000 40,000 1.030 6.1
2002 Plan (NQ) 40,000 40,000 1.460 6.9
2002 Plan (NQ) 40,000 40,000 1.090 8.9
--------- ------- ---
1,110,000 633,800 3.6
========= ======= ===
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 grant the shares had a market value of $1.66
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 15,000 shares
Gregor M. Dornau 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 issues 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 issues to officers and 24,000 shares were
issues to other employees
9
2. PROPERTY, PLANT & EQUIPMENT
The Company's property, plant and equipment consisted of the following at
June 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 6,563,590 6,521,010
Office equipment and furniture 3-5 707,420 678,537
Construction in process N/A 20,307 47,798
Leasehold improvement 10-15 178,403 145,505
----------- ------------
12,137,199 12,060,329
Less accumulated depreciation 5,650,821 5,260,153
----------- ------------
Total property, plant and equipment, net $ 6,486,378 $ 6,800,176
=========== ============
3. LONG-TERM DEBT
Long-term debt at June 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 June 30, 2007, $1,613,108 and $2,900,000 were
outstanding attributable to the 1997 and 2002 series, respectively. During the
six months ended June 30, 2007 interest rates ranged between 3.3% and 3.7%.
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 subsidiary, Kinpak Inc., is obligated pursuant to
various capital lease agreements covering equipment utilized in the Company's
Alabama plant. Such obligations, aggregating approximately $26,559 at June 30,
2007, have varying maturities through 2009 and carry interest rates ranging from
7% to 12%.
During April 2005 we entered into a financing obligation with Regions Bank
whereby they advanced $500,000 to the Company in order 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 June 30, 2007 were approximately $283,300 and 7.6% 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 June
30, 2006 the gross obligation aggregating $1,150,000 was 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 six months ended June 30, 2006, amortization of $31,090
was charged against operations. This obligation is subordinate to all borrowings
from Regions Bank.
10
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.
The composition of these obligations at June 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 $ 4,053,108 $ 4,283,107
Notes payable 99,996 99,996 183,346 233,344
Capitalized equipment leases 26,559 26,064 20,457 33,739
---------- ---------- ------------ ------------
$ 586,555 $ 586,060 $ 4,256,911 $ 4,550,190
========== ========== ============ ============
Required principal payment obligations as of June 30, 2007 attributable to
the foregoing are tabulated below:
2007 $ 586,555
2008 579,490
2009 572,051
2010 495,540
2011 460,000
Thereafter 2,149,830
----------
Total $4,843,466
==========
4. RELATED PARTY TRANSACTIONS
At June 30, 2007 and December 31, 2006, the Company had amounts receivable
from and payable to affiliated companies, which are directly or beneficially
owned by the Company's president, aggregating a net payable of approximately $
5,524 and receivable 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 $270,934 and $404,109
during the six months ended June 30, 2007 and 2006, and $74,256 and 110,109 for
the three months ended June 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, 2006. 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
$53,500 and $50,200 during the six months ended June 30, 2007 and 2006, and
$25,100 and $25,100 during the three months ended June 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 $290,000
and $306,000 at June 30, 2007 and 2006 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 $ 106,597
2008 36,243
2009 -
2010 -
Thereafter -
---------
Total $ 142,840
=========
5. EARNINGS (LOSS) PER SHARE
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Weighted-average common
shares outstanding 7,689,316 5,978,316 7,655,316 5,913,816
Dilutive effect of stock plans,
other options & conversion rights 883,060 523,476 838,060 956,710
--------- --------- --------- ---------
Diluted weighted-average shares
outstanding 8,572,376 6,501,792 8,538,376 6,870,526
========= ========= ========= =========
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 - Prior to January 1, 2006 we followed the
provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, to
record compensation costs. Opinion No. 25 requires that compensation cost be
based on the difference, if any, between the quoted market price of the stock
and the price the employee must pay to acquire the stock depending on the terms
of the award. Effective January 1, 2006 we adopted the provisions Statement of
Financial Accounting Standards No. 123R to record such compensation costs.
Prior thereto, such matters were disclosed in the
notes to our consolidated financial statements.
Concentration of credit risk - Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of
accounts receivable. Over the past three years, our five largest customers
historically represented a range of approximately 45% to 55% of consolidated
gross revenues and 25% to 77% of consolidated accounts receivable, respectively.
We have experienced a longstanding relationship with each of these entities and
have always collected open receivable balances in a timely manner. However, the
loss of any of these customers could have an adverse impact on our 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 7.9% at June 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 June 30, 2007, we were obligated under this arrangement in the
amount of $3,000,000.
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 six months ended June 30, 2007 such bonds carried
interest ranging between 3.3% and 3.7% 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 June 30, 2007 were
approximately $283,300. 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 June
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 six months ended June 30, 2006, amortization of $31,090
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.
We do not engage in currency hedging and deal with such currency risk as a
pricing issue.
14
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 June 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 June 30, 2007 compared to the Three Months ended
June 30, 2006
Net sales increased approximately $1,102,000 or 25.5 % for the quarter
ended June 30, 2007 compared to the same quarter of the preceding year. The
consolidated net sales aggregated approximately $5,434,000 and $4,331,500
respectively. Sales increases were a result of the improved boating weather in
the 2nd quarter of 2007, in addition to increased sales of newer products in
both the boating and auto care markets.
Cost of goods sold amounted to approximately $3,275,000 or 60.3 % of net
sales for the three months ended June 30, 2007 compared to $3,154,000 or 72.8%
of net sales for the quarter ended June 30, 2006. These results were favorably
effected by increased sales volume and changes in the sales mix with higher
sales of the Company's higher margin products. In addition, the cost of sales
were favorably impacted as the result of spreading fixed element of
manufacturing overhead over increased volume during the current quarter.
Selling and administrative expenses increased approximately $278,000 to
$1,191,000 or 21.9% of sales when comparing the quarters ended June 30, 2007
compared to $912,685 for 2006. The significant increases were a charge to income
in the quarter for compensation expense relating to the awarding of Ocean
Bio-Chem stock to employees of approximately $144,000. In addition to increased
personnel costs, consulting fees, outside services, other professional fees and
outsourced data processing services.
Advertising and promotion increased to approximately $467,000 an increase
of $182,000 or approximately 63.7 % from $285,400 for 2006. The increased
spending correlated with increased sales and the resulting customer co-operative
advertising programs related to sales. In addition, the Company placed increased
levels of TV media and print advertising during the current three month period.
Interest expense decreased by approximately $86,700 comparing the quarter
ended June 30, 2007 compared to the corresponding quarter in 2006. This
principally resulted from conversion of a loan to equity in the 4th quarter
2006, to our Company by our president and CEO, Peter G. Dornau, reducing debt by
$1,241,000 and associated interest expense.
Our net income for the quarter ended June 30, 2007 amounted to $394,593
compared to a loss of $213,236 for the comparable period in 2006. There was no
provision or benefit for income taxes in the current quarter due to
consideration of avaiable Income Tax carryovers.
15
For the Six Months Ended June 30, 2007 Compared To The Six Months Ended
June 30, 2006
Net sales increased 8.2% to approximately $9,456,400 for the six months
ended June 30, 2007 compared to approximately $8,741,100 for the six months
ended June 30, 2006. The significant increase in year to date sales were in the
second quarter 2007 as discussed above.
Cost of goods sold decreased to 64.6% of net sales for the six months ended
June 30, 2007 compared to 71.1% of net sales for the six months ended June 30,
2006. This change resulted was attributed improved sales mix and volume along
with spreading our fixed element of manufacturing overhead over the higher sales
levels experienced during the six current month period.
Advertising and promotion expenses increased to $674,000 or 7.1% of sales
for the 2007 compared to 472,400 or 5.4% of net sales for the previous year.
This increase in the current year was the result of increased sales and the
resulting co-operative advertising programs related to sales. In addition, the
Company placed increased levels of media and print advertising during the six
month period.
Selling and administrative expenses increased to approximately $2,225,000
for the six months ended June 30, 2007 compared to $1,740,800 the six months
ended June 30, 2006 an increase of $484,281 or 27.8%. The significant increase
was charge to income of $ 144,000 for the awarding of stock of Ocean Bio-Chem to
employees. In addition personnel costs, consulting fees, outside services, other
professional fees and outsourced data processing services increased from prior
year.
Interest expense for the 2007 decreased $123,600 when compared to the same
six month period of 2006. This principally resulted the conversion of a loan
made by our President, Peter G. Dornau, to the Company to equity during the
quarter ended December 31, 2006. Such conversion reduced long-term debt by
approximately $1,241,000 along with a related reduction in our interest expense.
The profit was approximately $231,460 for the six months ended June 30,
2007 compared to a net loss of approximately $20,400 for the six months ended
June 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 June 30, 2007, we have not used derivative
instruments or engaged in hedging activities to minimize market risk.
Interest rate risk
As of June 30, 2007, we had floating interest rates on our industrial
development revenue bonds and our working capital line of credit facility. As of
June 30, 2007 the interest rate on our approximate $4,513,100 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 June 30, 2007 was 7.9%).
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 59%, and 57% of consolidated gross
revenues for the six months ended June 30, 2007 and 2006; and 64% and 56% of
consolidated accounts receivable at June 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 June 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.
SFAS No. 159 permits entities to choose to measure eligible financial
instruments at fair value. The unrealized gains and losses on items for which
the fair value option has been elected should be reported in earnings. The
decision to elect the fair value options is determined on an
instrument-by-instrument basis, it should be applied to an entire instrument,
and it is irrevocable. Assets and liabilities measured at fair value pursuant to
the fair value option should be reported separately in the balance sheet from
those instruments measured using another measurement attribute. SFAS No. 159 is
effective as of the beginning of the first fiscal year that begins after
November 15, 2007. The Company is currently analyzing the potential impact of
adoption of SFAS No. 159 to its consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements,
("SFAS 157"). Such pronoucement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The Company does not anticipate adoption of
this standard will have a material impact on its consolidated financial
statements.
17
In May 2007, the FASB issued FASB Staff Position ("FSP") FIN 48-1, or "FSP
FIN 48-1," which clarifies when a tax position is considered settled under FIN
48. The FSP explains that a tax position can be effectively settled on the
completion of an examination by a taxing authority without legally being
extinguished. For tax positions considered effectively settled, an entity would
recognize the full amount of tax benefit, even if (1) the tax position is not
considered more likely than not to be sustained solely on the basis of its
technical merits and (2) the statute of limitations remain open. FSP FIN 48-1
should be applied upon the initial adoption of FIN 48. The impact of our
adoption of FIN 48 (as of January 1, 2007) is in accordance with this FSP and
the implementation has not resulted in any changes to our consolidated financial
statements.
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:
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 grant the shares had a market value of $1.66
each.
Item 3. - Defaults Upon Senior Securities: Not applicable
Item 4. - Submission of Matters to Vote of Security Holders:
On August 3, 2007, at our annual meeting of shareholders, nine directors;
Peter G. Dornau, Edward Anchel, Jeffrey S. Barocas, Greg Dornau, William Dudman,
Laz L. Schneider, James M. Kolisch, John B. Turner, and Sonia B. Beard were
elected, shareholders ratified issuances of restricted common stock to certain
employees, approval of the 2007 Incentive Stock OPtion Plan,and approved
Berenfeld, Spritzer, Shechter & Sheer, Certified Public Accountants &
Consultants, as independent auditors for the year ending December 31, 2007.
The tabulation of voting for the foregoing was as follows:
For Against/abstain
Election of directors 6,967,321 6,532
Approve 2007 Incentive stock option plan 5,246,986 64,765
Approve and ratify grants of the Company's restricted stock 5,246,994 64,823
Ratify appointment of Berenfeld, Spritzer, Shechter & Sheer 6,967,437 6,461
as independent CPA through December 31, 2007
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: August 14, 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 June 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: August 14, 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 June 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: August 14, 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 June 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: August 14, 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