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, 2006
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,
5,978,316 shares issued and outstanding at August 9, 2006
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
----
Part I - Financial Information:
Item 1. - Financial Statements:
Consolidated balance sheets as of June 30, 2006
and December 31, 2005 3
Consolidated statements of operations for
the three months ended June 30,
2006 and 2005 4
Consolidated statements of changes in
shareholders' equity for the three months
ended June 30, 2006 and 2005 5
Consolidated statements of cash flows
for the three months ended June 30,
2006 and 2005 6
Notes to consolidated financial statements 7-13
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations 13-17
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 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 19
Signatures 19
Certifications
2
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2006 2005
------------ -----------
(UNAUDITED)
Current assets:
Cash $ 147,634 $ 204,543
Trade accounts receivable net of allowance for doubtful
accounts of approximately $177,600 and $131,000 at
June 30,2006 and December 31, 2005, respectively 2,046,073 2,027,162
Inventories 7,103,684 6,260,813
Prepaid expenses and other current assets 411,307 510,074
------------ ------------
Total current assets 9,708,698 9,002,592
------------ ------------
Property, plant and equipment, net 7,141,944 7,310,640
------------ ------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Due from affiliated companies, net 244,683 29,022
Deposits and other assets 216,040 230,329
------------ ------------
Total other assets 791,162 589,790
------------ ------------
Total assets $ 17,641,804 $ 16,903,022
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,465,790 $ 1,256,640
Note payable - bank 4,200,000 4,000,000
Current portion of long term debt 585,937 580,852
Accrued expenses payable 518,057 512,977
------------ ------------
Total Current Liabilities 6,769,784 6,350,469
------------ ------------
Long term debt, less current portion 5,838,658 6,261,856
------------ ------------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares authorized;
5,978,316 and 5,849,316 shares issued and outstanding at
June 30, 2006 and December 31, 2005, respectively 59,783 58,493
Additional paid-in capital 5,834,986 4,908,615
Foreign currency translation adjustment ( 165,921) ( 179,653)
Retained earnings (deficit) ( 687,291) ( 488,563)
------------ ------------
5,041,557 4,298,892
Less cost of common stock in treasury, 7,519 shares
at June 30, 2006 and December 31, 2005 ( 8,195) ( 8,195)
------------ ------------
5,033,362 4,290,697
------------ ------------
Total liabilities and shareholders' equity $ 17,641,804 $ 16,903,022
============ ============
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,
2006 2005 2006 2005
---------- ---------- ---------- ---------
Gross sales $4,658,995 $5,148.807 $9,447,817 $8,626,318
Allowances 327,486 561,692 706,716 943,425
---------- ---------- ---------- ----------
Net sales 4,331,509 4,587,115 8,741,101 7,682,893
Cost of goods sold 3,154,032 3,264,677 6,214,554 6,005,181
---------- ---------- ---------- ----------
Gross profit 1,177,477 1,322,438 2,526,547 1,677,712
---------- ---------- ---------- ----------
Costs and expenses:
Advertising and promotion 285,437 564,997 472,357 671,403
Selling and administrative 912,685 955,570 1,740,771 1,966,540
Interest expense 192,591 107,539 335,102 211,471
---------- ---------- ---------- ----------
Total cost and expenses 1,390,713 1,628,106 2,548,230 2,849,414
---------- ---------- ---------- ----------
Operating income (loss) ( 213,236) ( 305,668) ( 21,683) (1,171,702)
Other income - 8,941 1,287 9,760
---------- ---------- ---------- ----------
(Loss) before income taxes ( 213,236) ( 296,727) ( 20,396) (1,161,942)
Income taxes (benefit) - 19,500 - ( 274,500)
---------- ---------- ---------- ----------
Net (loss) ( 213,236) ( 316,227) ( 20,397) ( 887,442)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 8,233 ( 2,362) 13,732 4,121
---------- ---------- ---------- ----------
Comprehensive income (loss) ($ 205,003) ($ 318,589) ($ 6,664) ($ 883,321)
========== ========== ========== ==========
Loss per common share - basic ($ .03) ($ .06) ($ - ) ($ .16)
========== ========== ========== ==========
Loss per common share - diluted ($ .03) ($ .06) ($ - ) ($ .16)
========== ========== ========== ==========
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, 2006 AND 2005
(UNAUDITED)
Foreign Retained
Common stock Additional currency earnings Treasury
Shares Amount paid-in capital adjustment (deficit) stock Total
--------- ------- --------------- ---------- --------- ------- -----------
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 and
warrant 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
========= ======= ========== =========== =========== ======== ===========
January 1,
2005 5,417,813 $54,178 $4,722,746 ($ 204,864) $1,324,630 ($8,195) $ 5,888,495
Net (loss) ( 887,442) ( 887,442)
Common stock
issuance 272,003 2,720 94,545 97,265
Foreign currency
translation
adjustment 4,121 4,121
June 30, --------- ------- ---------- ----------- ---------- -------- ------------
2005 5,689,816 $56,898 $4,817,291 ($ 200,743) $ 437,188 ($8,195) $ 5,102,439
========= ======= ========== =========== ========== ======== ============
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2006 AND 2005
(UNAUDITED)
2006 2005
------------ ------------
Cash flow provided (used) by operating activities:
Net (loss) ($ 20,396) ($ 887,442)
Adjustments to reconcile net (loss)
to net cash provided (used) by operations:
Depreciation and amortization 388,174 368,589
Stock based compensation expense 23,257 -
Amortization of imputed interest 31,090 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ( 18,911) 1,362,465
(Increase) in inventories ( 842,872) ( 1,901,199)
Decrease (increase) in prepaid expenses and other current assets 98,768 ( 222,004)
Increase (decrease) in accounts payable, accrued
expenses and other 228,519 ( 121,954)
------------ -------------
Net cash used by operating activities ( 112,371) ( 1,401,545)
------------ -------------
Cash provided (used) by financing activities:
Net increase (decrease) under line of credit 200,000 400,000
(Increases) in advances to affiliates, net ( 215,661) -
Reductions in advances to affiliates, net 295,752 212,259
Increases in long term borrowings 125,000 500,000
Payments on long term debt, net ( 263,305) ( 232,996)
Common stock transactions 119,422 97,265
------------ ------------
Net cash provided by financing activities 261,208 976,528
------------ ------------
Cash provided (used) by investing activities:
Purchase property, plant, equipment, net ( 219,478) ( 541,294)
------------ ------------
Net cash provided (used) by investing activities ( 219,478) ( 541,294)
------------ ------------
Increase (decrease) in cash prior to effect of
foreign currency translation on cash ( 70,641) ( 966,311)
Effect of foreign currency translation on cash 13,732 4,121
------------ ------------
Increase (decrease) in cash ( 56,909) ( 962,190)
Cash at beginning of period 204,543 988,106
------------ ------------
Cash at end of period $ 147,634 $ 25,916
============ ============
Supplemental Information:
Cash used for interest during period $ 304,012 $ 211,473
============ ============
Cash used for income taxes during period $ - $ 110,734
============ ============
Non-cash investing and financing activities:
Debt forgiven by affiliated entity $ 295,752 $ -
============ ============
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, 2006 are not necessarily indicative of the results that may be expected
for the future fiscal quarters in 2006 or the full year ending December 31, 2006
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, 2005.
During August 2006, we will be filing an amendment to our Form 10-K for the
period ended December 31, 2005. We are in the process of finalizing such filing.
The substantive changes to be reflected in such amendment will be (1) the
recognition of compensation cost associated with stock options of which certain
terms were modified and (2) the reclassification between debt and Additional
Paid-Capital of certain of the proceeds from the Revolving Subordinated
Obligation to our president and CEO, Peter G. Dornau. The effect of the
foregoing on our consolidated balance sheet and consolidated statement of
operations as of December 31, 2005 and for the year then ended is as follows:
Consolidated Balance Sheet:
Long- Shareholders'
term debt equity
---------- -------------
As originally reported $ 6,261,856 $ 4,290,697
Reclassification of imputed interest associated
with warrants issued pursuant to Subordinated
Revolving Note Payable ( 310,898) 310,898
Recognition of compensation cost associated
with stock options granted to Messrs. Dornau
and Tieger of which certain terms were modified - -
----------- ------------
As restated $ 5,950,958 $ 4,601,595
=========== ============
Consolidated Statement of Operations:
Net loss, as originally reported ($1,813,193)
Recognition of compensation cost associated with
stock options granted to Messrs. Dornau and Tieger
which certain terms were modified 178,332
------------
Net loss, as restated ($1,991,525)
============
Certain financial statement items for the six months and quarter ended June
30, 2005 have been reclassified to conform to the 2006 presentation.
7
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 include 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 coverages 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, 2006 and December 31, 2005 were as
follows:
2006 2005
---------- ----------
Raw materials $3,760,633 $3,235,086
Finished goods 3,343,051 3,025,727
---------- ----------
$7,103,684 $6,260,813
========== ==========
Stock Based Compensation
At June 30, 2006, 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 (revised
2004), "Shared 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. Prior to the adoption of
SFAS No. 123R, The Company accounted for its stock-based employee compensation
related to stock options under the intrinsic value recognition and measurement
principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and the disclosure alternative prescribed by
SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure."
Accordingly, The Company presented pro forma information for the periods prior
to the adoption of SFAS No. 123R and no employee compensation cost was
recognized for the stock-based compensation plans other than the grant date
intrinsic value, if any, for the options granted prior to January 1, 2006.
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. Pursuant to the requirements of SFAS No. 123R, The Company will
continue to present the pro forma information for periods prior to the adoption
date.
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 Compensation Committee of the Board of Directors at
8
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 g ranted 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, 2006, 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 outstanding Options available for grant
------------------------ ------------------- ---------------------------
1992 Plan 143,000 shares None - terminated 2002
1994 Plan 159,500 shares None - terminated 2004
2002 Qualified Plan 265,000 shares 135,000 shares
2002 Non-qualified Plan 155,000 shares 45,000 shares
Non-plan options 231,000 shares N/A
Information with respect to our stock option activity is as follows:
Weighted average
Shares exercise price
------- --------------
Outstanding at December 31, 2005 964,500 $1.12
Granted 40,000 $1.08
Exercised -
Forfeited 51,000 $1.25
------- -----
Outstanding at June 30, 2006 953,500 $1.11
======= =====
For the six month period ended June 30, 2006, The Company recognized
$23,257 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, 2006, The Company had $117,714 of unrecognized compensation costs
related to non-vested stock option awards that is expected to be recognized over
a weighted average period of 2.67 years.
The following information applies to options outstanding and exercisable as
of June 30, 2006:
Options outstanding Options exercisable
----------------------- -------------------
Weighted Weighted Weighted
average average average
remaining exercise exercise
Shares life price Shares price
--------- ------- ----------- ---------- ----------
Non-Plan options 231,000 2.75 $ .758 231,000 $ .758
1992 Plan 143,000 .50 1.009 123,200 1.009
1994 Plan 159,500 3.33 1.050 31,900 1.050
2002 Plan - qualified 125,000 1.33 1.260 81,000 1.260
2002 Plan - qualified 140,000 2.75 1.520 56,000 1.620
2002 Plan - non-qualified 35,000 3.33 1.260 35,000 1.260
2002 Plan - non-qualified 40,000 8.00 1.030 40,000 1.030
2002 Plan - non-qualified 40,000 8.90 1.460 40,000 1.460
2002 Plan - non-qualified 40,000 9.80 1.080 40,000 1.050
--------- ----------- ---------- ----------
953,500 $1.110 678,100 $1.045
========= =========== ========== ==========
9
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.
For the three month and six month periods ended June 30, 2006 and 2005, the
fair value of each option grant was estimated on the date of grant using the
following weighted-average assumptions:
For the three months ended For the six months ended
---------------------------- ----------------------------
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
--------------- ------------- ------------- -------------
Expected dividend yield 00.0% 00.0% 00.0% 00.0%
Expected price volatility 33.5% 33.5% 33.5% 33.5%
Risk-free interest rate 4.5% 4.0% 4.5% 4.0%
Expected life of options in years 5-10 5-10 5-10 5-10
The following table illustrates the effect on net loss and basic and
diluted loss per share if we had applied the fair value recognition provisions
of SFAS No.123 to options granted under our stock option plans for the three
month and six month period ended June 30, 2005:
For the thre For the six
months ended months ended
June 30, June 30,
2005 2005
--------- ---------
Net loss, as reported ($316,227) ($887,442)
Add: Stock-based employee compensation
expense included in net loss - -
Deduct: Total stock-based employee compensation
expense determined under fair value
based method, net of income taxes 9,651 19,302
--------- ---------
Pro forma net loss ($325,878) ($906,744)
========= =========
Loss per share:
Basic and diluted - as reported ($0.06) ($0.16)
Basic and diluted - pro forma ($0.06) ($0.16)
On March 25, 1999, the Company granted two officers a five-year option for
115,000 shares each, as adjusted for the Company's stock dividend distributions
of 2000 and 2002, at an exercise price of $.758 representing the market price at
the time of grant. Such grants were awarded in consideration of a loan to the
Company in the amount of $400,000 from an affiliated company in which they are
each 50% co-shareholders. During 2004, the underlying loan was modified to
extend the maturity date and, accordingly, the options were extended for an
additional five years expiring March 25, 2009. The intrinsic value of these
options at the date of term modification aggregated $178,332. Such amount was
not recorded as a charge against operations in our originally issued financial
statements as contained in our Form 10-K as of December 31, 2005 and the year
then ended. Accordingly, our Consolidated Statement of Operations will be
restated for 2005 to reflect such costs along with the corresponding increase to
Additional paid-in capital on our Consolidated Balance Sheet and Consolidated
Statement of Shareholders' Equity. It is contemplated that such amended filing
will be made during August 2006.
10
2. PROPERTY, PLANT & EQUIPMENT
The Company's property, plant and equipment consisted of the following at
June 30, 2006 and December 31, 2005:
Estimated
useful
Life- Years 2006 2005
Land N/A $ 278,325 $ 278,325
Building 30 4,390,894 4,390,894
Manufacturing and warehouse equipment 6-10 4,682,551 4,384,268
Manufacturing and warehouse equipment 11-20 1,659,870 1,659,870
Office equipment and furniture 3-5 661,591 652,940
Construction in process N/A 190,783 278,239
Leasehold improvement 10-15 145,505 145,505
---------- -----------
12,009,519 11,790,041
Less accumulated depreciation 4,867,575 4,479,401
---------- ----------
Total property, plant and equipment, net $7,141,944 $7,310,640
========== ==========
3. LONG-TERM DEBT
Long-term debt at June 30, 2006 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, 2006, $1,953,100 and $3,020,000 were
outstanding attributable to the 1997 and 2002 series, respectively. During the
six months ended June 30, 2006 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.
During 2005 and 2004, the Company, through its subsidiary, Kinpak Inc., was
obligated pursuant to various capital lease agreements covering equipment
utilized in the Company's Alabama plant. Such obligations, aggregating
approximately $73,000 at June 30, 2006, 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 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, 2006 were
approximately $383,300 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 and December 31, 2005, the gross obligation aggregating $1,275,000 and
$1,150,000, respectively 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.
11
The composition of these obligations at June 30, 2006 and December 31, 2005
were as follows:
Current portion Long-term portion
2006 2005 2006 2005
-------- -------- ---------- ----------
Industrial Development Bonds $460,000 $460,000 $4,513,108 $4,745,000
Notes payable 99,996 99,996 283,342 331,448
Capitalized equipment leases 25,941 20,856 47,016 35,408
Subordinated note payable-P. Dornau - - 1,275,000 1,150,000
-------- -------- ---------- ----------
585,937 580,852 6,118,466 6,261,856
Less imputed interest - Subordinated
note payable-P. Dornau - - ( 279,808) ( 310,898)
-------- -------- ---------- -----------
$585,937 $580,852 $5,838,658 $5,950,958
======== ======== ========== ==========
Required principal payment obligations attributable to the foregoing are
tabulated below:
Year ending December 31,
2006 $ 580,852
2007 579,279
2008 571,757
2009 564,360
2010 1,643,352
Thereafter 2,903,108
----------
Total $6,842,708
==========
4. RELATED PARTY TRANSACTIONS
At June 30, 2006 and December 31, 2005, the Company had amounts receivable
from and payable to affiliated companies, which are directly or beneficially
owned by the Company's president, aggregating on a net basis to a receivable of
approximately $ 244,683 and $29,022, 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 $404,109, $540,727,
$110,109, and $147,732 during the six months ended June 30, 2006 and 2005, and
the three months ended June 30, 2006 and 2005, 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.
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.
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 $50,200, $46,700, $25,100, and $25,100
during the six months ended June 30, 2006 and 2005, and the three months ended
June 30, 2006 and 2005, respectively.
The Company has entered into a corporate guaranty of a mortgage note
obligation of such affiliate. The obligation aggregating approximately $321,800
and $336,900 at June 30, 2006 and December 31, 2005, respectively is primarily
secured by the real estate leased to the Company.
The following is a schedule of minimum future rentals on the non-cancelable
operating leases.
Year ending December 31,
2006 $104,507
2007 106,597
2008 108,729
2009 -
2010 -
Thereafter -
--------
Total $319,833
========
12
5. EARNINGS (LOSS) PER SHARE
Six months Three months
ended June 30, ended June 30,
2006 2005 2006 2005
--------- --------- --------- ---------
Weighted-average common
shares outstanding 5,913,816 5,578,815 5,978,316 5,689,816
Dilutive effect of stock plans,
other options & conversion rights 956,710 169,609 523,476 19,417
Diluted weighted-average shares --------- --------- --------- ---------
outstanding 6,870,526 5,748,424 6,501,792 5,709,233
========= ========= ========= =========
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 which 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.
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. In connection therewith, we produce new
promotional items to be distributed over a period of time. We follow the policy
of amortizing these costs over a one-year basis.
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.
13
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.
However, the impact of this pronouncement to our first quarter's operations was
deemed to be not material. 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 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.
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, 2007, bears interest at the 30 Day LIBOR
plus 275 basis points (approximately 7.9% at June 30, 2006) 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, 2006, we were obligated under this arrangement in the
amount of $4,200,000.
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 for our future
needs. 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, 2007, 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.
14
The bonds are marketed weekly at the prevailing rates for such tax-exempt
instruments. During the six months ended June 30, 2006 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, 2006 were
approximately $408,300 and 7.13% per annum, respectively). 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 and December 31, 2005, the gross obligation aggregating $1,275,000 and
$1,150,000, respectively 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.
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.
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, 2006 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.
As disclosed in our Form 10-Q for the quarter ended March 31, 2005, our
largest customer, West Marine, publicly announced their adoption of a policy to
reduce their overall inventory levels. This resulted in an approximate
$4,294,000 decrease in sales to them for the year ended December 31, 2005
compared to 2004. Our products have historically sold well at their retail
stores and they have indicated to us that such was the case during 2005.
Accordingly, it appears that they are approaching their inventory goals as they
relate to our products and the increase in our consolidated gross sales for the
six months ended June 30, 2006 compared to 2005's figures were favorably
impacted by our current period's sales to West Marine; an increase of
approximately $1.4 million for the six months ended June 30, 2006 over the
comparable period in 2005.
Corporate management has enhanced its analysis, supervision and overall
involvement with our manufacturing facility. We have identified several areas
that require improvement and through increased on-site management presence,
major personnel changes, adoption of certain strategic enhancements to our
manufacturing process, and a renewed commitment from our team in Alabama to
strive for improved efficiency and cost savings, we believe that we will achieve
a material reduction in manufacturing cost thereby improving product margins and
operating results at Kinpak during 2006.
15
On March 25, 1999, the Company entered into a loan arrangement with an
entity owned 50% each by our President and 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 accompany consolidated statement of shareholders' equity as
additional paid-in capital.
Results of Operations:
For The Three Months Ended June 30, 2006 compared to the Three Months ended
June 30, 2005
Net sales decreased approximately $255,600 or 5.6 % for the quarter ended
June 30, 2006 compared to the same quarter of the preceding year. The
consolidated net sales aggregated approximately $4,331,500 and $4,587,100,
respectively.
Cost of goods sold amounted to approximately $3,154,000 or 72.8 % of net
sales compared to $3,264,700 or 71.2 % of net sales for the quarters ended June
30, 2006 and 2005, respectively. These results were favorably effected by a
sales price increase passed along to substantially all customers effective
January, 2006, modifications initiated in certain manufacturing processes
however, unfavorably impacted as the result of spreading our fixed element of
manufacturing overhead over the reduced sales levels experienced during the
current quarter.
Selling and administrative expenses decreased approximately $42,900 or 4.5%
when comparing the quarters ended June 30, 2006 and 2005. Certain expenses which
are components of this grouping increased and others decreased. However, the
significant changes were reduced personnel costs, principally at Kinpak, and
lower consulting fees, outside services, other professional fees and outsourced
data processing services.
Advertising and promotion decreased approximately $279,600 or approximately
49.5 % comparing the three months ended June 30, 2006 and 2005. This was the
result of contractual co-operative advertising programs related to the decreased
sales experienced during the current period. In addition, we placed decreased
levels of media and print advertising during the current three month period.
Interest expense increased by approximately $85,100 comparing the quarter
ended June 30, 2006 to the corresponding quarter in 2005. This principally
resulted from increasing interest rates, the accrual of interest on the
revolving line loaned to the Company by our president and CEO, Peter G. Dornau,
and the amortization of imputed interest associated with the foregoing
obligation.
Our net loss for the quarter ended June 30, 2006 amounted to $213,200
compared to a loss of $305,700 for the comparable period in 2005. There was no
provision or benefit for income taxes in the current quarter.
For the Six Months Ended June 30, 2006 Compared To The Six Months Ended
June 30, 2005
Net sales increased 13.8% to approximately $8,741,100 for the six months
ended June 30, 2006 compared to approximately $7,682,900for the six months ended
June 30, 2005. Management attributes such increase significantly to our largest
customer resuming their purchasing after apparently reaching their inventory
goals pursuant to their publicly announced inventory reduction of 2005.
Cost of goods sold decreased to 71.1% of net sales for the six months ended
June 30, 2006 compared to 78.2% of net sales for the six months ended June 30,
2005. This change resulted was attributed sales price increases passed along to
our customers, certain initiatives adopted in our manufacturing processes, and
the result of spreading our fixed element of manufacturing overhead over the
higher sales levels experienced during the six month period.
Advertising and promotion expenses decreased approximately $197,000 or
29.7% for the 2006 period when compared to comparable expenses in the same time
period in the previous year. This resulted primarily from planned decreases in
media and co-op advertising programs for the current year.
Selling and administrative expenses decreased by approximately $225,800 or
11.5 % for the six months ended June 30, 2006 compared to the six months ended
June 30, 2005. Certain expenses which are components of this grouping increased
and others decreased. However, the significant changes were reduced personnel
costs, principally at Kinpak, and lower consulting fees, outside services, other
professional fees and outsourced data processing services.
16
Interest expense for the 2006 period increased approximately $123,600 when
compared to the same six month period of 2005. This principally resulted from
increasing interest rates, the accrual of interest on the revolving line loaned
to the Company by our president and CEO, Peter G. Dornau, and the amortization
of imputed interest associated with the foregoing obligation.
Our net loss was approximately $20,400 for the six months ended June 30,
2006 compared to a net loss of approximately $1,162,900 for the six months ended
June 30, 2005.
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, 2006, we have not used derivative
instruments or engaged in hedging activities to minimize market risk.
Interest rate risk
As of June 30, 2006, we had floating interest rates on our industrial
development revenue bonds and our working capital line of credit facility. As of
June 30, 2006 the interest rate on our approximate $4,973,100 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, 2006 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, 2006.
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, 2006, 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.
17
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.
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 April 2006 we issued 129,000 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 $1.08
each.
Item 3. - Defaults Upon Senior Securities: Not applicable
Item 4 - Submission of Matters to Vote of Security Holders:
On June 15, 2006, at our annual meeting of shareholders, seven directors;
Peter G. Dornau, Edward Anchel, Jeffrey J. Tieger, 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, shareholders ratified
the $1.5 million Subordinated Note financing offered to the Company by Mr. Peter
G. Dornau and certain of his affiliated entities, and approved Levi, Cahlin &
Company, Certified Public Accountants, as independent auditors for the year
ending December 31, 2006.
The tabulation of voting for the foregoing was as follows:
For Against/abstain
Election of directors 5,449,474 80,870
Ratification of issuances
of restricted common
stock 5,441,645 88,699
Ratification of Subordinated
Revolving Line of Credit -
Peter G. Dornau & affiliates 5,447,811 82,533
Levi, Cahlin and
Company, CPA's 5,467,080 63,264
Item 5. - Other Information: Not applicable
18
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, 2006 /s/ Peter G. Dornau
----------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
----------------------------------
/s/ Edward Anchel
Edward Anchel
Chief Financial Officer
19
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, 2006;
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, 2006 /s/ Peter G. Dornau
-------------------------------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Edward Anchel certify that:
1. I have reviewed this Form 10-Q of Ocean Bio-Chem, Inc. as of and for the
period ended June 30, 2006;
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, 2006 /s/ Edward Anchel
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Edward Anchel
Chief Financial Officer
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 March 31, 2006 (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, 2006
/s/ Peter G. Dornau
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Peter G. Dornau
Chairman of the Board of
Directors and ChiefExecutive Officer
/s/ Edward Anchel
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Edward Anchel
Chief Financial Officer