U.S. 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 March 31, 2008
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-11102
OCEAN BIO-CHEM, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1564329
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
4041 SW 47 Avenue, Ft. Lauderdale, Florida 33314-4023
(Address of principal executive offices)
954-587-6280
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated file. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|.
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No.|X|
As of May 6, 2008, there were 7,871,816 shares of Common Stock, $.01 par
value of the registrant outstanding
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
Part I - Financial Information:
Item 1. - Financial Statements:
Condensed consolidated balance sheets as of
March 31, 2008 and December 31,2007 3
Condensed consolidated statements of operations
for the three months ended March 31, 2008 and 2007 4
Condensed consolidated statements of cash flows for
the three months ended March 31, 2008 and 2007 5
Notes to condensed consolidated financial statements 6-10
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 11
Item 4 - Controls and Procedures 11-12
Part II - Other Information: 12
Item 1. - Legal Proceedings 12
Item 1A - Risk Factors 12
Item 2. - Unregistered Sales of Equity Securities
and Use of Proceeds 12
Item 3. - Defaults upon Senior Securities 12
Item 4. - Submission of Matters to a Vote by Security Holders 12
Item 5. - Other Matters 12
Item 6. - Exhibits 12
Signatures 12
Certifications 13-15
PART I - Financial Information
1. Financial Statements
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 DECEMBER 31, 2007
---------------- -----------------
(UNAUDITED)
ASSETS
Current Assets:
Cash $ 653,357 $ 750,901
Trade accounts receivable net of allowance for doubtful
accounts of approximately $42,042 and $46,996 at March 31 ,
2008 and December 31, 2007 respectively 1,840,692 1,974,654
Income taxes receivable 152,000 -
Inventories, net 7,058,042 5,993,657
Prepaid expenses and other current assets 158,434 285,126
------------- ------------
------------- ------------
Total current assets 9,862,525 9,004,338
------------- ------------
Property, plant and equipment, net 6,170,245 6,235,812
------------- ------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Due from affiliated companies, net 352,244 109,310
Deposits and other assets 152,164 253,718
------------- ------------
Total Other Assets 834,847 693,467
------------- ------------
Total Assets $ 16,867,617 $ 15,933,617
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 1,293,363 $ 1,010,263
Note payable - bank 2,700,000 1,750,000
Current portion of long term debt 589,314 589,906
Accrued expenses payable 526,825 511,758
------------- ------------
Total Current Liabilities 5,109,502 3,861,927
------------- ------------
Long term debt, less current portion 3,853,200 3,988,978
------------- ------------
Shareholders' Equity:
Common stock - $.01 par value, 10,000,000 shares authorized;
7,871,816 shares issued and outstanding at
March 31, 2008 and December 31, 2007, respectively 78,718 78,718
Additional paid in capital 7,810,350 7,780,547
Foreign currency translation adjustment (210,359) (209,049)
Retained earnings 234,401 440,691
------------- ------------
7,913,110 8,090,907
Less cost of common stock in treasury, 7,519 shares (8,195) (8,195)
------------- ------------
Total Shareholders' Equity 7,904,915 8,082,712
---------- ------------
Total Liabilities and Shareholders' Equity $ 16,867,617 $ 15,933,617
============= ============
>
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED MARCH 31,
2008 2007
----------- -----------
Gross sales $3,980,519 $4,338,994
Sales allowances 235,559 316,586
----------- -----------
Net sales 3,744,960 4,022,408
Cost of goods sold 2,873,824 2,847,509
----------- -----------
Gross profit 871,136 1,174,899
----------- -----------
Expenses:
Advertising and promotion 202,346 206,652
Selling and administrative 927,247 1,034,142
Interest expense 64,687 97,238
----------- -----------
Total expenses 1,194,280 1,338,032
----------- -----------
Operating loss (323,144) (163,133)
Other income 11,908 -
----------- -----------
Loss before income taxes (311,236) (163,133)
Income tax benefit 104,946 -
----------- -----------
Net loss (206,290) (163,133)
Other comprehensive income (loss) , net of tax
Foreign currency translation adjustment (1,310) 796
----------- -----------
Comprehensive loss ($ 207,600) ($ 162,337)
=========== ===========
Loss per common share - basic $ (0.03) $ (0.02)
----------- -----------
Loss per common share - diluted $ (0.03) $ (0.02)
----------- -----------
Weighted average shares - basic 7,822,066 7,621,316
----------- -----------
Weighted average shares - diluted 7,822,066 7,621,316
----------- -----------
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)
2008 2007
Cash flows from operating activities: ---------- ----------
Net (loss) ($206,290) ($163,133)
Adjustment to reconcile net loss
to net cash used in operations:
Depreciation and amortization 196,988 193,237
Compensation cost associated with stock
options and stock awards 29,803 11,386
Change in allowance for doubtful accounts 223 (156,000)
Changes in assets and liabilities:
Accounts receivable 133,739 77,262
Income taxes Receivable 152,000 -
Inventory (1,064,385) (787,740)
Prepaid expenses and deposits 228,247 (19,459)
Accounts payable and accrued taxes and other ( 5,833) 627,675
---------- ----------
Net cash used in operating activities (535,508) (216,772)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (131,421) (40,000)
---------- ----------
Net cash used in investing activities (131,421) (40,000)
---------- ----------
Cash flows from financing activities:
Borrowings line of credit 950,000 899,996
Amounts due from affiliates (242,935) 2,149
Principal payments - long-term debt (136,370) (246,329)
---------- ----------
Net cash provided by financing activities 570,695 655,816
Cash prior to effect of exchange rate on cash (96,234) 399,044
Effect of foreign exchange rate on cash (1,310) 796
---------- ----------
Net (decrease) increase in cash (97,544) 399,840
Cash at beginning of period 750,901 71,080
---------- ----------
Cash at end of period $ 653,357 $ 470,920
========== ==========
Supplemental disclosure of cash transactions:
Cash paid for interest during period $ 64,687 $ 97,238
---------- ----------
Cash paid for income taxes during period $ - $ -
---------- ----------
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The company had no cash equivalents at March 31, 2008 and 2007
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO UNADUDITED CONDENSED 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 Article 8 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
March 31, 2008 are not necessarily indicative of the results that may be
expected for the future fiscal quarters in 2008 or the full year ending
December 31, 2008 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, 2007.
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. The Company follows the
policy of reporting sales taxes as a net amount - receipts and payments recorded
in a liability account.
Cost of goods sold/Selling, general and administrative expenses
Cost of goods sold includes all of the direct and indirect costs of
manufacturing our products. Included therein specifically are warehousing costs
of raw materials, in-bound freight, out-bound freight (in those instances that
we absorb such costs), purchasing, receiving, and inspection costs. Other costs
of the distribution network are reflected in Selling, general and administrative
expenses. Also included therein are managerial and clerical wages and related
expenses, office and administrative occupancy costs, taxes, professional fees,
insurance coverage's and other related expenses.
Inventories
Inventories are comprised of finished goods and stated at the lower of cost
or market. Cost is determined by the first-in first-out method. The composition
of inventories at March 31, 2008 and December 31, 2007 are as follows:
2008 2007
------------ ------------
Raw Materials $ 3,689,686 $ 3,247,359
Finished Goods 3,478,920 2,821,861
Less: Inventory Reserve (110,564) (75,563)
------------ ------------
Inventory - Net $ 7,058,042 $ 5,993,657
============ ============
At March 31, 2008 and December 31, 2007, approximately $111,000 and $76,000
respectively is reflected in the accompanying consolidated financial statements
as a reserve for excess, obsolete, slow moving and shrinkage inventory
adjustments.
6
2. PROPERTY, PLANT & EQUIPMENT
The Company's property, plant and equipment consisted of the following at
March 31, 2008 and December 31, 2007:
Estimated
Useful Life -
Years 2008 2007
------------- ---------- ------------
Land N/A $ 278,325 $ 278,325
Building 30 4,389,155 4,389,155
Manufacturing and warehouse equipment 6-20 6,458,954 6,367,883
Office equipment and furniture 3-5 549,813 509,496
Leasehold Improvements 10-15 122,644 122,644
Construction in process N/A 21,112 21,079
----------- ------------
11,820,003 11,688,582
----------- ------------
Less Accumulated depreciation 5,649,758 5,452,770
----------- ------------
Total property, plant and equipment - net $ 6,170,245 $ 6,235,812
=========== ============
Depreciation expense for the three month period ending March 31, 2008
and 2007 was $196,988 and $193,237 respectively.
3. LONG-TERM DEBT
Long-term debt at March 31, 2008 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 March 31, 2008, $1,360,000 and $2,810,000 were
outstanding attributable to the 1997 and 2002 series, respectively. During the
three months ended March 31, 2008 interest rates ranged between 1.51% and 3.72%.
Principal and accrued interest retiring the underlying bonds are payable
quarterly through March 2012 and July 2017 for the 1997 and 2002 series,
respectively. Repayment of the bonds is guaranteed by a Letter of Credit issued
by the Company's primary commercial bank. Security for the Letter of Credit is a
priority first mortgage on the Kinpak facility and manufacturing equipment.
The Company, through its subsidiaries, Kinpak Inc., and Starbrite
Distributing, Inc. are obligated pursuant to various capital lease agreements
covering manufacturing and office equipment utilized in the Company's
facilities. Such obligations, aggregating approximately $64,200 at March 31,
2008, have varying maturities through 2010 and carry interest rates ranging from
7% to 12%.
During April 2005 we entered into a financing obligation with Regions Bank
whereby they advanced the Company $500,000 to finance equipment acquisitions at
our Kinpak facility. Such obligation is due in monthly installments of principal
aggregating approximately $8,300 plus interest at prevailing rates (the
outstanding balance and interest rate on this obligation at March 31, 2008 were
$208,345 and 5.62% per annum) through maturity on April 15, 2010.
The composition of these obligations at March 31, 2008 and December 31,
2007 were as follows:
Current Portion Long Term Portion
----------------------- --------------------------
2008 2007 2009 2008
---------- ---------- ----------- ------------
Industrial Development Bonds $ 460,000 $ 460,000 $3,710,000 $3,825,000
Notes Payable 99,996 99,996 108,349 133,348
Capitalized equipment leases 29,318 29,910 34,851 30,630
---------- ---------- ----------- -------------
$ 589,314 $ 589,906 $3,853,200 $3,988,978
========== ========== =========== =============
7
Required principal payment obligations attributable to the foregoing are
tabulated below:
Twelve month period ending March 31,:
2009 $ 589,314
2010 580,432
2011 504,607
2012 463,161
2013 415,000
Thereafter 1,890,000
-----------
Total $ 4,442,514
===========
4. RELATED PARTY TRANSACTIONS
At March 31, 2008 and December 31, 2007, the Company had amounts receivable
from affiliated companies, which are directly or beneficially owned by the
Company's president, aggregating to $ 352,244 and $109,310 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 $ 195,400 and $ 196,600
during the three months ended March 31, 2008 and 2007, respectively.
Commitments:
On July 12, 2006 we entered into a ten-year lease for approximately 12,700
square feet of office and warehouse facilities in Fort Lauderdale, Florida from
an entity fifty percent owned each by Messrs. Peter G. Dornau and Jeffrey J.
Tieger, our President and former Vice President-Advertising, respectively. On
July 12, 2006 we renewed our lease agreement for a term of ten years. The lease
required a minimum rental of $100,500 the first year and provides for a maximum
2% increase on the anniversary of the lease throughout the term, which has been
waived thru December 31, 2008. Additionally, the landlord is entitled to collect
from us its pro-rata share of all taxes, assessments, insurance premiums,
operating charges, maintenance charges and any other expenses, which normally
arise from ownership. We believe that the terms of this lease are comparable to
those of similar properties in the same geographic area of the Company available
from unrelated third parties. Rent charged to operations during the three month
period ended March 31, 2008 and 2007 amounted to approximately $23,700 each
quarter respectively.
The Company has entered into a corporate guaranty of a mortgage note
obligation of such affiliate. The obligation aggregating approximately $255,000
and $274,000 at March 31, 2008 and December 31, 2007, 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.
Twelve month period ending March 31,:
2009 104,560
2010 106,640
2011 108,773
Theareafter 517,427
----------
Total $ 837,400
==========
[
5. EARNINGS (LOSS) PER SHARE
Three months ended March 31,
2008 2007
---------- ----------
Weighted-average common shares outstanding 7,822,066 7,621,316
Dilutive effect of stock plans, other options
& conversion rights - -
---------- ----------
Dilutive weighted-average shares outstanding 7,822,066 7,621,316
========== ==========
8
6. RECENT ACCOUNTING PRONOUNCEMENTS:
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements".
This statement clarifies the definition of fair value of assets and liabilities,
establishes a framework for measuring fair value of assets and liabilities and
expands the disclosures on fair value measurements. SFAS No. 157 is effective
for fiscal years beginning after November 15, 2007. However, the FASB deferred
the effective date of SFAS No. 157 until the fiscal years beginning after
November 15, 2008 as it relates to the fair value measurement requirements for
nonfinancial assets and liabilities that are initially measured at fair value,
but not measured at fair value in subsequent periods. These nonfinancial assets
include trademarks and other intangible assets which are included within other
assets. In accordance with SFAS No. 157, the Company has adopted the provisions
of SFAS No. 157 with respect to financial assets and liabilities effective as of
January 1, 2008 and its adoption did not have a material impact on its results
of operations or financial condition. The Company is assessing the impact of
SFAS No. 157 for nonfinancial assets and liabilities and expects that this
adoption will not have a material impact on its results of operations or
financial condition.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115." SFAS No. 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No. 159 is
effective for us on January 1, 2008. We are evaluating the impact that the
adoption of SFAS No. 159 will have on our future results of operations and
financial position. The adoption of this standard has not had a material effect
on the consolidated results of operations and financial position of the Company
for the reporting period.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business
Combinations" ("FASB No. 141(R)"). FASB No. 141(R) retains the fundamental
requirements of the original pronouncement requiring that the purchase method be
used for all business combinations. FASB No. 141(R) defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination, establishes the acquisition date as the date that the acquirer
achieves control and requires the acquirer to recognize the assets acquired,
liabilities assumed and any non-controlling interest at their fair values as of
the acquisition date. FASB No. 141(R) also requires that acquisition-related
costs be recognized separately from the acquisition. FASB No. 141(R) is
effective for the Company for fiscal 2010. The Company is currently assessing
the impact of FASB No. 141(R) on its consolidated financial position and results
of operations.
In December 2007, the FASB issued Statement No. 160, "Noncontrolling
Interests in Consolidated Financial Statements-an amendment of ARB No. 51 ("FASB
No. 160")." The objective of FASB No. 160 is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards for the Noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. This Statement applies
to all entities that prepare consolidated financial statements, except
not-for-profit organizations. FASB No. 160 amends ARB 51 to establish accounting
and reporting standards for the Noncontrolling interest in a subsidiary and for
the deconsolidation of a subsidiary. It also amends certain of ARB 51's
consolidation procedures for consistency with the requirements of FASB No. 141
(R). This Statement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008 (that is, January 1,
2009, for entities with calendar year-ends). Earlier adoption is prohibited. The
effective date of this Statement is the same as that of the related Statement
141(R). FASB No. 160 will be effective for the Company's fiscal 2010. This
Statement shall be applied prospectively as of the beginning of the fiscal year
in which this Statement is initially applied, except for the presentation and
disclosure requirements. The presentation and disclosure requirements shall be
applied retrospectively for all periods presented.
In December 2007, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No.110. This guidance allows companies, in certain
circumstances, to utilize a simplified method in determining the expected term
of stock option grants when calculating the compensation expense to be recorded
under Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based
Payment . The simplified method can be used after December 31, 2007 only if a
company's stock option exercise experience does not provide a reasonable basis
upon which to estimate the expected option term. Through 2007, we utilized the
simplified method to determine the expected option term, based upon the vesting
and original contractual terms of the option. On January 1, 2008, we began
calculating the expected option term based on our historical option exercise
data. This change did not have a significant impact on the compensation expense
recognized for stock options granted in 2008.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161 amends and
expands the disclosure requirement for FASB Statement No. 133, "Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). It requires enhanced
disclosure about (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS
No. 133 and its related interpretations, and (iii) how derivative instruments
9
and related hedged items affect an entity's financial position, financial
performance, and cash flows. SFAS No. 161 is effective for the Company as of
January 1, 2009.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
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.
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:
See Note 1 "Summary of Accounting Policies" in the Notes to the Unaudited
Condensed Consolidated Financial Statements for a discussion of recent
accounting pronouncements and their effect, if any, on the Company.
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 5.87% at March 31, 2008) 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 March 31, 2008, we were obligated under this arrangement in the
amount of $ 2,700,000.
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 three months ended March 31, 2008 such bonds carried
interest ranging between 1.5% 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
Alabama 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 March 31, 2008 were
approximately $208,345 and 5.62%. The maturity on this obligation is April 15,
2010.
10
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. As of March 31, 2008,
the inventory value was $7,058,042 a increase of $1,064,000. The inventory
increase is a seasonal increase, in anticipation of the warmer weather in the
northern parts of the US and the start of the boating season. In addition, there
was strategic purchasing of inventory in anticipation of higher raw material
prices.
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 March 31, 2008 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.
Results of Operations:
Three Months Ended March 31, 2008 compared to the Three Months ended March
31, 2007
Net sales decreased approximately $ 278,000 or 6.9% for the quarter ended
March 31, 2008, compared to the same quarter of the preceding year. The
consolidated net sales were approximately $ 3,745,000 and $ 4,022,000
respectively. The primary reason for the decreased sales was the unseasonably
cold weather in the northern parts of the United States, which delayed the start
of the boating season and the use of our products.
Cost of goods sold amounted to approximately $ 2,874,000 or 76.7 % of net
sales, a increase of 1% from the three months ended March 31, 2007, of $
2,848,000 or 70.8% of net sales. The cost of sales percentage increased due to
several factors including the increase of the Company's raw material costs that
could not fully be passed on to our customers, in addition to increased outbound
freight costs as a result of higher fuel costs that also could not be passed on
to customers.
Selling and administrative expenses decreased by approximately $ 107,000 to
$ 927,000 or 24.7% of sales for the quarters ended March 31, 2008, compared to
$1,034,000 or 25.7% of sales for the comparative 2007 period. The reduction in
costs were primarily due to a reduction in outsourced computer services and a
allocation of insurance costs to cost of goods sold.
Advertising and promotion expenses were approximately the same level as
2007 spending. Expenses for 2008 were approximately $202,000 compared to
approximately $ 207,000 in 2007. The Company continued in the first quarter to
run print and TV media advertising for its products in boating and auto
magazines.
Interest expense for the three month period ending March 31, 2008 was
approximately $65,000, compared to $97,000 in the corresponding period of 2007,
a decreased of $ 32,000. This is a result of two factors, decreased interest
rates and decreased borrowings.
The net loss for the quarter ended March 31, 2008 amounted to approximately
$ 206,000 compared to a net loss of $ 163,000 for the comparable period in 2007.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
N/A
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has carried out an evaluation under the supervision of
management, including the President and Chief Executive Officer ("CEO") and the
Vice President - Finance and Chief Financial Officer ("CFO"), of the
effectiveness of the design and operation of its disclosure controls and
procedures. Based on that evaluation, our CEO and CFO have concluded that, as of
December 31, 2007, our disclosure controls and procedures were effective to
ensure that information required to be disclosed by the Company in the reports
filed or submitted by it under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
11
specified in the rules and forms of the SEC, and include controls and procedures
designed to ensure that information required to be disclosed by us in such
reports is accumulated and communicated to management, including the CEO and
CFO, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the most
recent fiscal quarter that has materially affected, or reasonably likely to
materially affect, our internal control over financial reporting.
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 - Not Applicable
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds - Not
Applicable
Item 3. - Defaults Upon Senior Securities: Not applicable
Item 4 - Submission of Matters to a Vote by Security Holders -Not
applicable
Item 5 - Other Information - 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
32.1.1 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: May 12, 2008
/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
12
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 March 31, 2008;
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: May 12, 2008
/s/ Peter G. Dornau
-------------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
13
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 March 31, 2008;
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: May 12, 2008
/s/ Jeffrey S. Barocas
-------------------------------
Jeffrey S. Barocas
Chief Financial Officer
14
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, 2008 (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: May 12, 2008
/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
15