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, 2007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-11102
OCEAN BIO-CHEM, INC.
(Exact name of Registrant as specified in its charter)
Florida 59-1564329
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4041 SW 47 Avenue, Fort Lauderdale, Florida 33314-4023
954-587-6280
(Address and telephone number, including area code of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark whether the Registrant (1) Is a Shell Company (As
Defined In rule 12b-2 of the Exchange Act). Yes [ ] No [x ]
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of
1934), or a non-accelerated filer
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [x]
Indicate the number of shares outstanding of each class of the Issuer's
common stock, as of the latest practicable date::
$.01 par value common stock, 10,000,000 shares authorized,
7,621,316 shares issued and outstanding at March 31, 2007
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX
Description Page
----------------------- ----
Part I - Financial Information:
Item 1. - Financial Statements:
Consolidated balance sheets as of March 31, 2007
and December 31, 2006 3
Consolidated statements of operations for
the three months ended March 31,
2007 and 2006 4
Consolidated statements of changes in
shareholders' equity for the three months
ended March 31, 2007 and 2006 5
Consolidated statements of cash flows
for the three months ended March 31,
2007 and 2006 6
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-11
Item 3 - Quantitative and Qualitative Disclosures
about Market Risk 11
Item 4 - Controls and Procedures 11
Part II - Other Information:
Item 1. - Legal Proceedings 11
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 11
Item 3. - Defaults upon Senior Securities 11
Item 4. - Submission of Matters to a Vote by Security Holders 11
Item 5. - Other Matters 11
Item 6. - Exhibits 11
Signatures 12
Certifications 13-15
2
PART I - Financial Information
Item l. Financial Statements:
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31, DECEMBER 31,
2007 2006
------------ ------------
(UNAUDITED)
Current assets:
Cash $ 470,920 $ 71,080
Trade accounts receivable net of allowance for doubtful
accounts of approximately $36,700 at March 31,
2007 and $192,700 at December 31, 2006, respectively 2,105,609 2,026,870
Inventories, net 6,435,673 5,647,933
Prepaid expenses and other current assets 235,010 218,151
------------ ------------
Total current assets 9,247,212 7,964,034
------------ ------------
Property, plant and equipment, net 6,646,939 6,800,176
------------ ------------
Other assets:
Trademarks, trade names and patents, net
of accumulated amortization 330,439 330,439
Due from affiliated companies, net 229,052 231,200
Deferred Charges, Deposits and other assets 206,108 203,510
------------ ------------
Total other assets 765,599 765,149
------------ ------------
Total assets $16,659,750 $15,529,359
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,435,402 $ 943,907
Note payable - bank 3,049,996 2,150,000
Current portion of long term debt 486,559 586,060
Accrued Expenses Payable & Taxes 499,848 363,669
------------ ------------
Total Current Liabilities 5,471,805 4,043,636
------------ ------------
Long term debt, less current portion 4,403,363 4,550,190
------------ ------------
Shareholders' equity:
Common stock - $.01 par value, 10,000,000 shares authorized;
7,621,316 shares issued and outstanding at
March 31, 2007 and December 31, 2006, respectively 76,213 76,213
Additional paid-in capital 7,268,833 7,257,447
Foreign currency translation adjustment ( 175,298) ( 176,094)
Deficit ( 376,971) ( 213,838)
------------ ------------
6,792,777 6,943,728
Less cost of common stock in treasury, 7,519 shares
at March 31, 2007 and December 31, 2006 ( 8,195) ( 8,195)
------------ ------------
6,784,582 6,935,533
------------ ------------
Total liabilities and shareholders' equity $16,659,750 $15,529,359
============ ============
3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
(UNAUDITED)
2007 2006
------------ ------------
Gross sales $ 4,419,657 $ 4,788,822
Less discounts, returns and Allowances 397,249 379,230
------------ ------------
Net sales 4,022,408 4,409,592
Cost of goods sold 2,847,509 3,060,522
------------ ------------
Gross profit 1,174,899 1,349,070
------------ ------------
Operating expenses:
Advertising and promotion 206,652 186,920
Selling and administrative 1,034,142 828,086
Interest expense 97,238 142,510
------------ ------------
Total operating expenses 1,338,032 1,157,516
------------ ------------
Operating profit (loss) ( 163,133) 191,554
Interest and other income - 1,286
------------ ------------
Income (loss) before provision (benefit)
for income taxes ( 163,133) 192,840
Provision (benefit) for income taxes - -
------------ ------------
Net income (loss) ( 163,133) 192,840
Other comprehensive income:
Foreign currency translation,
Net of taxes 796 5,499
------------ ------------
Comprehensive income (loss) ($ 162,337) $ 198,339
============ ============
PER SHARE AMOUNTS:
Basic and diluted (loss) income
per common share ($ .02) $ .03
============ ============
Basic and diluted average number
of common and common equivalent
shares outstanding 7,621,316 5,849,316
============ ============
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 THREE MONTHS ENDED
MARCH 31, 2007 AND 2006
(UNAUDITED)
Foreign Retained
Common stock Additional currency earnings Treasury
Shares Amount paid-in capital adjustment (deficit) stock Total
--------- ------- --------------- ---------- --------- -------- ---------
January 1,
2007 7,621,316 $76,213 $7,257,447 ($176,094) ($213,838) ($8,195) $6,935,533
Net loss ( 163,133) ( 163,133)
Compensation Costs
Associated with
Stock Options 11,386 11,386
Foreign currency
translation
adjustment 796 796
--------- ------- ---------- ---------- --------- -------- ----------
March 31,
2007 7,621,316 $76,213 $7,268,833 ($175,298) ($376,971) ($8,195) $6,784,582
========= ======= ========== ========== ========== ======== ==========
January 1,
2006 5,849,316 $58,493 $4,908,615 ($179,653) ($488,563) ($8,195) $4,290,697
Net income 192,840 192,840
Debt forgiveness -
Affiliate 295,752 295,752
Foreign currency
translation
adjustment 5,499 5,499
--------- ------- ---------- ---------- --------- -------- ----------
March 31,
2006 5,849,316 $58,493 $5,204,367 ($174,154) ($295,723) ($8,195) $4,784,788
========= ======= ========== ========== ========== ======== ==========
5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(UNAUDITED)
2007 2006
------------ ------------
Cash flows from operating activities:
Net income (loss) ($ 163,133) $ 192,840
Adjustments to reconcile net income (loss)
to net cash provided (used) by operations:
Depreciation and amortization 193,237 193,637
Compensation cost associated with
option modifications 11,386 -
(Increase) decrease in accounts receivable -
allowance for doubtful account ( 156,000) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 77,261 ( 143,918)
(Increase) decrease in inventory ( 787,740) ( 638,645)
(Increase) decrease in prepaid expenses ( 19,459) 38,859
(Decrease) increase in accounts payable
and accrued taxes and other 627,675 630,166
------------ ------------
Net cash provided (used) by operating activities ( 216,772) 272,939
------------ ------------
Cash flows used by investing activities:
Purchases of property, plant and equipment ( 40,000) ( 155,855)
------------ ------------
Net cash used by investing activities ( 40,000) ( 155,855)
------------ ------------
Cash flows from financing activities:
Borrowings line of credit 1,400,000 550,000
Principal payments - line of credit ( 500,004) ( 700,000)
(Increase) decrease in amounts due from affiliates 2,149 2,189
Increase (decrease) long-term debt ( 246,329) ( 58,728)
Common stock transactions - -
------------ ------------
Net cash provided (used) by financing activities 655,816 ( 206,539)
------------ ------------
Increase (decrease) in cash prior to effect of
exchange rate on cash 399,043 ( 89,455)
Effect of exchange rate on cash 796 5,499
------------ ------------
Net increase (decrease) in cash 399,839 ( 83,956)
Cash at beginning of period 71,080 204,543
------------ ------------
Cash at end of period $ 470,920 $ 120,587
============ ============
Supplemental disclosure of cash transactions:
Cash paid for interest during period $ 97,238 $ 83,656
============ ============
Cash paid for income taxes during period $ - $ -
Non-cash investing and financing activities:
Forgiveness of indebtedness to an affiliate $ - $ 295,752
============ ============
6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Interim Reporting
The accompanying unaudited consolidated financial statements include the
accounts of Ocean Bio-Chem, Inc. and its subsidiaries. All significant
intercompany 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
March 31, 2007 are not necessarily indicative of the results that may be
expected for the future fiscal quarters in 2007 or the full year ending
December 31, 2007 due to seasonal fluctuations in our business, changes in
economic conditions and other factors. For further information, please refer to
the Consolidated Financial Statements and Notes thereto contained in our Annual
Report on Form 10-K for the year ended December 31, 2006.
Certain financial statement items for the quarter ended March 31, 2006 have
been reclassified to conform to the 2007 presentation.
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.
Inventories - Inventories are primarily composed of raw materials and
finished goods and are stated at the lower of cost, using the first-in,
first-out method, or market. A valuation allowance for slow moving inventory is
reflected in the balance sheets at March 31, 2007 and December 31, 2006. The
composition of inventories at March 31, 2007 and December 31, 2006 were as
follows:
March 31, 2007 December 31, 2006
-------------- -----------------
Raw materials $ 2,414,999 $ 3,423,030
Finished goods 4,021,174 2,224,903
----------- ----------
$ 6,435,673 $ 5,647,933
=========== ===========
7
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.
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 two years, our five largest customers
historically represented a range of approximately 79% to 75% of consolidated
gross revenues and 54% to 56% 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.
Recent Accounting Pronouncements:
During September 2006 the FASB issued SFAS 157, Fair Value Measurements.
This pronoucement defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. The provisions of
the SFAS are effective as January 1, 2008.
During February 2007, the FASB issued SFAS 159, The Fair VAlue OPtion for
Financial Assets and Financial Liabilities. Such pronouncement permits entities
to choose to measure many financial instruments and certain other items at fair
value. The provisions of the SFAS are effective January 1, 2008.
The Company has determined that these recent accounting pronoucements will
not have a material effect on its financial statements.
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 8.07% at March 31, 2007) and is secured by
our trade receivables, inventory and intangible assets. As of each year-end,
December 31, we are required to maintain a minimum working capital of $1.5
million and meet certain other financial covenants during the term of the
agreement. As of March 31, 2007, we were obligated under this arrangement in the
amount of $3,050,000. Based on discussions with our bank, we expect, but cannot
give assurance , that such line will be renewed on May 31, 2007.
8
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. Based
on discussions with our bank, we expect, but cannot give assurance , that such
letters of credit will be renewed on maturity.
The bonds are marketed weekly at the prevailing rates for such tax-exempt
instruments. During the three months ended March 31, 2007 such bonds carried
interest ranging between 3.70% and 3.91% 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 March 31, 2007 were
approximately $333,340 and 2.5% per annum, respectively). The maturity on this
obligation is April 15, 2010.
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 March 31, 2007 and through the date hereof, we did not and do not
have any material commitments for capital expenditures, nor do we have any other
present commitment that is likely to result in our liquidity increasing or
decreasing in any material way. In addition, except for our need for additional
capital to finance inventory purchases, we know of no trend, additional demand,
event or uncertainty that will result in, or that is reasonably likely to result
in, our liquidity increasing or decreasing in any material way.
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 2007.
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.
First Quarter Trend:
Resulting principally from the recurring seasonality of retail consumer
purchases of the Company's products, promotions offered to our wholesale
customer during the fourth quarter and the unpredictability of weather during
the first quarter, the Company historically experiences operating losses during
the quarters ending March 31. The following tabulation reflects our operating
9
results for net sales and net income (loss) for our first quarters during the
past five years:
Quarter ended
March 31, Net sales Net income (loss)
--------- ----------- -----------------
2007 $ 4,022,408 ($ 163,133)
2006 4,409,592 192,840
2005 3,095,778 ( 571,216)
2004 3,437,586 ( 205,541)
2003 2,870,767 ( 682,058)
The results for such interim periods are not necessarily indicative of
results to be expected for the full year.
Results of Operations:
NET SALES for the three months ended March 31, 2007 were $4,022,408, a
decrease of $387,184 (8.8%) compared to net sales of $4,409,592 for the
corresponding period in 2006. The decreases in sales were primarily due to two
reasons: In the 1st quarter of 2006 a major customer ( West Marine ) resumed
buying products in a more normalized buying pattern, resulting in larger
quantities purchased after their 2005 inventory reduction program. This
significantly curtailed purchasing of our products in the 4th quarter of 2005 by
West Marine. The 1st quarter sales of 2007 to West Marine represented a more
normal buying pattern. We expect to continue the 1st quarter 2007 West Marine
buying trend in the future. In addition the inclement weather in the northeast
and mid west parts of the United States has delayed the start of the boating
season, resulting in slower sales of our products.
GROSS PROFIT for the three months ended March 31, 2007 was $1,174,899, a
decrease of $174,171 (13%) as compared to $1,349,070 for the corresponding
period of 2006. Gross profit as a percentage of sales for the first quarter of
2007 declined to 29.2% compared to 30.6% for the same period of 2006. The
decrease in gross profit margin is mostly due to lower factory overhead
absorption resulting from reduced sales volume.
SELLING, GENERAL AND ADMINISTRATIVE expenses for the three months ended
March 31, 2007 were $1,034,142, an increase of $206,056 (25%) as compared to
$828,086 for the corresponding period of 2006. During the first quarter of 2007
the Company hired two new executives, the Chief Financial Officer and the Vice
President of Marketing & Advertising. These executives transitioned with their
predecessors, resulting in higher salaries. In addition, there were higher
consulting fees, outside services, other professional fees and outsourced data
processing services.
ADVERTISING AND PROMOTION expenses for the three months ended March 31,
2007 were $206,652, an increase of $19,733, (10.6%) as compared to $186,920 for
the corresponding period of 2006. This was the result of increased television
and radio adverting. We strategically started promoting our Startron enzyme fuel
additive. These expenses were partially offset by lower customer catalog and
promotion allowances.
INTEREST EXPENSE for the three months ended March 31, 2007 was $97,238, a
decrease of $45,272 (32%) as compared to $142,510 for the corresponding period
of 2006. The interest expense decreased significantly due to the lower debt
levels for comparative periods. This is a result of our Chief Executive Officer,
President Peter Dornau converting $1,500,000 of debt to equity in the 4th
quarter of 2006.
INCOME TAX EXPENSE -There was no provision for income taxes in the current
quarter as the Company had sufficient net operating loss carryover amounts to
offset any potential taxes that would otherwise be due on the earnings.
The net loss for the quarter ended March 31, 2007 amounted to $163,133
compared income of $192,840 for the comparable period in 2006, a decrease of
$355,974.
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 March 31, 2007, we have not used derivative
instruments or engaged in hedging activities to minimize market risk.
Interest rate risk
As of March 31, 2007, we had floating interest rates on our industrial
development revenue bonds and our working capital line of credit facility. As of
March 31, 2007 the interest rate on our $4,900,000 outstanding balance of
industrial revenue bonds was approximately 3.7% per annum and the interest rate
on our line of credit facility was based on the 30 day LIBOR rate plus 275 basis
points (the effective interest rate at March 31, 2007 was 8.07 %). We do not
expect any changes in interest rates to have a material impact on our operations
during the year ending December 31, 2007.
10
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
We carried out an evaluation required by the Securities Exchange Act of
1934 ("Exchange Act"), under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rule 13a-15(e) of the 1934 Exchange Act, as of the end of the period covered by
this report. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective in providing reasonable assurance that material information required
to be included in our periodic SEC reports is made known to them in a timely
manner. Management does not expect that our disclosure controls and procedures
will prevent or detect all error and fraud. Any control system, no matter how
well designed and operated, is based upon certain assumptions and can provide
only reasonable, not absolute, assurance that its objectives will be met.
Further, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues
and instances of fraud, if any, within the Company have been detected. During
the most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting that has materially affected, or is
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
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: Not applicable
Item 3. - Defaults Upon Senior Securities: Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders: Not applicable
Item 5. - Other Information:
On April 2, 2007, the Company's Board of Directors elected Jeffrey S.
Barocas, Gregor M. Dornau and William W. Dudman to serve as a member of the
Board.
On January 25, 2007 and April 16, 2007 Jeffrey J. Tieger and Edward Anchel,
respectively resigned their positions as officers of the Company. Mr. Tieger
also resigned his seat on the Board of Directors; Mr. Anchel will continue to
serve on the Board.
On April 16, 2007 the Company's Board of Directors approved adopting the
2007 Incentive Stock Option Plan covering an amount not to exceed 400,000 shares
ofcommon stock.
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
11
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 14, 2007 /s/ Peter G. Dornau
------------------------
Peter G. Dornau
Chairman of the Board of Directors
and Chief Executive Officer
/s/ Jeffrey S.Barocas
------------------------
Jeffrey S. Barocas
Chief Financial Officer
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, 2007;
2. Based on my knowledge, this quarterly 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(i) and 15d-15(f) for the
Registrant and 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; and
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 14, 2007 /s/ Peter G. Dornau
------------------------
Peter G. Dornau
Chairman of the Board 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, 2007;
2. Based on my knowledge, this quarterly 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(i) and 15d-15(f) for the
Registrant and 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; and
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 14, 2007 /s/ Jeffrey S. Barocas
------------------------
Jeffrey S. Barocas
Chief Financial Officer
14
Exhibit 32.1
CERTIFICATION
Pursuant to 18 U.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, 2007 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d), as applicable, of the
Securities Exchange Act of 1934 and that the information contained in the Report
fairly presents, in all material respects, the financial condition and results
of operation of the Company.
Dated: May 14, 2007 /s/ Peter G. Dornau
------------------------
Peter G. Dornau
Chairman of the Board and
Chief Executive Officer
/s/ Jeffrey S. Barocas
------------------------
Jeffrey S. Barocas
Chief Financial Officer
15