OVERVIEW
In 2009 the Company achieved record revenues as we
continued our strategic plan of gaining additional market
share in the marine sector as well as diversifying into
new markets. An important part of this initiative is the
introduction of new and improved products. This past year
saw us presenting a number of innovative and significantly
improved products that are being well-received by our core customer base and by new customers.
One example is the new No Damp® “Ultra Dome” dehumidifier product. Larger in size than previous models and
featuring a unique rounded dome, this item is helping us to maintain our position as a leading manufacturer and
distributor of marine chemicals in the US and worldwide.
We have also achieved great success with a new “Small Engine Formula” of Star Tron® for both gasoline and diesel
applications. This new version is playing a large role in the expansion of this stellar performer into new sectors.
We will continue this process in 2010 and beyond, with a significant number of exciting, new items currently
undergoing evaluation.
4041 SW 47th Avenue • Fort Lauderdale, Florida 33314
Tel:(954) 587-6280 • (800) 327-8583 • Fax:(954) 587-2813
www.oceanbiochem.com • www.starbrite.com • www.startron.com
PREsIdEnt’s LEttER
Achieving Our gOAls in 2010
Dear Shareholders,
I am happy to report that 2009 has ended on a positive note for the Company, with the outlook even better for 2010.
While the overall US economy has not yet seen widespread signs of a recovery, in 2009 the Company had record
sales. We enjoyed revenue growth of approximately $3.7 million or 18%. We reported an all-time record net income
of $1.05 million, compared to $154,000 in 2009.
These impressive earnings occurred despite two unusual and unforeseen expense items. The first was the legal fees
incurred over false and deceptive advertising attacking Star Tron® fuel additive. This matter was settled during the first
quarter of 2010. The second was the accounts receivable write-off caused by the bankruptcy of Boater’s World, one of
the Company’s largest customers. The Company ended the year with a strong balance sheet. Total liabilities decreased
by more than $1.9 million. The largest decrease was a reduction of debt from $2.8 million as of December 31, 2008,
to $250,000 as of December 31, 2009. This decrease was partially offset by an increase in accounts payable and
accrued expenses.
The Company continues to be a leading player in the marine market, and as we continue to diversify our efforts we are
becoming a dominant brand in other sectors as well. In 2009 we established new relationships with multiple national
and regional retailers and distributors. These efforts have already begun to pay dividends and will continue to do so
for years to come. While Star Tron® has allowed us to expand into new markets, we will maximize these opportunities
by aggressively marketing other products within the firm’s line, as well as developing new products in order to gain
market share and thus bolster profitability. As one example, the Company has signed a Letter of Intent to create a joint
venture for the purpose of manufacturing and distributing a unique, patented delivery system for a chlorine dioxide-
based product. This EPA-registered product actually kills mold, mildew, bacteria and viruses. We are very excited
by the opportunity this product represents. We fully expect it to generate the same level of excitement and consumer
acceptance we have been seeing with our Star Tron® fuel additive.
In 2009, Star Tron® sales continued to grow, driven in part by the continued expansion of ethanol fuels across
the US. Consumer concern over fuel quality allowed Star Tron® to gain more market share from traditional fuel
additive products. Awareness of the problems caused by ethanol fuels has spread across the country, expanding
well beyond our core marine market. As a result, Star Tron® - and Star brite® - brand awareness continued to grow,
bolstered by expanded advertising campaigns in all media, to include national and regional magazines, TV, radio
and newspapers.
I would like to acknowledge the dedication and efforts of all of our employees. I am also grateful for the continued support
of our customers, vendors and shareholders. We look forward to 2010 with the goal of exceeding your expectations.
Peter G. Dornau
President and Chief Executive Officer
ManagEMEnt’s dIscussIOn and anaLysIs Of fInancIaL
cOndItIOn and REsuLts Of OPERatIOns
The following discussion should be read in conjunction with our consolidated financial statements contained herein as
Item 15.
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 controlled subsidiaries. All significant inter-company accounts and transactions are eliminated in
consolidation.
cOllectAbility Of AccOunts receivAble – Trade receivables are recognized on our accompanying consolidated
balance sheets at fair value. We perform ongoing credit evaluations of our customers and adjust credit limits based upon
payment history and customers’ credit worthiness, as determined by our review of their current credit information. We
continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses
based upon our historical experience, specific customer collection issues that we have identified and reviews of agings of
trade receivables based on contractual terms. We generally do not require collateral on trade accounts receivable. No
single customer’s receivable balance is considered to be large enough to pose a significant credit risk to us.
revenue recOgnitiOn – Revenue from product sales is recognized when persuasive evidence of a contract exists,
delivery to customer has occurred, the sales price is fixed and determinable, and collectability of the related receivable
is probable. For customers for whom the Company manages the inventory, at their location, revenue is recognized
when the products are sold to a third party.
inventOries – Inventories are primarily composed of raw materials and finished goods and are stated at the lower
of cost or market, using the first-in, first-out method.
PrePAid Advertising And cAtAlOg cOsts – The Company capitalizes the direct cost of producing and distributing
its catalogs. Capitalized catalog costs are amortized, once a catalog is distributed, over the expected net sales period,
which is generally from one month to 12 months. The Company follows the SOP 93-7, Reporting on Advertising Costs.
Advertising costs, which are included in advertising and promotion (“A&P”) expense, are expensed as incurred and
were $1.7 million and $1.3 million in 2009 and 2008 respectively.
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 – At December 31, 2009, the Company had options outstanding under four stock-
based compensation plans and two non-qualified plans, which are described below. The Company follows, Share-Based
Payment, now codified within FASC 718-20-10 Compensation - Stock Compensation, which establishes standards
surrounding the accounting for transactions in which an entity exchanges its equity instruments for goods or services.
Under FASC 718-20-10, we recognize an expense for the fair value of our outstanding stock options as they vest,
whether held by employees or others.
4 ANNUAL REPORT — 2009
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 FASC 718-20-10 Compensation
- Stock Compensation. The simplified method can be used after December 31, 2007 only if a company’s stock options
exercise experience does not provide a reasonable basis upon which to estimate the expected option term. In 2008 and
2009, we utilized the simplified method to determine the expected option term, based upon the vesting and original
contractual terms of the option.
cOncentrAtiOn Of cAsh – At various times of the year and at December 31, 2009, we had a concentration of
cash in one bank in excess of prevailing insurance offered through the Federal Deposit Insurance Corporation at such
institution. Management does not consider the excess deposits to be a significant risk.
fAir vAlue Of finAnciAl instruments – In April 2009, the FASB issued FSP 107-1 and Accounting Principles
Board 28-1, Interim Disclosures about Fair Value of Financial Instruments, now codified within FASC 825, Financial
Instruments (“FASC 825”). FASC 825 requires disclosures about fair value of financial instruments in interim financial
statements as well as in annual financial statements. FASC 825 is effective for interim periods ending after June 15,
2009. The adoption of FASC 825 did not have a material impact on our consolidated results of operations or financial
position. Refer to Note 1, Financial Statement Policies, of this Form 10-K for the enhanced disclosures required by the
adoption of FASC 825.
The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, due from factors,
accounts payable, customer credits on account, accrued expenses and loans payable to related parties approximates
the fair value due to the relatively short period to maturity for these instruments.
The fair value of long-term debt is based on current rates at which we could borrow funds with similar remaining
maturities, and their carrying amount approximates fair value.
incOme tAxes – We file consolidated federal and state income tax returns. In the accompanying consolidated financial
statements we apply FASC 740. The temporary differences included therein are attributable to differing methods of
reflecting depreciation and stock based compensation 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, Goodwill and Other Intangible Assets (now codified in FASC 350, Intangibles - Goodwill and
Other), we have determined that these intangible assets have indefinite lives and therefore, we no longer recognize
amortization expense. In addition, we own other 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 such patents.
fOreign currency – Translation adjustments result from translating foreign subsidiaries’ financial statements into
U.S. dollars. The Company’s Canadian functional currency is the Canadian dollar. Balance sheet accounts are translated
at exchange rates in effect at the balance sheet date. Income statement accounts are translated at average exchange
rates during the year. Resulting translation adjustments are included as a component of Other Comprehensive Income
in the Consolidated Statements of Stockholders’ Equity. Gains (losses) from foreign currency transactions included in
SG&A expense.
AChIEVING OUR GOALS IN 2010 5
PERfORMancE cOMPaRIsOns
N/A
LIquIdIty and caPItaL REsOuRcEs
Cash was approximately $495 thousand dollars at December 31, 2009 compared to approximately $527 thousand
dollars at December 31, 2008. The amount of short-term borrowings outstanding at December 31, 2009 was
approximately $250 thousand dollars. This is a decrease of $2.5 million dollars from the December 31, 2008 balance
of approximately $2.8 million dollars. The positive cash flow from operating activities at December 31, 2009 of $2.8
million dollars compared to approximately $706 thousand at December 31, 2008.
During the year ended December 31, 2009 the Company continued to focus on programs to effectively manage trade
accounts receivable. In 2009, accounts receivable remained close to their prior year level based on an increase in net
sales of 17.8%. Net trade accounts receivable aggregated approximately $2.1 million dollars at December 31, 2009 and
$2.0 million at 2008. The Company increased its collection efforts to limit its financial exposure in accounts receivable.
Inventory were approximately $6.7 million dollars and $6.6 million dollars, comparing December 31, 2009 and
2008, an increase of approximately $100 thousand dollars or 1.5%. With a net sales increase of 17.8% and inventory
remaining relatively constant, it reflects management’s efforts to manage inventories.
Accounts payable at December 31, 2009 increased to approximately $1.7 million dollars from $0.9 million dollars an
increase of $0.8 million dollars. The increase primarily reflects year end purchasing of inventory.
The Company has an asset based line of credit, aggregating $6 million with Regions Bank. In 2007, the line carried
interest based on the 30 Day LIBOR rate plus 275 basis points (approximately 6.0% at December 31, 2007) payable
monthly, and was collateralized by the Company’s inventory, trade receivables, and intangible assets. This financing
matured on May 31, 2008, and was renewed for three years. Such line matures May 31, 2011, bears interest at
the 30 Day LIBOR plus 250 basis points (approximately 2.7% at December 31, 2009) and is secured by our trade
receivables, inventory and intangible assets. 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. At December 31, 2009 and 2008 the
Company was in compliance with its’ debt covenants. As of December 31, 2009 and 2008 we were obligated under
this arrangement in the amount of $250 thousand dollars and $2.8 million dollars, respectively.
The Company signed a Letter of Intent to form a joint venture with Odor Star Technology LLC. on January 10, 2010.
The Company believes it currently has adequate working capital to meet the financial requirements of the joint venture.
however, at this time we cannot quantify unforeseen investment requirements.
In connection with the purchase and expansion of the Alabama facility, we closed on Industrial Development Bonds
during 1997. 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 (IDB’s) 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. Renewable annually, 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.
6 ANNUAL REPORT — 2009
In the first quarter of 2009, both IDB’s were tendered. As of December 31, 2009, the bonds have not been remarketed
(Reference subsequent events for update). The bonds interest rate is the prime rate. Principal and interest are payable
quarterly. We believe current operations are sufficient to meet these obligations. The bonds maturity dates are March
2012 and July 2017 for the 1997 and 2002 series bonds. In September and October 2008 both bond issues were
tendered due to the volatility of the credit markets, remarketed and again tendered in February 2009.
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.
In the year ended December 31, 2009 the Company recorded approximately $3,100 in foreign currency translation
adjustments (decreasing shareholders equity by $3,100) as a result of the weakening of the Canadian dollar in
relationship to the US dollar, in the conversion of the Company’s Canadian subsidiary balance sheet to US dollars.
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 petroleum chemical based and commodity
chemicals that are subject to fluctuating prices. The cost of petroleum and related products, major components in many
of our products, which were already in an increasing cost spiral, became even more unstable in 2008. The practical
dynamics of our business do not afford us the same pricing flexibility with our customers, available to our suppliers. We
cannot as immediately as our suppliers pass along the price increases to our national retailers and distributors.
As of December 31, 2009 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
net sAles increased to $24.6 million dollars from $20.9 million dollars, an increase of $3.7 million dollars or 17.8%.
The $3.7 million dollar increase is a result of increased sales to existing and new customers in both our core marine
market as well as new markets. The Company increased its sales of winterizing products, Star Tron® as well as other
marine products.
cOst Of sAles And grOss mArgins – For the year, gross profit increased approximately $1.9 million dollars or
31.2%, from approximately $6.0 million dollars in 2008, to approximately $7.9 million dollars in 2009. Gross margin
percentages also increased from approximately 29% to 32%, a change of approximately 3%. This was a result of
improved plant utilization and improved sales mix of higher margin products.
OPerAting exPenses – For the year, total operating expenses aggregated approximately $5.9 million dollars,
an increase of approximately $559 thousand dollars from 2008. As a percentage of net sales, operating expenses
decreased from 25.4% to 23.9%. This is a result of higher sales.
Advertising & PrOmOtiOn increased $330 thousand dollars. Reduced cost of advertising space in trade magazines
allowed the Company to continue to build brand and product awareness by advertising in a greater number of targeted
publications. Marketing has pursued increased initiatives to promote and advertise Star Tron/Star brite products in TV,
radio and newspapers as well as target advertising in industry magazines.
AChIEVING OUR GOALS IN 2010 7
selling, generAl & AdministrAtive exPenses increased $229 thousand dollars. This increase is primarily
variable selling expense including sales commissions, show expense and travel expenses. In addition, the Company
has incurred unusually high legal expenses as a result of the lawsuit the Company brought against Kop-Coat Inc.
interest exPense decreased approximately $51 thousand dollars to $206 thousand in 2009, compared to $257
thousand in 2008. This principally resulted from lower outstanding loan balances throughout the year in part offset by
higher interest rates on the tendered industrial revenue bonds.
OPerAting PrOfit – Operating profits increased to approximately $1.8 million dollars in 2009 from an operating
profit of approximately $423 thousand in 2008, an increase of $1.4 million dollars or 322%.
incOme tAxes – The Company had a tax expense of $755 thousand dollars in 2009 or 41.8% of pretax income.
net incOme increased to approximately $1 million dollars in 2009, from a net income of approximately $154
thousand in 2008 an increase of $900 thousand dollars.
cOntRactuaL ObLIgatIOns
The following table reflects our contractual obligations for the years ended December 31:
Long-Term Debt Obligations
Line of Credit
Capital Leases
Other
tOtAl
tOtAl
$3,398,352
250,000
51,907
913,232
$4,613,491
2010
$493,352
250,000
19,701
101,828
$864,881
2011-2014 2015 And thereAfter
$1,785,000
—
32,206
428,089
$2,245,295
$1,120,000
—
—
383,315
$1,503,315
8 ANNUAL REPORT — 2009
OceAn biO-chem, inc. And subsidiAries
cOnsOlidAted finAnciAl stAtements
yeArs ended december 31, 2009 And 2008
AChIEVING OUR GOALS IN 2010 9
REPORt Of IndEPEndEnt REgIstEREd PubLIc accOuntIng fIRM
To the Board of Directors and Shareholders of
Ocean Bio-Chem, Inc.
We have audited the accompanying consolidated balance sheets of Ocean-Bio-Chem, Inc. and Subsidiaries
as of December 31, 2009 and 2008 and the related consolidated statements of operations, changes in shareholders’
equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting
the amount and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Ocean-Bio-Chem, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the consolidated
results of their operations and their consolidated cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Kramer Weisman and Associates, LLP
Certified Public Accountants
March 25, 2010
Davie, Florida
10 ANNUAL REPORT — 2009
OcEan bIO-cHEM, Inc. and subsIdIaRIEs
cOnsOLIdatEd baLancE sHEEts
dEcEMbER 31, 2009 and 2008
Assets
current Assets
dec. 31, 2009 dec. 31, 2008
Cash
Trade accounts receivable net of allowance for
doubtful accounts of approximately $61,700 and $117,600
at December 31, 2009 and December 31, 2008, respectively
Inventories, net
Prepaid expenses and other current assets
tOtAl current Assets
$494,973
$527,056
2,144,265
6,663,246
504,384
1,966,223
6,564,909
365,982
9,806,868
9,424,170
Property, plant and equipment, net
5,464,356
5,780,395
Other Assets
Trademarks, trade names, and patents, net
Due from affiliated companies, net
Deposits and other assets
tOtAl Other Assets
tOtAl Assets
LIabILItIEs and sHaREHOLdERs’ EquIty
Current liabilities:
Accounts payable – trade
Line of Credit – bank
Current portion of long-term debt
Accrued expenses payable
tOtAl current liAbilities
Long-term debt, less current portion
Commitments and contingencies
shArehOlders’ equity
Common stock - $.01 par value, 10,000,000 shares authorized:
8,053,816 and 7,886,816 shares issued and outstanding at
December 31, 2009 and 2008, respectively
Additional paid-in capital
Less Cost of common stock in treasury, 351,503 shares
at December 31, 2009 and 2008, respectively
Foreign currency translation adjustment
Retained earnings
tOtAl shArehOlders’ equity
330,439
237,172
153,224
720,835
330,439
910,553
184,628
1,425,620
$15,992,059
$16,630,185
$1,741,309
250,000
513,053
1,191,987
$3,696,349
$894,193
2,800,000
584,537
883,354
$5,162,084
2,937,206
3,434,491
—
—
80,538
8,194,917
(288,013)
(277,025)
1,648,087
9,358,504
78,868
7,928,269
(288,013)
(280,123)
594,609
8,033,610
tOtAl liAbilities And shArehOlders’ equity
$15,992,059
$16,630,185
The accompanying notes are an integral part of these financial statements.
AChIEVING OUR GOALS IN 2010 11
OcEan bIO-cHEM, Inc. and subsIdIaRIEs
cOnsOLIdatEd statEMEnts Of OPERatIOns
yEaRs EndEd dEcEMbER 31, 2009 and 2008
Gross Sales
$26,281,520
$22,898,989
2009
2008
Less: discounts, returns and allowances
net sAles
Cost of goods sold
grOss PrOfit
OPerAting exPenses
Advertising and promotion
Selling and administrative
Interest expense
Total operating expenses
OPerAting incOme
Other income
incOme befOre incOme tAxes
Provision for income taxes
net incOme
1,648,630
24,632,890
1,980,922
20,918,067
16,763,401
7,869,489
14,918,333
5,999,734
1,661,948
4,216,824
205,626
6,084,398
1,331,568
3,988,028
257,020
5,576,616
1,785,091
423,118
23,705
1,808,796
755,318
1,053,478
21,932
445,050
291,132
153,918
Other comprehensive income, (loss) income, net of tax
Foreign currency translation adjustment
(3,098)
(71,074)
cOmPrehensive incOme
$1,056,576
$82,844
Income per common share – basic
Income per common share – diluted
Weighted average shares – basic
Weighted average shares – diluted
$0.14
$0.14
$0.02
$0.02
7,673,438
7,697,100
7,814,466
7,814,466
The accompanying notes are an integral part of these financial statements
12 ANNUAL REPORT — 2009
OcEan bIO-cHEM, Inc. and subsIdIaRIEs
cOnsOLIdatEd statEMEnts Of sHaREHOLdERs’ EquIty
yEaRs EndEd dEcEMbER 31, 2009 and 2008
common stock
Additional
foreign
currency
shares
Amount paid-in capital adjustment/ earnings
total
(deficit)
7,871,816 $78,718
$7,780,547
($209,049) $440,691
($8,195)
$8,082,712
153,918
153,918
retained treasury
stock
January 1,
2008
Net income
Bonus shares to
employees
Stock based
compensation
Foreign currency
december 31,
2008
Net Income
Bonus shares to
employees
Foreign currency
translation adjustment
december 31,
2009
15,000
150
17,250
130,472
17,400
130,472
(71,074)
translation adjustment
(71,074)
Purchase of Treasury stock
343,984 shares
(279,818)
(279,818)
7,886,816 $78,868
$7,928,269 $(280,123) $594,609 $(288,013) $8,033,610
1,053,478
1,053,478
167,000
1,670
83,623
Stock based compensation
183,025
85,293
183,025
3,098
3,098
$8,816
$80,538 $8,194,917 $(277,025) $1,648,087 ($288,013) $9,358,504
The accompanying notes are an integral part of these financial statements.
AChIEVING OUR GOALS IN 2010 13
OcEan bIO-cHEM, Inc. and subsIdIaRIEs
cOnsOLIdatEd statEMEnts Of casH fLOWs
yEaRs EndEd dEcEMbER 31, 2009 and 2008
cAsh flOws frOm OPerAting Activities
net incOme
Adjustment to reconcile net income to net
cash provided by operations
Depreciation and amortization
Stock based compensation
Other operating non cash items
chAnges in Assets And liAbilities
Accounts receivable
Inventory
Deposit and other assets
Prepaid expenses
Accounts payable and other accrued liabilities
net cAsh PrOvided by OPerAting Activities
cAsh flOws frOm investing Activities
Purchases of property, plant & equipment
net cAsh PrOvided in investing Activities
cAsh flOws frOm finAncing Activities
Increase/(decrease) line of credit, net
Amounts due from affiliates
Payments of long-term debt
Purchase of treasury stock
net cAsh PrOvided used in finAncing Activities
Change in cash prior to effect of exchange rate on cash
Effect of exchange rate on cash
net decreAse in cAsh
Cash at beginning of period
Cash at end of period
Supplemental disclosure of cash transactions
Cash paid for interest during period
Cash paid for income taxes during period
2009
2008
$1,053,478
$153,918
709,855
268,318
216,844
(340,356)
(152,462)
31,404
(138,402)
1,155,749
706,062
787,460
147,872
259,880
(75,078)
(811,752)
69,091
(80,856)
255,527
706,062
(393,816)
(393,816)
(332,043)
(332,043)
(2,550,000)
673,381
(568,769)
—
(2,445,388)
(34,776)
2,693 (
(32,083)
527,056
$494,973
1,050,000
(801,243)
(559,856)
(279,818)
(590,917)
216,898
6,947)
(223,845)
750,901
$527,056
$205,626 $
$714,000
231,882
$(110,395)
The accompanying notes are an integral part of these financial statements
14 ANNUAL REPORT — 2009
OcEan bIO-cHEM, Inc. and subsIdIaRIEs
nOtEs tO cOnsOLIdatEd statEMEnts
yEaRs EndEd dEcEMbER 31, 2009 and 2008
nOte 1 – OrgAnizAtiOn And summAry Of significAnt AccOunting POlicies
OrgAnizAtiOn – The Company was incorporated during November, 1973 under the laws of the state of
Florida and operates as a manufacturer and distributor of products principally under the Star brite® brand to
the marine, automotive and recreational vehicle aftermarkets.
PrinciPles Of cOnsOlidAtiOn – The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated
in consolidation.
revenue recOgnitiOn – Revenue from product sales is recognized when persuasive evidence of a contract
exists, delivery to customer has occurred, the sales price is fixed and determinable, and collectability 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.
cOllectAbility Of AccOunts receivAble – Included in the consolidated balance sheets as of December 31,
2009 and 2008 are allowances for doubtful accounts aggregating approximately $61,700 and $117,600,
respectively. Such amounts are based on management’s estimates of the creditworthiness of its customers,
current economic conditions and other historical information. Consolidated bad debt expense charged against
operations for the years ended December 31, 2009 and 2008 aggregated approximately $162,300 and
$83,500 respectively.
In January 2009, a significant customer filed for bankruptcy (Boaters’ World), representing a maximum risk
of loss on unrecoverable receivables of approximately $210 thousand in total. The Company has written off
approximately $141 thousand and $69 thousand during the years ended December 31, 2009 and 2008
respectively. The Company has filed with the Bankruptcy Courts for recovery of outstanding receivables,
however at this time it is impossible to determine the amount of recovery.
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.
shiPPing And hAndling cOsts – All shipping and handling costs incurred by us are included in operating
expenses on the statements of income. These costs totaled approximately $855,600 and $886,200 for the
years ended December 31, 2009 and 2008 respectively.
PrePAid Advertising And cAtAlOg cOsts – The Company capitalizes the direct cost of producing and
distributing its catalogs. Capitalized catalog costs are amortized, once a catalog is distributed, over the expected
net sales period, which is generally from one month to 12 months. Advertising costs, which are included in
advertising and promotion (“A&P”) expense, are expensed as incurred and were $1.7 million and $1.3 million
in 2009 and 2008 respectively. At December 31, 2009 and 2008 the Company did not have any significant
accumulated cost of collateral materials on hand.
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.
AChIEVING OUR GOALS IN 2010 15
reseArch And develOPment cOsts – Research and development costs are expensed as incurred and
recorded in selling, general and administrative expenses in the consolidated statements of operations. The
Company incurred $30 thousand of research and development expense for the fiscal years ended, 2009 and
2008, respectively.
stOck bAsed cOmPensAtiOn – The Company follows, FASC 718-20-10 Compensation - Stock
Compensation, which establishes standards surrounding the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. Under FASC 718-20-10, we recognize an expense for
the fair value of our outstanding stock options as they vest, whether held by employees or others.
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 within
FASC 718-20-10 Compensation - Stock Compensation. The simplified method can be used after December 31,
2007 only if a company’s stock options exercise experience does not provide a reasonable basis upon which
to estimate the expected option term. In 2008 and 2009, we utilized the simplified method to determine the
expected option term, based upon the vesting and original contractual terms of the option.
use Of estimAtes – The preparation of financial statements in conformity with U.S. 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.
cOncentrAtiOn Of credit risk – Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. The Company’s five largest customers
represented approximately 63% and 58% of consolidated net revenues for the years ended December 31,
2009 and 2008, and 58% and 32% of consolidated accounts receivable at December 31, 2009 and 2008,
respectively. The Company has a longstanding relationship with each of these entities and has always collected
open receivable balances. however, the loss of any of these customers could have an adverse impact on the
Company’s operations (see Note 11).
cOncentrAtiOn Of cAsh – At various times of the year and at December 31, 2009, the Company had a
concentration of cash in one bank in excess of prevailing insurance offered through the Federal Deposit Insurance
Corporation at such institution. Management does not consider the excess deposits to be a significant risk.
fAir vAlue Of finAnciAl instruments – We have adopted on January 1, 2008 SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities - FASC 825, “Financial Instruments”, which
permits entities to choose to measure 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. For purposes of this statement, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction between willing parties, other than
a forced sale or liquidation.
The carrying amounts of the Company’s short-term financial instruments, including accounts receivable,
accounts payable, customer credits on account, certain accrued expenses and loans payable to related
parties approximate their fair value due to the relatively short period to maturity for these instruments. The
fair value of long-term debt is based on current rates at which the Company could borrow funds with similar
remaining maturities, and the carrying amount approximates fair value. 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.
16 ANNUAL REPORT — 2009
imPAirment Of lOng-lived Assets – Potential impairments of long-lived assets are reviewed annually or
when events and circumstances warrant an earlier review. In accordance with Financial Accounting Standards
Codification (“FASC”) 360-10, impairment is determined when estimated future undiscounted cash flows
associated with an asset are less than the asset’s carrying value.
incOme tAxes – The Company follows the authoritative guidance for income taxes, Statement of Financial
Accounting Standards Codification 740 (“FASC 740”) relating to the recognition of current and deferred income
taxes. Under the asset and liability method of FASC 740, deferred tax assets and liabilities are recognized
for the future tax consequences attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. Under FASC 740,
the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
In determining whether the realization of deferred tax assets may be impaired, we evaluate both positive
and negative evidence as required in accordance with FASC 740-10. As of December 31, 2009, we have
concluded that it is more likely than not that our deferred tax assets, being not in excess of recoverable income
taxes and certain deferred tax liabilities, are probable of realization. Therefore, we recorded no valuation
allowance for such deferred tax assets.
In 2007, we adopted the provisions under paragraphs 25-17 and 30-17 of FASC 740-10, Basic Recognition
Threshold, previously discussed under FIN 48, Accounting for Uncertainty in Income Taxes-an Interpretation
of FASB No. 109, and related guidance and as a result, we recognize liabilities for uncertain tax positions
based on the two-step process prescribed in the provision. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The
second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50%
likely to be realized upon ultimate settlement with the taxing authorities. We reevaluate uncertain tax positions
on a quarterly basis, based on factors including, but not limited to, changes in facts or circumstances, changes
in tax law, effectively settled issues under audit, new audit activity and lapses in the statutes of limitations on
assessment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an
additional charge to the tax provision in the period that such event occurs and can have a significant effect on
our consolidated financial statements.
In accordance with FASC 740-10 the Company adopted the policy of recognizing penalties in selling and
administrative expenses and interest, if any, related to unrecognized tax positions as income tax expense. The
tax years 2005-2008 remain subject to examinations by major tax jurisdictions.
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. In accordance with FASC 350, the Company has
determined that these intangible assets have indefinite lives and therefore we no longer recognize amortization
expense. The Company evaluates intangible assets for impairment every fiscal year and when an event occurs
or circumstances change such that it is reasonably possible that an impairment may exist. In addition, the
Company owns two patents that it believes are valuable in limited product lines, but not material to its success
or competitiveness in general. There are no capitalized costs of these two patents.
fOreign currency – Translation adjustments result from translating foreign subsidiaries’ financial statements
into U.S. dollars. The Company’s’ Canada’s functional currency is the Canadian dollar. Balance sheet accounts
are translated at exchange rates in effect at the balance sheet date. Income statement accounts are translated
AChIEVING OUR GOALS IN 2010 17
at average exchange rates during the year. Resulting translation adjustments are included as a component
of Other Comprehensive Income in the Consolidated Statements of Stockholders’ Equity. Gains (losses) from
foreign currency transactions included in SG&A expense.
eArnings Per shAre – The Company computes earnings per share in accordance with the provisions of FASC
No. 260, “Earnings Per Share”, which specifies the computation, presentation and disclosure requirements for
earnings (loss) per share for entities with publicly held common stock. Basic earnings per share are computed by
dividing net earnings available to common shareholders by the weighted average number of shares outstanding
during the period. Diluted earnings per share are computed assuming the exercise of stock options under the
treasury stock method and the related income taxes effects, if not anti-dilutive. For loss periods common share
equivalents are excluded from the calculation, as the effect would be anti-dilutive. See Note 12 Earnings per
share computation of basic and diluted number of shares.
nOte 2 – inventOries
The composition of inventories at December 31, 2009 and 2008 are as follows:
raw materials
finished goods
inventory reserves
inventory net
2009
$3,595,862
3,322,692
$6,918,554
(255,308)
$6,663,246
2008
$3,254,212
3,541,908
$6,796,120
(231,211)
$6,564,909
At December 31, 2009 and 2008 and for the years then ended, approximately $255,300 and $231,200
respectively is reflected in the accompanying consolidated financial statements as a reserve for slow moving
inventory.
In 2008 the Company implemented a new vendor managed inventory program with one of its customers
to improve the manner in which it promotes business. The Company manages the inventory levels at this
customer’s warehouses and is paid as the products are sold by such customer. This program was initiated in
the 3rd quarter 2008 and was fully implemented in November 2008. The total sales credit issued initially to
the customer in 2008 was approximately $300,000. The inventories managed at such customer’s warehouses
amounted to approximately $387,000 and $146,000 at December 31, 2009 and 2008, respectively.
18 ANNUAL REPORT — 2009
nOte 3 – PrOPerty, PlAnt And equiPment
The Company’s property, plant and equipment consisted of the following:
estimAted
useful life – yeArs
Land
Buildings
Manufacturing and warehouse equipment
Office equipment and furniture
Construction in process
Leasehold improvement
30 years
6-20 years
3-5 years
10-15 years
Less accumulated depreciation
2009
$ 278,325
4,402,275
6,877,940
541,449
109,001
122,644
12,331,634
6,867,278
2008
278,325
4,389,154
6,592,558
525,734
71,929
122,644
11,980,344
6,199,949
Total property, plant and equipment, net
$5,464,356
$5,780,395
Depreciation expense for the years ended December 31, 2009 and 2008, which includes amortization of
capitalized lease assets, amounted to approximately $709,900 and $787,500 respectively
nOte 4 – revOlving line Of credit
During 2002, the Company secured a revolving line of credit, which provides a maximum of $6 million financing
of working capital from Regions Bank. The line carried interest based on the 30 day LIBOR rate plus 275 basis
points and was collateralized by the Company’s inventory, trade receivables, and intangible assets.
The line was renewed and currently matures on May 31, 2011, bears interest at the 30 Day LIBOR plus 250
basis points (approximately 2.7% at December 31, 2009) and is secured by our trade receivables, inventory,
and intangible assets. Under this arrangement, the borrowing base of the loan is calculated based on 80% of
the accounts receivable and 50% of the inventory values, as defined in the loan agreement. The terms, including
required financial covenants relating to maintaining minimum working capital levels, maintaining stipulated debt
to tangible net worth and adhering to debt coverage ratios, and collaterals were substantially unchanged. 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. At December 31, 2009 and 2008 the Company was in compliance with all
financial covenants of the loan agreement and below the amount of the calculated borrowing base.
As of December 31, 2009 and 2008 the Company was obligated to its commercial lender under this arrangement
in the amounts of $250,000 and $2,800,000 respectively. The average outstanding loan balances at the years
ended December 31, 2009 and 2008 were approximately $2,046,000 and $2,415,000. Interest incurred for
the years ended December 31, 2009 and 2008 were approximately $49,000, and $121,000, respectively.
AChIEVING OUR GOALS IN 2010 19
nOte 5 – Accrued exPenses PAyAble
The Company’s property, plant and equipment consisted of the following
Accrued customer promotions
Accrued payroll, commissions
and employee benefits
Accrued income taxes
Accrued insurance
Other accrued expenses
tOtAls
2009
$ 367,453
238,285
222,055
160,832
230,361
$1,191,987
2008
119,256
174,013
180,737
132,130
277,219
$883,354
nOte 6 – lOng-term debt
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 December 31, 2009, $765,000 and $2,600,000 were outstanding attributable to the 1997
and 2002 series, respectively. During the years ended December 31, 2009 and 2008, interest rates ranged
between 3.2% and 5.3%, and 1.5% and 8.6% annually, respectively. At December 31, 2008, $1,105,000
and $2,720,000 were outstanding attributable to the 1997 and 2002 series, respectively. Interest expense for
2009 and 2008 were approximately $153,300 and $128,100, respectively. 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.
On September 26th and October 6th, 2008 the Company was notified by its primary commercial bank, that
both the 1997 and 2002 series bonds were being tendered. There has been no default on these bonds by
the Company. It is the understanding of the Company that due to the tight credit markets, these bonds were
tendered. As a result the Company has been temporarily obligated to its primary commercial bank, for a few
weeks during the fourth quarter 2008 and since February 2009, until the credit markets improve sufficiently to
remarket these bonds. The interest rate on the loans during this period was prime rate or 5%. (See Note 13)
During 2009 and 2008, the Company was obligated pursuant to various capital lease agreements covering
equipment utilized in the Company’s business activities. Such obligations, aggregating approximately $51,900
and $60,680 at December 31, 2009 and 2008 respectively, have varying maturities through 2012 and carry
interest rates ranging from 7% to 12% for both years.
On April 12, 2005 the Company entered into a financing obligation with Regions Bank whereby the bank
advanced the Company $500,000 to finance equipment acquisitions at the Kinpak facility. Such obligation
is due in monthly installments of principal aggregating approximately $8,300 plus interest. The outstanding
balance and interest rate on this obligation at December 31, 2009 and 2008 were approximately $33,400
and $133,000 respectively. Interest rate is calculated at LIBOR plus 2.5% per annum, respectively 2.7% at
December 31, 2009 and 3.6% at December 31, 2008, through the maturity on April 15, 2010. Interest
incurred for 2009 and 2008 was approximately $2,300 and $9,700 respectively.
20 ANNUAL REPORT — 2009
The composition of these obligations at December 31, 2009 and 2008 were as follows:
current POrtiOn
2008
2009
$460,000 $460,000
Industrial Development Bonds
99,996
Notes payable
24,541
Capitalized equipment leases
$513,053 $584,537
33,352
19,701
lOng term POrtiOn
2009
2008
$2,905,000 $3,365,000
33,352
36,139
$2,937,206 $3,434,491
—
32,206
Required principal payment obligations attributable to the foregoing are tabulated below:
Year ending December 31,
2010
2011
2012
2013
2014
Thereafter
tOtAl
513,053
478,226
456,432
442,548
440,000
1,120,000
$3,450,259
nOte 7 – incOme tAxes
The Company follows FASC 740 for the recognition of income tax expense. Under the asset and liability method
of FASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributed to
differences between carrying amounts of existing assets and liabilities in the financial statements and their
respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under FASC 740, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Components of the Company’s consolidated income tax provision are as follows:
Income tax provision (benefit):
Federal - current
- deferred
State
tOtAl
2009
2008
$709,464
45,854
—
$755,318
$291,132
—
—
$291,132
AChIEVING OUR GOALS IN 2010 21
The reconciliation of income tax provision at the statutory rate to the reported income tax
expense is as follows:
Income tax computed at statutory rate
Increase (reduction) in income taxes
resulting from:
Share based compensation
Change in deferred taxes & valuation allowance
Other permanent adjustments
2009
AmOunt
2008
AmOunt
%
%
$614,991
34%
$151,317
34%
91,228
80,933
10,200
5%
4%
1%
50,276
11%
120,754
27%
9,704
2%
Tax credits and prior year tax adj.
(42,034)
-2%
(40,919)
-9%
$755,318
42%
$291,132
65%
For the year tax year 2008 the Company used available tax loss carryovers available to offset current taxable
income aggregating approximately none for federal taxes and approximately none for state tax purposes,
expiring in various years through 2026.
The Company’s deferred tax asset and liability accounts consisted of the following at December 31:
2009
2008
deferred tAx Assets:
Depreciation of property and equipment
Reserve for bad debts, inventories and other accruals
Net operating loss carryforwards
deferred tAx liAbilities:
Depreciation of property and equipment
net
Less valuation allowance
net deferred tAx (Asset)/liAbility
$ —
(107,793)
—
153,647
(45,854)
45,854
$ —
$ —
(203,710)
—
199,643
(4,067)
4,067
$ —
The Company has provided for a valuation allowance against the 2009 deferred tax asset, as there was no
assurance that the Company would generate future taxable income to derive benefit from the deferred tax
assets at the time when such tax assets would become current.
nOte 8 – relAted PArty trAnsActiOns
At December 31, 2009 and 2008, 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 $237,000 and $911,000, respectively. Such amounts result from sales to
the affiliates, allocations of management fees incurred by the Company on the affiliates’ behalf, and funds
advanced to or from the Company.
22 ANNUAL REPORT — 2009
Sales to such affiliates were sold at cost of material and labor plus a profit covering manufacturing overhead
costs. In addition, the affiliates are charged for their allocable share of administrative expenses of the Company.
The sales and transfers to affiliates aggregated approximately $1,148,400 and $1,208,000 during the years
ended December 31, 2009 and 2008, respectively; allocable administrative fees aggregated $325,000 and
$275,000 respectively for such periods.
Such transactions were made in the ordinary course of business but were not made on substantially the same
terms and conditions as those prevailing at the same time for comparable transactions with other customers.
Management believes that the sales transactions did not involve more than normal credit risk or present other
unfavorable features.
A subsidiary of the Company currently uses the services of an entity that is owned by an officer of the Company
to conduct product research and development. Such entity received $30,000 per year during the years ended
December 31, 2009 and 2008 under such relationship.
A director of the Company sources most of the Company’s insurance needs at an arm’s length competitive basis.
nOte 9 – cOmmitments
On May 1, 1998, the Company entered into a ten year lease for approximately 12,700 square feet of office
and warehouse facilities in Fort Lauderdale, Florida from an entity owned by certain officers of the Company.
The lease required a minimum rental of $94,800 plus applicable taxes 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.
On May 1, 2008, the Company renewed for ten years the existing lease with unchanged conditions. The
lease still requires a minimum rental of $94,800 plus applicable taxes 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 reimbursement of all taxes, assessments, and any other expenses that arise from ownership. The landlord
reserves the right under the agreement to review the terms of the lease at 3, 6 and 9 year intervals in order to
make modifications for market conditions. Total rent charged to operations during the years ended December
31, 2009 and 2008 amounted to approximately $100,500 each year.
The Company had entered into a corporate guaranty of a mortgage note obligation of such affiliate. The
obligation aggregated approximately $274,000 at December 31, 2007, primarily secured by the real estate
leased to the Company. The property was refinanced in the 2nd quarter 2008, without a corporate guaranty.
The following is a schedule of minimum future rentals on the non-cancelable operating leases
12 month period ending December 31,
2010
2011
2012
2013
2014
Thereafter
tOtAl
101,828
103,864
105,942
108,061
110,222
383,315
$913,232
AChIEVING OUR GOALS IN 2010 23
nOte 10 – stOck OPtiOns
During 1992, the Company adopted an incentive stock option plan covering 200,000 shares of its common stock.
During 1994, the Company adopted a non-qualified employee stock option plan covering 400,000 shares of
its common stock (this plan has expired and no further awards can be made under its provisions).
During 2002, the Company adopted a qualified employee incentive stock option plan and a non-qualified
stock option plan covering 400,000 and 200,000 shares of its common stock, respectively.
During 2007, the Company adopted a qualified employee stock option plan covering 400,000 shares of its
common stock.
During 2008, the Company adopted a qualified employee incentive stock option plan and a non-qualified
stock option plan covering 400,000 and 200,000 shares of its common stock, respectively.
The following schedules reflect the status of outstanding options under the Company’s four stock option qualified
and non-qualified plans as of December 31, 2009 and 2008.
2009 yeAr-end
Plan
date
granted
Options
exercisable
Outstanding Options
exercise
Price
expiration
date
wt. Av.
remaining
life
NON PLAN
03/25/09
115,000
115,000
2002 PLAN
11/06/06
118,000
70,800
2007 PLAN
05/17/07
167,500
67,000
2007 PLAN
10/08/07
2,500
1,000
2007 PLAN
12/17/07
156,500
62,600
2008 PLAN
08/25/08
159,500
31,900
2002 PLAN NQ
10/22/02
35,000
35,000
2002 PLAN NQ
06/20/03
30,000
30,000
2002 PLAN NQ 05/25/04
30,000
30,000
2002 PLAN NQ 04/03/06
40,000
40,000
2002 PLAN NQ 12/17/07
50,000
50,000
2008 PLAN NQ
01/11/09
50,000
50,000
954,000 583,300
0.55
0.93
1.66
1.87
1.32
0.97
1.26
1.03
1.46
1.08
1.32
0.69
1.13
3/24/14
11/05/11
05/16/12
10/07/12
12/16/12
08/21/13
10/21/12
06/19/13
05/24/14
04/02/16
12/16/17
01/10/19
4.2
1.8
2.4
2.8
3.0
3.6
2.8
3.5
4.4
6.3
8.0
9.0
3.8
24 ANNUAL REPORT — 2009
2008 yeAr-end
Plan
date
granted
Options
Outstanding
exercisable
Options
exercise
Price
expiration
date
NON PLAN
03/25/99
231,000
231,000
0.7576
03/24/09
1994 PLAN
10/26/04
154,500
131,325
2002 PLAN
03/02/04
137,000
130,150
2002 PLAN
11/06/06
133,000
53,200
2007 PLAN
05/17/07
162,500
44,250.2
2007 PLAN
10/08/07
2,000
400
2007 PLAN
12/17/07
156,500
30,700
2002 PLAN NQ 10/22/02
35,000
35,000
2002 PLAN NQ 06/20/03
30,000
30,000
2002 PLAN NQ 05/25/04
40,000
40,000
2002 PLAN NQ
04/03/06
30,000
30,000
2002 PLAN NQ
12/17/07
50,000
50,000
1,321,000
806,025
1.05
1.62
0.93
1.66
1.87
1.32
1.26
1.03
1.46
1.08
1.32
1.17
10/25/09
03/01/09
11/05/11
05/16/12
10/07/12
12/16/17
10/21/12
06/19/13
05/24/14
04/02/16
12/16/17
wt. Av.
remaining
life
—
0.8
0.2
2.9
4.1
3.8
4.0
3.8
4.5
5.4
7.3
9.0
2.8
In addition to the foregoing, on March 25, 1999, the Company granted two officers a five-year option for
115,500 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.
As of December 31, 2009, the number of options outstanding and the number of shares available for grant
under each Stock Options qualified and non-qualified plan options is presented below:
PlAn
NON-PLAN
1994 PLAN
2002 PLAN
2007 PLAN
2008 PLAN
2002 PLAN NQ
2008 PLAN NQ
Total
OPtiOns
OutstAnding
115,000 shares
0 shares
118,000 shares
326,500 shares
159,500 shares
185,000 shares
50,000 shares
954,000 shares
OPtiOns AvAilAble
fOr grAnt
N/A
None
None
73,500 shares
240,500 shares
15,000 shares
150,000 shares
464,000 shares
AChIEVING OUR GOALS IN 2010 25
A summary of the Company’s stock options as of December 31, 2009 and 2008, and changes
during the years ending on these dates, is presented below:
2009
2008
wt. Av.
exercise
Price
wt. Av.
exercise
Price
shares
shares
Options outstanding
at beginning of year
1,090,000
$1.26
930,500
$1.31
Options Granted
50,000
0.69
159,500
0.97
Options Exercised
—
—
Options Forfeited
or Exercised
Options outstanding at
end of year
(301,000.00)
1.30
—
—
—
—
839,000
$1.21
1,090,000
$1.26
Non Plan Options
115,000
0.55
231,000
0.76
Totals
954,000
$1.13
1,321,000
$1.17
Stock options are granted annually to selective executives, key employees, directors and others pursuant to
the terms of the Company’s various plans. Such grants are made at the discretion of the Board of Directors.
Qualified options typically have a five-year life with vesting occurring at 20% per year on a cumulative basis
with forfeiture at the end of the option, if not exercised. Non-qualified options granted to outside Directors
have a 10 year life and are immediately exercisable. Compensation cost recognized during the year ended
December 31, 2009 and 2008 attributable to stock options amounted to approximately $183,000 and
$130,500, respectively.
The fair value of each option grant was estimated using the Black-Scholes option pricing model with the
following assumptions for the years 2009 and 2008; risk free rate ranging from 3.57% to 4.88%, no dividend
yield for all years, expected life from three years to five years and volatility of approximately 100.0% to
108.0%.
As of December 31, 2009 and 2008 there was approximately $258,600 and $389,700 of unrecognized
compensation cost related to unvested share based compensation arrangements. That cost will be charged
against operations as the respective options vest through December, 2013.
nOte 11 – mAJOr custOmers
The Company has two major customers, with sales in excess of 10% of consolidated net revenue for the
year ended December 31, 2009. Sales to these two customers represented approximately 35% and 15%
of consolidated net revenues. In 2008, one customer had sales that represented approximately 38% of net
revenues.
The Company’s top five customers represented approximately 63% and 58%, of consolidated net revenues for
the years ended December 31, 2009 and 2008 and 58% and 32% of consolidated trade receivables at the
balance sheet dates December 31, 2009 and 2008, respectively. The Company enjoys good relations with
these customers. however, the loss of any of these customers could have an adverse impact on the Company’s
operations. The Company has included in the consolidated balance sheet as of December 31, 2008 an additional
26 ANNUAL REPORT — 2009
allowance for doubtful accounts aggregating approximately $69,000 to reflect outstanding receivables to
Boaters’ World at December 31, 2008 related to bankruptcy filings for Boaters’ World. In 2009 the Company
provided an additional allowance for doubtful accounts of $141,000 for 2009 sales to Boaters’ World. The
recession is expected to increase the Company’s risk related to sales and collection of accounts receivable.
nOte 12 – eArnings Per shAre
Earnings per share are reported pursuant to the provisions of FASC 210. Accordingly, basic earnings per
share reflects the weighted average number of shares outstanding during the year, and diluted shares adjusts
that figure by the additional hypothetical shares that would be outstanding if all exercisable outstanding
common stock equivalents with an exercise price below the current market value of the underlying stock
were exercised. Common stock equivalents consist of stock options and warrants. The following tabulation
reflects the number of shares utilized to determine basic and diluted earnings per share for the years ended
December 31, 2009 and 2008:
Basic weighted-average common
shares outstanding
Dilutive effect of stock plans,
other options & conversion rights
Dilutive weighted-average
shares outstanding
2009
2008
7,673,438
7,814,466
23,662
0
7,697,100
7,814,466
nOte 13 – shArehOlders’ equity
During the years ended December 31, 2009 and 2008 the Company granted 167,000 and 15,000 shares
of restricted common stock, respectively to certain executives, key employees and others as a component of
annual compensation. Charges to operations attributable to such awards aggregated approximately $85,300
and $17,400 for each period, respectively.
Compensation costs recognized during the years ended December 31, 2009 and 2008 attributable to stock
options amounted to $183,025 and $130,472, respectively and is reflected in the accompanying financial
statements as increase in additional paid-in capital
nOte 14 – subsequent events
In May 2009, the FASB issued accounting guidance now codified as FASC Topic 855, “Subsequent Events,”
which establishes general standards of accounting for, and disclosures of, events that occur after the balance
sheet date but before financial statements are issued or are available to be issued. FASC Topic 855 is effective
for interim or fiscal periods ending after June 15, 2009. Accordingly, we adopted the provisions of FASC Topic
855 on June 30, 2009. We evaluated subsequent events for the period from December 31, 2009, the date
of these financial statements, through March 25, 2010, which represents the date these financial statements
are being filed with the Commission. Pursuant to the requirements of FASC Topic 855, there were no events
or transactions occurring during this subsequent event reporting period that require recognition or disclosure
in the financial statements. With respect to this disclosure, we have not evaluated subsequent events occurring
after March 25, 2010.
AChIEVING OUR GOALS IN 2010 27
On January 19, 2010, the Company entered into a Letter of Intent with BBL Distributing, Inc. to form a joint venture
with Odor Star Technology LLC. This venture would expand the Company into a new group of products using
chlorine-dioxide with a patented delivery system to safely kill mold, mildew, bacteria, and viruses. On December
15, 2009, Odor Star Technology was organized in the State of Florida as an LLC as a 50% joint venture.
On March 3, 2010, the Company received notification from its re-marketing agent that its City of Montgomery,
AL. Series 1997 and Series 2002 Industrial Revenue Bonds with an approximate aggregate balance of
$3,250,000, were sold to various bondholders. As previously disclosed, these bonds were tendered back to
the Company during February 2009 resulting in a default interest rate of approximately prime rate. As a result
of the re-marketing, the current interest rate will be approximately 2 percent per annum and will adjust weekly,
based on prevailing trends in the tax exempt interest market. These bonds are backed with a Letter of Credit
from the financial institution. Under the terms of the Letter of Credit, the financial institution is obligated to pay
the bondholders, if tendered.
nOte 15 – recent AccOunting PrOnOuncements
The Financial Accounting Standards Board (“FASB”) has recently issued several new accounting pronouncements
which may apply to the Company.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued guidance now codified as FASB
ASC Topic 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. The pronouncement is effective for
fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008,
the FASB released additional guidance now codified under FASB ASC Topic 820, which provides for delayed
application of certain guidance related to non-financial assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal
years beginning after November 15, 2008, and interim periods within those years. Pursuant to the requirements
of FASB ASC Topic 820, we adopted the provisions of Topic 820 with respect to our non-financial assets and
non-financial liabilities effective April 1, 2009. The implementation of this pronouncement had no impact on our
consolidated financial position, results of operations or cash flows.
In January 2010, the FASB amended guidance now codified as FASB ASC Topic 810, “Consolidation.” FASB
ASC Topic 810 changes the accounting and reporting for minority interests, which will be recharacterized as
non-controlling interests and classified as a component of equity. The amendment of FASB ASC Topic 810-10
establishes the accounting and reporting guidance for non-controlling interests and changes in ownership interests
of a subsidiary. FASB ASC Topic 810 is effective for us on a prospective basis for business combinations with an
acquisition date beginning in the first quarter of fiscal year 2010. As of March 31 and December 31, 2009, we
did not have any minority interests. The adoption of FASB ASC Topic 810 as amended did not have an impact on
our consolidated financial statements.
In June 2008, the FASB issued guidance now codified as FASB ASC Topic 260, “Earnings Per Share.” Under FASB
ASC Topic 260, unvested share-based payment awards that contain rights to receive non-forfeitable dividends
(whether paid or unpaid) are participating securities, and should be included in the two-class method of computing
earnings per share. As of April 1, 2009, we implemented FASB ASC Topic 260 which requires us to treat unvested
shares of restricted stock as participating securities in accordance with the two-class method in the calculation of
both basic and diluted earnings per share. We had no shares of unvested restricted stock as of December 31,
2008 so the retrospective application of FASB ASC Topic 260 had no effect on our earnings per share for the
quarter or nine months ended December 31, 2008.
In November 2008, the FASB issued guidance now codified as FASB ASC Topic 815, “Derivatives and hedging.”
that changes the disclosure requirements for derivative instruments and hedging activities. We will be required to
28 ANNUAL REPORT — 2009
provide enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments
and related hedged items are accounted for under FASB ASC Topic 815, and its related interpretations, and (c)
how derivative instruments and related hedged items affect our financial position, financial performance, and cash
flows. The adoption of FASB ASC Topic 815 did not have an impact on our financial position, results of operations
or cash flows.
In December 2008, the FASB issued guidance now codified as FASB ASC Topic 805, “Business Combinations”
which requires that business combinations will result in assets and liabilities of an acquired business being recorded
at their fair values as of the acquisition date, with limited exceptions. Certain forms of contingent consideration
and certain acquired contingencies will be recorded at fair value at the acquisition date. FASB ASC Topic 805 also
states acquisition costs will generally be expensed as incurred and restructuring costs will be expensed separately
from the business combination in periods after the acquisition date. We will be required to apply this new standard
prospectively to business combinations for which the acquisition date is on or after April 1, 2009. The adoption of
FASB ASC Topic 805 did not have an impact on our consolidated financial statements.
Effective January 1, 2009, we adopted FASB guidance now codified as FASB ASC Topic 718-740, “Compensation
– Stock Compensation, Income Taxes.” FASB ASC Topic 718-740 requires us to recognize a realized income tax
benefit associated with dividends or dividend equivalents paid on non-vested equity-classified employee share-
based payment awards that are charged to retained earnings as an increase to additional paid-in capital. The
adoption of FASB ASC Topic 718-740 did not have a material impact on our financial position, results of operations
or cash flows.
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 825, “Financial Instruments,” which
amends previous Topic 825 guidance to require disclosures about fair value of financial instruments in interim as
well as annual financial statements. This pronouncement is effective for periods ending after June 15, 2009. The
adoption of this pronouncement did not have an impact on our consolidated financial position, results of operations
or cash flows.
In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, “Subsequent Events,” which
establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. Although there is new terminology, the
standard is based on the same principles as those that currently exist in the auditing standards. The standard,
which includes a new required disclosure of the date through which an entity has evaluated subsequent events, is
effective for interim or annual periods ending after June 15, 2009. We adopted FASB ASC Topic 855 on June 30,
2009 with no material effects to the financial results of the Company.
In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, “Generally Accepted Accounting
Principles,” as the single source of authoritative non-governmental U.S. GAAP. FASB ASC Topic 105 does not
change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. All existing accounting standard documents will
be superseded and all other accounting literature not included in the FASB Codification will be considered non-
authoritative. These provisions of FASB ASC Topic 105 are effective for interim and annual periods ending after
September 15, 2009 and, accordingly, are effective for us for the current fiscal reporting period. The adoption of
this pronouncement did not have an impact on our financial condition or results of operations, but will impact our
financial reporting process by eliminating all references to pre-codification standards. On the effective date of this
Statement, the Codification superseded all then-existing non-SEC accounting and reporting standards, and all other
non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.
In January 2010, the FASB amended its guidance now codified as FASB ASC Topic 505-20, “Equity – Stock
Dividends and Stock Splits,” to clarify that the stock portion of a distribution to shareholders that allows them to
elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for
AChIEVING OUR GOALS IN 2010 29
purposes of applying Topics 505 and 260. These provisions of FASB ASC Topic 505 are effective for interim
and annual periods ending after December 15, 2009 and, accordingly, are effective for us for the current fiscal
reporting period. The adoption of this pronouncement did not have an impact on our financial condition or results
of operations as we do not currently have distributions that allow shareholders such an election.
In January 2010, the FASB amended its guidance now codified as FASB ASC Topic 718-10-S99, “Compensation
– Stock Compensation – Escrowed Share Arrangement and the Presumption of Compensation,” to clarify SEC
staff views on overcoming the presumption that for certain shareholders escrowed share arrangements represent
compensation. The adoption of this pronouncement did not have an impact on our financial condition or results
of operations.
In December 2009, the FASB issued FASB ASU 2009-16, “Transfers and Servicing (Topic 860): Accounting for
Transfers of Financial Assets”, to clarify SFAS 166, “Accounting for Transfers of Financial Assets, an amendment of
FASB Statement No. 140”, which amends the derecognition guidance in FASB Statement No. 140 and eliminates
the exemption from consolidation for qualifying special-purpose entities. This statement is effective for financial
asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. This
statement will be effective for us beginning in our fiscal 2010. We do not believe that the adoption of ASU 2009-16
will have a material effect on our consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and believes that,
with the exception of the pronouncements noted above, no other accounting standards or interpretations issued or
recently adopted are expected to have a material impact on the Company’s results of operations, financial position
or cash flow.
30 ANNUAL REPORT — 2009
INVESTOR INFORMATION
NASDAQ STOck SyMbOl ObcI
OcEAN bIO-cHEM, INc.
bOARD OF DIREcTORS
stock transfer agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
general counsel
Berger Singerman
350 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
auditors
Kramer Weisman and Associates, LLP
12515 Orange Drive, Suite 814
Davie, Florida 33330
Reports and Publications
A free copy of the Company’s 2009
Form 10-K filed with the Securites
and Exchange Commission can be
obtained upon written request to:
Corporate Relations Department
4041 SW 47th Avenue
Fort Lauderdale, Florida 33314
cOMMON STOck
MARkET INFORMATION
The following table sets forth high and low
sale prices of the Common Stock of Company
as reported on the NASDAQ Global Market
for each calendar quarter in 2009 and 2008:
2009
high
low
2008
high low
$0.75 $0.42 $1.50 $1.24
First Quarter
Second Quarter 1.05 0.46
1.17 0.78
Third Quarter
1.14 0.81
Fourth Quarter
1.50 1.09
1.18 0.93
0.95 0.62
Peter g. dornau
Chairman, President and
Chief Executive Officer
Edward anchel
Jeffrey s. barocas
sonia b. beard*
gregor M. dornau
William W. dudman
James M. Kolisch*
Laz L. schneider
John b. turner*
* A member of audit committee
OFFIcERS OF
OcEAN bIO-cHEM, INc.
Peter g. dornau
President and CEO
Jeffrey s. barocas
Vice President of Finance and CFO
gregor M. dornau
Executive Vice President of Sales and Marketing
William W. dudman
Vice President of Operations
OFFIcERS OF
STAR bRITE® DISTRIbuTINg, INc.
Peter g. dornau
President and CEO
Jeffrey s. barocas
Chief Financial Officer
gregor M. dornau
Executive Vice President of Sales and Marketing
William W. dudman
Vice President of Operations
Marc a. Emmi
Vice President of Sales
george W. Lindsey, Jr.
Vice President of Marketing & Advertising
4041 SW 47th Avenue • Fort Lauderdale, Florida 33314
Tel:(954) 587-6280 • (800) 327-8583 • Fax:(954) 587-2813
www.oceanbiochem.com • www.starbrite.com • www.startron.com
HISTORy OF STAR bRITE® / kINPAk, INc.
Star brite® products are
available at marine, power
sports, outdoor power
equipment and hardware
stores, as well as at sporting
goods stores, farm stores and
automotive and RV stores
worldwide.
www.stArbrite.cOm
www.stArtrOn.cOm
quAlity cOntrOl
Star brite’s main manufacturing
and distribution facility is
Kinpak, Inc., located on a
20-acre site in Montgomery,
Alabama. In addition to Star
brite® products, Kinpak also
manufactures numerous items
under private label programs
for major oil companies and
consumer goods retailers.
The facility’s 300,000 s.f.
manufacturing, blending,
packing, and distribution center
features a 500,000 gallon tank
farm plus an additional 1.2
million gallon off-site tank farm,
as well as a fully-equipped R&D
laboratory and a quality control
center that performs quality
audits for each phase of the
production process.
The plant has 300,000 gallons
of blending capacity plus
multiple blow-molding machines
that produce custom PVC and
hDPE bottles in various colors
and shapes. There are ten
fully-automated high-speed
liquid filling lines, pail lines,
one drum filling line, bulk load
filling lines, plus grease filling
lines capable of filling containers
from 4 ounces to 55 gallons in
size at speeds up to 120 gallons
per minute.
Finished goods are secured
by automatic case packers,
case sealers and palletizers.
In addition to a line of truck
loading docks, the facility has a
rail spur capable of handling 20
railcars. Kinpak’s off-site facility
is a five-acre marine terminal on
the Alabama River for accepting
shipments of raw materials by
barge and rail.
blending
filling
distributiOn
9
0
0
2
-
r
A