OVERVIEW
The Company celebrates its 41st year in operation with another year of increased revenues. This trend of continued, steady growth
is the result of the Company’s ongoing practice of identifying new customers for newly-developed products while also launching
additional products for existing customers in order to maximize on previously-established relationships. As part of this plan, the
Company continues to develop new, innovative products as well as creating new variants of existing products.
The Company continues to expand market share for Star Tron® Enzyme Fuel Treatment in the marine (fresh and saltwater
segments), automotive, power sports, outdoor power equipment and home care sectors. Over the course of the year, specific
examples of increased growth were seen in mainstream automotive retailers and “big box” home care retailers.
Wide-reaching marketing campaigns are in place to grow product awareness and brand recognition beyond the Company’s
traditional marine marketplace. Print, television and social media continue to be utilized to spread the Star Tron® message to a
new and receptive audience. The Company has renewed agreements with the most well-regarded and higher-rated enthusiast
television programs, including Truck U., Car Fix and Two Guys Garage, NBC Sport’s George Poveromo’s World of Saltwater
Fishing, ShipShape TV, Addictive Fishing and the Chevy Florida Insider Fishing Report. For 2013, the Company has added The
Scott Martin Challenge, an award-winning freshwater fishing show appearing nationwide on 8 networks to include NBC Sports,
Time Warner Cable and Comcast SportsNet Chicago. The program is hosted by FLW champion Scott Martin, son of legendary
bass fisherman Roland Martin. Scott Martin’s tournament jersey and his boat bearing Star Tron® and Star brite® logos are seen
on his show each week, as well as at all tournaments in which he participates and at events hosted by Martin.
While Star Tron® continues to be a powerful revenue source and will remain a point of focus for the Company, we are also in the
process of launching the first of many products under our Performicide® label. Performicide® is our EPA registered broad spectrum
disinfectant, sanitizer, tuberculicide, virucide, fungicide, algaecide, slimicide and deodorizer. This suite of products utilizes our
patented Chlorine Dioxide (CLO2) generating system to produce either a vapor or a liquid that has distinct advantages over current
market leading products. Performicide® kills MRSA, E Coli, HIV -1, Mold, Salmonella, Hepatitis A, Listeria, Influenza, Rhinovirus,
Staphylococcus Aureus, Canine Parvovirus, Athlete’s foot, Herpes Simplex 2, Norovirus and many more. The advantage of CLO2
technology is that it kills all these known pathogens without leaving any poisonous residue on the surfaces treated. The market
potential is enormous and we anticipate developing dozens of products to address the needs of multiple industries: cruise ships
affected by Norovirus, hospitals dealing with MRSA and Staph infections, homes, businesses and vehicles dealing with mold,
veterinary clinics and animal shelters with Canine Parvo, prisons, schools and day care centers in need of disinfectants that do
not leave behind dangerous residues. The Company is also leveraging our current markets and existing customers in automotive,
marine, hardware and home care by offering Performicide® products that deodorize cars, trucks, RVs, homes and boats. Our
vapor versions of CLO2 technology will completely remove smoke, food, mildew, pet and all other foul odors and can be combined
with the liquid versions to offer complete disinfection. The Company is currently presenting the first of these Performicide® products
to our existing customers and expects retail placement as soon as the third quarter of 2014, with continued sales growth as we
expand into the new markets in 2015. Performacide® is produced at the Company’s Montgomery, Alabama facility.
The Company is excited to have started transitioning from the research and development stages of Performicide® into the sales
and marketing phase. The Company is well positioned to capture both short and continuous long term growth in existing and
new markets.
2013 ANNUAL REPORT LETTER TO SHAREHOLDERS
Fellow Shareholders:
We had many accomplishments in 2013. As one example, we achieved the highest fourth quarter sales in the Company’s
history, with a gain of 12.8% in net sales over fourth quarter 2012. This outstanding sales performance resulted in 2013
full-year sales of $32.7 million, a record high and an increase of 5.4% when compared to 2012 figures.
The success of our marketing programs led to an increase in sales to our largest customer, following the completion of their
inventory reduction program. Additionally, the Company saw a significant increase in product distribution to the largest
automotive parts and accessories retailers in the U.S, who altogether operate more than 14,000 locations. We also broadened
sales of our Star Tron® fuel treatment products to the largest “Big Box” hardware retailers in the United States.
The Company is pleased and honored to have been recognized by the National Marine Distributors Association (NMDA) as
their 2013 Supplier of the Year, awarded to Star brite for outstanding levels of customer satisfaction. The marine industry is the
Company’s largest segment, and the NMDA is a major group within this industry, making the award one in which we can all
take great pride.
In order to maximize on increased sales in 2013, the Company continued to promote brand and product awareness via multiple
venues. We increased television advertising expenditures to targeted audiences of boating, fishing and automotive enthusiasts.
A number of selected fishing tournaments in fresh and saltwater markets received sponsorship support, and the Company
expanded consumer rebate programs in all segments.
We are pleased to report that the Company is in a very strong financial position, ending 2013 with more than $3 million on
hand. After careful consideration, the Board of Directors declared a special cash dividend of $0.05 per share, payable on April
15, 2014 to shareholders of record on April 1, 2014. The Board of Directors and management is constantly evaluating methods
by which it can increase shareholder value.
OBCI’s 2014 outlook and potential remain positive. Star Tron®, our #1 product segment, continues to be a powerful revenue
source. More retail stores than ever are adding Star Tron®, and by expanding the Star Tron® family of products, our existing
retailers are now carrying multiple versions. We anticipate continued sales growth across all consumer markets as we keep
working to build the audience for this exciting product line.
Our core marine segment is doing well, too. We are adding new products to the line, updating formulas of existing products,
and our expansion into the huge freshwater boating and fishing market continues to be well received.
We are very excited to be launching our Performacide® CLO2 product; we are getting distribution in place and are already
receiving a very positive response from retailers and consumers. We will be developing new products within this family that we
expect will allow us to maximize on our presence in our established markets as well as grow into markets that are new to us.
In closing, I would like to express my sincere gratitude and appreciation to all OBCI employees for their continued dedication
and hard work as seen in this past year’s many achievements. We are also very grateful for the support of all our customers,
suppliers and shareholders.
Peter G. Dornau
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
Commission File Number 000-11102
OCEAN BIO-CHEM, INC.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of incorporation or
organization)
59-1564329
(I.R.S. Employer
Identification No.)
4041 SW 47 AVENUE
FORT LAUDERDALE, FLORIDA 33314
(Address of principal executive offices)
954-587-6280
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether registrant has submitted electronically and posted on its corporate Website, if any every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the Common Stock held by non-affiliates of the registrant at June 28, 2013 was $7,130,201. For purposes of making this
computation only, all executive officers, directors and beneficial owners of more than five percent of the registrant's Common Stock are deemed to be
affiliates.
At March 31, 2014, 8,800,314 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, which will be filed not later than April 30, 2014, are incorporated by reference in Part III of
this report.
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
Selected Financial Data
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and FinancialDisclosure
Item 9A. Controls and Procedures
Item 9B. Other information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters
PART IV
Item 15. Exhibits, Financial Statements Schedules
Signatures
Forward-looking Statements:
Page
1
4
5
5
5
5
6
6
6
10
10
10
10
10
11
11
11
11
11
12
14
Certain statements contained in this Annual Report on Form 10-K, including without limitation, our ability to locate substitute
manufacturing facilities in the event arrangements with any third party manufacturer are discontinued, our ability to renew or replace our
revolving credit facility, anticipated advertising and promotional expense in 2014, our ability to provide required capital to support
inventory levels, the effect of price increases in raw materials that are petroleum or chemical based or commodity chemicals on our
margins, and the sufficiency of funds provided through operations and existing sources of financing to satisfy our cash requirements
constitute forward-looking statements. 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 "believe," "may," "will,"
"expect," "anticipate," "intend," or "could," including the negative or 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 to be materially different from those expressed or implied by such forward-looking statements. Factors that may
affect these results include, but are not limited to, the highly competitive nature of our industry; reliance on certain key customers;
changes in consumer demand for marine, recreational vehicle and automotive products; advertising and promotional efforts; exposure to
market risks relating to changes in interest rates, foreign exchange rates, prices for raw materials that are petroleum or chemical based
and other factors.
Item 1. Business
General:
PART I
We are principally engaged in the manufacturing, marketing and distribution of a broad line of appearance, performance, and
maintenance products for the marine, automotive, power sports, recreational vehicle and outdoor power equipment markets, under the
Star brite®, Star Tron®, and other trademarks within the United States of America and Canada. In addition, we produce private label
formulations of many of our products for various customers and provide custom blending and packaging services for these and other
products. Unless, the context indicates otherwise, we sometimes refer to Ocean Bio-Chem, Inc. and its consolidated subsidiaries as “the
Company," "we" or "our.”
Ocean Bio-Chem, Inc. was incorporated in 1973 under the laws of the state of Florida. In 1981, we purchased, from Peter G. Dornau
and Arthur Spector, the co-founders of the Company, rights to the Star brite® trademark and related products for the United States and
Canada. Mr. Dornau, our Chairman, President and Chief Executive Officer, has retained rights to these assets with respect to all other
geographic areas. Accordingly, products that we manufacture and are sold outside of the United States and Canada are purchased from
us and distributed by two companies owned by Mr. Dornau. Net sales to the two companies in 2013 totaled approximately $1,834,000,
or 5.6% of our net sales. See Note 9 to the consolidated financial statements included in this report for additional information.
On May 10, 2010, the Company announced the formation of OdorStar Technology LLC (“OdorStar”), a joint venture between the
Company and BBL Distributors, LLC. OdorStar owns patents that relate to a formula and delivery system, for use with products
containing chlorine dioxide, designed to safely prevent and eliminate all types of odors relating to mold, mildew, and other sources of
unpleasant odors. The Company and BBL Distributors LLC, the members of OdorStar, share equally in profits or losses from OdorStar,
although we also have royalty rights, which we purchased in 2013, under which OdorStar pays us royalties with respect to sales of
products encompassing the patented technology. See Note 4 to the consolidated financial statements included in this report for
additional information. Because the Company manages OdorStar, it has consolidated OdorStar in its financial statements.
Products:
The products that we manufacture and market include the following:
Marine: Our marine line consists of polishes, cleaners, protectants and waxes under the Star brite® brand name, enzyme fuel treatment
under the Star Tron® brand name, and private label products. The marine line also includes motor oils, boat washes, vinyl cleaners,
protectants, teak cleaners, teak oils, bilge cleaners, hull cleaners, silicone sealants, polyurethane sealants, polysulfide sealants, gasket
materials, lubricants, antifouling additives and anti-freeze coolants. In addition, we manufacture a line of brushes, poles, tie-downs and
other related marine accessories.
Automotive: We manufacture a line of automotive products under the Star brite® and Star Tron® brand names The automotive line
includes fuel treatments for both gas and diesel engines, motor oils, greases and related items. Our Star Tron® enzyme fuel treatment is
designed to eliminate and prevent engine problems associated with fuel containing ethanol. It also increases fuel economy by cleaning
the fuel delivery system and facilitating more complete and uniform combustion. In addition, we produce anti-freeze and windshield
washes under the Star brite® brand and under private labels for customers. We also produce automotive polishes, cleaners and other
appearance items.
Recreational Vehicle/Power Sports: We also market Star Tron® fuel treatment to the recreational vehicle market, including snow
mobiles, all terrain vehicles and motorcycles. For power sports enthusiasts, Star Tron® provides a viable solution to a number of
problems associated with E-10 fuel, which is fuel containing 10% ethanol. Other recreational vehicle/power sports products include
cleaners, polishes, detergents, fabric cleaners and protectors, silicone sealants, waterproofers, gasket materials, degreasers, vinyl cleaners
and protectors, toilet treatment fluids and anti-freeze/coolant.
Outdoor Power Equipment/ Lawn & Garden: We market Star Tron® as a solution to help rectify a number of operating engine problems
in commercial lawn equipment and other home and garden power equipment associated with E-10 fuel.
Contract Filling and Blow Molded Bottles: We blend and package a variety of chemical formulations to our customers’
specifications. In addition, we manufacture for sale to various customers assorted styles of both PVC and HDPE blow molded bottles.
Mold/Mildew Odor Control: We manufacture and market a variety of products under the Star brite® name that help prevent and
eliminate all types of mold, mildew, and other unpleasant odors, using OdorStar’s patented delivery system. Our odor control products
are effective for homes, automobiles, boats and recreational vehicles.
Although our products are utilized for different types of vehicles and boats, and for home care, we believe our operations constitute one
industry segment.
1
Manufacturing: We produce the majority of our products at the manufacturing facilities of our subsidiary, Kinpak, Inc. ("Kinpak"), in
Montgomery, Alabama. In addition, we contract with various unaffiliated companies located in the northeastern and mid-western areas
of the country to manufacture our other products, which are manufactured to our specifications using our provided formulas. Each third
party manufacturer enters into a confidentiality agreement with us.
We purchase raw materials from a variety of suppliers; all raw materials used in manufacturing are readily available from alternative
sources. We design our own packaging and supply our outside manufacturers with the appropriate design or packaging. We believe that
our internal manufacturing capacity and our arrangements with our current outside manufacturers are adequate for our present needs.
In the event that arrangements with any third party manufacturer are discontinued, we believe that we will be able to locate substitute
manufacturing facilities without a substantial adverse effect on our manufacturing and distribution.
Marketing and Significant Customers: Our branded and private label products are sold through national retailers such as Wal-Mart,
Tractor Supply, West Marine and Bass Pro Shops. We also sell to national and regional distributors that resell our products to
specialized retail outlets. Sales to each of two customers exceeded 10% of our consolidated net revenues for the year ended December
31, 2013 and constituted an aggregate of approximately 39% and 37% of consolidated net revenues for the years ended December 31,
2013 and 2012, respectively. Sales to our five largest unaffiliated customers for the years ended December 31, 2013 and 2012 amounted
to approximately 49% and 49% of our consolidated net sales, respectively, and at December 31, 2013 and 2012, outstanding accounts
receivable balances from our five largest unaffiliated customers aggregated approximately 31% and 23% of our consolidated accounts
receivable, respectively.
We market our products through both internal salesmen and external sales representatives who work on an independent contractor
commission basis. Our personnel also participate in sales presentations and trade shows. In addition, we market our brands and
products through advertising campaigns in national magazines, television, newspapers and through product catalogs. Our products are
distributed primarily from Kinpak’s manufacturing and distribution facility in Montgomery, Alabama. Since 2008, we have participated
in a vendor managed inventory program with one major customer.
Backlog, seasonality, and selling terms: We had no significant backlog of orders at December 31, 2013. We generally do not give
customers the right to return product. The majority of our products is non-seasonal and is sold throughout the year. Normal trade terms
offered to credit customers range from 30 to 60 days. However, at times we offer extended payment terms or discount arrangements as
purchasing incentives to customers. These initiatives do not materially affect customary margins.
Competition:
Competition with respect to our principal product lines is described below. The principal elements of competition affecting all of our
product lines are brand recognition, price, service and the ability to deliver products on a timely basis.
Marine: We have several national and regional competitors in the marine marketplace. We do not believe that any competitor or small
group of competitors hold a dominant market share. We believe that we can increase or maintain our market share through expenditures
directed to our present advertising and distribution channels.
Automotive: There are a large number of companies, both national and regional, that compete with us. Many are more established and
have greater financial resources than we do. While our market share is small, the total market size is substantial. We believe that we
have established a reasonable market share through our present advertising and distribution channels, considering the large size of this
market.
Recreational Vehicle/Power Sports: We compete with national and regional competitors. We do not believe that any competitor or
small group of competitors hold a dominant market share. We believe that we can increase or maintain our market share by utilizing
similar advertising and distribution channels to those we use in the marine market.
Outdoor Power Equipment/Lawn & Garden: We compete with several established national and regional competitors. We do not
believe that any competitor or small group of competitors hold a dominant market share. We have attempted to make inroads in this
market by emphasizing Star Tron®’s unique formulation and by increasing our advertising and attendance at trade shows.
Trademarks: We have obtained registered trademarks for Star brite®, Star Tron® and other trade names used on our products. We
view our trademarks as significant assets because they provide product recognition. We believe that our intellectual property is
protected, but we cannot assure that our intellectual property rights can be successfully asserted in the future or will not be invalidated,
circumvented or challenged.
2
Patents: In 2010, OdorStar acquired an interest in patents relating to a delivery system, for use with products containing chlorine
dioxide, designed to safely prevent and eliminate all types of odors relating to mold, mildew, and other unpleasant odors. The patents
expire in 2022.
New Product Development: We continue to develop specialized products for the marine, automotive, recreational vehicle/power sports
and outdoor power equipment/lawn and garden markets. Expenditures for new product development have not been significant and are
charged to operations in the year incurred.
Personnel: At December 31, 2013, we had 114 full-time employees. The following table provides information regarding personnel
working for the Company and its subsidiaries at December 31, 2013:
Location
Fort Lauderdale, Florida
Fort Lauderdale, Florida
Montgomery, Alabama
Description
Administrative, sales, and marketing
Manufacturing and distribution
Manufacturing and distribution
Full-time
Employees
32
7
75
114
3
Item 1A. Risk Factors
If we do not compete effectively, our business will suffer.
We confront aggressive competition in the sale of our products. In each of the markets in which we sell our products, we compete with
a number of national and regional competitors. Competition in the automotive market is particularly intense, with many national and
regional companies marketing competitive products. Many of our competitors in the automotive market are more established and have
greater financial resources than we do. Our inability to successfully compete in our principal markets would have a material adverse
effect on our financial condition, results of operations and cash flows.
Economic conditions can adversely affect our business.
We are subject to risks arising from adverse changes in general domestic and global economic conditions, including recession or
economic slowdown and disruption of credit markets, which may impair the ability of our customers to satisfy obligations due to us. In
addition, adverse economic conditions in recent years have adversely affected discretionary spending, which can have an indirect
adverse effect on our product lines, particularly those directed to the marine and recreational vehicle markets. A continued economic
slowdown or a decline in economic conditions could have a material adverse effect on our financial condition, results of operations and
cash flows.
Failure to effectively utilize or successfully assert intellectual property rights could materially adversely affect our
competitiveness.
We rely on trademarks and trade names in connection with our products, the most significant of which are Star brite® and
Star Tron®. OdorStar also owns patents we consider important to our business. We rely on trademark, trade secret, patent and
copyright laws to protect our intellectual property rights. We cannot assure that these intellectual property rights will be effectively
utilized or, if necessary, successfully asserted. There is a risk that we will not be able to obtain and perfect our own intellectual property
rights, or, where appropriate, license from others intellectual property rights necessary to support new product introductions. Our
intellectual property rights, and any additional rights we may obtain in the future, may be invalidated, circumvented or challenged in the
future. In this regard, in 2013, OdorStar and Kinpak pursued a patent infringement lawsuit with respect to OdorStar's U.S. patent in the
United States District Court for the Southern District of Florida, but the Court granted the defendants' motion for summary
judgment. OdorStar and Kinpak are appealing the judgment of the Court. Our failure to perfect or successfully assert intellectual
property rights could make us less competitive and could have a material adverse effect on our financial condition, results of operations
and cash flows.
Environmental matters may cause potential liability risks.
We must comply with various environmental laws and regulations in connection with our operations, including those relating to the
handling and disposal of hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous
substances. A release of such substances due to accident or intentional act could result in substantial liability to governmental
authorities or to third parties. In addition, we are subject to reporting requirements with respect to certain materials we use in our
manufacturing operations. In January 2011, Kinpak, which owns our manufacturing facility in Montgomery, Alabama, became subject
to a consent agreement and final order with the United States Environmental Protection Agency relating to its alleged failure to complete
and submit certain required forms with respect to toxic and hazardous chemicals used at its facilities. Under the consent agreement and
final order, Kinpak paid a civil penalty of $110,000. It is possible that we could become subject to additional environmental liabilities in
the future that could have a material adverse effect on our financial condition, results of operations and cash flows.
Our variable rate indebtedness exposes us to risks related to interest rate fluctuation and matures in July 2014.
The Company has a revolving line of credit with a variable interest rate. At December 31, 2013, the Company did not have any
borrowings outstanding under the revolving line of credit. However, during 2013 the highest amount outstanding under the revolving
line of credit was $650,000. Interest on the revolving line of credit is payable at the 30 day LIBOR rate plus 1.74% per annum (unless
the Company’s debt service coverage ratio, as defined in the credit agreement, falls below 2.0 to 1, in which case the additional
percentage will be 2.75% per annum). In no event will the interest rate be less than 2.0% per annum. If interest rates were to increase
significantly, our financial condition, results of operations and cash flows could be materially adversely affected.
In addition, our current revolving line of credit agreement matures in July 2014. While we currently are in negotiations to renew or
replace the line of credit facility and believe we will be able to enter into a renewal or a replacement for our current facility, we cannot
assure that we will be successful in negotiating such a facility. Our failure to renew or replace our current revolving line of credit
facility could adversely affect our business and liquidity.
4
Our Chairman, President and Chief Executive Officer is a majority shareholder who controls us, and his interest may conflict
with or differ from the Company's interests.
Peter G. Dornau, our Chairman, President and Chief Executive Officer, owns approximately 54% of our Common Stock. As a result,
Mr. Dornau has the power to elect all of our directors and effectively has the ability to prevent any transaction that requires the approval
of our Board of Directors and our shareholders. Products that we manufacture and that are sold outside of the United States and Canada
are purchased from us and distributed by two companies owned by Mr. Dornau, which we refer to as the “affiliated companies.” Sales
to the affiliated companies aggregated approximately $1,834,000 and $1,487,000 during the years ended December 31, 2013 and 2012,
respectively. An affiliated company owns the rights to the Star brite® and Star Tron® trademarks and related products outside of the
United States and Canada.
In addition, we provided administrative services to the affiliated companies for fees aggregating approximately $406,000 and $335,000
during the years ended December 31, 2013 and 2012, respectively. While the terms of the sales to the affiliated companies differed from
the terms of sale to other customers, the affiliated companies bear their own warehousing, distribution, advertising, selling and
marketing costs, as well as their own freight charges (we pay freight charges in connection with sales to our domestic customers on all
but small orders). Moreover, we do not pay sales commissions with respect to products sold to the affiliated companies. As a result, we
believe our profit margins with respect to sales to the affiliated companies are similar to the profit margins we realize with respect to
sales to our larger domestic customers. Management believes that the sales to the affiliated companies did not involve more than normal
credit risk or present other unfavorable features. We have entered into other transactions with entities owned by Mr. Dornau. See
Note 9 to the consolidated financial statements included in this report for additional information
Trading in our Common Stock has been limited, and our stock price could potentially be subject to substantial fluctuations.
Our common stock is listed on the NASDAQ Capital Market, but trading in our stock has been limited. Our stock price could be
affected substantially by a relatively modest volume of transactions.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our executive offices and one of our manufacturing facilities is located in Fort Lauderdale, Florida and are leased from an entity
controlled by our Chairman, President and Chief Executive Officer. The lease covers approximately 12,700 square feet of office,
manufacturing, and warehouse space. See Note 10 to the consolidated financial statements included in this report for additional
information.
We own Kinpak’s Alabama manufacturing facility, which currently contains approximately 300,000 square feet of office, plant and
warehouse space on 20 acres of land. We also lease a 1.5 acre docking facility on the Alabama River, located approximately eleven
miles from Kinpak’s facility.
Item 3. Legal Proceedings
On November 26, 2013, OdorStar and Kinpak filed a Second Amended Complaint in the United States District Court for the Southern
District of Florida, amending a complaint initially filed on January 13, 2013. The Second Amended Complaint was filed against SMM
Distributors LLC (now defunct) d/b/a Biocide Systems, and SMM Manufacturing, Inc. (collectively, "Biocide"). The Second Amended
Complaint alleged that Biocide manufactured, used, sold and continues to sell an odor eliminating product that infringes OdorStar's U.S.
patent relating to OdorStar's delivery system for use with products containing chlorine dioxide. Biocide denied the allegations of the
Second Amended Complaint, and both the plaintiffs and defendants filed motions for summary judgment. On January 27, 2014, the
Court granted the defendants' motion for summary judgment and denied the plaintiffs' motion.
OdorStar and Kinpak have appealed the judgment to the United States Court of Appeals for the Eleventh Circuit. The appeal is pending.
Item 4. Mine Safety Disclosures
Not applicable.
5
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Capital Market under the symbol OBCI. A summary of the high and low sales prices
during each quarter of 2013 and 2012 is presented below.
PART II
2013
2012
High
Low
High
Low
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
$
$
$
$
3.24 $
2.13 $
2.78 $
2.01 $
3.23 $
2.45 $
2.59 $
1.83 $
3.19 $
2.40 $
2.59 $
1.76 $
2.70
2.20
2.50
1.81
We had 133 record holders of our Common Stock at December 31, 2013. We believe that there are approximately 900 additional
beneficial holders of our Common Stock, based on information obtained from our transfer agent and from broker-dealers that hold
shares on behalf of their clients.
On March 18, 2014, the Board of Directors of Ocean Bio-Chem, Inc. declared a special dividend of $0.05 per share payable on April 15,
2014 to shareholders of record on April 1, 2014. This is the first time the Company will pay a cash dividend.
Item 6. Selected Financial Data
Not applicable.
Item 7. 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 in Item 8 of this report.
Overview:
We are principally engaged in the manufacturing, marketing and distribution of a broad line of appearance, performance, and
maintenance products for the marine, automotive, power sports, recreational vehicle and outdoor power equipment markets, under the
Star brite® and other trademarks within the United States of America and Canada. In addition, we produce private label formulations of
many of our products for various customers and provide custom blending and packaging services for these and other products. We sell
our products through national retailers and to national and regional distributors who, in turn, sell our products to specialized retail
outlets.
Critical accounting estimates:
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates and assumptions.
We have identified the following as critical accounting estimates, which are defined as those that are reflective of significant judgments
and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could
potentially result in materially different results under different assumptions and conditions.
Revenue recognition and collectability of accounts receivable
Revenue from product sales is recognized when persuasive evidence of a contract exists, the sales price is fixed and determinable, the
title of goods pass to the customer, and collectability of the related receivable is probable. With respect to a customer for whom the
Company manages the inventory at the customer's location, revenue is recognized when the products are sold to a third party. In the
ordinary course of business, we grant non-interest bearing trade credit to our customers on normal credit terms. In an effort to reduce
our credit risk, we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and
customers’ creditworthiness, as determined by our review of their current credit information. We monitor collections and payments
from our customers and maintain a provision for estimated credit losses based upon our historical experience, specific customer
collection issues and reviews of agings of trade receivables based on contractual terms. We generally do not require collateral on trade
accounts receivable. We maintain an allowance for doubtful accounts based on our historical collection experience and expected
6
collectability of the accounts receivable, considering the period an account is outstanding, the financial position of the customer and
information provided by credit rating services. The adequacy of this allowance is reviewed each reporting period and adjusted as
necessary. Our allowance for doubtful accounts was approximately $93,000 and $73,000 at December 31, 2013 and 2012, respectively,
which was approximately 2.1% and 2.4%, respectively, of gross accounts receivable. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, or if unexpected events or significant future changes in trends
were to occur, additional allowances may be required, resulting in increased bad debt expense.
Inventories
Inventories primarily are composed of raw materials and finished goods and are stated at the lower of cost or market, using the first-in,
first-out method. We maintain a reserve for slow moving and obsolete inventory to reduce the carrying value of our inventories to
reflect the diminution of value resulting from product obsolescence, damage or other issues affecting marketability by an amount equal
to the difference between the cost of the inventory and its estimated market value. The adequacy of this reserve is reviewed each
reporting period and adjusted as necessary. We regularly compare inventory quantities on hand against historical usage or forecasts
related to specific items in order to evaluate obsolescence and excessive quantities. In assessing historical usage, we also qualitatively
assess business trends to evaluate the reasonableness of using historical information as an estimate of future usage. A complete physical
count of the inventory is conducted annually.
Our slow moving and obsolete inventory reserve was $302,296 and $271,994 at December 31, 2013 and December 31, 2012,
respectively.
Income taxes
Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized
to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the differences are expected to be recovered or settled. The temporary differences are attributable
to differing methods of financial statement and income tax depreciation and reserves for trade accounts receivable and inventories.
The likelihood of a material change in the Company's expected realization of deferred tax assets is dependent on, among other factors,
future taxable income and settlements with tax authorities. While management believes that its judgments and interpretations regarding
income taxes are appropriate, significant differences in actual experience may require future adjustments to our tax assets and liabilities,
which could be material.
We are also required to assess the realizability of our deferred tax assets. We evaluate positive and negative evidence and use judgments
regarding past and future events, including operating results and available tax planning strategies that could be implemented to realize
the deferred tax assets. Based on this assessment, we determine when it is more likely than not that all or some portion of our deferred
tax assets may not be realized, in which case we would be required to apply a valuation allowance to offset our deferred tax assets in an
amount equal to future tax benefits that may not be realized. We currently do not apply a valuation allowance to our deferred tax
assets. However, if facts and circumstances change in the future, a valuation allowance may be required.
Significant judgment is required in determining income tax provisions and in evaluating tax positions. We establish additional
provisions for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not
meet the minimum probability threshold, which is a tax position that is more likely than not to be sustained upon examination by the
applicable taxing authority. In the normal course of business, we and our subsidiaries are examined by various federal and state tax
authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years
in determining the adequacy of our provision for income taxes. We adjust the income tax provision, the current tax liability and deferred
taxes in any period in which facts that give rise to an adjustment become known. The ultimate outcomes of the examinations of our
income tax returns could result in increases or decreases to our recorded tax liabilities, which could affect our financial results.
Trademarks, trade names, royalty rights, and patents - We acquired the rights to the Star brite® trademark and related products for the
United States and Canada in conjunction with our initial public offering during March 1981 for $880,000. Through December 31, 2001,
the cost of these intangible assets was amortized on a straight-line basis over an estimated useful life of 40 years. Effective January 1,
2002 and pursuant to Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (now codified in
Financial Accounting Standards Board Accounting Standards Codification Topic 350, "Intangibles - Goodwill and Other"), we
determined that these intangible assets have indefinite lives and therefore, we no longer recognize amortization expense. In addition,
our 50% owned joint venture, OdorStar Technology, LLC, owns patents we use in our business. The Company amortizes these patents
over their remaining life on a straight line basis. On August 6, 2013, the Company purchased for $160,000 royalty rights (previously
owned by an unaffiliated company that owned the patents ultimately acquired by OdorStar) relating to sales of products encompassing
OdorStar's patented technology. The Company is amortizing the royalty rights over their remaining life on a straight line basis. We
review the carrying values of the trademarks and patents periodically for possible impairment. Our impairment review is based on a
discounted cash flow approach that requires significant judgment with respect to unit volume, revenue and expense growth rates, and the
7
selection of an appropriate discount rate. Management uses estimates based on expected trends in making these assumptions. All
impairment charges would be recorded for the difference between the carrying value and the net present value of estimated future cash
flows, which represents the estimated fair value of the asset. Management uses its judgment in assessing whether assets may have
become impaired between annual valuations. Indicators such as unexpected adverse economic factors, unanticipated technological
change, distribution losses, competitive activities and acts by governments and courts may indicate that an asset has become impaired.
Results of Operations:
Net sales were approximately $32,703,000 in 2013 compared to $31,039,000 in 2012, an increase of $1,664,000 or 5.4%. The increase
in sales principally results from the resumption by our largest customer of normal buying practices following completion of its inventory
reduction program related to products in our sector, which was in effect during 2012, and increased sales to affiliated companies (see
Note 9 to the consolidated financial statements included in this report), in addition to increased sales of marine products including Star
Tron®, private label products, and winterizing products.
Cost of goods sold and gross profit – Cost of goods sold during 2013 increased approximately $1,403,000 or 6.9%, to approximately
$21,815,000 from approximately $20,412,000 in 2012. The increase in cost of goods sold reflects the increase in net sales and an
increase in raw material costs and manufacturing overhead expenses.
Gross profit increased by approximately $262,000 or 2.5% to approximately $10,889,000 in 2013, from approximately $10,627,000
during 2012, as the result of the factors described above.
Our gross profit percentage (gross profit as a percentage of net sales) decreased approximately 0.9%, from 34.2% in 2012 to 33.3% in
2013. This decrease is the result of higher raw material costs, and increased manufacturing overhead expenses.
Advertising and promotion expense was approximately $2,648,000 in 2013, an increase of approximately $230,000 or 9.5% from
approximately $2,418,000 in 2012. As a percentage of net sales, advertising and promotion expense increased from 7.8% in 2012 to
8.1% in 2013. The increase is primarily a result of increased promotional and marketing expenses, including our increased presence at
industry trade shows. The Company anticipates in 2014 that advertising and promotion expense will approximate the 2013 amount.
Selling and administrative expenses increased by approximately $803,000 or 15.7%, from approximately $5,126,000 in 2012 to
approximately $5,929,000 in 2013. The increase is principally due to an increase in stock-based compensation, legal expenses with
regard to patent litigation involving OdorStar (see Item 3 in this report), and increased selling expenses associated with our higher
sales. As a percentage of net sales, selling and administrative expenses increased from 16.5% in 2012 to 18.1% in 2013.
Operating income – As a result of the foregoing, operating income decreased to approximately $2,312,000 in 2013, compared to
approximately $3,083,000 in 2012, a decrease of $771,000 or 25.0%.
Interest expense decreased approximately $31,000 to $67,000 in 2013, compared to $98,000 in 2012. The decrease reflects lower
average borrowings under our revolving line of credit, and continued reduction of our long-term debt during 2013.
Income taxes – We had a tax expense of approximately $816,000 in 2013 or 36.2% of pretax income, compared to approximately
$1,055,000 in 2012 or 35.3% of pretax income. The increased rate is almost entirely due to the effect of the increased stock-based
compensation. For additional information, see Note 8 to the consolidated financial statements included in this report.
Net Income and Net income attributable to Ocean Bio-Chem, Inc. As a result of the items described above, net income decreased
approximately 25.8% or approximately $499,000 to $1,435,000 in 2013 from $1,934,000 in 2012. Net income attributable to Ocean
Bio-Chem, Inc. (excluding the loss attributable to non-controlling interests) was approximately $1,461,000 in 2013, a decrease of
approximately $501,000 or 25.5% from approximately $1,962,000 in 2012.
Liquidity and Capital Resources:
Our cash balance was approximately $3,072,000 at December 31, 2013 compared to approximately $1,508,000 at December 31,
2012. At December 31, 2013 and December 31, 2012, we had no borrowings under our revolving line of credit.
Cash provided by operating activities for the year ended December 31, 2013 was approximately $2,565,000 compared to about
$2,775,000 for the year ended December 31, 2012. The decrease in cash provided by operations principally results from the
approximately $499,000 decrease in net income as compared to 2012, offset in large part by increases in non-cash items of
approximately $178,000 and net favorable changes in working capital of approximately $112,000.
Inventories were approximately $7,368,000 and $9,257,000 at December 31, 2013 and 2012, respectively, representing a decrease of
approximately $1,889,000 or 20.4% in 2013. The lower levels of 2013 inventories compared to 2013 levels reflect high sales volume
late in 2013.
8
Net trade accounts receivable aggregated approximately $4,414,000 at December 31, 2013 an increase of approximately $1,483,000 or
50.6% over net trade accounts receivable of $2,931,000 at December 31, 2012. The increase in accounts receivable is due to increased
sales in December 2013 as compared to December 2012.
Cash used in investing activities for the year ended December 31, 2013 was approximately $673,000 compared to $771,000 in
2012. During 2013, purchases of property, plant, and equipment decreased by approximately $258,000. In 2013, we also acquired for
$160,000 royalty rights relating to sales of products encompassing OdorStar’s patented technology.
Cash used in financing activities for the year ended December 31, 2013 was approximately $328,000 compared to $1,081,000 for the
year ended December 31, 2012. In 2013, we had no net repayments or borrowings on our revolving line of credit, while we had net
repayments of $850,000 on the line of credit in 2012, The decrease in repayments under the revolving line of credit were offset, in part,
by an approximately $90,000 reduction in proceeds from the exercise of stock options in 2013 compared to 2012.
On July 6, 2011, we, together with our subsidiary, Kinpak Inc. (“Kinpak”), entered into a Credit Agreement with Regions Bank (and,
pursuant to an Equipment Finance Addendum to the Credit Agreement, Regions Equipment Finance Corporation (“REFCO”)) under
which (a) our revolving line of credit with Regions Bank was renewed, and (b) REFCO provided a new term loan in the amount of
$2,430,000, the proceeds of which were used to pay the Kinpak’s remaining lease obligations in connection with the previously
outstanding 2002 Series of Industrial Development Revenue Bonds issued by the City of Montgomery, Alabama (the “2002
Bonds”). The 2002 Bonds were used to fund the expansion of Kinpak’s facilities and acquisition of related equipment.
Under the term loan, we pay principal, together with interest at the fixed rate of 3.54% per annum, in 72 consecutive monthly payments
of $37,511 over the six year period beginning on August 6, 2011, with the final payment due on July 6, 2017. In the event our debt
service coverage ratio falls to or below 2.0 to 1, interest on the term loan will increase by 1.01% per annum. For the year ended
December 31, 2013, our debt service coverage ratio exceeded 5.0 to 1.
The Credit Agreement defines “debt service coverage ratio“ as meaning net profit plus taxes, interest, depreciation, amortization and
rent expense divided by debt service plus interest and lease/rent expense. The Credit Agreement contains various covenants, including
financial covenants requiring a minimum debt coverage ratio of 1.75 to 1.00, tested on a rolling four-quarter basis, and a maximum debt
to capitalization ratio (funded debt divided by the sum of total net worth and funded debt) of 0.75 to 1, tested quarterly. At
December 31, 2013, we were in compliance with these covenants.
Under the renewed revolving line of credit, we may borrow up to the lesser of (i) $6 million and (ii) a borrowing base equal to 80% of
eligible accounts receivable plus 50% of eligible inventory. Interest on the revolving line of credit is payable at the 30 day LIBOR rate
plus 1.74% per annum (unless our debt service coverage ratio falls below 2.0 to 1, in which case the additional percentage will be 2.75%
per annum). In no event will the interest rate be less than 2.0% per annum. Outstanding amounts under the revolving line of credit are
payable on demand. If no demand is made, we may repay and reborrow funds from time to time. Interest payments are made in
monthly installments on outstanding average balances with all outstanding principal and interest payable on July 6, 2014. At December
31, 2013, we had no borrowings under our revolving line of credit.
Our obligations under the Credit Agreement are secured by our accounts receivable and inventory, as well as real property and
equipment at the Kinpak’s Montgomery, Alabama facility.
We currently are engaged in negotiations to renew or replace the revolving line of credit. While we believe that we will be able to
negotiate a renewal or a replacement of the facility on acceptable terms, we cannot assure that we will do so.
In addition to the revolving line of credit and term loan, we have obtained financing through capital leases for both manufacturing and
office equipment, totaling approximately $19,500 and $37,600 at December 31, 2013 and December 31, 2012, respectively.
Our sales in the Canadian market are subject to currency fluctuations relating to the Canadian dollar. We do not engage in currency
hedging and address currency risk as a pricing issue. In the year ended December 31, 2013, we recorded approximately $5,000 in
foreign currency translation adjustments (decreasing shareholders equity by $5,000).
During the past few years, we have introduced a number of new products. At times, new product introductions have required us to
increase our overall inventory and have resulted in lower inventory turnover rates. The effects of reduced inventory turnover have not
been material to our overall operations. We believe that all required capital to maintain such increases will continue to be provided by
operations and, if necessary, our current revolving line of credit or a renewal or replacement of the facility. However, we cannot assure
that we will be able to secure such a renewal or replacement of our revolving line of credit.
Many of the raw materials that we use in the manufacturing process are petroleum or chemical based and commodity chemicals that are
subject to fluctuating prices. The nature of our business does not enable us to pass through the price increases to our national retailers
and distributors as promptly as we experience increases in raw material costs. This may, at times, adversely affect our margins.
9
At December 31, 2013 and through the date of this report, 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.
We believe that funds provided through operations and other sources of financing will be sufficient to satisfy our cash requirements over
at least the next twelve months.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The audited financial statements of the Company required pursuant to this Item 8 are included in a separate section commencing on page
F-1 and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures:
Evaluation of Disclosure Controls and Procedures. The Company’s disclosure controls and procedures are designed to provide
reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act are (i)
recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and
forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding the disclosure.
Management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the Company's disclosure controls and procedures as of the end of the period covered by this report. As a result of the Company’s
late filing of current reports on Form 8-K with regard to several press releases addressing its financial results for the quarter and year
ended December 31, 2012 and the first three quarters of 2013, as well as its sales for the quarter and year ended December 31, 2013, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were
not effective as of the end of the period covered by this report. The Company has instituted additional procedures designed to ensure the
timely filing of current reports on Form 8-K with regard to press releases addressing financial results and related matters.
Change in Internal Controls over Financial Reporting. No change in internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management of Ocean Bio-Chem, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed 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.
A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the Company’s internal control over financial reporting as of December 31, 2013. In making this assessment,
management used the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). As a result of this assessment and based on the criteria in the COSO framework,
management has concluded that, as of December 31, 2013, the Company’s internal control over financial reporting was effective.
Item 9B. Other Information
Not applicable.
10
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information required by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Information required by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
Item 14. Principal Accounting Fees and Services
Information required by this item is incorporated by reference to the Company's definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
11
PART IV
Item 15. Exhibits, Financial Statements, Schedules and Reports Filed on Form 8K
(a)
Financial Statements – See the Index to Consolidated Financial Statements on page F-1.
(b)
Exhibits:
Exhibit No.
3.1.1
3.1.2
3.2
10.1
10.2
10.3
10.4
10.5
†10.6
†10.7
†10.8
†10.9
†10.10
10.11
10.12
*10.13
10.14
*21.
Articles of Incorporation and amendments through May 20, 1994 (incorporated by reference to Exhibit 3.1 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
Articles of Amendment to the Articles of Incorporation, as filed on June 13, 2012 (incorporated by reference to
Exhibit 3.1.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012).
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K,
filed with the Securities and Exchange Commission on December 5, 2011).
Ocean Bio-Chem, Inc. Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s
Registration Statement on Form S-8 (file no. 333-174659), filed with the Securities and Exchange Commission on June 2,
2011).
Credit Agreement, dated July 6, 2011, among the Company, Kinpak, Inc. and Regions Bank (the “Credit Agreement”)
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2011).
Equipment Finance Addendum, dated July 6, 2011, among the Company, Kinpak, Inc. and Regions Equipment Finance
Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2011).
Promissory Note, dated July 6, 2011, issued by the Company to Regions Bank in connection with the revolving line of
credit under the Credit Agreement (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-
K, filed with the Securities and Exchange Commission on July 12, 2011).
Promissory Note, dated July 6, 2011, issued by the Company and Kinpak, Inc. to Regions Equipment Finance Corporation
in connection with the term loan under the Credit Agreement (incorporated by reference to Exhibit 99.4 to the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 12, 2011).
Ocean Bio-Chem, Inc. 2002 Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 99.2 to
the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12,
2011).
Ocean Bio-Chem, Inc. 2008 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 99.4 to the
Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12, 2011).
Ocean Bio-Chem, Inc. 2008 Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 99.5 to
the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12,
2011).
Ocean Bio-Chem, Inc. Form of Stock Option granted to Peter G. Dornau (incorporated by reference to Exhibit 99.6 to the
Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12, 2011).
Ocean Bio-Chem, Inc. Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s
Registration Statement on Form S-8, filed with the Securities and Exchange Commission on June 2, 2011).
Net Lease, dated May 1, 1998, between Star Brite Distributing, Inc. and PEJE, Inc (incorporated by reference to
Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).
Renewal of Lease, dated May 1, 2008, between Star Brite Distributing, Inc. and PEJE, Inc. (incorporated by reference to
Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).
Amendment Number Two to Net Lease, dated May 16, 2013, between Star Brite Distributing, Inc. and PEJE, Inc.
OdorStar Technology, LLC Operating Agreement dated May 4, 2010 (incorporated by reference to Exhibit 10.17 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
List of Subsidiaries
12
Exhibit No.
*31.1
*31.2
*32.1
*32.2
101
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.
The following materials from Ocean Bio-Chem Inc.’s Annual Report on Form 10-K for the year ended December 31,
2013, formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31,
2013 and December 31, 2012; (ii) Consolidated Statements of Operations for the years ended December 31, 2013 and
2012; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2013 and 2012; (iv)
Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2013 and 2012, (v)
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012 and (vi) Notes to Consolidated
Financial Statements.
* Filed herewith.
† Constitutes management contract or compensatory plan or arrangement required to be filed as in exhibit to this report.
13
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 31, 2014
OCEAN BIO-CHEM, INC.
By: /s/ Peter G. Dornau
PETER G. DORNAU
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature
Capacity
Date
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
/s/Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
(Principal Financial and Accounting
/s/ Sonia B. Beard
Sonia B. Beard
/s/ Diana Mazuelos Conard
Diana Mazuelos Conard
/s/ Gregor M. Dornau
Gregor M. Dornau
/s/ William W. Dudman
William W. Dudman
/s/ James M. Kolisch
James M. Kolisch
/s/ John B. Turner
John B. Turner
Officer)
Director
Director
Director
Director
Director
Director
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
14
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent registered public accounting firm
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of comprehensive income
Consolidated statements of changes in shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8 - F-16
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ocean Bio-Chem, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ocean Bio-Chem, Inc. and Subsidiaries as of December 31, 2013 and
2012 and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for
each of the years in the two-year period ended December 31, 2013. Ocean Bio-Chem, Inc.'s management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.
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 audits 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 purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a
test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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 consolidated financial
position of Ocean Bio-Chem, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2013, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Goldstein Schechter Koch P.A.
Certified Public Accountants
Hollywood, Florida
March 31, 2014
F-2
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2013 AND 2012
December 31,
2013
December 31,
2012
ASSETS
Current Assets:
Cash
Trade accounts receivable less allowances of approximately $93,000 and $73,000, respectively
Receivables due from affiliated companies
Inventories, net
Prepaid expenses and other current assets
Deferred tax asset
Total Current Assets
$
3,071,887 $
4,413,656
536,402
7,367,894
621,107
64,665
1,508,385
2,931,479
556,051
9,256,589
530,305
56,221
16,075,611 14,839,030
Property, plant and equipment, net
5,116,441
5,327,909
Other Assets:
Trademarks, trade names, royalty rights, and patents, net
Other assets
Total Other Assets
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable – trade
Current portion of long-term debt
Income taxes payable
Accrued expenses payable
Total Current Liabilities
Deferred tax liability
Long-term debt, less current portion
Total Liabilities
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value, 12,000,000 shares authorized; 8,749,888 shares issued
Additional paid in capital
Less cost of common stock in treasury, 79,941 shares and 351,503 shares respectively
Foreign currency translation adjustment
Retained earnings
Total Shareholders' Equity of Ocean Bio-Chem, Inc.
Noncontrolling interest
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
920,269
130,803
819,194
24,350
1,051,072
843,544
$ 22,243,124 $ 21,010,483
$
1,013,829 $
414,525
119,943
1,067,355
2,615,652
1,431,457
407,095
65,944
913,129
2,817,625
237,635
1,117,761
3,971,048
230,478
1,532,286
4,580,389
87,499
8,805,460
(65,029 )
(266,456 )
9,482,128
87,499
8,617,081
(288,013 )
(261,807 )
8,021,136
18,043,602 16,175,896
228,474
254,198
18,272,076 16,430,094
$ 22,243,124 $ 21,010,483
F-3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2013 AND 2012
Gross sales
Less: discounts, returns, and allowances
Net sales
Cost of goods sold
Gross profit
Operating Expenses:
Advertising and promotion
Selling and administrative
Total operating expenses
Operating income
Other income (expense)
Interest (expense)
Other income
Income before income taxes
Provision for income taxes
Net income
Loss attributable to noncontrolling interests
Net income attributable to Ocean Bio-Chem, Inc.
Income per common share – basic
Income per common share – diluted
Weighted average shares – basic
Weighted average shares – diluted
The accompanying notes are an integral part of these consolidated financial statements.
2013
2012
$ 34,407,254 $ 33,061,823
1,703,776 2,022,929
32,703,478 31,038,894
21,814,739 20,412,022
10,888,739 10,626,872
2,647,968 2,417,745
5,928,830 5,126,467
8,576,798 7,544,212
2,311,941 3,082,660
(67,180 )
6,319
(97,964 )
4,489
2,251,080 2,989,185
815,812 1,055,078
1,435,268 1,934,107
25,724
28,181
$ 1,460,992 $ 1,962,288
$
$
0.17 $
0.24
0.17 $
0.23
8,542,686 8,229,720
8,787,668 8,556,107
F-4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2013 AND 2012
Net Income
Foreign currency translation adjustment
Comprehensive income
Comprehensive loss attributable to noncontrolling interests
2013
2012
$ 1,435,268 $ 1,934,107
(4,649 )
6,277
1,430,619 1,940,384
25,724
28,181
Comprehensive income attributable to Ocean Bio-Chem, Inc.
$ 1,456,343 $ 1,968,565
The accompanying notes are an integral part of these consolidated financial statements.
F-5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2013 AND 2012
Common
Stock
Additional Foreign
Currency
Retained
Paid In
Adjustment Earnings
Amount Capital
Shares
Non
Treasury Controlling
Stock
Interest
Total
January 1, 2012
8,458,389 $ 84,584 $ 8,163,864 $
(268,084 ) $ 6,058,848 $ (288,013 ) $
282,379 $ 14,033,578
Net Income (loss)
1,962,288
(28,181 )
1,934,107
Options exercised
174,499
1,745
167,751
Stock based
compensation -
grants
117,000
1,170
229,905
Stock based compensation -
options
55,561
Foreign currency
translation
adjustment
6,277
169,496
231,075
55,561
6,277
December 31, 2012 8,749,888 $ 87,499 $ 8,617,081 $
(261,807 ) $ 8,021,136 $ (288,013 ) $
254,198 $ 16,430,094
Net Income (loss)
Options exercised
Stock based
compensation -
grants
Stock based compensation –
options
Foreign currency
translation
adjustment
1,460,992
(25,724 )
1,435,268
(44,953 )
124,620
79,667
221,076
12,256
(4,649 )
98,364
319,440
12,256
(4,649 )
December 31, 2013 8,749,888 $ 87,499 $ 8,805,460 $
(266,456 ) $ 9,482,128 $
(65,029 ) $
228,474 $ 18,272,076
The accompanying notes are an integral part of these consolidated financial statements.
F-6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2013 AND 2012
Cash flows from operating activities:
Net income
Adjustment to reconcile net income to net cash provided by operations:
Depreciation and amortization
Deferred income taxes
Stock based compensation
Other operating noncash items
Changes in assets and liabilities:
Trade accounts receivable
Inventories
Other assets
Prepaid expenses and other current assets
Receivables due from affiliated companies
Accounts payable and other accrued expenses
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Purchase of royalty rights
Net cash used in investing activities
Cash flows from financing activities:
Net borrowings (repayments) under revolving line of credit
Payments on long-term debt
Proceeds from exercise of stock options
Net cash used in financing activities
Effect of exchange rate on cash
Net increase 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
Supplemental disclosure of non-cash investing activities
Issuance of note receivable for amounts due
The accompanying notes are an integral part of these consolidated financial statements.
2013
2012
$ 1,435,268 $ 1,934,107
782,962
(1,287 )
318,110
61,824
701,569
(10,137 )
276,993
15,457
(1,502,797 )
1,858,393
(106,453 )
(90,802 )
19,649
(209,403 )
(366,645 )
375,918
9,092
(106,137 )
(60,921 )
5,335
2,565,464 2,774,631
(512,569 )
(160,000 )
(672,569 )
(770,737 )
-
(770,737 )
-
(407,095 )
79,667
(850,000 )
(400,411 )
169,496
(327,428 ) (1,080,915 )
49
(1,965 )
923,028
1,563,502
585,357
1,508,385
$ 3,071,887 $ 1,508,385
$
$
68,327 $
100,995
763,100 $ 1,352,879
$
111,420 $
-
F-7
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012
Note 1 – Organization and summary of significant accounting policies:
Organization – The Company was incorporated in 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, recreational vehicle,
and outdoor power equipment aftermarkets.
Basis of presentation – The consolidated financial statements include the accounts of the Company, its wholly owned
subsidiaries, and a joint venture in which the Company has a controlling interest. All significant inter-company accounts and
transactions have been eliminated in consolidation. Certain prior-period data have been reclassified to conform to the current
period presentation.
Revenue recognition – Revenue from product sales is recognized when persuasive evidence of a contract exists, the sales price
is fixed and determinable, the title of goods passes to the customer, 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 sales incentives.
Collectability of accounts receivable – Trade accounts receivable at December 31, 2013 and 2012 are net of allowances for
doubtful accounts aggregating approximately $93,000 and $73,000, respectively. Such amounts are based on management's
estimates of the creditworthiness of its customers, current economic conditions and historical information. The Company had
bad debt expense of approximately $21,000 and $0 during the years ended December 31, 2013 and 2012, respectively.
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 the Company are included in cost of goods sold in
the consolidated statements of operations. Shipping and handling costs totaled approximately $1,188,000 and $1,165,000 for
the years ended December 31, 2013 and 2012, respectively.
Advertising and promotion expense – Advertising and promotion expense consists of advertising costs and marketing expenses,
including catalog costs and expenses relating to participation at trade shows. Advertising costs are expensed in the period in
which the advertising occurs and totaled approximately $2,648,000 and $2,418,000 in 2013 and 2012, respectively. 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 to 12 months. At December 31, 2013 and
2012, the carrying value of capitalized catalog costs was not material.
Property, plant and equipment – Property, plant and equipment is stated at cost, net of depreciation. Depreciation is provided
over the estimated useful lives of the related assets using the straight-line method.
Research and development costs – Research and development costs are expensed as incurred and recorded in selling and
administrative expenses in the consolidated statements of operations. The Company incurred approximately $60,000 and
$76,000 of research and development costs for the years ended December 31, 2013 and 2012 respectively.
Stock based compensation – The Company records stock-based compensation in accordance with the provisions of Financial
Accounting Standards Board Accounting Standards Codification (“ASC") Topic 718, "Accounting for Stock Compensation,"
which establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or
services. Under ASC Topic 718, we recognize an expense for the fair value of our outstanding stock options as they vest and
the fair value of our stock awards at the time of grant, whether held by employees or others.
Use of estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of credit risk; dependence on major customers – Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. The Company’s five largest unaffiliated customers
represented approximately 49% and 49% of consolidated net revenues for the years ended December 31, 2013 and 2012, and
31% and 23% of consolidated accounts receivable at December 31, 2013 and 2012, respectively. The Company has a
longstanding relationship with each of these entities and previously has collected all open receivable balances from these
entities. The loss of any of these customers could have an adverse impact on the Company’s operations (see Note 12).
F-8
Concentration of cash – At various times during the year and at December 31, 2013, 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 – ASC Topic 820, “Fair Value Measurements and Disclosures” defines “fair value” as the price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or
liability) used to measure fair value. This hierarchy prioritizes the inputs into the following three levels:
Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that
result in management’s best estimate of fair value.
The carrying amounts of the Company’s short-term financial instruments, including accounts receivable, accounts payable, certain
accrued expenses, revolving line of credit, and notes 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 of the long-term debt approximates fair value.
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 ASC Subtopic 360-10, "Property, Plant and Equipment – Overall,"
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 records income taxes under the asset and liability method. The Company recognizes deferred income
tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting and tax
bases of assets and liabilities. These differences are measured using tax rates that are expected to apply to taxable income in the
years in which those temporary differences are recovered or settled. We recognize in the statement of operations the effect on
deferred income taxes of a change in tax rates in the period that includes the enactment date.
We record a valuation allowance when necessary to reduce our deferred tax assets to the net amount that we believe is more likely
than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income,
expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need
for a valuation allowance.
We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax positions will
be sustained on examination by the taxing authorities based on the technical merits of the positions; otherwise, we establish reserves
for uncertain tax positions. We adjust reserves with respect to uncertain tax positions to address developments related to these
positions, such as the closing of a tax audit, the expiration of a statute of limitations or the refinement of an estimate. The provision
for income taxes includes the effects of any reserves with respect to uncertain tax positions that are considered appropriate, as well
as the related net interest and penalties.
The Company has been audited by the Internal Revenue Service through the year ended December 31, 2009.
Trademarks, trade names, royalty rights, and patents – The Company purchased the Star brite® trade name and trademark in 1980
for $880,000. The cost of the trade name and trademark initially were amortized on a straight-line basis over an estimated useful
life of 40 years. Effective January 1, 2002 and in accordance with ASC Topic 350, "Intangibles – Goodwill and Other," the
Company determined that these intangible assets have indefinite lives and therefore, the Company no longer recognizes
amortization expense. The Company evaluates intangible assets for impairment every year and at other times when an event
occurs or circumstances change such that it is reasonably possible that an impairment may exist. In addition, the Company’s 50%
owned joint venture, OdorStar Technology, LLC, owns patents for a delivery system that enables the precise control of release
rates of chlorine dioxide (ClO2) products to safely help prevent and eliminate odors caused by mold, mildew and other
sources of unpleasant odors. The Company amortizes these patents over their remaining life on a straight line basis. The Company
amortized approximately $51,000 for each of the years ended December 31, 2013 and 2012, respectively. On August 6, 2013, the
Company purchased for $160,000 royalty rights (previously owned by an unaffiliated company that owned the patents ultimately
acquired by OdorStar) relating to sales of products encompassing OdorStar's patented technology. The Company is amortizing
the royalty rights over their remaining life on a straight line basis, and amortized approximately $7,000 for the year ended
December 31, 2013. See Note 4.
F-9
Foreign currency adjustments – Translation adjustments result from translating the Company’s Canadian subsidiary’s financial
statements into U.S. dollars. The Company’s Canadian subsidiary’s functional currency is the Canadian dollar. Assets and
liabilities are translated at exchange rates in effect at the balance sheet date. Income and expenses are translated at average
exchange rates during the year. Resulting translation adjustments are included in Shareholders’ Equity and as a component of
comprehensive income.
Earnings per share – The Company computes earnings per share in accordance with the provisions of ASC Topic 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 common shares outstanding during the period. Diluted earnings per
share are computed assuming the exercise of dilutive stock options under the treasury stock method and the related income tax
effects. See Note 13 - Earnings per share.
Note 2 – Inventories:
The composition of inventories at December 31, 2013 and 2012 are as follows:
Raw materials
Finished goods
Inventories, gross
Inventory reserves
Inventories, net
2012
2013
3,262,769 $ 4,055,812
$
4,407,421 5,472,771
7,670,190 9,528,583
(302,296 ) (271,994 )
$
7,367,894 $ 9,256,589
The inventory reserves shown in the table above reflect slow moving and obsolete inventory.
The Company operates a vendor managed inventory program with one of its customers to improve the promotion of the
Company's products. The Company manages the inventory levels at this customer’s warehouses and recognizes revenue as the
products are sold by the customer. The inventories managed at the customer’s warehouses amounted to approximately
$408,000 and $487,000 at December 31, 2013 and 2012, respectively.
Note 3 – Property, plant and equipment:
The Company’s property, plant and equipment at December 31, 2013 and 2012 consisted of the following:
Estimated
Useful Life
2013
2012
Land
Building and Improvements
Manufacturing and warehouse equipment
Office equipment and furniture
Construction in process
Leasehold improvements
Automobile
Property, plant and equipment, gross
Less accumulated depreciation
Property, plant and equipment, net
30 years
6-20 years
3-5 years
10-15 years
3 years
$
278,325 $
278,325
4,632,565 4,489,377
8,160,173 7,982,669
738,584
249,027
122,644
-
14,373,195 13,860,626
830,950
19,604
419,315
32,263
9,256,754 8,532,717
$
5,116,441 $ 5,327,909
Depreciation expense for the years ended December 31, 2013 and 2012 amounted to approximately $724,000 and $650,000,
respectively.
F-10
Note 4 – OdorStar Joint Venture
In 2010, the Company and BBL Distributors, LLC (“BBL”) organized OdorStar. OdorStar owns patents that relate to a formula
and delivery system (the “Patents”), for use with products containing chlorine dioxide, designed to safely prevent and eliminate
odors relating to mold, mildew and other sources of unpleasant odors. Under OdorStar’s Operating Agreement, each of the
Company and BBL are required to make monthly payments to OdorStar, based on their purchases of products incorporating the
patented technology, to provide for operating expenses. In addition, prior to August 6, 2013, OdorStar paid a royalty, funded by
the Company and BBL based upon their respective sales of products encompassing the patented technology, to an unaffiliated
company that sold the Patents to BBL (BBL subsequently contributed the Patents to OdorStar). On August 6, 2013, the Company
purchased the unaffiliated company’s royalty rights for $160,000. The Company and BBL Distributors, LLC share equally in
profits or losses from OdorStar. Because the Company manages OdorStar, it has consolidated OdorStar in its financial
statements. The Company’s consolidated balance sheets include approximately $474,000 and $496,000 in assets and $16,000
and $7,000 in liabilities of OdorStar at December 31, 2013 and 2012, respectively. The Company’s consolidated statements of
operations include OdorStar’s operating loss of approximately $51,000 and OdorStar’s operating loss of approximately $56,000
during the years ended December 31, 2013 and 2012, respectively. At December 31, 2013 the Company had an interest only
note receivable of $111,420 due in 2015 from BBL for operating expenses owed related to OdorStar.
Note 5 – Revolving line of credit:
On July 6, 2011, the Company, together with its subsidiary, Kinpak Inc. (“Kinpak”), entered into a Credit Agreement with
Regions Bank (and, pursuant to an Equipment Finance Addendum to the Credit Agreement, Regions Equipment Finance
Corporation (“REFCO”)). Under the Credit Agreement, the Company’s revolving line of credit with Regions Bank was
renewed. The terms of the revolving line of credit, as renewed, provide that the Company may borrow up to the lesser of (i) $6
million or (ii) a borrowing base equal to 80% of eligible accounts receivable plus 50% of eligible inventory. Interest on the
revolving line of credit is payable at the 30 day LIBOR rate plus 1.74% per annum (unless the Company’s debt service coverage
ratio (net profit plus taxes, interest, depreciation, amortization and rent expense divided by debt service plus interest) falls to or
below 2.0 to 1, in which case the interest is payable at the 30 day LIBOR rate plus 2.75% per annum). In no event will the
interest rate be less than 2.0% per annum. Outstanding amounts under the revolving line of credit are payable on demand. If
no demand is made, the Company may repay and reborrow funds from time to time. The Company’s obligations under the
revolving line of credit are secured by the Company’s accounts receivable and inventory, as well as real property and equipment
at Kinpak’s Montgomery, Alabama facility. The Company’s obligations under the revolving line of credit and the term loan
discussed in Note 7 below are cross-collateralized. Interest on amounts borrowed under the revolving line of credit is payable
in monthly installments on outstanding average balances, with all outstanding principal and interest payable on July 6, 2014.
The Credit Agreement includes financial covenants requiring a minimum debt service coverage ratio of 1.75 to 1.00, tested on
a rolling four-quarter basis, and a maximum debt to capitalization ratio (funded debt divided by the sum of total net worth and
funded debt) of 0.75 to 1, tested quarterly. At December 31, 2013, the Company was in compliance with these covenants. At
December 31, 2013 and December 31, 2012, the Company had no borrowings under the revolving line of credit.
Note 6 – Accrued expenses payable
Accrued expenses payable at December 31, 2013 and 2012 consisted of the following:
Accrued customer promotions
Accrued payroll, commissions, and benefits
Other
Total accrued expenses payable
Note 7 – Long-term debt:
2013
2012
$ 415,392 $ 431,015
317,810 188,645
334,153 293,469
$ 1,067,355 $ 913,129
On July 6, 2011, under the Equipment Finance Addendum to the Credit Agreement, REFCO provided to the Company a
$2,430,000 term loan with a fixed interest rate of 3.54%. Principal and interest on the term loan are payable in equal monthly
installments through July 6, 2017, the date the term loan matures. The proceeds of the term loan were used to pay the Kinpak’s
remaining lease obligations in connection with the previously outstanding 2002 Series of Industrial Development Revenue
Bonds issued by the City of Montgomery, Alabama (the “2002 Bonds”). The 2002 Bonds were used to fund the expansion of
Kinpak’s facilities and acquisition of related equipment. At December 31, 2013 approximately $1,513,000 was outstanding
under the term loan.
F-11
At December 31, 2013 and December 31, 2012, the Company was obligated under various capital lease agreements covering
equipment utilized in the Company’s operations. The capital leases, aggregating $19,532 and $37,552 at December 31, 2013
and December 31, 2012, respectively, have varying maturities through 2015 and carry interest rates ranging from 7% to 14%.
The following table provides information regarding the Company’s long-term debt at December 31, 2013 and 2012:
Current Portion
2013
Long-term Portion
2012
2013
2012
Term loan
Capitalized equipment leases
$
403,074 $
11,451
389,075 $ 1,109,680 $ 1,512,754
19,532
18,020
8,081
Total long-term debt
$
414,525 $
407,095 $ 1,117,761 $ 1,532,286
Required principal payments under these obligations are set forth below:
Year ending December 31,
2014
2015
2016
2017
Total
Note 8 – Income taxes:
$ 414,525
425,657
432,601
259,503
$ 1,532,286
The components of the Company’s consolidated provision for income taxes are as follows:
Federal – current
Federal – deferred
State – current
State – deferred
Total provision for income taxes
$
$
2012
2013
799,264 $ 1,011,543
9,842
33,398
295
815,812 $ 1,055,078
(333 )
17,835
(954 )
The reconciliation of the provision for income taxes at the statutory rate to the reported provision for income taxes is as
follows:
Income Tax computed at statutory rate
State tax, net of federal benefit
Loss attributable to noncontrolling interest
Share based compensation
Other, permanent adjustments
Tax credits and prior year tax adj.
Provision for income taxes
2013
765,367
12,344
8,746
85,109
(59,247 )
3.493
815,812
$
$
%
2012
%
0.5 %
0.4 %
3.7 %
-2.6 %
0.2 %
34.0 % $ 1,016,323
21,637
9,581
66,600
(86,666 )
27,603
36.2 % $ 1,055,078
34.0 %
0.7 %
0.3 %
2.2 %
-2.9 %
1.0 %
35.3 %
The Company’s deferred tax asset and liability accounts consisted of the following at December 31, 2013 and 2012:
Deferred taxes – current
Reserves for bad debts, inventories, and other accruals
Depreciation of property and equipment
Total deferred tax asset current
Deferred taxes - non-current
Depreciation of property and equipment
Total deferred tax liability non-current
F-12
2013
2012
$
$
137,821 $
(73,156)
64,665 $
120,740
(64,519 )
56,221
$
$
(230,478 )
(237,635 ) $
(237,635 ) $ (230,478 )
Note 9 – Related party transactions:
During 2013, as in previous years, the Company sold products to companies affiliated with its Chairman, President and Chief
Executive Officer. The affiliated companies distribute the products outside of the United States and Canada. The Company also
provides administrative services to these companies. Sales to the affiliated companies aggregated approximately $1,834,000
and $1,487,000 during the years ended December 31, 2013 and 2012, respectively, and administrative fees aggregated
approximately $406,000 and $335,000 during the years ended December 31, 2013 and 2012, respectively. The Company had
accounts receivable from the affiliated companies in connection with the product sales and administrative services aggregating
approximately $536,000 and $556,000 at December 31, 2013 and 2012, respectively. Transactions with the affiliated
companies were made in the ordinary course of business. While the terms of the sales to the affiliated companies differed from
the terms of sale to other customers, the affiliated companies bear their own warehousing, distribution, advertising, selling and
marketing costs, as well as their own freight charges (the Company pays freight charges in connection with sales to its domestic
customers on all but small orders). Moreover, the Company does not pay sales commissions with respect to products sold to
the affiliated companies. As a result, the Company believes its profit margins with respect to sales to the affiliated companies
are similar to the profit margins it realizes with respect to sales to its larger domestic 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 the Chairman, President and Chief
Executive Officer of the Company to conduct product research and development. The Company paid the entity $42,000 for
each of the years ended December 31, 2013 and 2012, respectively, under this arrangement.
The Company leases office and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by its Chairman,
President and Chief Executive Officer. The Company believes that the rental payments are below market rates. See Note 10
for a description of the lease terms.
A director of the Company is Regional Executive Vice President of an entity from which the Company sources most of its
insurance needs at an arm’s length competitive basis. The Company paid in aggregate approximately $678,000 and $620,000
to the entity during the years ended December 31, 2013 and 2012, respectively.
Note 10 – Commitments and Contingencies
The Company leases its executive offices and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by its
Chairman, President and Chief Executive Officer. On May 16, 2013, the term of the lease, which was scheduled to expire on
May 1, 2018, was extended through December 31, 2023. The lease requires an annual minimum base rent of $94,800 and
provides for a maximum annual 2% increase in subsequent years, although the entity has not raised the minimum rent since the
Company entered into a previous lease agreement in 1998. Additionally, the leasing entity is entitled to reimbursement of all
taxes, assessments, and any other expenses that arise from ownership. Each of the parties to the lease has agreed to review the
terms of the lease every three years at the request of the other party. Rent expense under the lease during each of the years
ended December 31, 2013 and 2012 was approximately $96,000.
The Company leases from the Alabama State Port Authority a 1.5 acre docking facility on the Alabama River,
located approximately eleven miles from the Company’s Alabama manufacturing facility. The lease expires on September 30,
2014, and requires the Company to pay rent and additional expenses totaling approximately $8,000 annually.
The following is a schedule of minimum future rentals on the Company’s non-cancelable operating leases.
12 month period ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total
$
$
96,064
97,985
99,945
101,944
103,983
551,953
1,051,874
From time to time the Company will actively defend its patents through legal action. Odorstar, the Company’s 50% owned joint
venture, is currently the plaintiff in two separate lawsuits. During 2013, Odorstar filed a claim of patent infringement against
another party. This claim was denied by the court in January 2014 and Odorstar has filed an appeal in Federal Court. The
defendant has filed a motion for attorneys’ fees of $250,000, however there is no determination at this time as to the likelihood
of success of Odorstar’s appeal or the defendant’s motion. Based on the facts from the Company’s attorneys we do not expect
the court to grant the defendant’s motion.
F-13
The defendants in the second lawsuit have filed counter-claims, however at this time the outcome of these matters cannot be
determined.
Note 11 - Stock options and awards:
On June 3, 2011, the Company’s shareholders approved the Ocean Bio-Chem, Inc. Omnibus Equity Compensation Plan (the
“Plan”). The Plan is designed (i) to meet the Nasdaq listing requirements, (ii) to enable compensation attributable to grants
under the Plan to qualify for an exemption from the deduction limit under section 162(m) of the Internal Revenue Code of
1986, as amended, and the regulations promulgated thereunder (the “Code”) and (iii) to enable incentive stock options to meet
the requirements of the Code.
As a result of the adoption of the Plan, no further stock option grants will be made under the Company’s 2002 Non-Qualified
Stock Option Plan, 2002 Incentive Stock Option Plan, 2007 Incentive Stock Option Plan, 2008 Non-Qualified Stock Option
Plan and 2008 Incentive Stock Option Plan.
The Plan authorizes 750,000 shares of the Company’s common stock for issuance, subject to antidilution adjustments upon the
occurrence of certain events affecting the common stock. The Company issued stock awards under the Plan to officers, key
employees and a consultant totaling 121,000 and 117,000 shares of common stock in the aggregate during the years ended
December 31, 2013 and 2012, respectively. At December 31, 2013, 373,000 shares remained available for future issuance
under the Plan. Compensation expense related to the stock awards was approximately $306,000 and $223,000 for the years
ended December 31, 2013 and 2012, respectively.
During 2013, stock options to purchase an aggregate of 193,400 shares were exercised and stock options to purchase an
aggregate of 3,000 shares were forfeited. Following the withholding of an aggregate of 42,838 shares in connection with the net
exercise feature of the stock options, the Company delivered an aggregate of 150,562 shares to the option holders who
exercised their options.
The following tables provide information at December 31, 2013 and 2012 regarding outstanding options under the Company’s
stock option plans as well as a grant made outside of the Company’s stock option plans. As used in the table below, “2002
ISO” refers to the Company’s 2002 Incentive Stock Option Plan, “2007 ISO” refers to the Company’s 2007 Incentive Stock
Option Plan, “2008 ISO” refers to the Company’s 2008 Incentive Stock Option Plan, “2002 NQ” refers to the Company’s 2002
Non-Qualified Stock Option Plan and “2008 NQ” refers to the Company’s 2008 Non-Qualified Stock Option Plan.
December 31, 2013
Plan
Non Plan
2002 NQ
2002 NQ
2002 NQ
2008 NQ
2008 NQ
Date
Options
Granted
3/25/09
5/25/04
4/3/06
12/17/07
1/11/09
4/26/10
Outstanding
115,000
30,000
40,000
40,000
40,000
20,000
285,000
Exercisable
Options
115,000 $
30,000 $
40,000 $
40,000 $
40,000 $
20,000 $
285,000 $
December 31, 2012
Date
Options
Plan
Non Plan
2008 ISO
2002 NQ
2002 NQ
2002 NQ
2002 NQ
2008 NQ
2008 NQ
Exercisable
Options
Granted
3/25/09
8/25/08
6/20/03
5/25/04
4/3/06
12/17/07
1/11/09
4/26/10
Outstanding
115,000
141,400
30,000
30,000
40,000
50,000
50,000
25,000
481,400
115,000 $
107,680 $
30,000 $
30,000 $
40,000 $
50,000 $
50,000 $
25,000 $
447,680 $
F-14
Exercise
Price
Expiration
Date
3/24/14
0.55
5/24/14
1.46
1.08
4/2/16
1.32 12/16/17
1/10/19
0.69
2.07
4/25/20
0 .95
Weighted
Average
Remaining Life
.2
.4
2.3
4.0
5.1
6.4
2.2
Exercise
Price
Expiration
Date
3/24/14
0.55
8/21/13
0.97
6/19/13
1.03
5/24/14
1.46
1.08
4/2/16
1.32 12/16/17
1/10/19
0.69
2.07
4/25/20
0.98
Weighted
Remaining Life
1.2
.7
.5
1.4
3.3
5.0
6.1
7.4
2.4
The following table shows the number of options outstanding under each stock option plan at December 31, 2013:
Plan
Non Plan
2002 NQ
2008 NQ
Totals
Options
Outstanding
115,000
110,000
60,000
285,000
The following table provides information relating to stock option transactions during the years ended December 31, 2013 and
2012:
2013
2012
Shares
Options outstanding beginning of the year
Options exercised
Options forfeited or expired
Options outstanding end of the year
Non plan options
Totals
366,400 $
(193,400 ) $
(3,000 ) $
170,000 $
115,000 $
285,000 $
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
1.11 680,700 $
1.01 (302,800 ) $
0.97 (11,500 ) $
1.23 366,400 $
0.55 115,000 $
0.95 481,400 $
1.27
1.46
1.51
1.11
0.55
$0.98
Stock options may be awarded as part of compensation to executives, employees, directors and others, pursuant to the terms of
the Company’s Omnibus Equity Compensation Plan, but no options were awarded under the plan in 2013 or 2012. Grants of
stock options or other equity awards are made at the discretion of the Equity Grant Committee of the Board of
Directors. Options previously were granted under the Company’s other stock option plans. Qualified options previously
granted typically had a five-year term with vesting in equal 20% increments on each anniversary of the date of grant. No
qualified options were outstanding on December 31, 2013. Non-qualified options were previously granted to outside directors
have a 10-year term and are immediately exercisable. The last tranche of non-qualified options previously granted terminate on
April 25, 2020. Compensation cost recognized during the year ended December 31, 2013 and 2012 attributable to stock
options amounted to approximately $12,000 and $54,000, respectively.
At December 31, 2013 and 2012, there was $0 and $12,000 of unrecognized compensation cost related to unvested share based
compensation arrangements.
Note 12 – Major customers:
The Company had sales to each of two major customers, that constituted in excess of 10% of the Company’s consolidated net
revenues for each of the years ended December 31, 2013 and 2012. Sales to these customers aggregated approximately 39%
and 37% of consolidated net revenues for 2013 and 2012, respectively.
The Company’s top five unaffiliated customers represented approximately 49% and 49%, of consolidated net revenues for the
years ended December 31, 2013 and 2012, respectively, and 31% and 23% of consolidated trade accounts receivables at
December 31, 2013 and 2012, respectively. While the Company enjoys good relations with these customers, the loss of any of
these customers could have an adverse impact on the Company’s operations.
Note 13 – Earnings per share:
Basic earnings per share is calculated by dividing net income attributable to Ocean-Bio Chem, Inc. by the weighted average
number of shares outstanding during the reporting period. Diluted earnings per share reflect additional dilution from potential
F-15
common stock issuable upon the exercise of outstanding stock options. The following table sets forth the computation of basic
and diluted earnings per common share, as well as a reconciliation of the weighted average number of common shares
outstanding to the weighted average number of shares outstanding on a diluted basis.
Earnings per common share –Basic
Net income attributable to OBCI
Year Ended
December 31,
2013
2012
$ 1,460,992 $ 1,962,288
Weighted average number of common shares outstanding
8,542,686 8,229,720
Earnings per common share – Basic
Earnings per common share – Diluted
Net income attributable to OBCI
$
0.17 $
0.24
$ 1,460,992 $ 1,962,288
Weighted average number of common shares outstanding
8,542,686 8,229,720
Effect of employee stock-based awards
244,982 326,387
Weighted average number of common shares outstanding - assuming dilution
8,787,668 8,556,107
Earnings per common share - Diluted
$
0.17 $
0.23
The Company had no stock options outstanding at December 31, 2013 and 2012, respectively, that were anti-dilutive and
therefore not included in the diluted earnings per common share calculation.
Note 14 – Shareholders’ equity:
On June 8, 2012, the Company’s shareholders approved an amendment to the Company’s Articles of Incorporation to increase
the Company’s authorized common stock, $.01 par value, from 10,000,000 shares to 12,000,000 shares and enable the
Company to issue shares for such consideration as is permitted under the Florida Business Corporation Act.
During the years ended December 31, 2013 and 2012, the Company granted stock awards of 121,000 and 117,000 shares of
common stock, respectively, to certain executives, key employees and a consultant. Compensation expense recorded in
connection with the stock awards for the years ended December 31, 2013 and 2012 aggregated approximately $306,000 and
$223,000, respectively.
During 2013, several employees of the Company and a consultant exercised options to purchase 193,400 shares of the
Company’s common stock for approximately $80,000 in cash and the withholding of 42,838 shares. As a result, 150,562
shares were issued, and approximately $80,000 is reflected as paid in capital on the consolidated balance sheet.
During 2012, several employees of the Company and a consultant exercised options to purchase 302,800 shares of the
Company’s common stock for approximately $169,500 in cash and the withholding of 128,301 shares. As a result, 174,499
shares were issued, and approximately $169,500 is reflected as paid in capital on the consolidated balance sheet.
Note -15 – Recent Accounting Pronouncements
There have been no accounting pronouncements or changes in accounting pronouncements during the year ended December 31,
2013 that are expected to have a material impact on the Company’s financial position, results of operations or cash
flows. Accounting pronouncements that became effective during the year ended December 31, 2013 did not have a material
impact on disclosures or on the Company’s financial position, results of operations or cash flows.
Note-16 – Subsequent Events
On March 18, 2014, the Board of Directors of Ocean Bio-Chem, Inc. declared a special dividend of $0.05 per share payable on
April 15, 2014 to shareholders of record on April 1, 2014.
F-16
Exhibit No.
EXHIBIT INDEX
3.1.1
3.1.2
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Articles of Incorporation and amendments through May 20, 1994 (incorporated by reference to Exhibit 3.1 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
Articles of Amendment to the Articles of Incorporation, as filed on June 13, 2012 (incorporated by reference to
Exhibit 3.1.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2012).
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K,
filed with the Securities and Exchange Commission on December 5, 2011).
Ocean Bio-Chem, Inc. Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s
Registration Statement on Form S-8 (file no. 333-174659), filed with the Securities and Exchange Commission on June 2,
2011).
Credit Agreement, dated July 6, 2011, among the Company, Kinpak, Inc. and Regions Bank (the “Credit Agreement”)
(incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2011).
Equipment Finance Addendum, dated July 6, 2011, among the Company, Kinpak, Inc. and Regions Equipment Finance
Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2011).
Promissory Note, dated July 6, 2011, issued by the Company to Regions Bank in connection with the revolving line of
credit under the Credit Agreement (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-
K, filed with the Securities and Exchange Commission on July 12, 2011).
Promissory Note, dated July 6, 2011, issued by the Company and Kinpak, Inc. to Regions Equipment Finance Corporation
in connection with the term loan under the Credit Agreement (incorporated by reference to Exhibit 99.4 to the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 12, 2011).
Ocean Bio-Chem, Inc. 2002 Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 99.2 to
the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12,
2011).
Ocean Bio-Chem, Inc. 2008 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 99.4 to the
Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12, 2011).
Ocean Bio-Chem, Inc. 2008 Non-Qualified Stock Option Plan, as amended (incorporated by reference to Exhibit 99.5 to
the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12,
2011).
Ocean Bio-Chem, Inc. Form of Stock Option granted to Peter G. Dornau (incorporated by reference to Exhibit 99.6 to the
Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on August 12, 2011).
Ocean Bio-Chem, Inc. Omnibus Equity Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s
Registration Statement on Form S-8, filed with the Securities and Exchange Commission on June 2, 2011).
Net Lease, dated May 1, 1998, between Star Brite Distributing, Inc. and PEJE, Inc (incorporated by reference to
Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).
Renewal of Lease, dated May 1, 2008, between Star Brite Distributing, Inc. and PEJE, Inc. (incorporated by reference to
Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).
Amendment Number Two to Net Lease, dated May 16, 2013, between Star Brite Distributing, Inc. and PEJE, Inc.
OdorStar Technology, LLC Operating Agreement dated May 4, 2010 (incorporated by reference to Exhibit 10.17 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
List of Subsidiaries.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.
The following materials from Ocean Bio-Chem Inc.’s Annual Report on Form 10-K for the year ended December 31,
2013, formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31,
2013 and December 31, 2012; (ii) Consolidated Statements of Operations for the years ended December 31, 2013 and
2012; (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2013 and 2012; (iv)
Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2013 and 2012, (v)
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012 and (vi) Notes to Consolidated
Financial Statements.
*10.13
10.14
Exhibit No.
*21.
*31.1
*31.2
*32.1
*32.2
101
* Filed herewith.
E-1
E-2
EXHIBIT 21
The following is a list of the Registrant’s subsidiaries:
Name
Star brite Distributing, Inc.
Star brite Distributing Canada, Inc.
D & S Advertising Services, Inc.
Star brite StaPut, Inc.
Star brite Service Centers, Inc.
Star brite Automotive, Inc.
Kinpak Inc.
OdorStar Technology, LLC
Jurisdiction
of Organization
Florida
Florida
Florida
Florida
Florida
Florida
Alabama
Florida
Ownership %
100
100
100
100
100
100
100
50
CERTIFICATION
EXHIBIT 31.1
I, Peter G. Dornau, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
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;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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 the registrant’s board of directors (or persons
performing the equivalent functions):
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: March 31, 2014
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
I, Peter G. Dornau, certify that:
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
CERTIFICATION
1.
2.
3.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
EXHIBIT 31.1
EXHIBIT 31.2
I, Jeffrey S. Barocas, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
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;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and 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;
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;
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
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
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 the registrant’s board of directors (or persons
performing the equivalent functions):
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 the registrant’s board of directors (or persons
performing the equivalent functions):
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: March 31, 2014
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.
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 31, 2014
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
EXHIBIT 32.1
I, Peter G. Dornau, Chief Executive Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
2.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
By:
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 31, 2014
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
EXHIBIT 32.1
EXHIBIT 32.2
I, Peter G. Dornau, Chief Executive Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
I, Jeffrey S. Barocas, Chief Financial Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
2.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
By:
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Dated: March 31, 2014
By:
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 31, 2014
INVESTOR INFORMATION
NASDAQ STOCK SYMBOL OBCI
Stock Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
General Counsel
Berger Singerman, LLP
350 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Auditors
Goldstein Schechter Koch, P.A.
4000 Hollywood Blvd., Suite 215 South
Hollywood, FL 33021
Reports and Publications
A free copy of the Company’s 2013
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
sales prices of the Common Stock of Company
as reported on the NASDAQ Capital Market
for each calendar quarter in 2013 and 2012:
2013
High
Low
2012
High Low
$3.24 $2.13 $2.78 $2.01
First Quarter
Second Quarter 3.23 2.45
3.19 2.40
Third Quarter
2.70 2.20
Fourth Quarter
2.59 1.83
2.59 1.76
2.50 1.81
OCEAN BIO-CHEM, INC.
BOARD OF DIRECTORS
Peter G. Dornau
Jeffrey S. Barocas
Sonia B. Beard*
Gregor M. Dornau
William W. Dudman
James M. Kolisch
Diana Mazuelos Conard*
John B. Turner*
* A member of audit and equity grant committees
OFFICERS OF
OCEAN BIO-CHEM, INC.
Peter G. Dornau
President and Chief Executive Officer
Jeffrey S. Barocas
Vice President, Chief Financial Officer
Gregor M. Dornau
Executive Vice President of Sales and Marketing
William W. Dudman
Vice President of Operations, Corporate Secretary
OFFICERS OF STAR BRITE, INC.
Peter G. Dornau
President and Chief Executive Officer
Jeffrey S. Barocas
Vice President, Chief Financial Officer
Gregor M. Dornau
Executive Vice President of Sales and Marketing
William W. Dudman
Vice President of Operations
Marc A. Emmi
Senior Vice President of Sales
Natalie S. Fino
Vice President of Customer Service
Justin Gould
Vice President of Technology
George W. Lindsey, Jr.
Vice President of Marketing
Dennis M. Torok
Vice President of Sales
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 • WWW.NOS-GUARD.COM
OCEAN BIO-CHEM, INC.
BOARD OF DIRECTORS
Peter G. Dornau
Jeffrey S. Barocas
Sonia B. Beard*
Gregor M. Dornau
William W. Dudman
James M. Kolisch
Diana Mazuelos Conard*
John B. Turner*
* A member of audit and equity grant committees
OFFICERS OF
OCEAN BIO-CHEM, INC.
Peter G. Dornau
President and Chief Executive Officer
Jeffrey S. Barocas
Vice President, Chief Financial Officer
Gregor M. Dornau
Executive Vice President of Sales and Marketing
William W. Dudman
Vice President of Operations, Corporate Secretary
OFFICERS OF STAR BRITE, INC.
Peter G. Dornau
President and Chief Executive Officer
Jeffrey S. Barocas
Vice President, Chief Financial Officer
Gregor M. Dornau
Executive Vice President of Sales and Marketing
William W. Dudman
Vice President of Operations
Marc A. Emmi
Senior Vice President of Sales
Natalie S. Fino
Vice President of Customer Service
Justin Gould
Vice President of Technology
George W. Lindsey, Jr.
Vice President of Marketing
Dennis M. Torok
Vice President of Sales
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 • WWW.NOS-GUARD.COM
CORPORATE OFFICES • FORT LAUDERDALE, FLORIDA
NEW OFFICE INTERIOR • FORT LAUDERDALE, FLORIDA
OCEAN BIO-CHEM, INC. MANUFACTURING CAPABILITIES
MANUFACTURING & DISTRIBUTION FACILITIES
MONTGOMERY, ALABAMA
QUALITY CONTROL
FILLING
DISTRIBUTION
Ocean Bio-Chem, Inc.’s main manufacturing and distribution facility
is its wholly owned subsidiary, Kinpak, Inc., located on a 20 acre
site in Montgomery, Alabama. In addition to manufacturing Star
brite® products, Kinpak also manufactures numerous items under
private label programs. The facility’s 300,000 sq. ft. manufacturing,
blending, packing, and distribution center features a 500,000 gallon
tank farm with an additional 1.2 million gallon tank farm located on
the Alabama River, as well as a fully-equipped R&D laboratory, a
facility for the production of chlorine dioxide products 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, a drum filling line, bulk load filling lines,
plus grease filling lines capable of filling containers ranging in size
from 1 ounce to 55 gallons at speeds of 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.
Star brite® and Star Tron® products are available at marine,
automotive, power sports, outdoor power equipment and hardware
stores, as well as at sporting goods stores, agriculture and RV
stores worldwide.
WWW.OCEANBIOCHEM.COM • WWW.STARBRITE.COM
WWW.STARTRON.COM • WWW.NOS-GUARD.COM
Ocean Bio-Chem, Inc. 4041 S.W. 47th Ave., Ft. Lauderdale, FL 33314
T: (954) 587-6280 • Toll Free (800) 327-8583 • F: (954) 587-2813
WWW.OCEANBIOCHEM.COM • WWW.STARBRITE.COM
WWW.STARTRON.COM • WWW.NOS-GUARD.COM