2015
ANNUAL REPORT
INNOVATION • TECHNOLOGY • PERFORMANCE
INNOVATION • TECHNOLOGY • PERFORMANCE
President’s
Letter
__________________________________________________________
Fellow
Shareholders:
2015
in
Review:
2015
was
a
challenging
year
for
the
Company.
After
9
years
of
sales
growth,
the
Company
experienced
flat
sales
and
decreased
profits
in
2015
compared
to
2014.
A
litigation
that
started
in
2014,
with
a
competing
fuel
treatment
company
relating
to
product
advertising
claims,
continued
thru
the
year
2015,
consuming
the
Company’s
financial
resources
and
considerable
amount
of
management
time.
In
early
February
2016,
a
trial
by
jury
found
that
the
Company
did
not
make
any
false
advertising
or
labeling
claims
on
its
flagship
fuel
additive
product
Star
Tron.
With
the
lawsuit
behind
us,
management
is
focused
on
the
continued
growth
of
our
revenues
and
profits.
The
Company’s
branded
sales
of
marine
products
continue
to
do
well.
We
have
recently
expanded
direct
sales
of
our
Star
brite
and
Star
Tron
brands
into
the
U.S.
largest
mass
merchandiser.
Previous
sales
were
made
as
private
labeled
products
thru
two
distributors.
One
of
our
marketing
objectives
was
to
increase
Star
brite/Star
Tron
brand
awareness
to
the
freshwater
fishing
enthusiast.
With
this
objective,
we
increased
our
sponsorships
of
freshwater
fishing
tournaments
in
addition
to
TV
advertising
and
sponsorship
of
Fishing
Pros.
This
marketing
campaign
has
paid
dividends
in
2015,
with
increased
sales
to
national
“big
box”
sport
specialty
retailers
of
our
branded
products.
The
Company
anticipates
that
we
will
continue
to
see
steady
growth
of
this
business
segment
in
the
coming
year.
In
2015,
the
Company
also
relaunched
its
Recreational
Vehicle
(RV)
line
of
products.
With
turmoil
overseas,
more
people
are
vacationing
and
traveling
across
America
in
RVs.
With
lower
gas
prices
and
an
improved
economy,
we
see
an
opportunity
for
growth
in
this
market
segment.
The
timing
of
entry
into
this
market
appears
good.
PERFORMACIDE
-‐
With
the
many
markets
and
uses
for
our
disinfectant/sanitizing
chloride
dioxide
patented
delivery
system
product,
our
objective
in
2015
was
to
expand
our
distributor
network.
These
activities
are
yielding
very
favorable
results.
One
of
our
private
label
distributors
has
secured
business
with
one
of
the
largest
home
restoration
companies
in
the
southwestern
United
States.
Also
in
2015,
we
signed
a
major
distributor
in
the
veterinary
market.
In
addition,
we
have
recently
signed
a
distributor
for
distribution
of
our
products
into
the
hotel
market.
In
2015,
we
were
approved
for
OMRI
Listed
products,
which
gives
us
the
certification
for
use
in
organic
production
or
food
processing.
This
gives
us
the
entry
to
sell
our
product
for
organic
farming
of
fruits
and
vegetables.
In
addition,
the
vapor
version
of
our
product
(Auto
Odor
Eliminator)
is
being
marketed
to
the
largest
auto
retailers
for
the
elimination
of
foul
odors
in
cars.
We
are
continuing
to
build
a
broad
base
of
distribution
for
sales
growth
of
this
segment
of
our
business.
The
future
is
promising.
Balance
Sheet/Special
Dividend
The
Company
continues
to
have
a
solid
balance
sheet.
We
ended
2015
with
a
current
ratio
over
6
to
1
and
over
$20
million
of
shareholders
equity
and
over
$2.4
million
in
cash.
The
Board
of
Directors
declared
a
special
cash
dividend
of
$0.06
per
share
payable
to
shareholders
on
record
on
April
12,
2016.
Outlook
As
we
just
completed
the
first
quarter
of
2016,
we
believe
Ocean
Bio-‐Chem
subsidiary
Star
brite
is
positioned
to
benefit
from
an
improving
economy,
low
interest
rates,
and
fuel
costs,
which
should
both
simulate
boat
sales
and
increased
recreational
boating.
More
boaters
should
be
utilizing
their
boats
along
with
longer
trips,
which
should
translate
into
additional
sales
of
our
consumable
products.
In
fact,
the
first
quarter
2016
sales,
on
a
preliminary
basis,
looks
to
be
one
of
the
strongest
first
quarters
in
the
Company’s
history.
In
closing,
I
would
like
to
express
my
sincere
gratitude
and
appreciation
to
all
Ocean
Bio-‐Chem,
employees
for
their
continued
dedication
and
hard
work.
We
are
also
very
grateful
for
the
support
of
all
our
customers,
suppliers
and
shareholders.
Peter
G.
Dornau
President
and
Chief
Executive
Officer
April
2016
The
following
is
a
brief
overview
of
the
Company’s
various
activities.
Outdoor
Collection
The
Company
is
pleased
to
report
noteworthy
sales
of
the
Outdoor
Collection
line
with
good
indications
this
trend
will
continue
into
2017
and
beyond.
This
line
was
developed
using
40+
years
of
experience
formulating
the
highest
quality
products
that
are
as
ideally
suited
for
the
needs
of
homeowners
as
they
are
for
recreational
boaters.
As
a
result
of
the
excellent
reputation
of
Star
brite
marine
products
among
retailers
and
end-‐users,
home
goods
retailers
are
inclined
to
add
our
home
care
products
to
their
shelves
and
websites.
We
anticipate
steady
growth
of
this
line
in
the
coming
years.
Additionally,
the
Company
has
added
a
number
of
national
home
goods
retailers
for
private
label
versions
of
these
products.
These
retailers
are
not
seen
as
competition
for
branded
products
as
they
tend
to
only
carry
their
own
line
of
goods,
precluding
us
from
doing
business
with
them
other
than
via
private
label
operations.
Performacide
The
Company’s
line
of
chlorine
dioxide
(ClO2)
products,
under
the
Performacide
and
NosGuard
brand
names,
performed
well
in
2015.
These
products
achieved
steady
growth
and
market
acceptance
and
are
positioned
to
continue
this
trend
for
years
to
come.
As
noted
above,
the
Company
is
excited
by
the
potential
associated
with
these
products,
both
under
Company
brands,
as
well
as
private
label
relationships.
The
overall
market
for
chlorine
dioxide
is
enormous
and
we
will
do
what
is
needed
to
secure
and
maintain
a
significant
share.
A
noteworthy
example
of
our
recent
efforts
is
a
distribution
agreement
with
a
distributor
boasting
long-‐
established
ties
to
the
veterinary
and
animal
hospital
markets.
This
partner
is
providing
access
to
a
marketplace,
in
which
there
are
few
competitors
for
our
chlorine
dioxide
products.
The
Company
is
devoting
capital
and
manpower
to
continue
the
development
of
other
market-‐specific
distribution
partners
as
well
as
expanding
relationships
with
existing
distribution
chains.
These
products
lend
themselves
well
to
private
label
activities,
which
we
are
vigorously
pursuing
as
we
prepare
the
line
for
major
expansion
in
2017
and
beyond.
Marine
The
Company’s
40+
years
of
dominance
in
the
marine
marketplace
resulted
in
improved
sales
of
core
chemical
products
to
traditional
retailers
and
online
merchants.
Active
rebranding
and
updating
of
a
number
of
core
products
is
stimulating
sales.
Additionally,
new
products
have
been
introduced
which
are
designed
to
complement
existing
core
products
and
thus
drive
additional
sales.
Sales
in
the
fuel
treatment
category
are
down,
which
impacted
sales
of
Star
Tron
in
the
marine
market
as
well.
However,
in
terms
of
overall
sales
in
the
fuel
treatment
category,
Star
Tron
continues
to
be
the
market
leader.
Leveraging
the
ongoing
success
of
Star
Tron,
the
Company
has
launched
additional
new
formulas/sizes
of
Star
Tron
and
two
Star
Tron-‐related
products:
Ring
Clean+
and
Carbon
Eliminator+.
These
efforts
are
already
bearing
fruit
in
the
form
of
orders
placed
for
these
products.
The
Company
continues
to
expand
into
the
lucrative
and
immense
freshwater
boating
market.
Star
Tron
has
gained
a
large
percentage
of
this
market
share
and
is
creating
brand
awareness
for
core
products
as
well.
The
Company’s
private
label
activities
in
the
marine
market
have
performed
well
in
2015
and
are
expected
to
continue
to
improve.
On
a
related
note,
the
Company
was
able
to
convert
sales
to
a
major
national
retailer
from
an
assortment
of
our
private
label
products
to
an
assortment
of
Star
brite
branded
products,
resulting
in
improved
margins.
Forecasts
of
lower
fuel
prices,
and
thus
more
recreational
boating
activity,
provide
encouragement
that
fuel
treatment
sales,
and
in
particular
sales
of
Star
Tron,
will
rebound
in
early
2016.
An
uptick
in
the
use
of
boats
and
other
recreational
vehicles
will
also
support
improved
sales
of
core
products
in
both
branded
and
private
label
configuration.
Powersports
The
powersports
market
was
hit
hard
this
past
year,
with
sales
of
motorcycles,
ATVs,
snowmobiles
and
personal
watercraft
lower
across
the
board.
Economic
uncertainty
has
resulted
in
a
decline
in
sales
of
motorcycles
and
associated
products,
while
a
mild
winter
with
minimal
snowfall
further
depressed
sales
of
snowmobiles
and
related
products.
While
Star
Tron
acquired
additional
market
share,
overall
sales
were
down.
Private
label
efforts
with
industry-‐dominant
partners
are
underway
as
a
means
of
adding
to
the
bottom
line,
while
diversifying
the
customer
base.
Low-‐cost,
high-‐impact
marketing
activities
are
also
in
place,
using
industry
personalities
and
events
to
further
spread
brand
and
product
awareness.
The
Company
is
anticipating
a
rebound
of
sales
in
this
market
in
2016
due
to
stronger
partnerships
with
distributors,
increased
private
label
sales
and
forecasts
of
lower
fuel
prices
which
will
encourage
more
activity
in
this
market.
Outdoor
Power
Equipment
The
Outdoor
Power
Equipment
market
saw
sales
declines
as
summer
droughts
and
mild
winters
resulted
in
less
activity
by
OPE
professionals.
While
fuel
treatment
sales
as
a
whole
were
down,
the
Company
has
worked
hard
to
maintain,
and
in
some
cases,
expand
market
share.
The
Company
has
done
a
great
job
educating
OPE
professionals
about
the
effects
ethanol
fuel
has
on
small
engines.
As
a
result,
Star
Tron
is
now
in
more
distribution
channels.
The
Company
has
taken
advantage
of
the
wide
acceptance
of
Star
Tron
by
merchants
and
end
users
by
introducing
new
sizes,
formulas
and
other
industry-‐appropriate
products
into
distribution.
RV
The
Company
continues
to
grow
its
presence
in
the
RV
marketplace.
Many
years
spent
in
this
market
are
paying
dividends
as
we
renew
old
relationships
and
forge
new
partnerships.
In
addition
to
Star
Tron,
the
Company
has
a
well-‐received
line
of
RV-‐specific
products.
New
additions
to
the
RV
line
will
be
announced
in
2016
and
beyond.
As
in
other
markets,
traditional
distribution
channels
will
be
augmented
via
partnerships
with
online
merchants.
Private
label
relationships
are
also
under
discussion
with
leading
industry
partners.
This
segment
is
also
seeing
increased
sales
to
families,
who
are
active
users
of
RVs
and
strong
consumers
of
related
products.
This
trend
bodes
well
for
steadily
increasing
market
growth
for
the
foreseeable
future.
Automotive
The
Company
has
parleyed
the
placement
of
primarily
one
sizing
of
Star
Tron
with
the
largest
national
automotive
aftermarket
retailers
and
online
merchants
into
sales
of
additional
sizes
and
formulations,
including
those
customized
for
this
market
in
particular.
Consumer
satisfaction
is
expanding
as
a
result
of
best-‐in-‐class
products
and
aggressive
marketing
efforts.
The
Company
feels
Star
Tron
is
well-‐positioned
to
rebound
when
lowered
fuel
prices
and
more
news
reports
of
E15
take
effect.
The
Company
has
used
the
success
of
Star
Tron
as
a
way
to
add
the
NosGuard
Auto
Odor
Eliminator
chlorine
dioxide
product
to
the
shelves
of
numerous
major
automotive
retailers
and
their
online
venues.
This
product
is
expected
to
follow
the
growth
path
of
Star
Tron;
as
consumers
become
aware
of
its
effectiveness,
they
purchase
additional
units
and
spread
the
word
via
personal
and
social
media
contacts.
The
Company
will
continue
to
expand
consumer
awareness
of
ClO2
uses
and
solutions
by
means
of
national
print
and
television
advertising
campaigns
aimed
at
both
consumers
and
merchants,
as
well
as
aggressive
promotional
efforts
supporting
retail
sales.
Jan-‐San
Industry
In
an
effort
to
utilize
existing
Company
competencies
and
diversify
product
offerings,
a
new
line
of
cleaning
chemicals
is
under
development
for
this
large
market
which
is
well-‐suited
to
the
Company’s
core
capabilities.
The
PRO
Star
line
will
be
introduced
in
Q3
of
2016
to
online
merchants,
distributors
and
“big
box”
home
improvement
chains.
Initial
reactions
from
buyers
have
been
very
encouraging.
As
the
Performacide
products
are
currently
performing
well
in
this
market,
we
are
confident
the
PRO
Star
products
will
complement
these
sales
in
2016
and
beyond.
This
significant
industry
absorbs
a
great
amount
of
product
on
a
steady,
year-‐round
basis.
As
such,
it
will
be
the
subject
of
major
Company
focus
over
the
coming
years
as
we
expand
product
offerings
and
gain
market
share.
Star
Tron
The
Company
is
optimistic
that
sales
of
Star
Tron
will
rebound
in
2016
due
to
growing
consumer
awareness
of
ethanol
issues,
among
other
factors.
The
increasing
spread
of
E15
fuel
(15%
ethanol
content)
will
spark
more
interest
in
mitigating
the
negative
effects
of
ethanol-‐blended
fuel.
Star
Tron
is
already
recognized
by
many
consumers
and
retailers
as
the
ultimate
ethanol
solution.
The
Company
has
faith
in
the
methods
used
to
achieve
this,
and
will
continue
these
efforts
aimed
at
educating
more
consumers
and
trade
professionals.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(cid:0) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2015
(cid:0) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to _______
Commission File Number 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 (cid:0) No (cid:0)
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 (cid:0) No (cid:0)
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 (cid:0) No (cid:0)
Indicate by check mark whether registrant has submitted electronically and posted on its corporate Web site, 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 (cid:0) No (cid:0)
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. (cid:0)
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 (cid:0)
Non-accelerated filer (cid:0)
Accelerated filer
(cid:0)
Smaller reporting company (cid:0)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes (cid:0) No (cid:0)
The aggregate market value of the Common Stock held by non-affiliates of the registrant at June 30, 2015 was
$12,067,625 based upon the closing price of the registrant’s common stock on the NASDAQ Capital Market. 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 29, 2016, 9,008,855 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 29, 2016, are
incorporated by reference in Part III of this report.
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 4 Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statements Schedules
Signatures
Index To Consolidated Financial Statements
Forward-looking Statements:
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F-1
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, 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® and Star Tron® brand names. We sell these products 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.”
We also manufacture, market and distribute disinfectant, sanitizing and deodorizing products under the Performacide®
and Star brite® brand names, utilizing a patented delivery system for use with products containing chlorine dioxide
that is owned by our wholly-owned subsidiary, OdorStar Technology LLC (“OdorStar”). The U.S. Environmental
Protection Agency has accepted labeling for Performacide® claiming effectiveness as, among other things, a virucide
against non-enveloped viruses (such as norovirus, rotavirus, adenovirus and poliovirus), as well as other viruses, and a
disinfectant against a number of different types of bacteria.
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 2015 and 2014 totaled approximately $2,075,000 and $1,956,000 or
6.1% and 5.8% of our net sales, respectively. See Note 9 to the consolidated financial statements included in this
report for additional information. In addition, in 2010 we formed OdorStar with a joint venture partner. We acquired
the joint venture partner’s interest in OdorStar in 2014, as a result of which OdorStar became a wholly-owned
subsidiary of the Company.
Because our operations involve, in all material respects, substantially similar manufacturing and distribution processes,
our operations constitute one reportable segment for financial reporting purposes.
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.
1
Recreational Vehicle/Power Sports: We also market Star Tron® fuel treatment and other specialty products 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 specialty 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 associated with E-10 fuel in commercial lawn equipment and other home and garden power
equipment.
Disinfectants, Sanitizers and Deodorizers: Our line of disinfectant, sanitizing and deodorizing products are marketed
under the Performacide® and Star brite® brand names. Performacide® products include disinfectants for hard, non-
porous surfaces, air care products for deodorizing and products to eliminate mold and mildew. When used as directed
with respect to hard, non-porous surfaces, Performacide® is effective as a virucide against a variety of viruses,
including the Ebola virus, Human HIV-1 Virus, and the Influenza-A virus, a disinfectant against a variety of bacteria,
a sanitizer against bacteria, including certain types of bacteria causing food borne illnesses, and, in certain
applications, as an algaecide and fungicide. We are directing distribution efforts towards the marine and automotive
markets, to institutions such as hospitals and schools and to travel and leisure facilities such as hotels and cruise ships.
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.
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 third party manufacturers to
manufacture some of our 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.
Additionally we market our products via online retailers. We also sell to national and regional distributors that resell
our products to specialized retail outlets. In the case of Performacide® disinfectant/sanitizing products, we sell to
distributors that resell our products, in some cases under private labels, to end users in the home restoration, health
care, transportation, law enforcement, and farm and agriculture markets.
2
Sales to each of two customers exceeded 10% of our consolidated net revenues for the years ended December 31, 2015
and 2014, and constituted an aggregate of approximately 38.2% and 36.0% of consolidated net revenues for the years
ended December 31, 2015 and 2014, respectively. Sales to our five largest unaffiliated customers for the years ended
December 31, 2015 and 2014 amounted to approximately 49.0% and 47.0% of our consolidated net sales, respectively,
and at December 31, 2015 and 2014, outstanding accounts receivable balances from our five largest unaffiliated
customers aggregated approximately 39.4% and 36.2% 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, on television, on
the internet, in 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. See Note 2 to the consolidated financial statements included in
this report for additional information.
Backlog, seasonality, and selling terms: We had no significant backlog of orders at December 31, 2015. We
generally do not give customers the right to return products. 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 180 days depending on the
nature of the customer. 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.
3
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.
Disinfectants, Sanitizers and Deodorants: There are a large number of companies that compete with us, many of which
are much larger, and have much greater financial resources than we do. We emphasize the effectiveness of chlorine
dioxide, coupled with the convenience in application of our Performacide® products.
Trademarks: We have obtained registered trademarks for Star brite®, Star Tron®, Performacide® 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.
Patents: OdorStar owns patents relating to a delivery system for use with products containing chlorine dioxide. The
patents expire in 2022. We have encountered difficulty in protecting the patents through litigation. See Item 1A, Risk
Factors, “If we do not utilize or successfully assert intellectual property rights, our competitiveness could be materially
adversely affected,” for additional information. A 2014 adverse judgment in patent litigation that was upheld on appeal
in 2015 has limited the scope of protection provided by the patent, and we are unable to predict the long-term effects
of the judgment. To date, however, we do not believe the judgment has materially impaired our ability to effectively
market and distribute our Performacide® products.
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, 2015, we had 123 full-time employees. The following table provides information
regarding personnel working for the Company and its subsidiaries at December 31, 2015:
Location
Fort Lauderdale, Florida
Fort Lauderdale, Florida
Montgomery, Alabama
Description
Administrative, sales, and marketing
Manufacturing and distribution
Manufacturing and distribution
Full-time
Employees
38
7
78
123
4
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 Performacide®
disinfectant/sanitizing products have only recently been introduced, and we confront competition from a large number
of competitors, many of which are well established and have substantially 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, we believe that adverse economic conditions in recent years adversely
constrained discretionary spending, which we believe has, at times, adversely affected our product lines, particularly
those directed to the marine and recreational vehicle markets. A future decline in economic conditions could have a
material adverse effect on our financial condition, results of operations and cash flows.
If we do not effectively utilize or successfully assert intellectual property rights, our competiveness could be
materially adversely affected.
We rely on trademarks and trade names in connection with our products, the most significant of which are Star brite®
and Star Tron®. In addition, OdorStar owns patents we have viewed as providing competitive support for our
Performacide® products. 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, and the legal costs necessary to protect our intellectual property
rights could be significant. In this regard, in 2013, OdorStar and Kinpak filed a patent infringement lawsuit in the
United States District Court for the Southern District of Florida with respect to OdorStar's U.S. patent relating to a
delivery system for use with products containing chlorine dioxide, but the District Court granted the defendants'
motion for summary judgment, which the Federal Circuit Court of Appeals affirmed in January 2015. As a result, in
March 2015, we stipulated to the dismissal with prejudice of our patent infringement claims in another lawsuit related
to the same patent, and, in response, the court dismissed our claims. We are unable to predict the long-term effect of
the adverse outcome in the patent litigation. Our failure to perfect or successfully assert intellectual property rights
could harm our competitive position 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 business, financial
condition, results of operations and cash flows.
5
Our variable rate indebtedness exposes us to risks related to interest rate fluctuation and matures in July 2016.
The Company has a revolving line of credit with a variable interest rate. Interest on the revolving line of credit is
payable at the 30 day LIBOR rate plus 1.65% 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 2.65% per
annum). During the year ended December 31, 2015, we did not utilize the revolving line of credit, and at December
31, 2015, we did not have any borrowings outstanding under the revolving line of credit. However, if we borrow
amounts under the revolving line of credit in the future, and if interest rates were to increase significantly, our financial
condition, results of operations and cash flows could be materially adversely affected. . Moreover, we believe, but
cannot assure, that we could obtain a renewal of the revolving line of credit or a suitable replacement facility when the
current facility terminates in July 2016. Our failure to renew or obtain a replacement for our current facility may
impair our financial flexibility and have a material adverse effect on our business and cash flow.
interest may conflict with or differ from the Company's interests.
Peter G. Dornau, our Chairman, President and Chief Executive Officer, together with a family entity he controls, owns
approximately 52.3% 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 $2,075,000 and $1,956,000 during the years
ended December 31, 2015 and 2014, 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
$527,000 and $478,000 during the years ended December 31, 2015 and 2014, 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 of our products to the affiliated companies are similar to the profit margins we realize with
respect to sales of the same products 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.
6
Item 2. Properties
Our executive offices and one of our manufacturing facilities are 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 187,000 square feet of
office, plant and warehouse space on 20 acres of land.
We believe our facilities are sufficient to accommodate our current operating requirements.
Item 4 . Mine Safety Disclosures
Not Applicable
PART II
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 2015 and 2014 is presented below.
2015
2014
High
Low
High
Low
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
$
$
$
$
5.56 $
3.76 $
3.75 $
2.43 $
4.45 $
3.33 $
3.10 $
2.63 $
3.79 $
2.44 $
4.85 $
2.89 $
3.19
2.02
6.98
3.06
On December 31, 2015, there were 121 holders of record and approximately 1,100 beneficial owners of our common
stock.
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. The Company previously did not pay any
dividends. Payment of dividends in the future will be subject to the discretion of the Board of Directors in light of
numerous factors, including the Company's business performance and operating plans, capital commitments, liquidity
and other factors.
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.
7
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 also manufacture, market and distribute a
line of products including disinfectants, sanitizers and deodorizers. We sell our products through national retailers and
to national and regional distributors.
Our operating results for 2015 were affected by professional fees and expenses related to the litigation described in
Part I, Item 3 of this report (the “Advertising Litigation”). Our professional fees and expenses related to the
Advertising Litigation were approximately $1,174,000 in 2015 and $124,000 in 2014. We incurred additional fees and
expenses with respect to the Advertising Litigation of approximately $1,050,000 through March 25, 2016. As
explained in more detail in Item 3 of this report, as a result of the jury verdict, neither party to the Advertising
Litigation is liable to the other, although each party has until April 1, 2016 to file an appeal. While we are seeking
insurance recovery with respect to a portion of these expenditures, we cannot provide assurance as to whether, or to
what extent, we will obtain such recovery.
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, if subject to different assumptions and conditions, could lead to materially
different results.
Revenue recognition and collectability of trade 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 collectability of the trade accounts receivable, considering the period the trade
accounts receivable are 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 $78,000 and $76,000 at December 31, 2015 and 2014, respectively, which
was approximately 1.5% of gross accounts receivable for each of the years ended December 31, 2015 and 2014. 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.
8
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 reflect the
diminution in value resulting from product obsolescence, damage or other issues affecting marketability in 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 $279,882 and $277,296 at December 31, 2015 and 2014,
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 and recorded using currently enacted tax rates, which we expect will apply to taxable income
in the years in which the differences between the financial statement carrying amounts of existing assets and liabilities
and their tax bases are recovered or settled. The differences are attributable to differing methods of financial statement
and income tax treatment with respect to depreciation and reserves for trade accounts receivable and inventories. The
likelihood of a material change in our 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.
9
Intangible Assets
Our intangible assets include trademarks, tradenames, patents and royalty rights. We own several trademarks and trade
names, including Star brite®, Star Tron® and Performacide®. We have determined that these intangible assets have
indefinite lives and, therefore, are not amortized. In addition, our wholly-owned subsidiary, OdorStar, owns patents
related to a device for producing chlorine dioxide that is incorporated in our deodorizer, sanitizer and disinfectant
products. We amortize these patents over their remaining life on a straight line basis; amortization expense related to
the patents was approximately $51,000 for each of the years ended December 31, 2015 and December 31, 2014. In
2013, we acquired 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. We are amortizing
the royalty rights over their remaining life on a straight line basis; amortization expense relating to the royalty rights
was approximately $18,000 for each of the years ended December 31, 2015 and 2014.
The Company evaluates its indefinite-lived intangible assets (trademarks and trade names) for impairment annually
and at other times when an event occurs or circumstances change such that it is reasonably possible that an impairment
may exist. In evaluating our indefinite-lived intangible assets for impairment, we assess qualitative factors to
determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its
carrying value. If, after completing the qualitative assessment, we determine it is more likely than not that the fair
value of the indefinite-lived intangible asset is greater than its carrying amount, the asset is not impaired. If we
conclude it is more likely than not that the fair value of the indefinite-lived intangible assets is less than the carrying
value, we would then proceed to a quantitative impairment test, which consists of a comparison of the fair value of the
intangible assets to their carrying amounts. In 2015, we performed a qualitative assessment on all of our indefinite
lived assets and determined, based on the assessment, that their fair values were more likely than not higher than their
carrying values. See Note 1 to the consolidated financial statements included in this report for additional information.
We assess the remaining useful life and recoverability of intangible assets having finite lives (patents and royalty
rights) whenever events or circumstances indicate the carrying value of an asset may not be recoverable. Such events
may include, for example, the occurrence of an adverse change in the market involving the business employing the
related assets. Significant judgments in this area involve determining whether such an event has occurred. Any
impairment loss, if indicated, equals the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset.
Results of Operations:
The following table provides a summary of our financial results for the years ended December 31, 2015 and 2014:
Net sales
Cost of goods sold
Gross profit
Advertising and promotion
Selling and administrative
Operating income
Interest (expense), net
Other (expense)
Provision for income taxes
Net income
For The Years Ended December 31,
2015
2014
Percent
Change
Percentage of Net Sales
2015
2014
$ 33,987,487 $ 33,926,988
22,647,516 21,797,093
11,339,971 12,129,895
3,010,758 2,565,678
7,579,682 6,540,961
749,531 3,023,256
(43,454 )
(33,639 )
(12,522 )
---
(242,676 )
(948,874 )
460,694 $ 2,030,928
$
0.2 %
3.9 %
(6.5 )%
17.3 %
15.9 %
(75.2 )%
(22.6 )%
N/A
(74.4 )%
(77.3 )%
100.0 %
66.6 %
33.4 %
8.9 %
22.3 %
2.2 %
0.1 %
0.0 %
0.7 %
1.4 %
100.0 %
64.2 %
35.8 %
7.6 %
19.3 %
8.9 %
0.1 %
0.0 %
2.8 %
6.0 %
Net income attributable to Ocean Bio-Chem,
Inc.
$
460,694 $ 2,048,077
(77.5 )%
1.4 %
6.0 %
10
Net sales increased by approximately $60,000 or 0.2%, to approximately $33,987,000 in 2015 compared to
$33,927,000 in 2014.
Cost of goods sold - Cost of goods sold increased by approximately $850,000 or 3.9% in 2015, to approximately
$22,647,000 from approximately $21,797,000 in 2014. The increase in cost of goods sold is due to a less favorable
mix of products sold during 2015 as compared to 2014.
Gross profit decreased by approximately $790,000 or 6.5% to approximately $11,340,000 in 2015, from
approximately $12,130,000 during 2014. As a percentage of net sales, gross profit decreased to 33.4% in 2015 from
35.8% in 2014. The decreases in gross profit and gross profit as a percentage of net sales is a result of the less
favorable product mix discussed above.
Advertising and promotion expense increased by $445,000 or 17.3% to approximately $3,011,000 during 2015
compared to $2,566,000 in 2014. As a percentage of net sales, advertising and promotion expense increased to 8.9%
in 2015 compared to 7.6% in 2014. We increased our advertising and promotion expense during 2015 to support
newer product lines, including the Performacide®, Outdoor Collection and Recreational Vehicle product lines.
Selling and administrative expenses increased by approximately $1,039,000 or 15.9%, to approximately $7,580,000
in 2015 from approximately $6,541,000 in 2014. The increase is principally due to legal fees and expenses related to
the Advertising Litigation. As a percentage of net sales, selling and administrative expenses increased to 22.3% in
2015 from 19.3% in 2014.
Operating income – As a result of the foregoing, operating income decreased to approximately $750,000 in 2015,
from approximately $3,023,000 in 2014, a decrease of approximately $2,273,000 or 75.2%.
Interest expense, net decreased by approximately $9,000 to $34,000 in 2015, compared to $43,000 in 2014. The
decrease reflects the declining outstanding principal on our term loan.
Income taxes – Income tax expense was approximately $243,000 in 2015 or 34.5% of pretax income, compared to
approximately $949,000 in 2014 or 31.8% of pretax income. 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 by approximately 77.3% or approximately $1,570,000 to $461,000 in 2015 from $2,031,000 in
2014. Net income attributable to Ocean Bio-Chem, Inc. (excluding the 2014 loss attributable to non-controlling
interests) was approximately $461,000 in 2015, a decrease of approximately $1,587,000 or 77.5% from approximately
$2,048,000 in 2014.
Liquidity and Capital Resources:
Our cash balance was approximately $2,468,000 at December 31, 2015 compared to approximately $3,063,000 at
December 31, 2014. At December 31, 2015 and December 31, 2014, we had no borrowings under our revolving line
of credit.
Net cash provided by operating activities for the year ended December 31, 2015 was approximately $800,000
compared to approximately $1,786,000 for the year ended December 31, 2014. The decrease in cash provided by
operations principally results from a $1,570,000 decrease in net income, partially offset by the effect of changes in
operating assets and liabilities that, while decreasing cash by approximately $864,000 in 2015, represented
approximately $524,000 less than the $1,388,000 decrease in 2014.
Inventories, net were approximately $7,915,000 and $8,109,000 at December 31, 2015 and 2014, respectively,
representing a decrease of approximately $194,000 or 2.4% in 2015.
11
Net trade accounts receivable at December 31, 2015 aggregated approximately $5,092,000, an increase of
approximately $242,000 or 5.0% compared to the approximately $4,850,000 in accounts receivable outstanding at
December 31, 2014. The increase in net trade accounts receivable is result of increased sales to customers subject to
longer payment terms. Receivables due from affiliated companies aggregated approximately $1,051,000 at December
31, 2015, an increase of approximately $336,000, or 47.0% over receivables due from affiliated companies of
approximately $715,000 at December 31, 2014. The increase reflects higher sales and increased administrative
services to the affiliated companies during the fourth quarter of 2015 compared to the fourth quarter of 2014. The
administrative services are used by the affiliated companies to support their increased sales volume and product
development, as well as regulatory and registration fees related to revised labeling of some products.
Net cash used in investing activities for the year ended December 31, 2015 was approximately $955,000 compared to
$981,000 in 2014. The decrease in cash used in investing activities is due in part to our receipt of $55,000 for the sale
of a recreational vehicle we purchased in 2014 for advertising and exhibiting our products at trade shows and other
events. In addition, in 2014 we paid $150,000 in connection with our acquisition of our former joint venture partner’s
interest in OdorStar. These factors were partially offset by increased purchases of property, plant, and equipment in
2015. The purchases primarily related to equipment for the manufacturing facilities of our Kinpak, Inc. subsidiary,
including additional storage tanks for storage of propylene glycol, which we use principally for antifreeze. In addition,
we made expenditures for leasehold improvements to expand office space at our corporate headquarters.
Net cash used in financing activities for the year ended December 31, 2015 was approximately $438,000 compared to
$791,000 for the year ended December 31, 2014. While cash used in both periods reflect repayments under our term
loan, cash used in the 2014 period also included a $440,000 dividend payment, partially offset by $63,000 in cash
proceeds resulting from the exercise of stock options.
See Notes 5 and 7 to the consolidated financial statements included in this report for information concerning our
principal credit facilities, consisting of a revolving line of credit and a term loan. At December 31, 2015, we had no
borrowings under our revolving line of credit and an outstanding balance of $692,104 under our term loan.
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 $88,000 and $8,000 at December 31, 2015 and December
31, 2014, respectively.
Some of our assets and liabilities are in the Canadian dollars and 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, 2015, 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 any inventory 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 retailer customers and to our distributors as promptly as we experience increases in raw
material costs. This may, at times, adversely affect our margins.
At December 31, 2015 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.
12
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 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 defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act") at the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this
report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit 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 required disclosure.
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, 2015. In making
this assessment, management used the framework established in Internal Control-Integrated Framework (2013) 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, 2015, the
Company’s internal control over financial reporting was effective.
Item 9B. Other Information
Not applicable.
13
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.
14
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
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).
Business Loan Agreement, dated August 4, 2014 (executed August 6, 2014), between the Company and
Regions Bank (the “Business Loan Agreement”) (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K, filed on August 8, 2014).
Promissory Note, dated August 4, 2014 (executed August 6, 2014), issued by the Company to Regions
Bank in connection with the revolving line of credit under the Business Loan Agreement (the “Promissory
Note”) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on
August 8, 2014).
Letter dated August 5, 2014 from Regions Bank to the Company, regarding certain terms under the
Business Loan Agreement and the Promissory Note (incorporated by reference to Exhibit 99.3 to the
Company’s Current Report on Form 8-K, filed on August 8, 2014).
Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan (incorporated by reference to Exhibit 99.1 to the
Company’s Registration Statement on Form S-8 (file no. 333-204520), filed with the Securities and
Exchange Commission on May 28, 2015).
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 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 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).
15
10.10
10.11
10.12
*21.
*31.1
*31.2
*32.1
*32.2
101
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. (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2013).
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, 2015, formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets at December 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Operations
for the years ended December 31, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income
for the years ended December 31, 2015 and 2014; (iv) Consolidated Statements of Changes in
Shareholders Equity for the years ended December 31, 2015 and 2014, (v) Consolidated Statements of
Cash Flows for the years ended December 31, 2015 and 2014 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.
16
SIGNATURES
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.
Date: March 30, 2016
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 Officer)
/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
Director
Director
Director
Director
Director
Director
March 30, 2016
March 30, 2016
March 30, 2016
March 30, 2016
March 30, 2016
March 30, 2016
March 30, 2016
March 30, 2016
17
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-20
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, 2015 and 2014 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, 2015. 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, 2015 and 2014, and the
results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2015, in
conformity with accounting principles generally accepted in the United States of America.
/s/ Goldstein Schechter Koch P.A.
Certified Public Accountants
Fort Lauderdale, Florida
March 30, 2016
F-2
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014
December 31,
2015
December 31,
2014
ASSETS
Current Assets:
Cash
Trade accounts receivable less allowances of approximately $78,000 and $76,000,
$
2,468,415 $
3,062,729
respectively
Receivables due from affiliated companies
Inventories, net
Prepaid expenses and other current assets
Deferred tax asset
Total Current Assets
Property, plant and equipment, net
Other Assets:
Intangible assets, net
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:
5,092,040
1,051,091
7,914,950
942,820
125,335
4,850,282
715,034
8,109,333
851,333
123,360
17,594,651 17,712,071
5,356,388
5,172,882
1,037,968
1,037,968
1,095,458
1,095,458
$ 23,989,007 $ 23,980,411
$
1,101,720 $
451,148
----
1,098,721
2,651,589
1,439,868
425,658
16,465
1,115,514
2,997,505
365,012
328,818
3,345,419
258,682
692,104
3,948,291
Common stock - $.01 par value, 12,000,000 shares authorized; 8,983,374 shares and
8,914,274 shares issued, respectively
Additional paid in capital
Foreign currency translation adjustment
Retained earnings
Total Shareholders' Equity
89,834
9,287,313
(284,442 )
89,142
9,131,952
(279,163 )
11,550,883 11,090,189
20,643,588 20,032,120
Total Liabilities and Shareholders' Equity
$ 23,989,007 $ 23,980,411
The accompanying notes are an integral part of these consolidated financial statements.
F-3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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 net, (expense)
Other (expense)
Income before income taxes
Provision for income taxes
Net income
Loss attributable to noncontrolling interests
Net income attributable to Ocean Bio-Chem, Inc.
Earnings per common share – basic and diluted
Dividends declared per common share
The accompanying notes are an integral part of these consolidated financial statements.
2015
2014
$ 35,785,119 $ 35,832,357
1,797,632 1,905,369
33,987,487 33,926,988
22,647,516 21,797,093
11,339,971 12,129,895
3,010,758 2,565,678
7,579,682 6,540,961
10,590,440 9,106,639
749,531 3,023,256
(33,639 )
(12,522 )
(43,454 )
----
703,370 2,979,802
242,676
948,874
460,694 2,030,928
----
17,149
460,694 $ 2,048,077
0.05 $
0.23
----
$
0.05
$
$
$
F-4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2015 AND 2014
Net income
Foreign currency translation adjustment
Comprehensive income
Comprehensive loss attributable to noncontrolling interests
2015
2014
$ 460,694 $ 2,030,928
(5,279 )
(12,707 )
455,415 2,018,221
----
17,149
Comprehensive income attributable to Ocean Bio-Chem, Inc.
$ 455,415 $ 2,035,370
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, 2015 AND 2014
Foreign
Currency
Non
Additional
Paid In
Common Stock
Shares Amount Capital Adjustment Earnings Stock
Translation Retained Treasury Controlling
Interest
Total
January 1,
2014
Net income
(loss)
Dividends
declared
Options
exercised
Stock based
compensation -
grants
Acquisition of
joint venture
partner’s
interest in
OdorStar
Foreign
currency
translation
adjustment
December 31,
2014
Net income
Options
exercised
Stock based
compensation -
grants
Foreign
currency
translation
adjustment
December 31,
2015
8,749,888 $ 87,499 $ 8,805,460 $
(266,456 ) $ 9,482,128 $ (65,029 ) $ 228,474 $ 18,272,076
2,048,077
(17,149 ) 2,030,928
(440,016 )
(440,016 )
115,000 1,150
49,600
12,500
63,250
49,386
493 276,892
52,529
329,914
(211,325 )
(211,325 )
(12,707 )
(12,707 )
8,914,274 $ 89,142 $ 9,131,952 $
(279,163 ) $ 11,090,189 $
--- $
--- $ 20,032,120
7,844
79
(79 )
61,256
613 155,440
460,694
460,694
----
156,053
(5,279 )
(5,279 )
8,983,374 $ 89,834 $ 9,287,313 $
(284,442 ) $ 11,550,883 $
--- $
--- $ 20,643,588
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, 2015 AND 2014
Cash flows from operating activities:
Net income
Adjustment to reconcile net income to net cash provided by operations:
Depreciation and amortization
Deferred income taxes
Loss on sale of property, plant and equipment
Stock based compensation
Other operating noncash items
Changes in assets and liabilities:
Trade accounts receivable
Inventories
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
Cash paid for acquisition of joint venture partner’s interest in OdorStar
Cash paid for patent and trademark registration
Sale of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities:
Payments on long-term debt
Dividends paid to common shareholders
Proceeds from exercise of stock options
Net cash used in financing activities
Effect of exchange rate on cash
Net (decrease) 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
2015
2014
$ 460,694 $ 2,030,928
916,317
104,355
12,522
162,225
8,016
843,116
(37,648 )
---
356,085
(17,664 )
(244,513 )
(517,352 )
191,797
(716,439 )
(91,487 )
(210,843 )
(336,057 )
(178,632 )
234,802
(384,016 )
799,853 1,786,353
(997,761 )
---
(11,902 )
55,000
(954,663 )
(830,817 )
(150,000 )
---
---
(980,817 )
(437,988 )
---
---
(437,988 )
(1,516 )
(594,314 )
(414,524 )
(440,016 )
63,250
(791,290 )
(23,404 )
(9,158 )
3,062,729 3,071,887
$ 2,468,415 $ 3,062,729
$
34,871 $
51,537
$ 169,200 $ 1,090,000
Supplemental disclosure of non-cash investing information:
Amounts due from joint venture partner released as part of acquisition
of joint venture partner’s interest in OdorStar
$
--- $ 305,905
The accompanying notes are an integral part of these consolidated financial statements.
F-7
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2015 AND 2014
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
manufacturers, markets and distributes products, principally under the Star brite® and Star Tron® brands, to the
marine, automotive, recreational vehicle, and outdoor power equipment aftermarkets. The Company also manufactures
disinfectants, sanitizers and deodorizers under the Star brite® and Performacide® brands.
Basis of presentation – The consolidated financial statements include the accounts of the Company and its wholly-
owned subsidiaries. Prior to September 16, 2014, when it became wholly-owned subsidiary of the Company, OdorStar
Technology, LLC (“OdorStar) was a joint venture in which the Company had a controlling interest; therefore,
OdorStar was included in the Company’s consolidated financial statements for all of 2014. The Company’s 2014
consolidated statement of operations includes a $17,149 loss attributable to the former joint venture partner’s
noncontrolling interest. See Note 4 for additional information. 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, 2015 and 2014 are net of
allowances for doubtful accounts aggregating approximately $78,000 and $76,000, 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 $3,000 and $0 during the years ended December
31, 2015 and 2014, 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 $1,367,000 and
$1,348,000 for the years ended December 31, 2015 and 2014, 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 $3,011,000 and $2,566,000 in 2015 and 2014,
respectively.
F-8
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. Depreciation expense
totaled approximately $847,000 and $774,000 for the years ended December 31, 2015 and 2014, respectively.
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
$78,000 and $45,000 of research and development costs for the years ended December 31, 2015 and 2014
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 trade accounts receivable. The Company’s five largest
unaffiliated customers represented approximately 49.0% and 47.0% of consolidated net sales for the years ended
December 31, 2015 and 2014, and 39.4% and 36.2% of consolidated trade accounts receivable at December 31, 2015
and 2014, respectively. The Company has a longstanding relationship with each of these customers, from which it
previously has collected all open receivable balances. The loss of any of these customers could have an adverse impact
on the Company’s operations (see Note 12).
F-9
Concentration of cash – At various times during the year 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. The 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; 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 in
which the change is enacted.
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 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.
F-10
Intangible assets – 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. In addition, the Company’s wholly- owned subsidiary, OdorStar Technology, LLC,
owns patents relating to a device for producing chlorine dioxide (ClO2), which is incorporated in Company's
disinfectant, sanitizer and deodorizer products. 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, 2015
and 2014. 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 $18,000 for each of the years ended December 31, 2015 and
2014, respectively. On September 16, 2014, the Company paid its former OdorStar joint venture partner $150,000 and
released the former joint venture partner from $305,905 in debt in exchange for the former joint venture partner's
membership interest in OdorStar and all rights to the trade name Performacide®. The Company capitalized $244,580
in relation to the Performacide® trade name. The Company has determined that the Performacide® trade name has an
indefinite life and, therefore, it is not being amortized. See Note 4 – OdorStar . The Company evaluates trademarks
and trade names (all of which are indefinite-lived 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. The
Company evaluates royalty rights and patents for impairment when an event occurs or circumstances change such that
it is reasonably possible that an impairment may exist.
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, 2015 and 2014 are as follows:
Raw materials
Finished goods
Inventories, gross
Inventory reserves
Inventories, net
2015
2014
$ 3,749,702 $ 3,365,093
4,445,130 5,021,536
8,194,832 8,386,629
(279,882 )
(277,296 )
$ 7,914,950 $ 8,109,333
The inventory reserves shown in the table above reflect slow moving and obsolete inventory.
F-11
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 $543,000 and $493,000 at December 31, 2015 and 2014, respectively.
Note 3 – Property, plant and equipment:
The Company’s property, plant and equipment at December 31, 2015 and 2014 consisted of the following:
Estimated
Useful Life
2015
2014
Land
Building and Improvements
Manufacturing and warehouse equipment
Office equipment and furniture
Construction in process
Leasehold improvements
Vehicles
Property, plant and equipment, gross
Less accumulated depreciation
Property, plant and equipment, net
Note 4 – OdorStar:
$
278,325 $
278,325
30 years 4,652,669 4,648,089
6-20 years 9,072,162 8,486,397
3-5 years 1,293,609 1,044,605
64,038
436,659
131,828
16,098,349 15,089,941
215,155
544,146
42,283
10-15 years
3 years
(10,741,961 ) (9,917,059 )
$ 5,356,388 $ 5,172,882
In 2010, the Company and BBL Distributors, LLC (“BBL”) organized OdorStar. OdorStar owns patents relating to a
device for producing chlorine dioxide, which is incorporated in the Company's disinfectant, sanitizer and deodorizer
products manufactured and marketed under the Star brite® and Performacide® brand names.
OdorStar operated as a joint venture until September 16, 2014, when the Company acquired BBL’s membership
interest, at which time OdorStar became a wholly-owned subsidiary of the Company. In connection with the
Company’s acquisition of BBL's membership interest, BBL and its affiliates released any rights they may have to the
Performacide® trade name. The Company paid BBL $150,000 and released BBL from indebtedness of $305,905
claimed by the Company.
F-12
Prior to the acquisition, the Company was the managing member of OdorStar and included OdorStar in its
consolidated financial statements. The Company and BBL shared equally in profits and losses with OdorStar. The
Company’s consolidated statement of operations include OdorStar’s operating loss of approximately $130,000
($34,000 during the period prior to the Company’s acquisition of BBL’s membership interest) during the year ended
December 31, 2014.
Note 5 – Revolving line of credit:
On August 4, 2014, the Company and Regions Bank entered into a Business Loan Agreement (the“Business Loan
Agreement”), under which the Company was provided a renewed revolving line of credit. Under the renewed
revolving line of credit, the Company may borrow up to the lesser of (i) $6 million or (ii) a borrowing base equal to
80% of eligible accounts receivable (as defined in the Business Loan Agreement) plus 50% of eligible inventory (as
defined in the Business Loan Agreement).Interest on amounts borrowed under the revolving line of credit is payable
monthly at the 30 day LIBOR rate plus 1.65% per annum (unless the Company’s debt service coverage ratio
(generally, net operating profit plus depreciation, amortization and lease/rent expense divided by current maturities of
long-term debt plus interest and lease/rent expense, calculated on a trailing twelve month basis) falls to or below 2.0 to
1, in which case interest is payable at the 30 day LIBOR rate plus 2.65% 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 until expiration of the revolving line of credit on July 6, 2016, at
which time all outstanding principal and interest will be due and payable. The Company’s obligations under the
revolving line of credit are secured by, among other things, the Company’s accounts receivable, inventory, contract
rights and general intangibles and, as a result of cross-collateralization of the Company’s obligations under the term
loan described in Note 7 and the revolving line of credit, real property and equipment at the Montgomery, Alabama
facility of the Company’s subsidiary, Kinpak, Inc. ("Kinpak"). The Business Loan Agreement contains various
covenants, including financial covenants requiring a minimum debt service coverage ratio of 1.75 to 1.00, tested on a
trailing twelve month basis, and a maximum debt to capitalization ratio (generally, funded debt divided by the sum of
total net worth and funded debt) of 0.75 to 1, tested quarterly. For the year ended December 31, 2015, our debt service
coverage ratio exceeded 3.0 to 1 and at December 31, 2015, our debt to capitalization ratio was approximately .04 to 1.
The line of credit is subject to several events of default, including a decline in the majority shareholder’s ownership
below 50% of all outstanding shares. At December 31, 2015 and December 31, 2014, the Company had no borrowings
under the revolving line of credit.
Note 6 – Accrued expenses payable:
Accrued expenses payable at December 31, 2015 and 2014 consisted of the following:
Accrued customer promotions
Accrued payroll, commissions, and benefits
Other
Total accrued expenses payable
2015
2014
$ 491,378 $ 369,238
255,880
490,396
269,380
337,963
$ 1,098,721 $ 1,115,514
F-13
Note 7 – Long-term debt:
On July 6, 2011, in connection with a credit agreement among the Company, Kinpak, Regions Bank and Regions
Equipment Finance Corporation (“REFCO”), an Equipment Finance Addendum to the Credit Agreement was entered
into by the Company, Kinpak and REFCO. Under the Addendum, REFCO provided to the Company a $2,430,000
term loan with a fixed interest rate of 3.54% per annum. Principal and interest on the term loan are payable in equal
monthly installments of $37,511 through July 6, 2017, the date the term loan matures. In the event the Company’s
debt service coverage ratio falls to or below 2.0 to 1, interest on the term loan will increase to 4.55% per annum. The
Company’s debt service coverage ratio exceeded 3.0 to 1 for the year ended December 31, 2015. The proceeds of the
term loan were used to pay Kinpak’s remaining obligations under a lease agreement relating to industrial revenue
bonds used to fund the expansion of Kinpak’s facilities and acquisition of related equipment. At December 31, 2015
approximately $692,000 was outstanding under the term loan.
At December 31, 2015 and 2014, the Company was obligated under various capital lease agreements covering
equipment utilized in the Company’s operations. The capital leases aggregating approximately $88,000 and $8,000 at
December 31, 2015 and December 31, 2014, respectively have varying maturities through 2020 and carry interest rates
ranging from 2% to 14%.
The following table provides information regarding the Company’s long-term debt at December 31, 2015 and 2014:
Current Portion
2015
2014
Long-term Portion
2014
2015
Term loan
Capitalized equipment leases
$ 432,601 $ 417,577 $ 259,503 $ 692,104
--
18,547
69,315
8,081
Total long-term debt
$ 451,148 $ 425,658 $ 328,818 $ 692,104
F-14
Required principal payments under these obligations are set forth below:
Year ending December 31,
2016
2017
2018
2019
2020
Total
Note 8 – Income taxes:
$ 451,148
278,392
19,238
19,593
11,595
$ 779,966
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
2015
2014
$ 136,479 $ 961,573
(37,242 )
24,949
(406 )
$ 242,676 $ 948,874
101,290
1,842
3,065
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
2015
$ 239,146
889
---
(2,881 )
6,079
(557 )
$ 242,676
%
2014
%
34.0 % $ 1,013,133
16,300
0.1 %
5,831
0.0 %
(738 )
(0.4 )%
(79,733 )
0.9 %
(5,919 )
-0.1 %
34.5 % $ 948,874
34.0 %
0.5 %
0.2 %
0.0 %
-2.7 %
-0.2 %
31.8 %
The Company’s deferred tax asset and liability accounts consisted of the following at December 31, 2015 and 2014:
Deferred taxes – current
Reserves for trade accounts receivable and inventories
Total deferred tax asset current
Deferred taxes - non-current
Depreciation of property and equipment
Total deferred tax liability non-current
Note 9 – Related party transactions:
2015
2014
$ 125,335 $ 123,360
$ 125,335 $ 123,360
$ (365,012 ) $ (258,682 )
$ (365,012 ) $ (258,682 )
During 2015, 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 $2,075,000 and $1,956,000 during the years ended December 31, 2015 and 2014, respectively, and
administrative fees aggregated approximately $527,000 and $478,000 during the years ended December 31, 2015 and
2014, respectively. The Company had accounts receivable from the affiliated companies in connection with the
product sales and administrative services aggregating approximately $1,051,000 and $715,000 at December 31, 2015
and 2014, respectively.
F-15
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 of its products to the affiliated companies are similar to the
profit margins it realizes with respect to sales of the same products 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 and to assist in the production
of television commercials. The Company paid the entity $42,000 for research and development services in each of the
years ended December 31, 2015 and 2014. In addition, for the year ended December 31, 2014, the Company made a
$40,000 prepayment to the affiliated company for the production of television commercials. During 2015, the
affiliated company provided the services covered by the prepayment, and the $40,000 is included in advertising and
promotion expenses in the Company’s consolidated statement of operations for the year ended December 31, 2015.
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 its 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 commercial insurance needs at an arm’s length competitive basis. The Company paid an aggregate of
approximately $925,000 and $811,000 to the entity during the years ended December 31, 2015 and 2014, 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. The lease, as extended, expires on 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 was approximately $98,000 and $97,000 for
the years ended December 31, 2015 and 2014, respectively.
The following is a schedule of minimum future rentals on the Company’s non-cancelable operating leases.
12 month period ending December 31,
2016
2017
2018
2019
2020
Thereafter
Total
$
96,064
97,985
99,945
101,944
103,983
324,593
$ 824,514
F-16
Each party has until April 1, 2016 to file an appeal.
The Company believes that, based on information available, the outcome of this legal matter will not ultimately have a
material adverse effect on the financial position or results of operation of the Company. However, in the event of
unexpected further developments, it is possible that the ultimate resolution of this matter, or other matters that may
arise, if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations
or liquidity.
Note 11 - Stock options and awards:
On May 29, 2015, the Company’s shareholders approved the Ocean Bio-Chem, Inc. 2015 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 awards will be made under the Company’s equity
compensation plans previously approved by its shareholders (the “Prior Plans”).
The Plan authorizes the issuance of 630,000 shares, subject to anti-dilution 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 an aggregate of 65,500 shares of common stock during the year ended December 31, 2015 and
issued stock awards to officers, key employees and a consultant under its Prior Plans totaling an aggregate of 128,000
shares of common stock during the year ended December 31, 2014. At December 31, 2015, 564,500 shares remained
available for future issuance under the Plan. Compensation expense related to the stock awards was approximately
$162,000 and $356,000 for the years ended December 31, 2015 and 2014, respectively.
During 2015, a former director exercised stock options to purchase 10,000 shares. Following the withholding of 2,156
shares in connection with the net exercise feature of the stock options, the Company delivered 7,844 shares to the
former director.
During 2014, an officer, directors, and a former director of the Company exercised stock options to purchase an
aggregate of 145,000 shares of the Company’s common stock for an aggregate of approximately $63,000 in cash and
the withholding of 14,633 shares in connection with a net exercise feature of the stock options. As a result, 130,367
shares were delivered to the persons exercising stock options, and approximately $49,600 is reflected as paid in capital
on the consolidated balance sheet.
F-17
The following tables provide information at December 31, 2015 and 2014 regarding outstanding options under the
Company’s stock option plans. As used in the table below, “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.
At December 31, 2015:
Plan
2002 NQ
2002 NQ
2008 NQ
2008 NQ
At December 31, 2014:
Plan
2002 NQ
2002 NQ
2008 NQ
2008 NQ
Date
Granted
4/3/06
12/17/07
1/11/09
4/26/10
Exercisable
Options
Options
Outstanding
30,000
40,000
40,000
20,000
30,000 $
40,000
40,000
20,000
130,000 130,000 $
Exercise
Price
Expiration
Date
1.08
1.32
0.69
2.07
1.19
4/2/16
12/16/17
1/10/19
4/25/20
Weighted
Average
Remaining Life
0.3
2.0
3.1
4.4
2.3
Date
Granted
4/3/06
12/17/07
1/11/09
4/26/10
Exercisable
Options
Options
Outstanding
40,000
40,000
40,000
20,000
40,000 $
40,000
40,000
20,000
140,000 140,000 $
Exercise
Price
Expiration
Date
1.08
1.32
0.69
2.07
1.18
4/2/16
12/16/17
1/10/19
4/25/20
Weighted
Average
Remaining Life
1.3
3.0
4.1
5.4
3.2
The following table provides information relating to stock option transactions during the years ended December 31,
2015 and 2014:
Options outstanding beginning of the year
Options exercised
Totals
2015
Weighted
Average
Exercise
2014
Weighted
Average
Exercise
Shares
Price
Shares
Price
140,000 $
(10,000 )
130,000 $
1.18
1.08
1.19
170,000 $
(30,000 )
140,000 $
1.23
1.46
1.18
Stock options may be awarded as part of compensation to executives, employees, directors and others, pursuant to the
terms of the Company’s 2015 Equity Compensation Plan. Prior to the May 29, 2015 effective date of the 2015 Equity
Compensation Plan, stock options could be awarded under the Prior Plans. No options were awarded in 2015 or
2014. Grants of stock options or other equity awards are made at the discretion of the Equity Grant Committee of the
Board of Directors. Only non-qualified options granted under the Prior Plans were outstanding on December 31,
2015. Outstanding non-qualified options 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. There was no compensation expense attributable to stock options recognized during each of the years ended
December 31, 2015 and 2014.
At December 31, 2015 and 2014, there was no unrecognized compensation cost related to share based compensation
arrangements
F-18
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 sales for each of the years ended December 31, 2015 and 2014. Sales to these customers aggregated
approximately 38.2% and 36.0% of consolidated net sales for 2015 and 2014, respectively.
The Company’s top five unaffiliated customers represented approximately 49.0% and 47.0%, of consolidated net sales
for the years ended December 31, 2015 and 2014, respectively, and 39.4% and 36.2% of consolidated trade accounts
receivable at December 31, 2015 and 2014, 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 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 ,
2015
2014
$ 460,694 $ 2,048,077
Weighted average number of common shares outstanding
8,940,593 8,834,951
Earnings per common share – Basic
$
0.05 $
0.23
Earnings per common share – Diluted
Net income attributable to OBCI
$ 460,694 $ 2,048,077
Weighted average number of common shares outstanding
8,940,593 8,834,951
Dilutive effect of employee stock-based awards
86,513
111,251
Weighted average number of common shares outstanding - assuming dilution
9,027,106 8,946,202
Earnings per common share - Diluted
$
0.05 $
0.23
F-19
The Company had no stock options outstanding at December 31, 2015 and 2014, respectively that were anti-dilutive
and therefore not included in the diluted earnings per common share calculation.
Note 14 – Special Cash Dividend:
On April 15, 2014, the Company paid a special cash dividend of $0.05 per common share to all shareholders of record
on April 1, 2014. The dividend aggregated $440,016.
Note -15 – Recent Accounting Pronouncements:
There have been no accounting pronouncements or changes in accounting pronouncements during the year ended
December 31, 2015 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,
2015 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 25, 2016, the Board of Directors of Ocean Bio-Chem, Inc. declared a special cash dividend of $0.06 per
share payable on April 26, 2016 to shareholders of record on April 12, 2016.
F-20
EXHIBIT INDEX
Exhibit
No.
3.1.1 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).
3.1.2 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).
3.2
10.1 Business Loan Agreement, dated August 4, 2014 (executed August 6, 2014), between the Company and
Regions Bank (the “Business Loan Agreement”) (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K, filed on August 8, 2014).
10.2
Promissory Note, dated August 4, 2014 (executed August 6, 2014), issued by the Company to Regions
Bank in connection with the revolving line of credit under the Business Loan Agreement (the “Promissory
Note”) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed on
August 8, 2014).
10.3
Letter dated August 5, 2014 from Regions Bank to the Company, regarding certain terms under the
Business Loan Agreement and the Promissory Note (incorporated by reference to Exhibit 99.3 to the
Company’s Current Report on Form 8-K, filed on August 8, 2014).
10.4 Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan (incorporated by reference to Exhibit 99.1 to the
Company’s Registration Statement on Form S-8 (file no. 333-204520), filed with the Securities and
Exchange Commission on May 28, 2015).
10.6
10.5 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 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).
10.7
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 Amendment Number Two to Net Lease, dated May 16, 2013, between Star Brite Distributing, Inc. and
PEJE, Inc. (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2013).
List of Subsidiaries
*21.
*31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
*31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
*32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C.
Section 1350.
*32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18
101
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, 2015, formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated
Balance Sheets at December 31, 2015 and December 31, 2014; (ii) Consolidated Statements of Operations
for the years ended December 31, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Income
for the years ended December 31, 2015 and 2014; (iv) Consolidated Statements of Changes in
Shareholders Equity for the years ended December 31, 2015 and 2014, (v) Consolidated Statements of
Cash Flows for the years ended December 31, 2015 and 2014 and (vi) Notes to Consolidated Financial
Statements.
* Filed herewith
INVESTOR INFORMATION
NASDAQ STOCK SYMBOL OBCI
Stock Transfer Agent
Computershare
P.O. Box 30170
College Station, Texas 77842 -3179
General Counsel
Berger Singerman, LLP
350 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Auditors
Goldstein Schechter Koch, P.A.
575 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Reports and Publications
A free copy of the Company’s 2015
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 2015 and 2014:
2015
2014
High
$5.56
$4.45
$3.79
$3.19
Low
$3.76
$3.33
$2.44
$2.02
High
$3.75
$3.10
$4.85
$6.98
Low
$2.43
$2.63
$2.89
$3.06
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
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
Natalie S. Cuomo
Vice President of Customer Service
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
Justin L. Gould
Vice President of Technology
George W. Lindsey, Jr.
Vice President of Marketing
Victor G. Phillpotts
Vice President of Business Development
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
WWW.ODORSTAR.COM • WWW.PERFORMACIDE.COM
OCEAN BIO-CHEM, INC.
BOARD OF DIRECTORS
Peter G. Dornau
Chairman, President and
Chief Executive Officer
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
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
Chief Financial Officer
Gregor M. Dornau
William W. Dudman
Vice President of Operations
Marc A. Emmi
Senior Vice President of Sales
Natalie S. Fino
Vice President of Customer Service
George W. Lindsey, Jr.
Vice President of Marketing
Dennis M. Torok
Vice President of Sales
CORPORATE OFFICES • FORT LAUDERDALE, FLORIDA
MANUFACTURING & DISTRIBUTION FACILITIES • MONTGOMERY, ALABAMA
OCEAN BIO-CHEM, INC. MANUFACTURING CAPABILITIES
TANK FARM
Executive Vice President of Sales and Marketing
QUALITY CONTROL
Executive Vice President of Sales and Marketing
FILLING
DISTRIBUTION
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
2
1
0
2
-
R
A
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
manufactoring Star brite® products, Kinpak also manufactures
numerous items under private label programs. The facility’s
300,000 s.f. manufacturing, blending, packing, and distribution
center features a 500,000 gallon tank farm plus an additional
1.2 million gallon tank farm on the Alabama River, as well as a
fully-equipped R&D laboratory and a quality control center that
performs quality audits for each phase of the production process.
The plant has 300,000 gallons of blending capacity plus
multiple blow-molding machines that produce custom PVC and
HDPE bottles in various colors and shapes. There are ten fully-
automated high-speed liquid filling lines, pail lines, drum filling
line, bulk load filling lines, plus grease filling lines capable of
filling containers from 1 ounce to 55 gallons in size at speeds up
to 120 gallons per minute.
Finished goods are secured by automatic case packers, case sealers
and palletizers. In addition to a line of truck loading docks, the
facility has a rail spur capable of handling 20 railcars. Kinpak’s
off-site facility is a five acre marine terminal on the Alabama River
for accepting shipments of raw materials by barge.
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