2016
A N N U A L R E P O R T
I N N O V A T I O N
T E C H N O L O G Y
PERFORMANCE
Ph oto b y Jason Spaffor d
Cover photo of Lisa Morris courtesy
of Jason Spafford; “Two Wheeled Nomad” Gallery
Lisa Morris and Jason Spafford are members of the
Star Tron Powersports Pro Rider Team. Known as the Two
Wheeled Nomads, Lisa and Jason crisscross the globe,
documenting their adventures on their website. Follow the
Nomads as they explore the world:
www.twowheelednomad.com
2016 PRODUCTS
WWW.STARBRITE.COM
PRESIDENT’S LETTER
__________________________________________________________
Fellow Shareholders:
I am pleased to report on our progress during 2016, a year that began with the challenges of a
contested litigation, but ended with strong operating performance and optimism for the future.
Results of Operations
Our Company had a very successful 2016. Following the conclusion of the successful litigation
early in 2016, the Company realized excellent financial results for the balance of the year. We
reported both record net sales of approximately $36.2 million and record gross profit of
approximately $13.9 million for the year ended December 31, 2016.
Sales of Company’s Star brite® and Star Tron® branded products in the marine sector constituted
the most significant factor behind our Company’s increased sales in 2016, reflecting increased
sales to marine wholesalers, “brick and mortar” retailers and online retailers. In addition, as
previously announced, we transitioned sales to a major retailer from indirect sales through
distributors to direct sales. This transition contributed to both our increased sales and gross
profit.
Product Initiatives
Last year, I described the relaunch of our Recreational Vehicle (RV) line of products. I am pleased
to report to you that we saw nice growth in this sector during 2016.
The Performacide® product line continued to show growth in 2016 with the development of
unique packaging directed to specific consumers in the veterinary, agriculture and hospitality
Industries as well as to the consumer market. Packaging introductions included a wider variety of
product sizes as well as refills. For 2017, we plan to direct new marketing efforts towards pet
retailers, do It yourself retailers, the transportation industry and online retailers. Because
Performacide does not ship in liquid form, we are able to utilize lightweight packaging that we
believe is an attractive feature for online retailers.
Expansion Plans
We are proceeding with a project to expand the manufacturing warehouse and distribution
facilities of our subsidiary, Kinpak, Inc., in Montgomery, Alabama. As currently contemplated, the
project will entail an approximately 85,000 square feet addition to the facilities and an expansion
of Kinpak’s outdoor blended tank farm to accommodate an additional 500,000 gallons in tank
capacity, doubling the tank farm’s current capacity. The first phase of the project, involving
expansion of the tank farm, was initiated earlier in 2017. We are using internal funds for this
phase, although we currently are in negotiations to finance the costs of the entire project. We
currently estimate that the project cost will be approximately $4.7 million.
Balance Sheet/Special Dividend
The Company continues to have a solid balance sheet. We ended 2016 with a current ratio of
over 6.0, approximately $22.5 million of shareholder’s equity and over $4.0 million in cash.
On April 13, 2017, the Board of Directors declared a special cash dividend of $0.06 per share,
payable on May 11, 2017 to shareholders of record on April 27, 2017. This is the second
consecutive year in which we have provided a special dividend to our shareholders.
Outlook
We are encouraged about our prospects for 2017. Ocean Bio-Chem is well positioned to benefit
from an improving economy, lower unemployment rates and moderate fuel costs. We believe
these factors should translate into increased boat sales and higher utilization of boats for
recreational purposes, which should stimulate additional sales of our marine products.
Generally, we anticipate that the improving economy should have a favorable impact across our
product lines.
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. We appreciate your continued
participation in our Company’s success.
Peter G. Dornau
President and Chief Executive Officer
April 2017
COMPANY OVERVIEW
The following is a brief overview of the Company’s various activities.
Marine
The Company is pleased to report record revenues of marine products, our core category. Overall
demand for marine products is up due to factors that include lower fuel prices leading to more boat use,
a rebound in new boat sales and the introduction of new and innovative products by the Company. We
are also pleased to report an increase in sales of our flagship Star Tron fuel additive products which we
are leveraging by the introduction of related products.
To continue the trend of higher sales and profits, the Company continues to develop and launch new
and innovative marine products, rebrand and refocus existing product and update formulas and labels.
The success of the products has resulted in increased shelf space among our retail and distribution
partners and new private label opportunities. The marine category is expected to continue to grow and
remain a bright spot for 2017.
Powersports
As anticipated last year, the powersports market showed modest improvement in 2016. As is the case in
the marine sector, motorcycle, ATV, UTV and scooter manufacturers and dealers are reporting more
units sold as consumers enjoy lower fuel costs and an uptick in the economy. This increase in unit sales
has resulted in a modest improvement in sales of the Company’s powersports maintenance, appearance
and fuel treatment products.
As is the case with the other markets served by the Company, we continue to seek out new
opportunities for expanded sales via the development of niche products. The practice of introducing
existing products from other markets to the powersports market that appeal to consumers and
backroom operations are paying large dividends. The success of Company-branded products is also
leading to increased interest in private label offerings. We remain cautiously optimistic for this market
to continue to show modest growth into 2017.
Automotive
The Company’s focus on the automotive market is paying dividends as we grow market share. To
maximize on this trend, the Company is launching new products for this segment and actively seeking
out additional markets. The Company’s roots in the automotive market and ability to create specialty
products are opening doors that we expect will allow us to see continued positive results.
Recreational Vehicles
As we anticipated last year, the RV market is experiencing impressive growth in 2016, which is expected
to continue into 2017. As seen in the marine and powersports markets, lower fuel prices and a
revitalized economy have spurred the sales and use of Recreational Vehicles. The Company anticipated
this trend and capitalized upon it by introducing new products and expanding distribution channels. The
outlook for this market continues to be optimistic due to the very broad consumer base that
encompasses an ever-growing number of affluent retirees as well as young families.
The Company will continue to bring new and appropriate rebranded Star brite products to this market
while also pursuing private label opportunities with industry partners.
Performacide
The Company continues to expand distribution of the line of chlorine dioxide (Clo2) products across a
wide array of markets ranging from institutional to household applications. As predicted last year, these
products have performed well in 2016 in what is an entirely new market This measured success is
fueling expectations for continued growth and expansion into 2017 and well beyond. The huge scope
and overall potential of this market combined with the ability of the Company to create customized Clo2
products support the decision to continue and expand a diversified, multi-faceted marketing effort.
The Company continues to highlight and promote the product line’s significant superiority over
traditional disinfection products and radically easier preparation techniques.
The Company is very excited by the enormous potential for this product line and will continue to devote
the manpower, time and effort required to achieve success. As is the case for many of the Company’s
products, the Clo2 products lend themselves well to private label activities, which will be vigorously
pursued.
Outdoor Power Equipment
The Company’s sales of fuel treatments in the Outdoor Power Equipment (OPE) market have been
impacted by a decline in the sale of gas-powered equipment caused by growing acceptance of electric
power equipment. Accordingly, the Company has stepped up efforts to place other Star brite products
into existing distribution networks and to identify new customers for Star Tron and other relevant
products in this segment. In keeping with Company practice in all markets, private label and contract
filling opportunities will be explored as a source of additional revenue. The Company is optimistic that
the ability to serve the OPE market with existing and newly-developed products will result in measured
expansion of this segment into 2017.
Outdoor Collection
The Company is pleased to report strong acceptance of this homecare product line by distribution
partners as well as consumers. In addition to placing branded product into distribution channels, the
Company is also developing private label products for existing and new partners. The core lineup is
being well-received by retailers and is being increased as new niches are identified. The ability to utilize
existing core chemical formulas and the Company’s vertical integration make this a segment that is
expected to generate strong margins.
Jan-San Industry
As reported in last year’s report, the Company is building a solid foundation of distributors for an ever-
expanding line of core chemical products for a market segment that is expected to continue to expand
well into the foreseeable future. These efforts are resulting in sales which are anticipated to grow as
new partnerships are created. The Company’s unique ability to identify market opportunities and
develop specialty products is a major advantage. Coupled with private label and contract filling
operations, the Company forecasts steady growth in the Jan San sector.
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, 2016
(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
Name of each exchange on which registered
Common Stock, $0.01 par value
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
Non-accelerated filer
(cid:0)
(cid:0)
Accelerated filer
Smaller reporting company
(cid:0)
(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, 2016 was $7,071,550, 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 31, 2017, 9,146,937 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement, which will be filed not later than April 30, 2017, are incorporated by reference
in Part III of this report.
OCEAN BIO-CHEM, INC.
TABLE OF CONTENTS
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4 Mine Safety Disclosures
Properties
Legal Proceedings
Selected Financial Data
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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
Item 16 Form 10-K Summary
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, the expansion of our manufacturing
and warehouse facilities, our ability to locate substitute manufacturing facilities in the event arrangements with any third party
manufacturer are discontinued, our ability to renew or replace our revolving credit facility, anticipated decreases in selling and
administrative expenses, 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 manufacture, 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. 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. Unless the context indicates otherwise, we sometimes refer to Ocean Bio-Chem, Inc. and its consolidated subsidiaries as “the
Company," "we" or "our.”
Ocean Bio-Chem, Inc. was incorporated in 1973 under the laws of the state of Florida. In 1981, we purchased, from Peter G. Dornau
and Arthur Spector, the co-founders of the Company, rights to the Star brite® trademark and related products for the United States and
Canada. Mr. Dornau, our Chairman, President and Chief Executive Officer, has retained rights to these assets with respect to all other
geographic areas. Accordingly, products we manufacture that 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 2016 and 2015 totaled approximately
$1,850,000 and $2,075,000 or 5.1% and 6.1% of our net sales, respectively. See Note 9 to the consolidated financial statements
included in this report for additional information.
Because our operations involve, in all material respects, substantially similar manufacturing and distribution processes, our operations
constitute one reportable segment for financial reporting purposes.
Recent Developments:
We are proceeding with a project to expand the manufacturing warehouse and distribution facilities of our subsidiary, Kinpak, Inc.
("Kinpak") in Montgomery, Alabama. As currently contemplated, the project will entail an approximately 85,000 square feet addition
to the facilities and an expansion of Kinpak’s outdoor blended tank farm to accommodate an additional 500,000 gallons in tank
capacity, thereby doubling the tank farm’s current capacity. The first phase of the project, involving expansion of the tank farm, was
initiated earlier in 2017. We are using internal funds for this phase, although we currently are in negotiations to finance the costs of the
entire project. Nevertheless, we cannot assure that such financing will be obtained. We currently estimate that the project cost will be
approximately $4.7 million.
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 sold by some of our customers. 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 (E-10 fuel) including, among other
things, fuel degradation, debris in fuel (gum and varnish formation) and ethanol’s propensity to attract water (which can adversely
affect octane). It also increases fuel economy by cleaning the fuel delivery system and facilitating more complete and uniform
combustion. In addition, we produce anti-freeze and windshield washes under the Star brite® brand and under private labels for
customers. We also produce automotive polishes, cleaners and other appearance items.
Recreational Vehicle/Power Sports: We 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.
1
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. The U.S. Environmental Protection Agency has accepted
labeling for Performacide® used in hard surface applications that claims, among other things, effectiveness as a virucide against a
variety of viruses, including HIV-1, Influenza-A, Herpes Simplex-2, Poliovirus-1 norovirus and rotavirus; as a disinfectant against a
number of different types of bacteria; and as a sanitizer against certain types of bacteria that cause food borne illnesses. We are
directing distribution efforts towards the marine, automotive and home restoration markets, to institutions such as 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 Kinpak’s manufacturing facilities 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 such as Wal-Mart,
Tractor Supply, West Marine and Bass Pro Shops. 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,
automotive, law enforcement and agriculture markets.
Net sales to each of two customers exceeded 10% of our consolidated net sales, and in the aggregate constituted approximately 33.0%
and 38.2% of consolidated net sales for the years ended December 31, 2016 and 2015, respectively. Net sales to our five largest
unaffiliated customers for the years ended December 31, 2016 and 2015 amounted to approximately 48.8% and 49.0% of our
consolidated net sales, respectively, and at December 31, 2016 and 2015, outstanding accounts receivable balances from our five
largest unaffiliated customers aggregated approximately 36.0% and 39.4% 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, 2016. 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.
2
Recreational Vehicle/Power Sports: We compete with national and regional competitors. We do not believe that any competitor or
small group of competitors hold a dominant market share. We believe that we can increase or maintain our market share by utilizing
similar advertising and distribution channels to those we use in the marine market.
Outdoor Power Equipment/Lawn & Garden: We compete with several established national and regional competitors. We do not
believe that any competitor or small group of competitors hold a dominant market share. We have attempted to make inroads in this
market by emphasizing Star Tron®’s unique formulation and by increasing our advertising and attendance at trade shows.
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: We own several patents, the most significant of which relate to a delivery system for use with products containing chlorine
dioxide (the “ClO2 Patents”). The ClO2 patents expire in 2022. We have encountered difficulty in protecting the ClO2 patents through
litigation. See “Risk Factors - If we do not utilize or successfully assert intellectual property rights, our competitiveness could be
materially adversely affected,” in Item 1A of this report 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. To date, we do not believe the judgment has
materially impaired our ability to effectively market and distribute our Performacide® products. However, we are unable to predict the
long-term competitive effect of the judgment on these 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, 2016, we had 128 full-time employees. The following table provides information regarding personnel
working for the Company and its subsidiaries at December 31, 2016:
Location
Description
Full-time Employees
Fort Lauderdale, Florida
Fort Lauderdale, Florida
Montgomery, Alabama
Administrative, sales, and marketing
Manufacturing and distribution
Manufacturing and distribution
41
5
82
128
3
Item 1A. Risk Factors
If we do not compete effectively, our business will suffer.
We confront aggressive competition in the sale of our products. In each of the markets in which we sell our products, we compete
with a number of national and regional competitors. Competition in the automotive market is particularly intense, with many national
and regional companies marketing competitive products. Many of our competitors in the automotive market are more established and
have greater financial resources than we do. Moreover, we confront intense competition with respect to our Performacide®
disinfectant, sanitizing and deodorizing products 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 competitiveness 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, we own patents we have viewed as providing some degree of 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, we filed a patent infringement lawsuit in the United States District Court for the
Southern District of Florida with respect to a 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
competitive effect of the adverse outcome in the patent litigation on our Performacide® products. 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.
4
Our variable rate indebtedness exposes us to risks related to interest rate fluctuation and matures in August 2017.
We have 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 1.50% per annum, computed on a 365/360 basis. During the year ended December 31, 2016, we did not utilize the revolving
line of credit, and at December 31, 2016, 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
August 2017. 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.
Our Chairman, President and Chief Executive Officer is a majority shareholder who controls us, and his interest may conflict
with or differ from the Company's interests.
Peter G. Dornau, our Chairman, President and Chief Executive Officer, together with a family entity he controls, owns approximately
51.9% of our Common Stock. As a result, Mr. Dornau has the power to elect all of our directors and effectively has the ability to
prevent any transaction that requires the approval of our Board of Directors and our shareholders. Products that we manufacture and
that are sold outside of the United States and Canada are purchased from us and distributed by two companies owned by Mr. Dornau,
which we refer to as the “affiliated companies.” Sales to the affiliated companies aggregated approximately $1,850,000 and
$2,075,000 during the years ended December 31, 2016 and 2015, 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 $621,000 and
$527,000 during the years ended December 31, 2016 and 2015, 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 do 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 Notes 9 and 10 to the consolidated financial statements
included in this report for additional information
Trading in our Common Stock has been limited, and our stock price could potentially be subject to substantial fluctuations.
Our common stock is listed on the NASDAQ Capital Market, but trading in our stock has been limited. Our stock price could be
affected substantially by a relatively modest volume of transactions.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our executive offices and one of our manufacturing facilities 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. The lease expires in December 2023. 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. The facility also includes a 500,000 gallon outdoor blending tank farm.
In addition, we lease a 15,000 foot warehouse in Montgomery, Alabama, near the Kinpak manufacturing facility. We use the
warehouse to fabricate and assemble brushes used for cleaning boats, automobiles and recreational vehicles. The lease expires in July
2018.
We are proceeding with an expansion project relating to Kinpak’s manufacturing and warehouse facilities. See “Business – Recent
Developments” in Item 1 of this report for additional information.
5
Item 3. Legal Proceedings
Not applicable
Item 4. Mine Safety Disclosures
Not applicable.
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 2016 and 2015 is presented below.
PART II
2016
2015
High
Low
High
Low
1st Qtr.
2nd Qtr.
3rd Qtr.
4th Qtr.
$
$
$
$
2.66 $
1.93 $
5.56 $
3.76 $
2.57 $
2.08 $
4.45 $
3.33 $
3.17 $
2.02 $
3.79 $
2.44 $
4.35
2.61
3.19
2.02
On December 31, 2016, there were 116 holders of record and approximately 1,200 beneficial owners of our common stock.
On March 25, 2016, the Board of Directors of Ocean Bio-Chem, Inc. declared a special dividend of $0.06 per share payable on April
26, 2016 to shareholders of record on April 12, 2016. The Company did not pay any dividends in 2015. 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.
Overview:
We are engaged in the manufacture, 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 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. In addition, we sell products to two companies affiliated with Peter G. Dornau, our Chairman,
President and Chief Executive Officer; these companies distribute the products outside of the United States and Canada.
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 to the affiliated companies did not involve more than normal credit risk or present
other unfavorable features.
6
We have commenced an expansion of Kinpak’s manufacturing and warehouse facilities in Montgomery, Alabama. See “Business -
Recent Developments” in Item 1 of this report.
Our operating results for 2016 and 2015 were adversely affected by professional fees and expenses related to litigation against a
competitor in which we and the competitor each claimed that the other was engaged in false advertising and related violations of law
(the “Advertising Litigation”). Following a trial in which it was determined that neither party was liable to the other, the Advertising
Litigation was concluded. Our professional fees and expenses related to the Advertising Litigation were approximately $1,146,000 in
2016 and $1,174,000 in 2015.
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 $75,000 and $78,000 at
December 31, 2016 and 2015, respectively, which was approximately 1.5% of gross accounts receivable at December 31, 2016 and
2015. If the financial condition of our customers were to deteriorate, resulting in increased uncertainty as to their ability to make
payments, or if unexpected events or significant future changes in trends were to occur, we may be required to increase the allowance.
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.
Our slow moving and obsolete inventory reserve was $268,159 and $279,882 at December 31, 2016 and 2015, 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, changes in tax law, 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.
7
In assessing 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 apply a valuation allowance, in an amount equal to future tax benefits that may not be
realized, to offset our deferred tax assets. 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 we become aware of facts that necessitate such an adjustment. The ultimate outcomes of the
examinations of our income tax returns could result in increases or decreases to our recorded tax liabilities, which would affect our
financial results.
Intangible Assets
Intangible assets are acquired assets that lack physical substance and that meet specified criteria for recognition apart from goodwill.
Our intangible assets include trademarks, tradenames, patents and royalty rights. We own several trademarks and trade names,
including Star brite®, and Performacide®. We have determined that these intangible assets have indefinite lives and, therefore, are not
amortized. In addition, we own several patents, the most significant of which are the ClO2 Patents, which relate to a device for
producing chlorine dioxide that is incorporated in our deodorizer, sanitizer and disinfectant products. We amortize our patents over
their remaining life on a straight line basis; amortization expense related to these patents was approximately $51,000 for each of the
years ended December 31, 2016 and 2015. In 2013, we acquired royalty rights relating to sales of products encompassing the ClO2
Patents’ technology (we purchased these rights from an unaffiliated entity that previously owned the ClO2 Patents and retained the
royalty rights after selling the patents). 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, 2016 and
2015.
We evaluate our indefinite-lived intangible assets (trademarks and trade names) for impairment annually and at other times if events
or changes in circumstances indicate that an impairment may have occurred. 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
2016, 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.
We assess the remaining useful life and recoverability of intangible assets having finite lives (patents and royalty rights) whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Such events may include, for
example, the occurrence of an adverse change with respect to a product line that utilizes the intangible 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.
8
Results of Operations:
The following table provides a summary of our financial results for the years ended December 31, 2016 and 2015:
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,
2016
2015
Percent
Change
Percentage of Net Sales
2016
2015
$ 36,205,444 $ 33,987,487
22,331,761 22,647,516
13,873,683 11,339,971
3,117,164 3,010,758
7,660,377 7,579,682
3,096,142
(17,820 )
---
(983,151 )
749,531
(33,639 )
(12,522 )
(242,676 )
$ 2,095,171 $
460,694
6.5 %
(1.4 )%
22.3 %
3.5 %
1.1 %
313.1 %
(47.0 )%
N/A
305.1 %
354.8 %
100.0 %
61.7 %
38.3 %
8.6 %
21.2 %
8.6 %
0.0 %
0.0 %
2.7 %
5.8 %
100.0 %
66.6 %
33.4 %
8.9 %
22.3 %
2.2 %
0.1 %
0.0 %
0.7 %
1.4 %
Net sales for the year ended December 31, 2016 increased by approximately $2,218,000 or 6.5%, as compared to the year ended
December 31, 2015. The increase principally is a result of increased sales of Star brite® branded marine products to both retailers and
wholesale distributors of our products. In particular, we believe that the increased sales reflect the benefit of the inclusion of our
products in more of our large national “brick and mortar” retail chain customers’ locations, as well as the provision of increased shelf
space for our products by these customers. In addition, our sales to online retailers also increased as a result of higher consumer
demand.
Cost of goods sold decreased by approximately $316,000 or 1.4% in 2016, as compared to 2015. The decrease in cost of goods sold
despite the increase in net sales reflects the more favorable product mix resulting from increased sales of Star brite® branded marine
products.
Gross profit increased by approximately $2,534,000 or 22.3% during 2016, as compared to 2015. As a percentage of net sales, gross
profit increased to 38.3% in 2016 from 33.4% in 2015. The increases in gross profit and gross profit as a percentage of net sales is a
result of the more favorable product mix discussed above.
Advertising and promotion expense increased by approximately $106,000 or 3.5% during 2016, as compared to 2015. As a
percentage of net sales, advertising and promotion expense decreased to 8.6% in 2016 compared to 8.9% in 2015. The gross increase
in advertising and promotion expense is primarily a result of a $176,000 increase in customer cooperative advertising partially offset
by a $66,000 decrease in other marketing expenses.
Selling and administrative expenses increased by approximately $81,000 or 1.1%, during 2016, as compared to 2015, reflecting an
increase in noncash stock based compensation expense of approximately $131,000. This increase was partially offset by a decrease of
approximately $28,000 in legal fees and expenses related to the Advertising Litigation; such fees and expenses were approximately
$1,146,000 and $1,174,000 during 2016 and 2015, respectively. The Company expects selling and administrative expenses to decline
substantially in 2017 as a result of the conclusion of the Advertising Litigation during 2016. As a percentage of net sales, selling and
administrative expenses decreased to 21.2 % in 2016 from 22.3% in 2015.
Interest expense, net decreased by approximately $16,000 or 47.0% in 2016, as compared to 2015. The decrease reflects the
declining principal outstanding under our term loan.
Provision for income taxes – Our provision for income taxes for 2016 was approximately $983,000, or 31.9% of our pretax income,
compared to approximately $243,000 in 2015 or 34.5% of pretax income. Our lower tax rate in 2016 is attributable primarily to an
increased benefit with respect to a domestic production activities deduction. For additional information, see Note 8 to the consolidated
financial statements included in this report.
9
Liquidity and Capital Resources:
Our cash balance was approximately $4,070,000 at December 31, 2016 compared to approximately $2,468,000 at December 31,
2015.
The following table summarizes our cash flows for the years ended December 31, 2016 and 2015:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate fluctuations on cash
Net increase (decrease) in cash
Years Ended
December 31,
2016
$ 3,025,585 $
(443,892 )
(978,503 )
(1,160 )
2015
812,463
(954,663 )
(450,598 )
(1,516 )
$ 1,602,030 $
(594,314 )
Net cash provided by operating activities for the year ended December 31, 2016 increased by approximately $2,213,000 or 272.4%, as
compared to the year ended December 31, 2015. The comparative increase in cash provided by operating activities during the year
ended December 31, 2016 is attributable to an increase in net income of approximately $1,634,000 increased noncash expenses of
approximately $61,000, and net favorable changes in working capital (excluding cash) of $517,000 as compared to the same period in
2015.
Inventories, net were approximately $8,601,000 and $7,915,000 at December 31, 2016 and 2015, respectively, representing an
increase of approximately $686,000 or 8.7% in 2016. The 2016 increase in inventories reflects anticipated demand in the first quarter
of 2017. Moreover, inventory levels at December 31, 2015 reflect the shipment of a large order a major customer in late December
2016.
Net trade accounts receivable at December 31, 2016 aggregated approximately $4,932,000, a decrease of approximately $160,000 or
3.1% compared to approximately $5,092,000 in net trade accounts receivable outstanding at December 31, 2015. Receivables due
from affiliated companies aggregated approximately $1,190,000 at December 31, 2016, an increase of approximately $139,000, or
13.2% over receivables due from affiliated companies of approximately $1,051,000 at December 31, 2015.
Net cash used in investing activities for the year ended December 31, 2016 decreased by approximately $511,000 or 53.5%, as
compared to the year ended December 31, 2015. Our purchases of property, plant and equipment during 2016, principally consisting
of manufacturing equipment, was considerably below the level of such purchases in 2015. Net cash used in investing activities during
the year ended December 31, 2015 was offset in small part by cash proceeds of $55,000 from the sale of a recreational vehicle we
used for advertising and exhibiting our products at trade shows and other events.
Net cash used in financing activities for the year ended December 31, 2016 increased by approximately $528,000, or 117.2%, as
compared to the year ended December 31, 2015. The increase in the 2016 period is principally due to our payment of a special cash
dividend aggregating approximately $541,000, partially offset by approximately $22,000 we received as a result of the exercise of
stock options.
See Notes 4 and 6 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, 2016 and 2015, we had no borrowings under our
revolving line of credit and outstanding balances of approximately $260,000 and $692,000, respectively, under our term loan. The
loan agreement related to our revolving line of credit contains various covenants, including financial covenants requiring a minimum
debt coverage ratio (generally, EBITDAR (net operating profit plus depreciation, amortization and lease/rent expense) divided by
current maturities of long-term debt plus interest and lease/rent expense) of 1.75 to 1.00, calculated 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,
calculated quarterly. At December 31, 2016, our debt coverage ratio was approximately 10.60 to 1.00, and our debt to capitalization
ratio was approximately 0.02 to 1.00.
In addition to our term loan, we have obtained financing through capital leases for office equipment, totaling approximately $69,000
and $88,000 at December 30, 2016 and December 31, 2015, respectively.
10
Some of our assets and liabilities are denominated in Canadian dollars and are subject to currency rate fluctuations. We do not engage
in currency hedging and address currency risk as a pricing issue. In the year ended December 31, 2016, we recorded $2,113 in foreign
currency translation adjustments (decreasing shareholders’ equity by $2,113).
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 capital required to fund 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.
As noted above, the Company is proceeding with a project to expand Kinpak’s manufacturing, warehouse and distribution facilities in
Montgomery, Alabama. As currently contemplated, the project will entail an approximately 85,000 square feet addition to the
facilities and an expansion of Kinpak’s outdoor blended tank farm to accommodate an additional 500,000 gallons in tank capacity,
thereby doubling the tank farm’s current capacity. The first phase of the project, involving expansion of the tank farm, was initiated
earlier in 2017. We are using internal funds for this phase, although we currently are in negotiations to finance the costs of the entire
project. Nevertheless, we cannot assure that such financing will be obtained. We currently estimate that the project cost will be
approximately $4.7 million.
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. However, in the event that we are not able to obtain additional financing for our expansion
project, completion of the project may be delayed.
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.
11
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, 2016. 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, 2016, the Company’s internal control over financial reporting was
effective.
Item 9B. Other Information
Not applicable.
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.
12
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:
Unless otherwise noted, the file number of each referenced filing is 0-11102.
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).
3.2 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).
*10.1 Business Loan Agreement, dated November 17, 2016, between the Company and Regions Bank (the “Business Loan
Agreement”.
*10.2 Promissory Note, dated November 17, 2016, issued by the Company to Regions Bank in connection with the revolving line of
credit under the Business Loan Agreement (the “Promissory Note”).
*10.3 Letter, dated November 17, 2016, from Regions Bank to the Company, regarding certain terms under the Business Loan
Agreement and the Promissory Note.
†10.4 Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 12, 2016).
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 (File No. 333-176268), 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 (File No. 333-176268), 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).
*21 List of Subsidiaries
*23.1 Consent of Goldstein Schechter Koch, P.A. Independent Registered Public Accounting Firm.
*31.2 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.
13
*32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act and 18 U.S.C.
101
Section 1350.
The following materials from Ocean Bio-Chem Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016,
formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2016 and
December 31, 2015; (ii) Consolidated Statements of Operations for the years ended December 31, 2016 and 2015; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015; (iv) Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2016 and 2015, (v) Consolidated Statements
of Cash Flows for the years ended December 31, 2016 and 2015 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.
Item 16. Form 10-K Summary
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Company has elected
not to include a summary.
14
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 31, 2017
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
/s/Jeffrey S. Barocas
Jeffrey S. Barocas
Chairman of the Board, President and
March 31, 2017
Chief Executive Officer
(Principal Executive Officer)
Vice President, Chief Financial Officer
March 31, 2017
(Principal Financial and Accounting Officer)
/s/ Diana Mazuelos Conard
Director
March 31, 2017
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/ Kimberly A. Krause
Kimberly A. Krause
/s/ John B. Turner
John B. Turner
Director
Director
Director
Director
Director
15
March 31, 2017
March 31, 2017
March 31, 2017
March 31, 2017
March 31, 2017
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Reports of independent registered public accounting firms
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-17
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 sheet of Ocean Bio-Chem, Inc. and Subsidiaries as of December 31, 2016
and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the 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 audit provides 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, 2016, and the results of their operations and their cash flows
for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ EisnerAmper LLP
Fort Lauderdale, Florida
March 31, 2017
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 sheet of Ocean Bio-Chem, Inc. and Subsidiaries as of December 31, 2015
and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the 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 audit provides 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 the results of its operations and its cash flows for the
year then ended, 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, 2016 AND 2015
ASSETS
Current Assets:
Cash
Trade accounts receivable less allowances of approximately $75,000 and $78,000, respectively
Receivables due from affiliated companies
Inventories, net
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment, net
Intangible assets, net
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt
Accounts payable - trade
Income taxes payable
Accrued expenses payable
Total Current Liabilities
Deferred tax liability
Long-term debt, less current portion
Total Liabilities
Commitments and contingencies
Shareholders' Equity:
Common stock - $.01 par value, 12,000,000 shares authorized; 9,146,937 shares and 8,983,374
shares issued, respectively
Additional paid in capital
Accumulated other comprehensive loss
Retained earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
The accompanying notes are an integral part of these consolidated financial statements.
F-3
2016
2015
$ 4,070,445 $ 2,468,415
4,931,792 5,092,040
1,190,103 1,051,091
8,600,689 7,914,950
942,820
1,013,952
19,806,981 17,469,316
4,895,973 5,356,388
967,688 1,037,968
$ 25,670,642 $ 23,863,672
278,392 $
451,148
$
1,512,020 1,101,720
-
1,099,919 1,098,721
2,891,778 2,651,589
1,447
213,367
50,426
239,677
328,818
3,155,571 3,220,084
91,469
89,834
(286,555 )
9,604,634 9,287,313
(284,442 )
13,105,523 11,550,883
22,515,071 20,643,588
$ 25,670,642 $ 23,863,672
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2016 AND 2015
Net sales
Cost of goods sold
Gross profit
Operating Expenses:
Advertising and promotion
Selling and administrative
Total operating expenses
Operating income
Other expense
Interest net, (expense)
Other (expense)
Income before income taxes
Provision for income taxes
Net income
Earnings per common share – basic and diluted
Dividends declared per common share
The accompanying notes are an integral part of these consolidated financial statements.
2016
2015
$ 36,205,444 $ 33,987,487
22,331,761 22,647,516
13,873,683 11,339,971
3,117,164 3,010,758
7,660,377 7,579,682
10,777,541 10,590,440
3,096,142
749,531
(17,820 )
---
(33,639 )
(12,522 )
3,078,322
703,370
(983,151 )
(242,676 )
$ 2,095,171 $
460,694
$
$
0.23 $
0.05
0.06 $
----
F-4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2016 AND 2015
Net income
2016
2015
$ 2,095,171 $
460,694
Foreign currency translation adjustment
(2,113 )
(5,279 )
Comprehensive income
$ 2,093,058 $
455,415
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, 2016 AND 2015
Common Stock
Additional
Accumulated
Retained
Shares
Amount
Paid In
Capital
Other
loss
Comprehensive
Earnings
Total
January 1, 2015
8,914,274 $
89,142 $ 9,131,952 $
(279,163 ) $ 11,090,189 $ 20,032,120
Net income
460,694
460,694
Options exercised
7,844
79
(79 )
Common stock issued, net of shares
withheld for employee taxes
61,256
613
155,440
---
156,053
Foreign currency
translation adjustment
(5,279 )
(5,279 )
December 31, 2015
8,983,374 $
89,834 $ 9,287,313 $
(284,442 ) $ 11,550,883 $ 20,643,588
Net income
Dividends declared
Options exercised
25,481
255
21,345
Common stock issued, net of shares
withheld for employee taxes
138,082
1,380
295,976
Foreign currency translation
adjustment
2,095,171 2,095,171
(540,531 )
(540,531 )
21,600
297,356
(2,113 )
(2,113 )
December 31, 2016
9,146,937 $
91,469 $ 9,604,634 $
(286,555 ) $ 13,105,523 $ 22,515,071
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, 2016 AND 2015
Cash flows from operating activities:
2016
2015
Net income
$ 2,095,171 $
460,694
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
Accrued expenses payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
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
Payments for taxes related to net share settlements of stock awards
Dividends paid to common shareholders
Proceeds from exercise of stock options
Net cash used in financing activities
Effect of exchange rate on cash
Net increase (decrease) increase in cash
Cash at beginning of the year
Cash at end of the year
Supplemental disclosure of cash transactions:
Cash paid for interest during the year
Cash paid for income taxes during the year
974,587
(26,310 )
-
305,780
10,772
916,317
104,355
12,522
168,663
1,578
163,520
(700,736 )
(71,132 )
(139,012 )
410,300
2,645
(244,513 )
191,797
(91,487 )
(336,057 )
(338,148 )
(33,258 )
3,025,585
812,463
(443,892 )
-
-
(997,761 )
(11,902 )
55,000
(443,892 )
(954,663 )
(451,148 )
(8,424 )
(540,531 )
21,600
(437,988 )
(12,610 )
-
-
(450,598 )
(978,503 )
(1,516 )
(1,160 )
1,602,030
(594,314 )
2,468,415 3,062,729
$ 4,070,445 $ 2,468,415
$
$
19,096 $
34,871
993,600 $
169,200
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, 2016 AND 2015
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, for the marine, automotive, power sports,
recreational vehicle and outdoor power equipment markets. In addition, the Company produces private label formulations of many of
its products for various customers and provides custom blending and packaging services for these and other products. The Company
also manufactures disinfectants, sanitizers and deodorizers under the Performacide® and Star brite® brand names.
Basis of presentation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
All significant inter-company accounts and transactions have been eliminated in consolidation. 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, 2016 and 2015 are net of allowances for doubtful
accounts aggregating approximately $75,000 and $78,000, respectively. Such amounts are based on management's estimates of the
creditworthiness of its customers, current economic conditions and historical information. During the year ended December 31, 2015,
the Company recorded bad debt expense of approximately $3,000. During the year ended December 31, 2016, the Company reduced
its bad debt reserve by approximately $3,000, resulting in an increase to net income.
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 $1,120,000 and $1,367,000 for the years
ended December 31, 2016 and 2015, 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 $3,117,000 and $3,011,000 in 2016 and 2015, respectively.
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 $904,307 and $846,925 for the
years ended December 31, 2016 and 2015, 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 $46,000 and $78,000 of
research and development costs for the years ended December 31, 2016 and 2015, 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. In
accordance with guidance provided under ASC Topic 718, we recognize an expense for the fair value of our stock awards at the time
of grant and the fair value of our outstanding stock options as they vest, whether held by employees or others. As of December 31,
2016, all outstanding stock options were vested.
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.
F-8
Concentration of cash – At various times during the year and at December 31, 2016 and 2015, the Company had a concentration of
cash in one bank in excess of prevailing insurance offered through the Federal Deposit Insurance Corporation at such
institution. Management does not consider the excess deposits to be a significant risk.
Fair value of financial instruments – ASC Topic 820, “Fair Value Measurements and Disclosures” defines “fair value” as the price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820 also sets forth a valuation hierarchy of the inputs (assumptions that market participants would use in pricing an asset or
liability) used to measure fair value. 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 that include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and
inputs that are derived principally from or corroborated by observable market data through correlation or other means.
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 cash, accounts receivable, accounts payable,
certain accrued expenses and revolving line of credit, 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 when events or changes in circumstances
indicate a potential impairment may exist. 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 no uncertain tax positions as of December 31, 2016.
The Company is no longer subject to income tax examinations for years before 2013.
Intangible assets – The Company’s intangible assets consist of trademarks, trade names, patents and royalty rights. The Company
evaluates trademarks and trade names (all of which are indefinite-lived intangible assets) for impairment at least annually or when
events or changes in circumstances indicate a potential impairment may exist. The Company evaluates royalty rights and patents
(which are amortized on a straight-line basis over their useful lives) for impairment when events or changes in circumstances indicate
an impairment may exist. No impairment was recorded in 2016 and 2015.
F-9
Foreign currency adjustments – Translation adjustments result from translating the Company’s Canadian subsidiary’s financial
statements into U.S. dollars. The Company’s Canadian subsidiary’s functional currency is the Canadian dollar. Assets and liabilities
are translated at exchange rates in effect at the balance sheet date. Income and expenses are translated at average exchange rates
during the year. Resulting translation adjustments for the reporting period are included in our statements of comprehensive income
and the cumulative effect of these adjustments are included in our balance sheet as accumulated other comprehensive loss within
Shareholders’ Equity.
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 14 - Earnings per
share.
Note 2 – Inventories:
The composition of inventories at December 31, 2016 and 2015 are as follows:
Raw materials
Finished goods
Inventories, gross
Inventory reserves
Inventories, net
2016
2015
$ 3,633,641 $ 3,749,702
5,235,207 4,445,130
8,868,848 8,194,832
(268,159 )
(279,882 )
$ 8,600,689 $ 7,914,950
The inventory reserves shown in the table above reflect slow moving and obsolete inventory.
The Company operates a vendor managed inventory program with one of its customers to improve the promotion of the Company's
products. The Company manages the inventory levels at this customer’s warehouses and recognizes revenue as the products are sold
by the customer. The inventories managed at the customer’s warehouses, which are included in inventories, net, amounted to
approximately $551,000 and $543,000 at December 31, 2016 and 2015, respectively.
Note 3 – Property, plant and equipment:
The Company’s property, plant and equipment at December 31, 2016 and 2015 consisted of the following:
Estimated
Useful Life
2016
2015
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
30 years
6-20 years
3-5 years
10-15 years
3 years
278,325 $
$
278,325
4,652,669 4,652,669
9,239,876 9,072,162
1,344,732 1,293,609
215,155
544,146
42,283
387,417
558,666
10,020
16,471,705 16,098,349
(11,575,732 ) (10,741,961 )
$ 4,895,973 $ 5,356,388
F-10
Note 4 – Revolving line of credit:
On November 17, 2016, 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 Business Loan Agreement, the Company may
borrow up to the lesser of (i) $4 million or (ii) a borrowing base equal to 85% of Eligible Accounts (as defined in the Business Loan
Agreement: generally, accounts receivable from unaffiliated entities containing selling terms and conditions acceptable to Regions
Bank, subject to specified exceptions) 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 1.50% per annum, computed
on a 365/360 basis. The interest rate will be increased an additional 2.0% if an event of default occurs.
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 August 31, 2017, 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 and inventory and, as a result of cross-collateralization of the Company’s obligations
under the term loan described in Note 6 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 includes financial covenants requiring
that the Company maintain a minimum debt service coverage ratio (generally, EBITDAR (net operating profit plus depreciation,
amortization and rent/lease expense) divided by the sum of current maturities of long-term debt, interest and lease rent expense) of
1.75 to 1.00, calculated on a trailing twelve month basis, and a maximum debt to capitalization ratio (generally, funded debt divided
by the sum of net worth and funded debt) of 0.75 to 1.00, calculated quarterly. For the year ended December 31, 2016, our debt
service coverage ratio was approximately 10.60 to 1.00 and at December 31, 2016, our debt to capitalization ratio was approximately
0.02 to 1.00. The revolving 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. The Business Loan Agreement is a successor to earlier agreements under which
Regions Bank provided a revolving line of credit to the Company in the maximum amount of $6 million. At December 31, 2016 and
December 31, 2015, the Company had no borrowings under the revolving line of credit then in effect.
Note 5 – Accrued expenses payable:
Accrued expenses payable at December 31, 2016 and 2015 consisted of the following:
Accrued customer promotions
Accrued payroll, commissions, and benefits
Other
Total accrued expenses payable
Note 6 – Long-term debt:
2016
2015
$
546,127 $
287,376
266,416
491,378
269,380
337,963
$ 1,099,919 $ 1,098,721
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 (the “Addendum”) 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 2.00 to 1.00, interest on
the term loan will increase to 4.55% per annum. 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, 2016, approximately $260,000 was outstanding under the term loan.
F-11
At December 31, 2016 and 2015, the Company was obligated under various capital lease agreements covering equipment utilized in
the Company’s operations. The capital leases aggregating approximately $69,000 and $88,000 at December 31, 2016 and December
31, 2015, respectively, mature on July 1, 2020 and carry an interest rate of 2% per annum.
The following table provides information regarding the Company’s long-term debt at December 31, 2016 and 2015:
Current Portion
Long-term Portion
2016
2015
2016
2015
Term loan
Capitalized equipment leases
$
259,503 $
18,889
432,601 $
18,547
--- $
50,426
259,503
69,315
Total long-term debt
$
278,392 $
451,148 $
50,426 $
328,818
Required principal payments under the Company’s term loan and capital lease obligations are set forth below:
Year ending December 31,
2017
2018
2019
2020
Total
Note 7 – Intangible Assets:
The Company’s intangible assets at December 31, 2016 and 2015 consisted of the following:
$
278,392
19,238
19,593
11,595
$
328,818
2016
Intangible Asset
Patents
Trade names and trademarks
Royalty rights
Total intangible assets
2015
Intangible Asset
Patents
Trade names and trademarks
Royalty rights
Total intangible assets
Cost
Accumulated
Amortization
$
622,733 $
1,131,125
160,000
335,300 $
549,561
61,309
Net
287,433
581,564
98,691
$ 1,913,858 $
946,170 $
967,688
Cost
Accumulated
Amortization
622,733 $
$
1,131,125
160,000
282,964 $
549,561
43,365
Net
339,769
581,564
116,635
$ 1,913,858 $
875,890 $ 1,037,968
F-12
At December 31, 2016 and 2015, the tradenames and trademarks are considered indefinite-lived (the Star brite® trade name and
trademark initially was deemed to have an estimated useful life of 40 years until, pursuant to Statement of Financial Accounting
Standards No. 142 (currently codified in ASC Topic 350, “Intangibles-Goodwill and Other”), the Company determined that, effective
January 1, 2002, the assets had indefinite lives). The patents (the most significant of which (the “ClO2 Patents”) relate to a device for
producing chlorine dioxide (ClO2) that is incorporated into the Company’s disinfectant, sanitizer and deodorizing products) had a
carrying value, net of amortization, of $287,433 at December 31, 2016 (of which $282,963 is attributable to the ClO2 Patents). The
ClO2 Patents expire in 2022 and the other patents expire in 2021. The royalty rights (which the Company purchased from an
unaffiliated entity that previously owned the ClO2 Patents and retained the royalty rights after selling the patents) expire in December
2021 and are amortized on a straight line basis over their remaining useful lives.
Amortization expense related to intangible assets was $70,280 ($52,336 attributable to the patents and $17,944 attributable to the
royalty rights) for the year ended December 31, 2016 and approximately $69,392 ($51,448 attributable to the patents and $17,944
attributable to the royalty rights) for the year ended December 31, 2015.
Note 8 – Income taxes:
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
$
2016
2015
982,298 $
(25,565 )
27,163
(745 )
136,479
101,290
1,842
3,065
$
983,151 $
242,676
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
Share based compensation
Domestic production activities deduction
Other, permanent adjustments
Tax credits and prior year tax adj.
Provision for income taxes
2016
%
2015
%
$ 1,046,629
17,916
(2,013 )
(97,645 )
23,991
(5,727 )
34.0 % $
0.6 %
(0.1 )%
(3.2 )%
0.8 %
(0.2 )%
239,146
889
(2,881 )
(13,905 )
19,984
(557 )
$
983,151
31.9 % $
242,676
34.0 %
0.1 %
(0.4 )%
(1.9 )
2.8 %
(0.1 )%
34.5 %
The Company’s deferred tax (liability) consisted of the following at December 31, 2016 and 2015:
Deferred tax Asset (liability)
Inventory reserves
Trade accounts receivable allowances
Net Operating loss carryforward state
Depreciation of property and equipment
Net deferred tax asset
Valuation allowance
Total net deferred tax (liability)
2016
2015
$
93,829 $
26,259
303,784
(333,455 )
90,417
(303,784 )
97,931
27,404
361,488
(365,012 )
121,811
(361,488 )
$
(213,367 ) $
(239,677 )
F-13
At December 31, 2016 and 2015, the Company has a net operating loss carryforward with the state of Alabama. The net operating
losses of $4,676,600 and $5,561,354 expire between 2020 and 2023. The Company does not expect to be able to utilize these losses
and has recorded a valuation allowance for the full amount of the net operating losses.
Note 9 – Related party transactions:
During 2016, as in previous years, the Company sold products to companies affiliated with Peter G. Dornau, who is its Chairman,
President and Chief Executive Officer. The affiliated companies distribute the products outside of the United States and Canada. The
Company also provides administrative services to these companies. Sales to the affiliated companies aggregated approximately
$1,850,000 and $2,075,000 during the years ended December 31, 2016 and 2015, respectively, and administrative fees aggregated
approximately $621,000 and $527,000 during the years ended December 31, 2016 and 2015, respectively. The Company had
accounts receivable from the affiliated companies in connection with the product sales and administrative services aggregating
approximately $1,190,000 and $1,051,000 at December 31, 2016 and 2015, respectively.
An entity that is owned by Peter G. Dornau, the Company’s Chairman, President and Chief Executive Officer provides several
services to the Company. Under this arrangement, the Company paid the entity $42,000 for research and development services in
each of the years ended December 31, 2016 and 2015. The research and development expenses are included in our statement of
operations as a selling and administrative expense. In addition, during the year ended December 31, 2016, the Company paid this
entity $25,000 for the production of television commercials and $9,000 for providing charter boat services for entertainment of
Company customers. These amounts are included in our 2016 statement of operations as an advertising and promotion expense.
The Company leases office and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by its Chairman, President
and Chief Executive Officer. 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. The Company paid an aggregate of approximately $697,000 and $925,000 to the entity during the years ended
December 31, 2016 and 2015, 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
$97,000 and $98,000 for the years ended December 31, 2016 and 2015, respectively. The rent expense is included in our statement of
operations as a selling and administrative expense.
The Company also leases a 15,000 square foot warehouse in Montgomery, AL near its Kinpak manufacturing facility for the purpose
of fabricating and assembling brushes used for cleaning boats, automobiles, and recreational vehicles. The lease commenced on
August 1, 2016 and expires on July 31, 2018. The lease requires monthly rent paid in advance of $4,375.
The following is a schedule of minimum future rentals on the Company’s non-cancelable operating leases.
12 month period ending December 31,
2017
2018
2019
2020
2021
Thereafter
Total
$
148,564
128,610
99,945
101,944
103,983
214,246
$
797,292
F-14
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 provides for grants of several types of awards at the discretion of the Equity Grant Committee of the Company’s Board of
Directors, including stock options, stock units, stock awards, stock appreciation rights and other stock based awards. The Plan
authorizes the issuance of 630,000 shares of Company common stock, subject to anti-dilution adjustments upon the occurrence of
certain events affecting the common stock. During the years ended December 31, 2016 and 2015, the Company issued stock awards
under the Plan, respectively aggregating 142,000 and 65,500 shares of common stock, to officers, key employees, directors and a
consultant Following the withholding of an aggregate of 3,918 and 4,244 shares of common stock, respectively, in connection with a
net exercise feature of the Plan, 138,082 and 61,256 shares were delivered to the award recipients, for the years ended December 31,
2016 and 2015, respectively. At December 31, 2016, 422,500 shares remained available for future issuance under the Plan. The shares
vested immediately upon issuance and were fully expensed in the period in which they were awarded. Compensation expense related
to the stock awards was $305,780 and $168,663 for the years ended December 31, 2016 and 2015, respectively. The company
withheld shares, pursuant to net share settlements, with a value of $8,424 and $12,610 respectively for income tax withholding related
to the awards. 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”).
Prior to the May 29, 2015 effective date of the Plan, stock options were granted under the Prior Plans. Only non-qualified options
granted under the Prior Plans were outstanding on December 31, 2016. Outstanding non-qualified options were granted to outside
directors, have a 10-year term from the date of grant 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
the years ended December 31, 2016 and 2015, and at December 31, 2016 and 2015, there was no unrecognized compensation cost
related to share based compensation arrangements
During 2016, stock options to purchase an aggregate of 30,000 shares were exercised. The Company received a total of $21,600,
withheld 4,519 shares in connection with the net exercise feature of the stock options and delivered an aggregate of 25,481 shares to
the option holders who exercised their options.
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.
The following tables provide information at December 31, 2016 and 2015 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, 2016:
Plan
2002 NQ
2008 NQ
2008 NQ
At December 31, 2015:
Plan
2002 NQ
2002 NQ
2008 NQ
2008 NQ
Options
Exercisable
Exercise
Date
Granted
12/17/07
1/11/09
4/26/10
Outstanding
40,000
40,000
20,000
Options
40,000
40,000
20,000
Price
Expiration
Date
12/16/17
1/10/19
4/25/20
Weighted
Average
1.0
Remaining Life
2.1
3.4
1.32
0.69
2.07
100,000
100,000 $
1.22
1.9
Options
Exercisable
Exercise
Date
Granted
4/3/06
12/17/07
1/11/09
4/26/10
Outstanding
30,000
40,000
40,000
20,000
Options
30,000 $
40,000
40,000
20,000
Price
Expiration
Date
Weighted
Average
0.3
Remaining Life
2.0
3.1
4.4
4/2/16
12/16/17
1/10/19
4/25/20
1.08
1.32
0.69
2.07
130,000
130,000 $
1.19
2.3
F-15
The following table provides information relating to stock option transactions during the years ended December 31, 2016 and 2015:
2016
Weighted
Average
Exercise
2015
Weighted
Average
Exercise
Shares
Price
Shares
Price
130,000 $
(30,000 )
1.19
1.08
140,000 $
(10,000 )
100,000 $
1.22
130,000 $
1.18
1.08
1.19
Options outstanding beginning of the year
Options exercised
Total
Note 12 – Major customers:
The Company had net 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, 2016 and 2015. Net sales to these customers aggregated approximately 33.0% and 38.2% of
consolidated net sales for 2016 and 2015, respectively.
Note 13 – Litigation expense:
During the years ended December 31, 2015 and 2016, the Company was engaged in litigation with a competitor in which each of the
Company and the competitor claimed that the other was engaged in false advertising and related violations of law. Following a trial in
which it was determined that neither party was liable to the other, the matter was concluded. The Company incurred professional fees
and expenses relating to this matter of $1,146,000 and $1,174,000 during the years ended December 31, 2016 and 2015, respectively.
These amounts are included in selling and administrative expenses.
Note 14 – Earnings per share:
Basic earnings per share are calculated by dividing net income 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.
Years Ended
December 31,
2015
2016
Earnings per common share –Basic
Net income
Weighted average number of common shares outstanding
Earnings per common share – Basic
Earnings per common share – Diluted
Net income
Weighted average number of common shares outstanding
Dilutive effect of employee stock-based awards
$ 2,095,171 $
460,694
9,059,966 8,940,593
$
0.23 $
0.05
$ 2,095,171 $
460,694
9,059,966 8,940,593
56,550
86,513
Weighted average number of common shares outstanding - assuming dilution
9,116,516 9,027,106
Earnings per common share - Diluted
$
0.23 $
0.05
The Company had no stock options outstanding at December 31, 2016 and 2015, respectively that were anti-dilutive and therefore not
included in the diluted earnings per common share calculation.
F-16
Note 15 – Special Cash Dividend:
On April 26, 2016, the Company paid a special cash dividend of $0.06 per common share to all shareholders of record on April 12,
2016. The dividend aggregated $540,531.
Note -16 – Recent Accounting Pronouncements:
Accounting Guidance Adopted by the Company
In November 2015, the Financial Accounting Standards Board FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance
Sheet Classification of Deferred Taxes.” The guidance under ASU 2015-17 is designed to simplify the presentation of deferred tax
assets and liabilities within the balance sheet by requiring generally that all deferred tax assets and liabilities be classified as non-
current. Under previously applicable guidance, an entity was required to separate deferred tax liabilities and assets into a current
amount and a noncurrent amount. The guidance is effective for years beginning after December 15, 2016 with early adoption
permitted, and can be applied prospectively or retrospectively. The Company adopted this guidance in the quarter ended September
30, 2016, retrospectively to January 1, 2016. As a result of the adoption, we made the following reclassifications to the 2015
consolidated balance sheet: a $125,335 decrease to current deferred tax asset and a $125,335 decrease to noncurrent deferred tax
liability.
Accounting Guidance Not Yet Adopted by the Company
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, "Revenue from Contracts with Customers (Topic
606)". ASU 2014-19, which has been modified on several occasions, provides new guidance designed to enhance the comparability of
revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the new guidance is
that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also requires
disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The
new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years; early
application is permitted for annual periods beginning after December 15, 2016. We do not expect this new standard to have a material
impact on the amount and timing of our revenue recognition.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The principal change under this new accounting guidance is
that lessees under leases classified as operating leases generally will recognize a right-of-use asset and a lease liability on the balance
sheet. Current lease accounting standards do not require lessees to recognize assets and liabilities arising under operating leases on the
balance sheet. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach for leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; the guidance
provides certain practical expedients. The Company is currently evaluating this guidance to determine its impact on the Company’s
financial statements.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory” (Topic 330) to simplify the measurement of inventory subsequent to its
initial measurement and to more closely align the measurement of inventory under GAAP with the measurement of inventory under
International Financial Reporting Standards. The guidance in ASU 2015-11 (which applies to inventory that is measured using the
first-in, first-out (FIFO) or average cost method, but not to inventory measured using the last-in, first-out (LIFO) or the retail
inventory method), requires subsequent measurement of inventory to be at the lower of cost and net realizable value (rather than the
lower of cost or market, as under current guidance). Net realizable value is the estimated selling prices in the ordinary course of
business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for fiscal years
beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments
should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The
Company does not expect the adoption to have a material impact on its financial statements.
F-17
Unless otherwise noted, the file number of each referenced filing is 0-11102
EXHIBIT INDEX
Exhibit
No.
3.1.1
3.1.2
3.2
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).
*10.1 Business Loan Agreement, dated November 17, 2016, between the Company and Regions Bank (the “Business Loan
Agreement”.
*10.2
Promissory Note, dated November 17, 2016, issued by the Company to Regions Bank in connection with the revolving line
of credit under the Business Loan Agreement (the “Promissory Note”).
*10.3
Letter, dated November 17, 2016, from Regions Bank to the Company, regarding certain terms under the Business Loan
Agreement and the Promissory Note.
10.4
10.5
10.6
10.7
10.8
10.9
Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan, as amended (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on August 12, 2016).
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 (File No. 333-176268), 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(File No. 333-176268), 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).
*21 List of Subsidiaries
*23.1 Consent of Goldstein Schechter Koch, P.A. Independent Registered Public Accounting Firm.
*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 Securities Exchange Act and 18 U.S.C.
Section 1350.
*32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act and 18 U.S.C.
101
Section 1350.
The following materials from Ocean Bio-Chem Inc.’s Annual Report on Form 10-K for the year ended December 31, 2016,
formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2016 and
December 31, 2015; (ii) Consolidated Statements of Operations for the years ended December 31, 2016 and 2015; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2016 and 2015; (iv) Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2016 and 2015, (v) Consolidated
Statements of Cash Flows for the years ended December 31, 2016 and 2015 and (vi) Notes to Consolidated Financial
Statements.
* Filed herewith
E-1
EXHIBIT 21
The following is a list of the Registrant’s subsidiaries:
Name
Star brite Distributing, Inc.
Star brite Distributing Canada, Inc.
D & S Advertising Services, Inc.
Star brite StaPut, Inc.
Star brite Service Centers, Inc.
Star brite Automotive, Inc.
Kinpak Inc.
OdorStar Technology, LLC
Jurisdiction
of Organization
Florida
Florida
Florida
Florida
Florida
Florida
Alabama
Florida
Ownership %
100
100
100
100
100
100
100
100
CERTIFICATION
EXHIBIT 31.1
I, Peter G. Dornau, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: March 31, 2017
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
I, Jeffrey S. Barocas, certify that:
CERTIFICATION
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: March 31, 2017
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
EXHIBIT 32.1
I, Peter G. Dornau, Chief Executive Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
2.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
By:
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
Dated: March 31, 2017
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
EXHIBIT 32.2
I, Jeffrey S. Barocas, Chief Financial Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
2.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
By:
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
Dated: March 31, 2017
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 33324
Auditors
EisnerAmper
900 South Pine Island Road
Fort Lauderdale, Florida 33301
Reports and Publications
A free copy of the Company’s 2016
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 2016 and 2015:
2016
2015
High
$2.66
$2.57
$3.17
$4.35
Low
$1.93
$2.08
$2.02
$2.61
High
$5.56
$4.45
$3.79
$3.19
Low
$3.76
$3.33
$2.44
$2.02
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
OCEAN BIO-CHEM, INC.
BOARD OF DIRECTORS
Peter G. Dornau
Jeffrey S. Barocas
Gregor M. Dornau
William W. Dudman
James M. Kolisch
Kimberly A. Krause
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.PERFORMACIDE.COM
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WWW .OC EAN BIOCHEM.COM • WWW.S TAR BRI TE. COM