BLENDING INNOVATION & PERFORMANCE SINCE 1973 OBCI, INC. ANNUAL REPORT 2018 Fellow Shareholders:
Ocean Bio-Chem, Inc reached two major milestones in 2018. The first: the forty-fifth anniversary
since Ocean Bio-Chem, Inc./Star brite Inc. started in business. In addition, the forty-year anniversary
as a listed company on the NASDAQ Capital Markets Stock Exchange. In 2018 business was robust
and continued to grow with both internal sales growth as well as external, with an acquisition in the
summer of 2018 of Snappy Marine, Inc.
In 2018 we also completed a $6 million-dollar capital expansion of our facilities in Montgomery,
Alabama. The expansion is the third expansion since the purchase of the manufacturing and
distribution facilities in 1996, bringing the size of our operations in Alabama to over 300,000 sq. ft.
In 45 years, we have gone from selling car polish and boat soap to an over $40 million-dollar
company competing in many segments of our economy. Market segments that we now participate
in include marine/boating, automotive, recreational vehicle, power sports, farm and fleet, outdoor
power equipment, outdoor furniture maintenance products, and our newest market—disinfectants,
sanitizers, and deodorizers. To celebrate the growth, we debuted a new marketing campaign: an
invitation to Discover Star brite. Discover Star brite is not only for new and growing categories that
are in our future—such as RV, Automotive, Cultivation, and Air Care—but also for the customers and
dealers in the marine industry that think they may know us well.
REVENUES
The year 2018 marked the sixth consecutive year in which the Company achieved record annual
net sales. Once again, our Star brite® branded and private label marine products led the way. We
experienced increased sales of our marine products throughout our distribution channels, including
marine specialty retailers, mass merchandisers and online retailers. Moreover, sports specialty
retailers became an emerging market for our marine products in 2018. This past year, our company
also broke the $40 million milestone, recording net sales of $41.8 million, a double-digit increase of
10.2% compared to 2017.
INVESTMENT IN THE FUTURE
In 2018 the Company undertook an aggressive strategy for sales growth comprised of three key
objectives: 1) To insure the Company has adequate production capabilities and warehouse space.
To meet this objective the Company expanded the facilities in Montgomery, AL. 2) The second
objective was to increase headcount, to manage the current and future anticipated sales growth.
This objective was also achieved. 3) Increased advertising spend with the objective of increasing
consumer brand and product awareness. With approximately a $4.0 million dollar increase in sales
in 2018, we are achieving this goal. We believe we have solidly positioned our Company for future
continued growth and increases in profitability.
Our continued sales growth in 2018 is, to a considerable extent, attributable to our increased
expenditures on internet, magazine, and television advertising. We intend to continue to focus on
advertising efforts in 2019. Among other things, we intend to introduce an advertising campaign
directed to the recreational vehicle market. We also will continue to use advertising to support
our core products, including increased consumer education advertising (advertorials), as well as
additional “how-to” videos on social media.
BRAND, A WORTHY INVESTMENT
When we are asked the question from investors as why we are investing increased funds in
advertising for brand awareness and value, our answer is that the impact of brands goes well
BLENDING INNOVATION & PERFORMANCE SINCE 1973 beyond marketing in today’s economy. Stock prices, employee engagement, pricing ability, market
share, and customer loyalty are all impacted by a company’s brand value and awareness.
1
The Economist reported data assessing the power of brand value
and brand valuation, asserting,
“Brands account for more than 30% of the stock market value of companies in the S&P 500 index.”
Additionally, in a survey conducted by the World Economic Forum and public relations firm
FleishmanHillard, “Three-fifths of chief executives said they believed corporate brand and reputation
represented more than 40% of their company’s market capitalization.”
Additionally, a McKinsey & Company study revealed that brands with strong reputations generate
31% more return to shareholders than the MSCI World average.
The year 2018 saw many giant steps towards securing the Star brite and Star Tron brand names in
exciting new categories and segments, as well as exposure to new and larger audiences.
With the debut of the Star Tron NASCAR Infinity Series car, fans took notice—many requesting hero
cards of our driver, Josh Williams. The NASCAR fan is an important asset to Star brite. Of any US
professional sports league, the NASCAR fan is #1 in brand loyalty and sponsor support: 65% agree
that. When I see a company using the tagline of ‘Official Sponsor of NASCAR’ in its advertising, I’m
2
more likely to consider purchasing that product/service.”
With year-round engagement with fans,
and a 10-month season, our investment in NASCAR is affording us opportunities to introduce new
products and lines to an open audience, including Star brite Premium RV products.
The RV movement in the USA is growing. With recent mergers and acquisitions in the industry, as
well as adoption of RV by our current major distributors, the RV market—with a sales and distribution
model very similar to our core marine market—is ripe for a company like Star brite. The investment
in the Star brite line of Premium RV products includes Appearance and Maintenance chemicals, as
well as Air Care and Holding Tank Treatments.
In addition to NASCAR and RV, the Star brite and Star Tron brand names are now featured on several
TV shows airing on Discovery Channel. Our long-term sponsored professional anglers—including Rick
Murphy, Blair Wiggins, and Scott Martin—have debuted their fishing shows on Discovery. Along with
some increase in sponsorship dollars, the move also motivated our marketing team to create new
and engaging TV spots featuring our sponsored celebrities.The celebrity endorsement campaigns are
also integrated through magazine, social, and online ads across several categories, and appear to
be driving sales of our core chemicals. Brand drives value. In 2019, Ocean Bio-Chem, Inc. will continue
investing in our brands, building a foundation that affords us growth and return in the future.
PRODUCTS AND MARKETING
2018 was a year of growth for our NosGUARDSG CLO2 gas products. New branding and packaging
were introduced, and our Auto Odor Eliminator saw placement in a national automotive retailer with
over 5000 stores, resulting in unit sales increasing over 79%. Also, through a companion marketing
campaign, a boosted video post for the product featuring professional angler Scott Martin received
more than 400,000 views on Facebook. That same ad is also currently airing on Discovery Channel
as well as other networks that feature our sponsored professional anglers.
Along with gas products, the liquid CLO2 products also saw growth in sales, adoption, and national
exposure in the cultivation industry. Private label NosGUARD® and Performacide® products were
featured on a popular YouTube trade series with over 140,000 views within the cultivation industry. As
the cultivation industry continues to grow across the US, we believe the opportunity will grow with it.
1 https://www.economist.com/business/2014/08/30/what-are-brands-for
2 https://www.forbes.com/sites/pauljankowski/2019/02/21/6-reasons-brands-should-align-with-nascar/#7d297fd77d5b
OBCI, INC. ANNUAL REPORT 2018
Star Tron® remains the #1 selling enzyme fuel treatment in the US. As the Company expands
marketing into RV and automotive, we anticipate sales to remain strong. A new sales rep agency
hired in the automotive category—one of the largest teams in the US—will also begin in 2019. The
increased exposure and representation, along with strong messaging and branding, lead us to
anticipate another strong year.
In addition to expansion into other categories, last year also saw major positioning of our core
marine chemicals, including updated packaging, new and fresh social media and advertising
campaigns, and a focus on training and how-to marketing pieces. Sales of our core chemicals grew
18%, and we hope to continue the trend in the coming year. Capturing younger markets, including
millennials, has been key to the growth, as well as educating dealers, employees, and current
customers on product selection and companion products.
SNAPPY ACQUISITION
Ocean Bio-Chem subsidiary Star brite acquired Snappy Marine, Inc. in the summer of 2018.
Snappy Marine, Inc was established in 1998 and has been a leader in providing teak chemicals to
the marine industry. Star brite entered into a manufacturing partnership in 2016 which led to the full
acquisition in 2018.
Teak care has seen a resurgence in the marketplace over the last five years, not only within our
core Marine business, but within the outdoor wood furniture markets as well. The addition of
the Snappy brand helps us round out our offering to the growing teak care market.
SPECIAL DIVIDENDS
Since 2014 Ocean Bio-Chem, Inc. has rewarded its’ long-term loyal shareholders with over $2.5
million dollars of special dividends. This year’s dividend which was paid on April 19, 2019 was $.05
per/share.
2019 OUTLOOK
The year 2018 laid the groundwork for an exciting 2019 and beyond. Yes, it required some increased
investments in several new markets—RV, automotive, pet, home care; increased advertising to
establish market share in those segments; expansion of Kinpak to meet output and demand; hiring
more employees and larger sales rep agencies to extend reach. It sounds like a lot, and it is. Ocean
Bio-Chem, Inc. is evolving to meet the demands of modern retail, and in 2019 we are optimistic that
our investments will return another successful year.
Thank you to all Ocean Bio-Chem, Inc. employees, customers, suppliers, and shareholders. It’s been
a great year, and we’re excited about the year to come.
Peter G. Dornau
President and Chief Executive Officer
April, 2019
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 000-11102
OCEAN BIO-CHEM, INC.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of incorporation or
organization)
59-1564329
(I.R.S. Employer
Identification No.)
4041 SW 47 AVENUE
FORT LAUDERDALE, FLORIDA 33314
(Address of principal executive offices)
954-587-6280
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.01 par value
Name of each exchange on which registered
The NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 29, 2018 was $10,837,621, based
upon the closing price of the registrant’s common stock on such date as reported by 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 28, 2019, 9,366,119 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, 2019, are incorporated by reference in Part III of
this report.
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
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OCEAN BIO-CHEM, INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Item 16
Signatures
Index To Consolidated Financial Statements
Exhibits, Financial Statement Schedules
Form 10-K Summary
Forward-looking Statements:
Page
1
4
5
5
5
5
6
6
6
10
10
11
11
11
12
12
12
12
12
13
13
14
F-1
Certain statements contained in this Annual Report on Form 10-K, including without limitation, estimated costs of expansion of facilities operated by
our wholly-owned subsidiary, KINPAK Inc. (“Kinpak”), our ability to locate substitute third party manufacturing facilities without a substantial
adverse effect on our manufacturing and distribution, the effect of price increases in raw materials that are petroleum or chemical based or
commodity chemicals on our margins, the sufficiency of funds provided through operations and existing sources of financing to satisfy our cash
requirements and our expectation that we will be able to maintain borrowings, if any, under our current revolving line of credit facility until the end
of its stated term constitute forward-looking statements. For this purpose, any statements contained in this report that are not statements of historical
fact may be deemed to be 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 that 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; expenditures on, and the effectiveness of our advertising and promotional efforts; unanticipated litigation
developments; exposure to market risks relating to changes in interest rates, foreign currency exchange rates and prices for raw materials that are
petroleum or chemical based, and other factors discussed below under Item 1A, “Risk Factors.”
i
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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
chlorine dioxide-based deodorizing disinfectant, and sanitizing products under the Star brite® and Performacide® 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 2018 and 2017 totaled approximately $2,190,000 and $2,070,000 or 5.2% and 5.5% of our net sales,
respectively. See Note 10 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 nearing completion of a project involving the expansion of the manufacturing, warehouse and distribution facilities of our subsidiary,
KINPAK Inc. (“Kinpak”), in Montgomery, Alabama, as well as the purchase and installation of associated machinery and equipment (the
“Expansion Project”). The remaining work on the Expansion Project involves completion of a bottle filling line and the purchase and installation of
additional equipment. We currently are operating in the expanded facilities. At December 31, 2018, we have spent an aggregate of approximately
$6.0 million on the Expansion Project, and the total cost of the Expansion Project is estimated to be approximately $6.7 million.
Pursuant to an asset acquisition agreement dated July 13, 2018, we acquired assets of Snappy Marine, Inc. (“Snappy Marine”), a Florida corporation
that marketed and distributed Snappy Teak-NU®, a cleaning product for teak surfaces on boats, for an aggregate purchase price of $1,358,882. See
Note 4 to the consolidated financial statements included in this report for additional information. We have added Snappy Teak-NU® to our product
portfolio.
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, brush handles, 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 10% 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). Star Tron® fuel treatment 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. Other specialty recreational vehicle/power sports products include cleaners, polishes, detergents, fabric cleaners and
protectants, silicone sealants, waterproofers, gasket materials, degreasers, vinyl cleaners and protectants, toilet treatment fluids and anti-
freeze/coolant.
1
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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.
Disinfectant Group: Our disinfectant group includes chlorine dioxide based deodorizers, disinfectants and sanitizers, which we sell under the
Star brite® and Performacide® brand names, and which our customers sell using private label brands. Star Brite® products include NosGUARD
mildew odor control bags and boat odor sanitizers. Performacide® products include disinfectants for hard, non-porous surfaces, air care products for
deodorizing and products to eliminate mold and mildew. These products are sold in both a gas and liquid form. 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 with respect to our disinfectant group principally towards the marine, automotive, home restoration, pet care and agriculture markets, and to
institutions such as schools.
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 most 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 principally in the marine, automotive, home restoration, 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 33.1% and 34.4% of
our consolidated net sales for the years ended December 31, 2018 and 2017, respectively. Net sales to our five largest unaffiliated customers for the
years ended December 31, 2018 and 2017 amounted to approximately 52.7% and 52.1% of our consolidated net sales, respectively, and at
December 31, 2018 and 2017, outstanding accounts receivable balances from our five largest unaffiliated customers aggregated approximately 60.5%
and 50.9% 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, 2018. 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 customers
range from 30 to 180 days. However, at times we offer extended payment terms or discount arrangements as purchasing incentives to
customers. Historically, these initiatives have not materially affected our overall profit 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 seek to maintain and possibly increase our
market share through our present advertising and distribution channels.
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 advertising and distribution
channels similar to those we use in the marine market.
2
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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.
Disinfectant Group: 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 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 trademarks provide protection in the
geographic markets we serve, 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, 2018, we had 151 full-time employees and one part-time employee. The following table provides information
regarding personnel working for the Company and its subsidiaries at December 31, 2018:
Location
Description
Number of Employees
Fort Lauderdale, Florida
Fort Lauderdale, Florida
Montgomery, Alabama
Administrative, sales, and marketing
Manufacturing and distribution
Manufacturing and distribution
43
6
103*
152
* Includes one part-time employee.
3
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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.
Our business is, to a significant extent, dependent on a small number of major customers, and the loss of any of these customers could
adversely affect our financial condition, results of operations and cash flows.
Net sales to our five largest unaffiliated customers accounted for 52.7% of our consolidated net sales in 2018; the two largest unaffiliated customers
accounted for 33.1% of our consolidated net sales in 2018. The loss of any of these customers would have a material adverse effect on our financial
condition, results of operations and cash flows.
Our Chairman, President and Chief Executive Officer is a majority shareholder who controls us, and his interests 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 51.1% 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.” The
affiliated companies also collectively own the rights to the Star brite® and Star Tron® trademarks and related products outside of the United States
and Canada. Sales to the affiliated companies aggregated approximately $2,190,000 and $2,070,000 during the years ended December 31, 2018 and
2017, respectively. In addition, we provided administrative services and advances for business related expenditures to the affiliated companies.
During the years ended December 31, 2018 and 2017, fees for administrative services aggregated approximately $760,000 and $764,000,
respectively, and amounts billed to the affiliated companies to reimburse the Company for business related expenditures made on behalf of the
the years ended December 31, 2018 and 2017,
affiliated companies aggregated approximately $151,000 and $120,000 during
respectively. Receivables due from the affiliated companies in connection with product sales, administrative services, and advances for business
related expenditures totaled approximately $1,046,000 and $1,584,000 at December 31, 2018 and 2017, respectively. The accounts receivable
turnover ratio for the year ended December 31, 2018 with respect to sales to the affiliated companies was approximately 3.5 and with respect to
administrative services and advances for business related expenditures was approximately 1.3. Management believes that the sales and provision of
administrative services to the affiliated companies do not involve more than normal credit risk.
We have entered into other transactions with entities owned by Mr. Dornau. See Notes 10 and 11 to the consolidated financial statements included in
this report for additional information.
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 sales,
particularly with respect to products directed to the marine and recreational vehicle markets. While published reports indicate that economic
conditions, particularly in the United States, generally have improved over the past several years, a future decline in economic conditions could have
a material adverse effect on our financial condition, results of operations and cash flows.
If we do not effectively utilize or successfully assert intellectual property rights, our competiveness could be materially adversely affected.
We rely on trademarks and trade names in connection with our products, the most significant of which are Star brite® and Star Tron®. In addition,
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, 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.
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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.
Our variable rate indebtedness exposes us to risks related to interest rate fluctuation and matures in August 2021.
We have a revolving line of credit with a variable interest rate. Interest on the revolving line of credit is payable at the one month LIBOR rate plus
1.35% per annum, computed on a 365/360 basis. At December 31, 2018, 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 2021. 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.
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 11 to the consolidated financial statements included in this report for additional information.
Kinpak leases its Alabama manufacturing facilities from The Industrial Development Board of the City of Montgomery, Alabama (the “IDB”).
Kinpak entered into the lease in its current form in connection with an industrial development bond financing related to the Expansion Project;
Kinpak’s lease payments are used to fund repayment of the IDB’s obligations under the bond it issued in connection with the industrial development
bond financing. See Note 8 to the consolidated financial statements included in this report for additional information. Kinpak inherited the lease
structure when it first acquired its facilities from its predecessor-in-interest in 1996. The lease provides that prior to the maturity date of the bond,
Kinpak may repurchase the facilities for $1,000 if the bond has been redeemed or fully paid. As a result of the Expansion Project, the facilities
contain approximately 272,000 square feet of office, plant and warehouse space on 20 acres of land.
Item 3. Legal Proceedings
Not applicable
Item 4. Mine Safety Disclosures
Not applicable.
5
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PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the NASDAQ Capital Market under the symbol OBCI.
On December 31, 2018, there were 109 holders of record. We believe that a substantially greater number of holders of our common stock are
beneficial owners whose shares are held by brokers and other institutions for the account of the beneficial owners.
While we have provided a special cash dividend to our shareholders in each of 2016, 2017 and 2018, payment of dividends in the future will be
subject to the discretion of the Board of Directors in light of numerous factors, including our 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 which are contained in a separate section of this
report, beginning on page F-1.
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, and management believes
that sales to the affiliated companies do not involve more than normal credit risk.
We are nearing completion of the Expansion Project, which involves the expansion of Kinpak’s manufacturing and warehouse facilities in
Montgomery, Alabama. See “Business - Recent Developments” in Item 1 of this report for additional information.
In July 2018, we acquired assets of Snappy Marine, a company that marketed and distributed Snappy Teak-NU® , a cleaning product for teak surfaces
on boats. See Note 4 to the consolidated financial statements included in this report for additional information. We have added Snappy Teak-NU® to
our product portfolio.
Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, changed United States tax law
significantly. The most important change affecting Ocean Bio-Chem, Inc. is the reduction in the United States corporate income tax rate to 21%,
effective January 1, 2018. Among other things, the reduction in the corporate tax rate resulted in a substantial decrease in our provision for income
taxes, which is discussed in more detail below under “Results of Operations – Provision for income taxes.”
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606).
The Company adopted the new guidance using the full retrospective method, under which the Company applies the new guidance to each
comparative period presented. See note 1 to the consolidated financial statements included in this report for additional information.
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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.
Collectability of trade accounts receivable
In the ordinary course of business, we grant non-interest bearing trade credit to our unaffiliated customers on terms that range from 30 to 180
days. 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 aging of receivables, as well as our assessment of our customers’ creditworthiness, as determined by our review of credit
information relating to the customers. We generally do not require collateral on trade accounts receivable. We maintain an allowance for doubtful
accounts based on expected collectability of the trade accounts receivable, after considering our historical collection experience, the length of time an
account is outstanding, the financial position of the customer if known 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 $171,000 and
$79,000 at December 31, 2018 and 2017, respectively, which was approximately 2.9% and 1.6% of gross accounts receivable at December 31, 2018
and 2017, respectively. 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 or incur a bad
debt expense. In this regard, we incurred bad debt expense of approximately $35,000 and $199,000 in 2018 and 2017, respectively. The 2017 bad
debt expense principally resulted from a customer’s bankruptcy.
Inventories
Our inventories primarily are composed of raw materials and finished goods and are stated at the lower of cost or net realizable value, using the first-
in, first-out method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of
completion, disposal and transportation. 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 net realizable 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 $284,109 and $274,295 at December 31, 2018 and 2017, respectively.
Income taxes
We account for income taxes 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.
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. 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 available evidence, both positive and negative, and use judgments regarding past and future events, including operating results and available
tax planning strategies, in assessing the need for a valuation allowance.
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.
7
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Intangible Assets
Intangible assets are acquired assets that lack physical substance and that meet specified criteria for recognition apart from goodwill. 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 intangible assets that have finite lives, including patents and royalty rights, as well as intangible
assets valued at $1,307,250 that we acquired from Snappy Marine in July 2018, including Snappy Marine trademarks and trade names, customer lists
and product formulas. As these intangible assets have finite lives, their carrying value is amortized over their remaining useful lives. See Note 5 to
the consolidated financial statements included in this report for additional information regarding our intangible assets.
We evaluate our indefinite-lived intangible assets 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 2018, 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 whenever events or changes in circumstances indicate
the carrying value of an asset may not be recoverable. Such events or circumstances 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 or
circumstance has occurred. Any impairment loss, if indicated, equals the amount by which the carrying amount of the asset exceeds the estimated fair
value of the asset.
Results of Operations:
The following table provides a summary of our financial results for the years ended December 31, 2018 and 2017:
For The Years Ended December 31,
Percent
Change
Percentage of Net Sales
2017
2018
Net sales
Cost of goods sold
Gross profit
Advertising and promotion
Selling and administrative
Operating income
Interest (expense) income, net
Provision for income taxes
Net income
2018
$ 41,799,545
27,402,356
14,397,189
3,050,858
7,638,158
3,708,173
(121,894)
(791,030)
2,795,249
$
2017
$ 37,940,978
24,309,132
13,631,846
2,658,878
7,297,538
3,675,430
2,065
(1,073,961)
2,603,534
$
10.2%
12.7%
5.6%
14.7%
4.7%
0.9%
N/A
(26.3)%
7.4%
100.0%
65.6%
34.4%
7.3%
18.3%
8.9%
0.3%
1.9%
6.7%
100.0%
64.1%
35.9%
7.0%
19.2%
9.7%
0.0%
2.8%
6.9%
Net sales for the year ended December 31, 2018 increased by approximately $3,859,000 or 10.2%, as compared to the year ended December 31,
2017. The net sales increase principally is attributable to sales of our Star brite® branded and private label marine products, winterizing products, and
disinfectant group products. The Company’s four largest customers accounted for approximately $2,100,000 of the increase in net sales.
Cost of goods sold increased by approximately $3,093,000 or 12.7% in 2018, as compared to 2017. The increase in cost of goods sold is principally
a result of increased sales volume and, to a lesser extent, increased labor and increased costs associated with our expanded manufacturing and
distributing facility.
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Gross profit increased by approximately $765,000 or 5.6% for the year ended December 31, 2018, as compared to the year ended December 31,
2017. As a percentage of net sales, gross profit decreased to 34.4% in 2018 from 35.9% in 2017. The increase in gross profit in 2018 is primarily
attributable to increased sales volume. The decrease in gross profit as a percentage of net sales during 2018 is principally a result of our sales mix,
lower profit margins on sales of our winterizing products, and increased costs associated with our expanded manufacturing and distributing facility.
Advertising and promotion expense increased by approximately $392,000 or 14.7% during 2018, as compared to 2017. As a percentage of net
sales, advertising and promotion expense increased to 7.3% in 2018 from 7.0% in 2017. The increase in advertising and promotion expense is
primarily a result of increased internet, magazine, and television advertising, as well as cooperative advertising with certain key customers.
Selling and administrative expenses increased by approximately $341,000 or 4.7%, during 2018, as compared to 2017. The increase in selling and
administrative expenses is principally a result of higher employee compensation expense, higher sales commissions as a result of increased sales, and
amortization expense related to intangible assets purchased in 2018, partially offset by a reduction in bad debt expense. In 2017, bad debt expense
was approximately $199,000, of which approximately $188,000 resulted from a customer’s bankruptcy. Bad debt expense was approximately
$35,000 in 2018. As a percentage of net sales, selling and administrative expenses decreased to 18.3 % in 2018 from 19.2% in 2017.
Interest expense, net for the year ended December 31, 2018 was approximately $122,000; for the year ended December 31, 2017, interest income,
net was approximately $2,000. Interest expense in 2018 primarily resulted from interest incurred on our obligations under the industrial development
bond financing related to the expansion of Kinpak’s manufacturing, warehouse and distribution facilities, borrowings under our revolving line of
credit, and interest on a promissory note we provided in 2018 in connection with our acquisition of Snappy Marine assets, (see Note 4 to the
consolidated financial statements included in this report). In 2017, we capitalized interest incurred on our obligations under the industrial
development bond financing and our revolving line of credit used to fund a portion of the Expansion Project. In both periods, interest income was
generated by an escrow account in which a portion of the funds relating to the industrial development bond financing were deposited pending our
utilization of such funds in connection with the Expansion Project.
Provision for income taxes decreased by approximately $283,000 for the year ended December 31, 2018, or 26.3%, as compared to the year ended
December 31, 2017. The decrease is principally a result of the Tax Cuts and Jobs Act, which lowered our U.S. corporate income tax rate from 34% to
21%. The expense also decreased because our income before income taxes decreased by approximately $91,000 to approximately $3,586,000 in 2018
from approximately $3,677,000 in 2017. As a percentage of income before taxes our provision for income taxes decreased to 22.1% in 2018 from
29.2% in 2017.
Liquidity and Capital Resources:
Our cash balance was approximately $1,401,000 at December 31, 2018 compared to approximately $2,418,000 at December 31, 2017. In addition,
we had restricted cash of approximately $2,333,000 and $2,747,000 at December 31, 2018 and 2017, respectively. The restricted cash constitutes
amounts held in a custodial account that are to be used from time to time to fund additional capital expenditures in connection with the Expansion
Project. See Note 8 to the consolidated financial statements included in this report for additional information.
The following table summarizes our cash flows for the years ended December 31, 2018 and 2017:
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Effect of exchange rate fluctuations on cash
Net (decrease) increase in cash
Years Ended
December 31,
$
2018
1,218,079
(1,735,498)
(913,254)
(1,247)
(1,431,920) $
$
$
2017
2,928,277
(5,275,732)
3,442,826
28
1,095,399
Net cash provided by operating activities for the year ended December 31, 2018 decreased by approximately $1,710,000 or 58.4%, as compared to
the year ended December 31, 2017. In the year ended December 31, 2018, the Company’s net income and noncash expenses increased by
approximately $439,000; however this increase was more than offset by changes in working capital of approximately $2,149,000, which primarily
resulted from increased inventories. During 2018, the Company increased its gross inventories by approximately $3,021,000, as compared to an
increase of approximately $480,000 in 2017.
Inventories, net were approximately $12,085,000 and $9,074,000 at December 31, 2018 and 2017, respectively, representing an increase of
approximately $3,011,000 or 33.2% in 2017. The higher levels of inventories reflects anticipated sales volume of our products during 2019.
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Net trade accounts receivable at December 31, 2018 aggregated approximately $5,659,000, an increase of approximately $695,000 or 14.0%
compared to approximately $4,964,000 in net trade accounts receivable outstanding at December 31, 2017. The increase principally is due to a
change in payment terms for our largest customer from 30 days to 90 days, which became effective in 2018. Receivables due from affiliated
companies aggregated approximately $1,046,000 at December 31, 2018, a decrease of approximately $538,000, or 34.0%, from receivables due from
affiliated companies of approximately $1,584,000 at December 31, 2017.
Net cash used in investing activities for the year ended December 31, 2018 decreased by approximately $3,540,000, as compared to the year ended
December 31, 2017, primarily due to a reduced level of expenditures related to the Expansion Project. During 2018, our cash expenditures related to
the Expansion Project were approximately $927,000, as compared to approximately $4,900,000 in 2017. In addition, net cash used in investing
activities for the year ended December 31, 2018 also reflects approximately $377,000 of cash used in connection with our acquisition of Snappy
Marine assets. See Note 4 to the consolidated financial statements included in this report for additional information.
Net cash used in financing activities for the year ended December 31, 2018 was approximately $913,000, while net cash provided by financing
activities for the year ended December 31, 2017 was approximately $3,442,826. In both periods, cash was used to pay dividends, repay long term
debt, and pay taxes related to net share settlements of stock awards. During the year ended December 31, 2017, we received proceeds of $4,500,000
in connection with the industrial development bond financing related to the Expansion Project, partially offset by debt issuance costs related to the
financing of approximately $196,000, and we received $26,400 in proceeds from the exercise of stock options.
See Notes 6 and 8 to the consolidated financial statements included in this report for information concerning our principal credit facilities, consisting
of Kinpak’s obligations relating to an industrial development bond financing with respect to the Expansion Project, the payment of which we have
guaranteed and a revolving line of credit. At December 31, 2018 and 2017, we had outstanding balances of approximately $4,222,000 and
$4,463,000, under Kinpak’s obligations relating to the industrial development bond financing respectively, and no borrowings under our current and
previous revolving credit facilities.
The loan agreement pertaining to our revolving credit facility, as amended, has a stated term that expires on August 31, 2021, although, as was the
case with earlier revolving lines of credit provided to us in recent years, amounts outstanding are payable on demand. Nevertheless, the loan
agreement pertaining to our revolving line of credit, as amended, contains various covenants, including financial covenants that are described in Note
6 to the consolidated financial statements included in this report. At December 31, 2018, we were in compliance with these financial covenants. The
revolving credit facility is subject to several events of default, including a decline of the majority shareholder’s ownership below 50% of our
outstanding shares.
Our guarantee of Kinpak’s obligations related to the industrial development bond financing are subject to various covenants, including financial
covenants that are described in Note 8 to the consolidated financial statements included in this report. As of December 31, 2018, we were in
compliance with these financial covenants.
See Note 8 to the consolidated financial statements included in this report for information concerning a promissory note we provided in connection
with our acquisition of Snappy Marine assets. At December 31, 2018, we had an outstanding balance of $916,666 under the promissory note
(including $857,976 recorded as principal and $58,690 to be recorded as interest expense over the remaining term of the note). We also obtained
financing through capital leases for office equipment, totaling approximately $31,000 and $50,000 at December 31, 2018 and 2017, respectively.
Some of our assets and liabilities are denominated in Canadian dollars and are subject to currency exchange rate fluctuations. We do not engage in
currency hedging and address currency risk as a pricing issue. For the years ended December 31, 2018 and 2017, we recorded $7,683 and $1,496 in
foreign currency translation adjustments, respectively, which resulted in a corresponding decrease in shareholders’ equity.
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.
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 funds provided through operations, our revolving line of credit, and other sources of financing will be sufficient to satisfy our cash
requirements over at least the next twelve months. Although amounts outstanding under our revolving line of credit facility are payable on demand,
based on our experience with respect to previous revolving line of credit facilities with the same bank that is providing our current revolving line of
credit facility, we anticipate that we will be able to maintain borrowings, if any, under the current revolving line of credit facility until the end of its
stated term.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The audited consolidated 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.
10
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OCEAN BIO-CHEM, INC.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures:
Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the
Company’s disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act are (i) recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Change in Internal Controls over Financial Reporting. No change in internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management of Ocean Bio-Chem, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management evaluated the Company’s internal control over financial reporting as of December 31, 2018. 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, 2018, the Company’s internal control over financial reporting was effective.
Item 9B. Other Information
Not applicable.
11
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
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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 Stockholder 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
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 15
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(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
3.1.2
3.2
10.1.1
10.1.2
10.1.3
†10.2
10.3.1
10.3.2
10.3.3
10.3.4
†10.4
10.5.1
10.5.2
10.5.3
*21
*31.1
*31.2
*32.1
*32.2
101
Articles of Incorporation and amendments through May 20, 1994 (incorporated by reference to Exhibit 3.1 to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2010).
Articles of Amendment to the Articles of Incorporation, as filed on June 13, 2012 (incorporated by reference to Exhibit 3.1.2 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2012).
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on December 5, 2011).
Business Loan Agreement, dated August 31, 2018, between the Company and Regions Bank (the “Business Loan Agreement”)
(incorporated by reference to Exhibit 10.1.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,
2018).
Promissory Note, dated August 31, 2018, issued by the Company to Regions Bank in connection with the revolving line of credit
under the Business Loan Agreement (the “Promissory Note”) (incorporated by reference to Exhibit 10.1.2 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2018).
Letter, dated August 31, 2018, from Regions Bank to the Company, regarding certain terms under the Business Loan Agreement and
the Promissory Note (incorporated by reference to Exhibit 10.1.3 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2018).
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).
Form of Industrial Development Revenue Bond (Kinpak Inc. Project) Series 2017 (incorporated by reference to Exhibit 99.1 to the
Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 2, 2017).
Second Restated Lease Agreement, dated as of September 1, 2017, between The Industrial Development Board of the City of
Montgomery and KINPAK, Inc. (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K, filed with
the Securities and Exchange Commission on October 2, 2017).
Mortgage, Security Agreement and Assignment of Rents and Leases, dated as of September 1, 2017, provided by The Industrial
Development Board of the City of Montgomery and KINPAK, Inc. (incorporated by reference to Exhibit 99.3 to the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 2, 2017).
Guaranty Agreement, dated as of September 1, 2017, provided by Ocean Bio-Chem, Inc. and its consolidated subsidiaries party
thereto (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 October 2, 2017).
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).
Net Lease, dated May 1, 1998, between Star Brite Distributing, Inc. and PEJE, Inc (incorporated by reference to Exhibit 10.14 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2004).
Renewal of Lease, dated May 1, 2008, between Star Brite Distributing, Inc. and PEJE, Inc. (incorporated by reference to Exhibit 10.24
to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).
Amendment Number Two to Net Lease, dated May 16, 2013, between Star Brite Distributing, Inc. and PEJE, Inc. (incorporated by
reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013).
List of Subsidiaries
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act and 18 U.S.C. Section 1350.
Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act and 18 U.S.C. Section 1350.
The following materials from Ocean Bio-Chem Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted
in XBLR (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2018 and December 31, 2017;
(ii) Consolidated Statements of Operations for the years ended December 31, 2018 and 2017; (iii) Consolidated Statements of
Comprehensive Income for the years ended December 31, 2018 and 2017; (iv) Consolidated Statements of Changes in Shareholders
Equity for the years ended December 31, 2018 and 2017, (v) Consolidated Statements of Cash Flows for the years ended December
31, 2018 and 2017 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.
13
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Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 16
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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 29, 2019
OCEAN BIO-CHEM, INC.
By:
/s/ Peter G. Dornau
PETER G. DORNAU
Chairman of the Board, President and
Chief 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
/s/ Peter G. Dornau
Peter G. Dornau
/s/Jeffrey S. Barocas
Jeffrey S. Barocas
/s/ Diana M. Conard
Diana M. 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
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
14
Date
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
March 29, 2019
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OCEAN BIO-CHEM, INC.
Page 17
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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 shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
F-1
Page
F-2 – F3
F-4
F-5
F-6
F-7
F-8
F-9 - F-20
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 18
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Ocean Bio-Chem, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Ocean Bio-Chem, Inc. (the Company) as of December 31, 2018, and the related
consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year ended December 31, 2018, and the
related notes and schedules (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flow for the year
ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to
obtain an understanding of internal control over financial reporting, 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.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a
reasonable basis for our opinion.
Adjustments to Prior Period Financial Statements
The consolidated financial statements of the Company as of December 31, 2017, were audited by other auditors whose report dated March 30, 2018,
expressed an unmodified opinion on those consolidated financial statements. As discussed in paragraph 3 of Note 1 to the consolidated financial
statements, the Company has adjusted its 2017 consolidated financial statements to retrospectively apply the change in accounting related to
Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The other auditors reported on the consolidated
financial statements before the retrospective adjustment.
As part of our audit of the 2018 consolidated financial statements, we also audited the adjustments to the 2017 consolidated financial statements to
retrospectively apply the change in accounting as described in paragraph 3 of Note 1. In our opinion, such adjustments are appropriate and have been
properly applied. We were not engaged to audit, review, or apply any procedures to the Company’s 2017 consolidated financial statements other than
with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2017 consolidated financial
statements as a whole.
/s/ Accell Audit & Compliance, P.A.
We have served as the Company’s auditor since 2018.
Tampa, Florida
March 28, 2019
4806 West Gandy Boulevard ● Tampa, Florida 33611 ● 813.440.6380
F-2
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OCEAN BIO-CHEM, INC.
Page 19
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ocean Bio Chem, Inc.
Opinion on the Financial Statements
We have audited, before the effects of the adjustments to retrospectively apply the change in accounting for revenue from contracts with customers as
described in paragraph 3 of Note 1, the consolidated balance sheet of Ocean Bio-Chem, Inc. and Subsidiaries (the “Company”) as of December 31,
2017 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year ended
December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion the 2017 financial statements, before
the effects of the adjustments to retrospectively apply the change in accounting for revenue from contracts with customers as described in paragraph
3 of Note 1 present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and the consolidated
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.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting for revenue from
contracts with customers as described in paragraph 3 of Note 1 and accordingly, we do not express an opinion or any other form of assurance about
whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Accell Audit and Compliance, P.A.
(The 2017 financial statements before the effects of the adjustments discussed in paragraph 3 of Note 1 are not presented herein.)
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to
obtain an understanding of internal control over financial reporting 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.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our
opinion
/s/ EisnerAmper LLP
We have served as the Company’s auditor from 2017 until 2018.
EisnerAmper LLP
Fort Lauderdale, Florida
March 30, 2018 except for paragraph 2 of Note 16 which is as of March 29, 2019
F-3
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 20
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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2018 AND 2017
ASSETS
Current Assets:
Cash
Trade accounts receivable less allowances of approximately $171,000 and $79,000, respectively
Receivables due from affiliated companies
Restricted cash
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, net
Accounts payable - trade
Accrued expenses payable
Total Current Liabilities
Deferred tax liability
Long-term debt, less current portion and debt issuance costs
Total Liabilities
COMMITMENTS AND CONTINGENCIES (Note 11)
Shareholders’ Equity:
Common stock - $.01 par value, 12,000,000 shares authorized; 9,338,191 shares and 9,254,580 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-4
2018
2017
$
1,401,047
5,658,686
1,045,990
2,332,877
12,085,813
1,010,641
23,535,054
$
2,418,484
4,963,895
1,584,365
2,747,360
9,074,426
1,013,213
21,801,743
9,649,237
2,050,212
$ 35,234,503
9,291,667
897,408
$ 31,990,818
$
$
425,663
1,472,230
1,108,905
3,006,798
280,349
4,514,105
7,801,252
240,017
1,807,120
812,062
2,859,199
153,895
4,081,793
7,094,887
93,382
10,235,827
(295,734)
17,399,776
27,433,251
92,546
9,931,634
(288,051)
15,159,802
24,895,931
$ 35,234,503
$ 31,990,818
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2018 AND 2017
Net sales
Cost of goods sold
Gross profit
Operating Expenses:
Advertising and promotion
Selling and administrative
Total operating expenses
Operating income
Other income (expense)
Interest (expense) income, net
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.
F-5
2018
2017
$ 41,799,545
$ 37,940,978
27,402,356
24,309,132
14,397,189
13,631,846
3,050,858
7,638,158
10,689,016
2,658,878
7,297,538
9,956,416
3,708,173
3,675,430
(121,894)
2,065
3,586,279
3,677,495
(791,030)
(1,073,961)
$
$
$
2,795,249
0.30
0.06
$
$
$
2,603,534
0.28
0.06
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 22
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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2018 AND 2017
Net income
Foreign currency translation adjustment
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
F-6
2018
2017
$
2,795,249
$
2,603,534
(7,683)
(1,496)
$
2,787,566
$
2,602,038
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
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Form Type: 10-K
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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2018 AND 2017
January 1, 2017
Net income
Dividends, common stock
Options exercised
Common stock issued, net of shares
withheld for employee taxes
Foreign currency
translation adjustment
Common Stock
Shares
Amount
Additional
Paid In
Capital
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Total
9,146,937
$
91,469
$
9,604,634
$
(286,555) $ 13,105,523
$ 22,515,071
-
-
34,043
73,600
-
-
-
341
736
-
-
-
26,059
300,941
-
-
-
-
-
(1,496)
2,603,534
2,603,534
(549,255)
(549,255)
-
-
-
26,400
301,677
(1,496)
December 31, 2017
9,254,580
$
92,546
$
9,931,634
$
(288,051) $ 15,159,802
$ 24,895,931
Net income
Dividends, common stock
Options exercised
Common stock issued, net of shares
withheld for employee taxes
Foreign currency translation adjustment
-
-
8,510
75,101
-
-
-
85
751
-
-
-
(85)
304,278
-
-
-
-
-
(7,683)
2,795,249
2,795,249
(555,275)
(555,275)
-
-
-
-
305,029
(7,683)
December 31, 2018
9,338,191
$
93,382
$ 10,235,827
$
(295,734) $ 17,399,776
$ 27,433,251
The accompanying notes are an integral part of these consolidated financial statements.
F-7
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Form Type: 10-K
OCEAN BIO-CHEM, INC.
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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2018 AND 2017
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Stock based compensation
Provision for bad debts
Other operating non-cash items
Changes in assets and liabilities:
Trade accounts receivable
Receivables due from affiliated companies
Inventories
Prepaid expenses and other current assets
Accounts payable – trade
Income taxes payable
Accrued expenses payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property, plant and equipment
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Payments on long-term debt
Borrowings on revolving line of credit
Repayments on revolving line of credit
Payments for taxes related to net share settlements of stock awards
Dividends paid to common shareholders
Payments for debt issuance costs
Proceeds from exercise of stock options
Net cash (used in) provided by financing activities
Effect of exchange rate on cash
Net (decrease) increase in cash and restricted cash
Cash and restricted cash at beginning of period
Cash and restricted cash at end of period
Supplemental disclosure of cash flow information:
Cash paid for interest during period
Cash paid for income taxes during period
Cash
Restricted cash
Total cash and restricted cash
Noncash investing and financing activities:
Issuance of note payable for asset acquisition
Imputed interest
Principal portion of note payable issued for asset acquisition
The accompanying notes are an integral part of these consolidated financial statements.
F-8
2018
2017
$
2,795,249
$
2,603,534
1,175,267
126,454
330,823
35,145
3,378
(729,936)
538,375
(3,021,201)
2,572
(334,890)
----
296,843
1,218,079
955,161
(59,472)
324,145
198,839
4,612
(230,942)
(394,262)
(479,873)
739
295,100
(1,447)
(287,857)
2,928,277
(1,358,776)
(376,722)
(1,735,498)
(5,275,732)
---
(5,275,732)
----
(332,185)
2,750,000
(2,750,000)
(25,794)
(555,275)
----
----
(913,254)
4,500,000
(315,756)
1,000,000
(1,000,000)
(22,468)
(549,255)
(196,095)
26,400
3,442,826
(1,247)
28
(1,431,920)
1,095,399
5,165,844
3,733,924
136,031
660,000
1,401,047
2,332,877
3,733,924
1,000,000
(69,472)
930,528
$
$
$
$
$
$
$
4,070,445
5,165,844
29,496
1,282,400
2,418,484
2,747,360
5,165,844
---
---
---
$
$
$
$
$
$
$
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 25
03/29/2019 09:52 AM
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2018 AND 2017
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® brand names, for the marine, automotive, power sports, recreational vehicle and outdoor
power equipment markets in the United States and Canada. 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 and consolidation – The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“GAAP”). 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 – On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with
Customers” (Topic 606). The Company adopted the new guidance using the full retrospective method, under which the Company applies the new
guidance to each comparative period presented. Under the new guidance, the Company’s performance obligation to its customers under agreements
currently in force is satisfied when the goods are shipped or picked up by the customer and title of the goods is transferred (generally upon such
shipment or pick up); with regard to a customer for which the Company’s inventory is held at the customer’s warehouses, the Company’s
performance obligation is deemed satisfied when the Company is notified of sales by the customer. While the timing of the Company’s revenue
recognition did not change, certain allowances provided by the Company to customers, primarily for cooperative advertising and freight, are now
considered a reduction of net sales instead of an expense. The changes to the Company’s 2017 statement of operations are as follows:
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Advertising and promotion
Selling and administrative
Total operating expenses
Operating income
Interest income
Income before income taxes
Provision for income taxes
Net income
Originally
Reported
Topic 606
Adjustment
As Revised
$
$ 38,933,458
24,436,780
14,496,678
(992,480) $ 37,940,978
(127,648)
24,309,132
13,631,846
(864,832)
3,523,710
7,297,538
10,821,248
3,675,430
2,065
3,677,495
(1,073,961)
$
2,603,534
$
(864,832)
-
(864,832)
-
-
-
-
-
2,658,878
7,297,538
9,956,416
3,675,430
2,065
3,677,495
(1,073,961)
$
2,603,534
F-9
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 26
03/29/2019 09:52 AM
Collectability of accounts receivable – Trade accounts receivable at December 31, 2018 and 2017 are net of allowances for doubtful accounts
aggregating approximately $171,000 and $79,000, respectively. Such amounts are based on expected collectability of the trade accounts receivable,
after considering the Company’s historical collection experience, the length of time an account is outstanding, the financial position of the customer,
if known, and information provided by credit rating services. During the years ended December 31, 2018 and 2017, the Company recorded bad debt
expense of approximately $35,000 and $199,000, respectively.
Inventories – Inventories are primarily composed of raw materials and finished goods and are stated at the lower of cost, using the first-in, first-out
method, or market.
Shipping and handling costs – All shipping and handling costs incurred by the Company are included in cost of goods sold in the consolidated
statements of operations. Shipping and handling costs totaled approximately $1,273,000 and $1,099,000 for the years ended December 31, 2018 and
2017, 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 $3,051,000 and $2,659,000 in 2018 and 2017, 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 $1,001,206 (of which $837,478 is included in cost of
goods sold and $163,728 is included in selling and administrative expenses) and $884,881 (of which $695,184 is included in cost of goods sold and
$189,697 is included in selling and administrative expenses) for the years ended December 31, 2018 and 2017, 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 $49,000 and $42,000 of research and development costs for the
years ended December 31, 2018 and 2017, respectively.
Stock based compensation – The Company records stock-based compensation in accordance with the provisions of Financial Accounting Standards
Board (“FASB”) 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, the Company recognizes an expense for the fair value of its stock awards at the time of grant and the fair value of its outstanding
stock options as they vest, whether held by employees or others. As of December 31, 2018, all outstanding stock options were vested.
Use of estimates – The preparation of financial statements in conformity with GAAP 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-10
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 27
03/29/2019 09:52 AM
Concentration of cash – During the years ended and at December 31, 2018 and 2017, 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 Topic 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 three levels of inputs as follows:
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 data in connection with fair value
measurements.
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. Under this method, the Company recognizes deferred
income tax assets and liabilities for the expected future consequences attributable to 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. The Company recognizes in the consolidated statements of operations the effect on deferred income
taxes of a change in tax rates in the period in which the change is enacted.
The Company records a valuation allowance when necessary to reduce its deferred tax assets to the net amount that the Company believes is more
likely than not to be realized. The Company considers available evidence, both positive and negative, and use judgments regarding past and future
events, including operating results and available tax planning strategies, in assessing the need for a valuation allowance.
The Company recognizes tax benefits from uncertain tax positions only if the Company believes 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, the Company establishes reserves
for uncertain tax positions. The Company adjusts 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, 2018.
The Company is no longer subject to income tax examinations for years before 2015.
Intangible assets – The Company’s intangible assets consist of trademarks, trade names, customer lists, product formulas, 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 intangible assets for impairment when events
or changes in circumstances indicate an impairment may exist. No impairment was recorded in 2018 or 2017.
Foreign currency translation – Assets and liabilities of the Company’s Canadian subsidiary are translated from Canadian dollars to United States
dollars at exchange rates in effect at the balance sheet date. Income and expenses are translated at average exchange rates during the year. The
translation adjustments for the reporting period are included in the Company’s consolidated statements of comprehensive income, and the cumulative
effect of these adjustments are reported in the Company’s consolidated balance sheets as accumulated other comprehensive loss within Shareholders’
Equity.
Earnings per share – 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. See Note 14.
F-11
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 28
03/29/2019 09:52 AM
Note 2 – Inventories:
The composition of the Company’s inventories at December 31, 2018 and 2017 are as follows:
Raw materials
Finished goods
Inventories, gross
Inventory reserves
Inventories, net
$
2018
4,320,131
8,049,791
12,369,922
(284,109)
$ 12,085,813
$
$
2017
3,994,624
5,354,097
9,348,721
(274,295)
9,074,426
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 $495,000 and $494,000 at
December 31, 2018 and 2017, respectively.
Note 3 – Property, Plant and Equipment:
The Company’s property, plant and equipment at December 31, 2018 and 2017 consisted of the following:
Land
Building and Improvements
Manufacturing and warehouse equipment
Office equipment and furniture
Leasehold improvements
Vehicles
Construction in process
Property, plant and equipment, gross
Less accumulated depreciation
Property, plant and equipment, net
Estimated
Useful Life
30 years
6-20 years
3-5 years
10-15 years
3 years
2018
2017
$
278,325
9,548,922
10,736,161
1,838,360
577,068
10,020
80,682
23,069,538
$
278,325
4,673,409
9,616,086
1,367,244
567,898
10,020
5,197,780
21,710,762
(13,420,301)
(12,419,095)
$
9,649,237
$
9,291,667
The Company is nearing completion of a project involving the expansion of the manufacturing, warehouse and distribution facilities of the
Company’s wholly-owned subsidiary, KINPAK Inc. (“Kinpak”) in Montgomery, Alabama, as well as the purchase and installation of associated
machinery and equipment (the “Expansion Project”). As of December 31, 2018, the remaining work on the Expansion Project involves the
completion of a bottle filling line and the purchase and installation of additional equipment. At December 31, 2018, the Company’s expenditures on
the Expansion Project aggregated approximately $6.0 million. The total cost of the Expansion Project is estimated to be approximately $6.7 million.
Construction in progress at December 31, 2018 and 2017 includes $46,996 and $5,087,897, respectively, relating to the expansion of Kinpak’s
manufacturing, warehouse and distribution facilities.
Note 4 – Snappy Marine Asset Acquisition:
Pursuant to an asset acquisition agreement dated July 13, 2018, the Company acquired assets of Snappy Marine, Inc. (“Snappy Marine”), a Florida
corporation that marketed and distributed Snappy Teak – NU®, a cleaning product for teak surfaces on boats. The acquired assets consist of, among
other things, Snappy Marine’s trademarks, tradenames and other intellectual property used in its business, including trademarks with respect to
“Snappy Marine®” and “Snappy Teak – NU®,” and specified marketing, sales and distribution contracts. In addition, the Company acquired limited
quantities of product inventory and raw materials. The purchase price for the assets set forth in the asset purchase agreement is $1,358,882
($1,350,000 for intellectual property and $8,882 for inventory). The Company paid $345,882 to Snappy Marine at the closing of the transaction on
July 13, 2018 and deposited an additional $13,000 in escrow; the escrow amount may be used by the Company to procure registrations with respect
to certain intellectual property rights. Any unused escrow amounts generally will be provided to Snappy Marine. In addition, the Company provided
to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the note, $930,528 was recorded as
principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum is being recorded as interest expense over the term of
the note). The note is payable in equal installments of $16,667 over a 60 month period that commenced on August 1, 2018, with a final payment due
and payable on July 1, 2023. If the note is prepaid in full, the entire outstanding balance of the note (including all unpaid amounts allocated to interest
over the remaining term of the note) must be paid. Under circumstances set forth in the asset purchase agreement, the Company may be obligated to
pay certain customer refunds, price adjustments and warranty claims asserted through January 31, 2019 with regard to teak products sold by Snappy
Marine. The Company may offset such payments against amounts payable under the promissory note, subject to an aggregate maximum offset of
$25,000. In addition to the amounts paid to Snappy Marine, the Company also incurred $39,722 in legal costs directly related to the asset acquisition.
F-12
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 29
03/29/2019 09:52 AM
Pro forma information with respect to the asset acquisition is not presented as the operations of the acquired business are not material to the
Company’s operations.
Note 5 – Intangible Assets:
The Company’s intangible assets at December 31, 2018 and 2017 consisted of the following:
December 31, 2018
Intangible Assets
Patents
Trade names and trademarks
Customer list
Product formulas
Royalty rights
Total intangible assets
December 31, 2017
Intangible Assets
Patents
Trade names and trademarks
Royalty rights
Total intangible assets
Cost
622,733
1,649,880
525,663
262,832
160,000
3,221,108
Accumulated
Amortization
439,972
$
561,449
48,186
24,093
97,196
1,170,896
$
Cost
622,733
1,131,125
160,000
1,913,858
Accumulated
Amortization
387,636
$
549,561
79,253
1,016,450
$
Net
182,761
1,088,431
477,477
238,739
62,804
2,050,212
Net
235,097
581,564
80,747
897,408
$
$
$
$
$
$
$
$
On July 13, 2018, the Company acquired assets of Snappy Marine, principally consisting of intangible assets (see Note 4).
The allocated cost of the intangible assets acquired from Snappy Marine and their respective useful lives are set forth in the table below:
Intangible Assets
Trademarks and trade names
Customer list
Product formulas
Total intangible assets acquired from Snappy Marine
Amount
518,755
525,663
262,832
1,307,250
$
$
Life
20 years
5 years
5 years
Amortization expense related to intangible assets aggregated $154,446 and $70,280 for the years ended December 31, 2018 and 2017, respectively.
Note 6 – Revolving Line of Credit:
On August 31, 2018, the Company and Regions Bank entered into a Business Loan Agreement (the “Business Loan Agreement”), under which the
Company was provided a revolving line of credit. Under the revolving line of credit, the Company may borrow up to the lesser of (i) $6,000,000 or
(ii) a borrowing base equal to 85% of Eligible Accounts (as defined in the Business Loan Agreement) plus 50% of Eligible Inventory (as defined in
the Business Loan Agreement). Interest on amounts borrowed under the revolving line of credit is payable monthly at the one month LIBOR rate plus
1.35% per annum, computed on a 365/360 basis. Eligible Accounts do not include, among other things, accounts receivable from affiliated entities.
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, 2021, at which time all outstanding principal and interest will be due
and payable. The Company’s obligations under the revolving line of credit are principally secured by the Company’s accounts receivable and
inventory. The Business Loan Agreement includes financial covenants requiring that the Company maintain a minimum fixed charge coverage ratio
(generally, the ratio of (A) EBITDA for the most recently completed four fiscal quarters minus the sum of the Company’s distributions to its
shareholders, taxes paid and unfunded capital expenditures during such period to (B) prior year current maturities of Company long term debt plus
interest expense incurred over the most recently completed four fiscal quarters) of 1.20 to 1, tested quarterly, and a maximum “debt to cap” ratio
(generally, funded debt divided by the sum of net worth and funded debt) of 0.75 to 1, as of the end of each fiscal quarter. For purposes of computing
the fixed charge coverage ratio, “EBITDA” generally is defined as net income before taxes and depreciation expense plus amortization expense, plus
interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income; “unfunded capital
expenditures” generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to
finance such capital expenditures; “long term debt” generally is defined as “debt instruments with a maturity principal due date of one year or more
in length,” including, among other listed contractual debt instruments, “revolving lines of credit” and “capital leases obligations” and “prior year
current maturities of long term debt” generally is defined as the principal portions of long-term debt maturing within one year as listed at the last
quarter end of the prior completed four fiscal quarters. At December 31, 2018, the Company was in compliance with these financial covenants. 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.
F-13
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 30
03/29/2019 09:52 AM
On August 31, 2017, the Company and Regions Bank entered into a Business Loan Agreement (the “Predecessor Agreement’), under which the
Company was provided a revolving line of credit in the maximum amount of $6,000,000. The Predecessor Agreement, as amended, was
substantially similar to the Business Loan Agreement, with the following exceptions: (i) if no demand for payment was made by Regions Bank, all
outstanding amounts were due and payable one year from the date of the Predecessor Agreement; (ii) Interest on amounts borrowed under the
Predecessor Agreement was payable monthly at the one month LIBOR rate plus 1.5% per annum, computed on a 365/360 basis. The Predecessor
Agreement expired on August 31, 2018 and was replaced by the Business Loan Agreement.
At December 31, 2018 and 2017, the Company had no borrowings under the revolving line of credit provided by the Business Loan Agreement and
the Predecessor Agreement, respectively.
Note 7 – Accrued Expenses Payable:
Accrued expenses payable at December 31, 2018 and 2017 consisted of the following:
Accrued customer promotions
Accrued payroll, commissions, and benefits
Other
Total accrued expenses payable
Note 8 – Long Term Debt:
Industrial Development Bond Financing
2018
2017
$
$
485,472
373,895
249,538
343,172
280,783
188,107
$
1,108,905
$
812,062
On September 26, 2017, Kinpak indirectly obtained a $4,500,000 loan from Regions Capital Advantage, Inc. (the “Lender”). The proceeds of the
loan are being used principally to pay or reimburse costs relating to the Expansion Project.
The loan was funded by the Lender’s purchase of a $4,500,000 industrial development bond (the “Bond”) issued by The Industrial Development
Board of the City of Montgomery, Alabama (the “IDB”). The Bond is a limited obligation of the IDB and is payable solely out of revenues and
receipts derived from the leasing or sale of Kinpak’s facilities. In this regard, Kinpak is obligated to fund the IDB’s payment obligations by providing
rental payments under a lease between the IDB and Kinpak (the “Lease”), under which Kinpak leases its facilities from the IDB. Kinpak inherited the
lease structure when it first acquired its facilities from its predecessor-in-interest in 1996. The Lease provides that prior to the maturity date of the
Bond, Kinpak may repurchase the facilities for $1,000 if the Bond has been redeemed or fully paid.
The Bond bears interest at the rate of 3.07% per annum, calculated on the basis of a 360-day year and the actual number of days elapsed (subject to
increase to 6.07% per annum upon the occurrence of an event of default), and is payable in 118 monthly installments of $31,324 beginning on
November 1, 2017 and ending on August 1, 2027, with a final principal and interest payment to be made on September 1, 2027 in the amount of
$1,799,201. The Bond provides that the interest rate will be subject to adjustment if it is determined by the United States Treasury Department, the
Internal Revenue Service, or a similar government entity that the interest on the Bond is includable in the gross income of the Lender for federal
income tax purposes.
Under the Lease, Kinpak is required to make rental payments for the account of the IDB to the Lender in such amounts and at such times as are
necessary to enable the payment of all principal and interest due on the Bond and other charges, if any, payable in respect of the Bond. The Lease
also provides that Kinpak may redeem the Bond, in whole or in part, by prepaying its rental payment obligations in an amount sufficient to effect the
redemption. In addition, the Lease contains provisions relating to the Expansion Project, including limitations on utilization of Bond proceeds,
deposit of unused proceeds into a custodial account (as described below) and investment of monies held in the custodial account.
Payment of amounts due and payable under the Bond and other related agreements are guaranteed by the Company and its other consolidated
subsidiaries. In connection with a guarantee agreement under which the Company provided its guarantee, the Company is subject to certain
covenants, including financial covenants requiring that the Company maintain (i) a minimum fixed charge ratio (generally, the ratio of (A) EBITDA
minus the sum of Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures to (B) current maturities of Company
long-term debt plus interest expense) of 1.2 to 1, tested quarterly, and (ii) a ratio of funded debt (as defined in the guaranty agreement) divided by the
sum of net worth and funded debt of 0.75 to 1, tested quarterly. For purposes of computing the fixed charge coverage ratio, “EBITDA” generally is
defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash
losses and expenses, minus non-recurring and/or non-cash gains and income; “unfunded capital expenditures” generally is defined as capital
expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures. At December
31, 2018, the Company was in compliance with these financial covenants.
F-14
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 31
03/29/2019 09:52 AM
Through December 31, 2018, of the $4,500,000 proceeds of the Bond sale, approximately $2,161,000 has been applied to reimburse Kinpak for
Expansion Project expenditures and approximately $54,000 was paid directly to other parties for certain transaction costs. The remaining amount is
held in a custodial account and may be drawn by Kinpak from time to time to fund additional expenditures related to the Expansion Project. Because
the Lease contains limitations on the manner in which Kinpak may utilize funds held in the custodial account, such funds are classified as restricted
cash on the Company’s balance sheets.
The Company incurred debt financing costs of $196,095 in connection with the financing. These costs are shown as a reduction of the debt balance
and are being amortized under the effective interest method.
Other Long Term Obligations
In connection with the Company’s agreement to purchase the assets of Snappy Marine (see Note 4 above), the Company provided to Snappy Marine
a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the promissory note, $930,528 was recorded as
principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, is being recorded as interest expense over the term
of the note). The note is payable in equal installments of $16,667 over a 60 month period that commenced on August 1, 2018, with a final payment
due and payable on July 1, 2023. If the note is prepaid in full, the entire outstanding balance of the note (including all unpaid amounts allocated to
interest over the remaining term of the note) must be paid.
At December 31, 2018 and 2017, the Company was obligated under capital lease agreements covering equipment utilized in the Company’s
operations. The capital leases, aggregating approximately $31,000 and $50,000 at December 31, 2018 and 2017, 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, 2018 and 2017:
Current Portion
Long Term Portion
Obligations related to industrial development bond financing
Note payable related to asset acquisition
Capitalized equipment leases
Total principal of long term debt
Debt issuance costs
Total long term debt
December 31,
2018
December 31,
2017
$
$
247,985
177,701
19,593
445,279
(19,616)
425,663
$
$
240,395
---
19,238
259,633
(19,616)
240,017
$
December 31,
2018
3,974,256
680,274
11,596
4,666,126
(152,021)
4,514,105
$
$
December 31,
2017
4,222,241
---
31,188
4,253,429
(171,636)
4,081,793
$
Required principal payments under the Company’s industrial development bond financing and other long term obligations are set forth below:
Year ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
F-15
$
445,279
449,936
452,068
465,873
396,366
2,901,883
$ 5,111,405
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 32
03/29/2019 09:52 AM
Note 9 – Income Taxes:
The components of the Company’s provision for income taxes for the years ended December 31, 2018 and 2017 are as follows:
Federal – current
Federal – deferred
State – current
State – deferred
Total provision for income taxes
2018
636,046
120,760
28,530
5,694
791,030
$
$
2017
1,101,503
(60,364)
31,930
892
1,073,961
$
$
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
Effect of tax rate change on deferred taxes
Permanent adjustments
Tax credits and other
Provision for income taxes
2018
%
$
$
753,119
22,468
(1,233)
----
----
14,040
2,636
791,030
21.0% $
0.6%
(0.0)%
----
----
0.4%
0.1%
22.1% $
2017
1,250,348
21,074
(6,303)
(110,410)
(90,980)
24,202
(13,970)
1,073,961
%
34.0%
0.6%
(0.2)%
(3.0)%
(2.5)%
0.7%
(0.4)%
29.2%
The Company’s deferred tax liability consisted of the following at December 31, 2018 and 2017:
Deferred tax liability
Inventory reserves
Trade accounts receivable allowances
Depreciation and amortization
Total net deferred tax liability
2018
2017
$
$
$
62,475
37,645
(380,469)
(280,349) $
68,631
9,017
(231,543)
(153,895)
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The legislation significantly changes United States tax law by, among other things,
reducing the Company’s federal corporate income tax rate from 34% to 21%, effective January 1, 2018. As a result of the reduction in the federal
corporate income tax rate, the Company revalued its net deferred tax liabilities at December 31, 2017 and recognized a $90,980 tax benefit in the
Company’s consolidated statement of operations.
Note 10 – Related Party Transactions:
During 2018, as in previous years, the Company sold products to companies affiliated with Peter G. Dornau, who is the Company’s 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 and pays certain business related expenditures for the affiliated companies, for which the
Company is reimbursed. Sales to the affiliated companies aggregated approximately $2,190,000 and $2,070,000 during the years ended December
31, 2018 and 2017, respectively; fees for administrative services aggregated approximately $760,000 and $764,000, respectively; and amounts billed
to the affiliated companies to reimburse the Company for business related expenditures made on behalf of the affiliated companies aggregated
approximately $151,000 and $120,000 during the years ended December 31, 2018 and 2017, respectively. The Company had accounts receivable
from the affiliated companies in connection with the product sales and administrative services aggregating approximately $1,046,000 and $1,584,000
at December 31, 2018 and 2017, respectively.
An entity that is owned by the Company’s Chairman, President and Chief Executive Officer provides several services to the Company. Under this
arrangement, the Company paid the entity an aggregate of $77,000 ($42,000 for research and development, $14,000 for charter boat services that the
Company used to provide sales incentives for external sales representatives and $21,000 for the production of television commercials) and $106,250
($42,000 for research and development and $64,250 for charter boat services that the Company used to provide sales incentives for external sales
representatives) for the years ended December 31, 2018 and 2017, respectively. Expenditures for the research and development services are included
in the consolidated statements of operations within selling and administrative expenses. Expenditures for the charter boat services and television
production services are included in the consolidated statements of operations within advertising and promotion expenses.
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 11 for a description of the lease terms.
F-16
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 33
03/29/2019 09:52 AM
A director of the Company is Regional Executive Vice President of an insurance broker through which the Company sources most of its insurance
needs. During the years ended December 31, 2018 and 2017, the Company paid an aggregate of approximately $1,261,000 and $1,235,000,
respectively, in insurance premiums on policies obtained through the insurance broker.
Note 11 – Commitments and Contingencies:
The Company leases its executive offices and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by Peter G. Dornau, the
Company’s 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
base 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 for each of the years ended December 31,
2018 and 2017. The rent expense is included in the Company’s consolidated statements of operations as a selling and administrative expense.
The Company also leased a 15,000 square foot warehouse in Montgomery, Alabama near its Kinpak manufacturing facility for the purpose of
fabricating and assembling brushes used for cleaning boats, automobiles, and recreational vehicles. The Company paid monthly rent of $4,375 under
the lease, which commenced on August 1, 2016 and expired on July 31, 2018. The Company has relocated the brush fabrication and assembly
operations from the leased warehouse to Kinpak’s facilities, which have been expanded in connection with the Expansion Project. See Note 8 above.
The following is a schedule of minimum future rentals on the Company’s non-cancelable operating leases.
Year ending December 31,
2019
2020
2021
2022
2023
Total
Note 12 - Stock Options and Awards:
$
$
96,064
97,985
99,945
101,944
103,983
499,921
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, 2018 and 2017, the Company granted stock awards under the Plan aggregating 81,400 and 79,100 shares of common stock,
respectively, to officers, key employees, directors and, in 2017, a consultant of an affiliated company. Following the withholding of an aggregate of
6,299 and 5,500 shares of common stock, respectively, in connection with a tax withholding feature of the Plan, 75,101 and 73,600 shares were
delivered to the award recipients, during the years ended December 31, 2018 and 2017, respectively. At December 31, 2018, 262,000 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 $330,823 and $324,145 for the years ended December 31, 2018 and 2017,
respectively. The Company withheld shares in 2018 and 2017 that had a value of $25,794 and $22,468, 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, 2018. 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, 2018 and 2017, and at December 31,
2018 and 2017, there was no unrecognized compensation cost related to share based compensation arrangements
During 2018, a former director exercised a stock option to purchase 10,000 shares of common stock. The Company withheld 1,490 shares in
connection with the net exercise of the stock option by the former director and delivered 8,510 shares to the former director.
During 2017, stock options to purchase an aggregate of 40,000 shares of common stock were exercised. The Company received a total of $26,400,
withheld 5,957 shares in connection with the net exercise feature of the stock options and delivered an aggregate of 34,043 shares to the option
holders who exercised their options.
F-17
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 34
03/29/2019 09:52 AM
The following tables provide information regarding outstanding options under the Company’s stock option plans at December 31, 2018 and
2017. All options referenced in the table below were granted under the Company’s 2008 Non-Qualified Stock Option Plan.
At December 31, 2018:
Date Granted
1/11/09
4/26/10
At December 31, 2017:
Date Granted
1/11/09
4/26/10
Options Outstanding
Exercisable
Options
Exercise Price
Expiration
Date
Weighted Average
Remaining Life
30,000
20,000
50,000
30,000
20,000
50,000 $
0.69
2.07
1.24
1/10/19
4/25/20
0.0
1.3
0.6
Options Outstanding
Exercisable
Options
Exercise Price
Expiration
Date
Weighted Average
Remaining Life
40,000
20,000
60,000
40,000
20,000
60,000 $
0.69
2.07
1.15
1/10/19
4/25/20
1.0
2.4
1.5
The following table provides information relating to stock option transactions during the years ended December 31, 2018 and 2017:
Options outstanding beginning of the year
Options exercised
Total
Note 13 – Major Customers:
2018
2017
Weighted
Average
Exercise
Price
1.15
0.69
1.24
Shares
60,000
(10,000)
50,000
$
$
Weighted
Average
Exercise
Price
1.22
1.32
1.15
Shares
100,000
(40,000)
60,000
$
$
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, 2018 and 2017. Net sales to each of these two customers respectively represented approximately 21.7% and 11.4% of
consolidated net sales, respectively, for the year ended December 31, 2018 and approximately 22.5% and 11.9% of consolidated net sales,
respectively, for the year ended December 31, 2017.
At December 31, 2018 and 2017, trade accounts receivables due from the Company’s two largest customers respectively constituted 41.0% (25.2%
and 15.8%) and 25.5% (14.0% and 11.5%) of the Company’s outstanding trade accounts receivable. In 2018, the Company changed payment terms
for its largest customer from 30 days to 90 days.
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.
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
Weighted average number of common shares outstanding - Diluted
Earnings per common share - Diluted
F-18
Years Ended
December 31,
2018
2017
2,795,249
$
2,603,534
9,279,872
9,190,429
0.30
$
0.28
2,795,249
$
2,603,534
9,279,872
9,190,429
39,231
9,319,103
63,373
9,253,802
0.30
$
0.28
$
$
$
$
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 35
03/29/2019 09:52 AM
The Company had no stock options outstanding at December 31, 2018 and 2017, respectively that were anti-dilutive and therefore not included in the
diluted earnings per common share calculation.
Note 15 – Cash Dividends:
On March 19, 2018, the Company’s Board of Directors declared a special cash dividend of $0.06 per common share payable on April 16, 2018 to all
shareholders of record on April 2, 2018. There were 9,254,580 shares of common stock outstanding on April 2, 2018; therefore, dividends
aggregating $555,275 were paid on April 16, 2018.
On April 13, 2017, the Company’s Board of Directors declared a special cash dividend of $0.06 per common share payable on May 11, 2017 to all
shareholders of record on April 27, 2017. There were 9,154,243 shares of common stock outstanding on April 27, 2017; therefore, dividends
aggregating $549,255 were paid on May 11, 2017.
Note 16 – Recent Accounting Pronouncements:
Accounting Guidance Adopted by the Company
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09, 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 Company adopted the new guidance effective January 1, 2018, using the full retrospective method, under which the
Company applies the new guidance to each comparative period presented. Under the new guidance, the Company’s performance obligation to its
customers under agreements currently in force is satisfied when the goods are shipped or picked up by the customer and title of the goods is
transferred (generally upon such shipment or pick up); with regard to a customer for which the Company’s inventory is held at the customer’s
warehouses, the Company’s performance obligation is deemed satisfied when the Company is notified of sales by the customer. While the timing of
the Company’s revenue recognition did not change as a result of the new guidance, certain allowances provided by the Company to customers,
primarily for cooperative advertising and freight, are now considered a reduction of net sales instead of an expense (see Note 1 for more
information).
F-19
OBCI, INC. ANNUAL REPORT 2018 f10k2018_oceanbiochem.htm
Edgar Agents LLC
Form Type: 10-K
OCEAN BIO-CHEM, INC.
Page 36
03/29/2019 09:52 AM
In November 2016, the FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change during the reporting period in
the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The new guidance also requires
disclosure of such amounts in the statements of cash flows or in the financial statement footnotes if restricted cash and restricted cash equivalents are
presented in separate line items in the balance sheet. The Company adopted this guidance effective January 1, 2018. In accordance with the new
guidance, the Company includes additional disclosures regarding its cash and restricted cash amounts in its consolidated statements of cash flows for
each comparative period presented. The changes to the Company’s 2017 statement of cash flows are as follows:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate fluctuations on cash
Net (decrease) increase in cash
Accounting Guidance Not Yet Adopted by the Company
Originally
Reported
ASU 2016-18
Adjustment
$
$
2,928,277
(8,023,092)
3,442,826
28
$
(1,651,961) $
-
2,747,360
-
-
2,747,360
As Revised
$
$
2,928,277
(5,275,732)
3,442,826
28
1,095,399
In February 2016, the FASB issued ASU 2016-02 (Topic 842) “Leases.” Under this new guidance, lessees (including lessees under leases classified
as finance leases, which are to be classified based on criteria similar to that applicable to capital leases under current guidance, and leases classified
as operating leases) will recognize a right-to-use asset and a lease liability on the balance sheet, initially measured as the present value of lease
payments under the lease. Under current guidance, operating leases are not recognized on the balance sheet. However, the new guidance permits
companies to make an accounting policy election not to apply the recognition provisions of the new guidance to short term leases (leases with a lease
term of 12 months or less that do not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise). If this
election is made, lease payments under short term leases will be recognized on a straight-line basis over the lease term. The Company will adopt the
new guidance effective January 1, 2019 using a modified retrospective method, under which it will record an immaterial cumulative adjustment to
retained earnings rather than retrospectively adjusting prior periods. This application of the modified retrospective method will result in a balance
sheet presentation that will not be comparable to the prior period in the first year of adoption. Based on the Company’s portfolio of leases at
December 31, 2018, approximately $430,000 of lease assets and liabilities will be recognized on its balance sheet upon adoption, almost all of which
relate to the lease for to the Company’s executive offices and manufacturing facilities located in Ft. Lauderdale, Florida. The Company does not
expect the new standard to have a material impact on its results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” which replaces the “incurred loss” model under current
GAAP with a forward-looking “expected loss” model, principally in connection with financial assets subject to credit losses. Under current GAAP,
an entity reflects credit losses on financial assets measured on an amortized cost basis only when it is probable that losses have been incurred,
generally considering only past events and current conditions in making these determinations. The guidance under ASU 2016-13 prospectively
replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, beginning when
such assets are first acquired. Under the expected loss model, credit losses will be measured based not only on past events and current conditions, but
also on reasonable and supportable forecasts that affect the collectability of financial assets. The guidance also expands disclosure requirements. The
guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as
of January 1, 2019. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s financial
statements.
Note -17 – Subsequent Event:
On March 22, 2019, the Company’s Board of Directors declared a special cash dividend of $0.05 per common share payable on April 19, 2019 to all
shareholders of record on April 5, 2019. At the time of the filing of this report there were 9,366,119 shares of common stock outstanding; therefore,
dividends aggregating $468,306 will be paid on April 19, 2019.
F-20
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018ex21_oceanbio.htm
Edgar Agents LLC
Form Type: EX-21
OCEAN BIO-CHEM, INC.
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
Page 1
03/29/2019 09:52 AM
EXHIBIT 21
Ownership %
100
100
100
100
100
100
100
100
Jurisdiction
of Organization
Florida
Florida
Florida
Florida
Florida
Florida
Alabama
Florida
OBCI, INC. ANNUAL REPORT 2018 f10k2018ex31-1_oceanbio.htm
Edgar Agents LLC
Form Type: EX-31.1
OCEAN BIO-CHEM, INC.
I, Peter G. Dornau, certify that:
CERTIFICATION
Page 1
03/29/2019 09:52 AM
EXHIBIT 31.1
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 29, 2019
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018ex31-2_oceanbio.htm
Edgar Agents LLC
Form Type: EX-31.2
OCEAN BIO-CHEM, INC.
I, Jeffrey S. Barocas, certify that:
CERTIFICATION
Page 1
03/29/2019 09:52 AM
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 29, 2019
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
OBCI, INC. ANNUAL REPORT 2018 f10k2018ex32-1_oceanbio.htm
Edgar Agents LLC
Form Type: EX-32.1
OCEAN BIO-CHEM, INC.
Page 1
03/29/2019 09:52 AM
EXHIBIT 32.1
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
I, Peter G. Dornau, Chief Executive Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my knowledge:
1.
2.
Dated: March 29, 2019
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (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
BLENDING INNOVATION & PERFORMANCE SINCE 1973 f10k2018ex32-2_oceanbio.htm
Edgar Agents LLC
Form Type: EX-32.2
OCEAN BIO-CHEM, INC.
Page 1
03/29/2019 09:52 AM
EXHIBIT 32.2
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
I, Jeffrey S. Barocas, Chief Financial Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my knowledge:
1.
2.
Dated: March 29, 2019
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (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
OBCI, INC. ANNUAL REPORT 2018 B L E N D I N G I N N O V A T I O N & P E R F O R M A N C E S I N C E 1 9 7 3
INVESTOR INFORMATION
NASDAQ STOCK SYMBOL OBCI
Stock Transfer Agent
Computershare
P.O. Box 30170
College Station, Texas 77842-3179
General Counsel
Berger Singerman, LLP
350 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Auditors
Accell Audit & Compliance, PA
4806 W Gandy Blvd.
Tampa, FL 33611
Reports and Publications
A free copy of the Company’s 2017
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 2018 and 2017:
2018
2017
High
$4.39
$4.07
$4.78
$4.26
Low
$3.68
$3.26
$3.39
$3.05
High
$5.15
$5.65
$5.47
$5.71
Low
$3.66
$3.69
$3.51
$3.98
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 M. 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, Chief Operating Officer,
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, Chief Operating Officer
Marc A. Emmi
Senior Vice President of Sales
Justin L. Gould
Vice President of Technology
George W. Lindsey, Jr.
Vice President of Marketing
Victor G. Phillpotts
Vice President of Business Development
4041 SW 47th Avenue • Fort Lauderdale, Florida 33314
Tel:(954) 587-6280 • (800) 327-8583 • Fax:(954) 587-2813
WWW.OCEANBIOCHEM.COM • WWW.STARBRITE.COM
WWW.STARTRON.COM • WWW.NOS-GUARD.COM
WWW.ODORSTAR.COM • WWW.PERFORMACIDE.COM
Ocean Bio-Chem, Inc. 4041 S.W. 47th Ave., Ft. Lauderdale, FL 33314
T: (954) 587-6280 • Toll Free (800) 327-8583 • F: (954) 587-2813
WWW.OCEANBIOCHEM.COM • WWW.STARBRITE.COM • WWW.STARTRON.COM
OBCI, INC. ANNUAL REPORT 2018