ANNUAL
REPORT
2020
a
FINANCIAL HIGHLIGHTS
Amounts in Millions (except per share amounts)
2020
2019
2018
2017
2016
Net Sales
$55.7
$42.3
$41.8
$38.0
$36.2
Operating Income
$12.2
$4.6
$3.7
$3.7
$3.1
Net Income
$9.6
$3.5
$2.8
$2.6
$2.1
Earnings Per Share (Diluted)
$1.02
$0.37
$0.30
$0.28
$0.23
Dividends Per Common Share
$0.08
$0.05
$0.06
$0.06
$0.06
Operating Cash Flow
$6.2
$6.0
$1.2
$2.9
$3.0
OBCI BRAND PORTFOLIO
VARIOUS STATEMENTS IN THIS ANNUAL REPORT, including estimates, projections, objectives and expected results, are “forward-
looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934 and are generally identified by the words “believe,” “expect,” “anticipate,”
“intend,” “opportunity,” “plan,” “potential,” “project,” “will,” “should,” “could,” “would,” “likely” and similar expressions. Forward-looking
statements are based on current assumptions that are subject to risks and uncertainties that may cause actual results to differ
materially from the forward-looking statements, including the risks and uncertainties discussed in Item 1A – Risk Factors of the Form
10-K/A included in this Annual Report. Such forward-looking statements speak only as of the date they are made, and we undertake
no obligation to update or revise publicly any forward-looking statements, except as required by law.
b
A YEAR LIKE
NO OTHER
Before we begin, let’s take a moment to acknowledge
this past year, its everlasting impact on our world, and
those we’ve lost to the virus. No other time in world
history have we seen a global effort—of humans
Peter Dornau, Chairman of the Board, President and Chief Executive Officer
to ensure our global supply chain stays alive and
thriving. Every person on Earth made a sacrifice;
every action inching towards a better life for us all.
And closer to home, closer to our company, we
learned other lessons. As we worked hard to keep
our plant open, as our employees became “frontline
workers,” we learned what we could accomplish
together. We learned how strong our OBCI family
and its employees are. And we learned how critical
of a role we play in the lives of our customers.
Another way lockdown changed us is how we
perceive the products we deliver to our customers.
As a manufacturer of disinfectants and sanitizers, we
easily related the immediate need for our products
during the pandemic. However, as months dragged
on—locked down, sheltered-in-place, and socially dis-
tanced—we saw what else was necessary to survive
the emotional and mental stress this global challenge
wrought: fresh air, fun outside, days on the water.
Yes, what used to be luxuries—like boating
or RVing—rescued our emotionally-drained,
COVID-fatigued population and let them once
again enjoy the outdoors, recuperate on the
water, and reconnect with their families.
Our frontline efforts wound up with different and
surprising positive results this past year. And with
it, we’ve rediscovered who we are as a company—
where our strengths are, and where we can go
in the future—and how important of a role our
products contribute to the lives of our customers.
working together for a common cause—whether it
be working towards developing a vaccine, supporting
With that, I’d like to introduce you
each other through lockdown, or coming together
to what makes us OBCI…
i
OBCI
means
results.
Whether you’re investing in our stock, or polishing your
boat, great results are what you want. We hold ourselves
to the highest standards for anyone investing in our
products or our company. We strive to push through
limits and achieve outstanding results for our customers,
our employees, our shareholders, and our end-users.
Results that impress.
Results that change minds.
Results that matter.
At Ocean Bio-Chem, Inc.,
we create outstanding results.
ii
AT OBCI,
WE BUILD BRANDS
AND PRODUCTS
THAT CREATE
OUTSTANDING RESULTS
FOR CONSUMERS,
CUSTOMERS, AND
SHAREHOLDERS.
iii
LET’S TALK
ABOUT THOSE
OUTSTANDING
RESULTS
NOW...
For the year 2020, Ocean Bio-Chem, Inc.
experienced its best financial year ever.
That’s right. Best. Year. Ever. I can’t be any
more excited to know that through one
of the most challenging years our world
has ever faced, that our team came to-
gether and made it the best year to date.
Just look at these highlights:
Record full-year net sales of $55.6 million, up 32%
compared to 2019
Record full-year net income of $9.6 million, up
175% compared to 2019
Record increase in earnings per basic share of
$1.02, up 176% compared to 2019
Cash on hand increased to $11 million, a ratio of
9.7:1 of current assets to current liabilities
These numbers—marking the 8th con-
secutive year that the company has set a
record—are the result of a hard-working
team, spending countless hours across mul-
tiple states, time zones, and virtual trade-
shows selling and marketing our brands.
32%NET SALES INCREASE OVER 2019
iv
2020: YEAR
IN REVIEW
On almost every level, 2020 was our best year ever
rose sharply as other brands of sanitizing chem-
financially. Despite the challenges of the pandemic,
icals became hard to find on store shelves. With
we are extremely pleased with our team’s responsive-
the increase in production, we added another
ness, resilience, and performance, raising the bar on
manufacturing line for our patented, chlorine
production and sales across the board.
dioxide-based pouches, increasing
The year started out with
many unknowns. The
winter went longer than
expected, resulting
in delayed orders
from retailers.
Then the impact
of COVID-19 began
and dealers across
the country didn’t
know whether to
stock up or lockdown.
Once the country
settled into the new
stay-at-home orders, demand
rose. However, with Asia on lock-
potential production by 33%.
ON
ALMOST
EVERY LEVEL,
2020 WAS OUR
BEST YEAR
EVER
Summer also saw the boating
and outdoor recreation
market explode in pop-
ularity. Record sales of
boats and RVs were
reported across the
country, and despite the
lockdown, the Company
recorded some of its
highest sell-through yet.
The increased demand is
reflected in our third quarter
reports: for the nine months
ending September 30, 2020 the net
sales of approximately $42.7 million ex-
down, many manufacturers dependent on foreign
ceeded the full year 2019 net sales of $42.3.
goods were unable to meet the rising demand.
The year ended strong, with the fifth consecutive
This was a major turning point for the Company.
year in a row that the Company had record fourth
Having implemented a new inventory strategy,
quarter net sales and online sales up 70%. With
our supplies were high and our reliance on foreign
schools and offices across the country still not on a
goods was low. Record second quarter 2020 net
regular schedule, the outdoor industry saw boat and
income was approximately $3.5 million compared
RV usage throughout the fall and into the Christmas
to net income of approximately $1.0 million for the
season. As news outlets reported Americans’ record
second quarter of 2019, an increase of 242.0%.
amounts of disposable income, the boating and
Demand for our disinfectant product, Performacide®,
outdoor markets saw a much-needed influx of new
investments, fresh energy, and eager customers.
v
SATISFYING
CUSTOMER DEMAND
HOME (MARKET)
IMPROVEMENT
The year 2020 saw the
American transportation
and manufacturing indus-
try stretched thin. Many
liquids divisions went dry
or converted their filling
lines over to making hand
sanitizer. As a result, the
Company was able to
pick up additional contract
manufacturing business
to fill the rising and un-
expected demand. Our
During the shelter-in-place orders last year, spend-
ing on home improvement projects increased. The
Company had previously seen solid sell-through on
several home care products, and the introduction
of our Star brite Home™ branded teak products
saw positive ROI. In August of 2020, this line of teak
cleaners and finishes increased its store count
by 470% at a major home improvement retailer.
E-commerce also introduced new customers to
Star brite core products such as teak care, fabric care,
rust and mildew stain removers, successfully leaping
from niche boating into mainstream homecare, creat-
ing a wider base of Star brite users than ever before.
antifreeze business increased 33.6% over 2019
as a result. In addition to increased orders, the early
The Home Care and Hardware category spend
introduction of our new Boiler System Antifreeze in
on marketing has also increased across the board
late summer satisfied a gap in the market left by a
and will be more visible throughout 2021.
competitor’s exit from the liquids-fulfillment business.
New Star brite Home™ brand
Teak Cleaner & Brightener
and Teak Oil is available
in stores nationwide.
vi
A
GROWING
MARKET
Cannabis is now legal for adults in 16 states
and Washington, D.C.; medical marijuana
is legal in 36. The U.S. cannabis industry
is worth an estimated $61 billion. The
Company brand Odor Star® and its
patented line of chlorine dioxide-
based products is part of it.
vii
Our line of chlorine dioxide gas products is EPA-reg-
istered to kill odor-causing bacteria, mold and
mildew and chemical odors in greenhouses, hydro-
ponic facilities, and indoor & outdoor agricultural
facilities, making it a prime choice in an industry
(much like the marine industry) that is constantly
combatting the costly effects of excess moisture.
Our chlorine dioxide liquid is also EPA-registered to
control mold, mildew, and other fungi for the pro-
fessional cultivator to use in almost all areas of a
growhouse, including grow beds, cure rooms, mother
rooms, clone rooms, and more. For drying cannabis,
the presence of mold can ruin an entire harvest.
The combinination of the gas and liquid products
played a vital role in developing a new international
standard for cleaning and disinfection at indoor
and greenhouse cannabis cultivation facilities.
ASTM D8219-2019: Standard Guide for Cleaning and
Disinfection at a Cannabis Cultivation Center uses
Odor Star® private label products for controlling
both atmospheric and surface contaminants
throughout a facility, thereby reducing the chance
of bad grows or wasted crop and increasing
profits in an already highly-profitable market.
Disinfection as a Service
Our liquid chlorine dioxide products also con-
tributed to a new, emerging market. A key
component to whole-house or whole-workplace
disinfection and sanitization, many companies
A TRUSTED PRIVATE
LABEL PARTNER
The Company maintains a strong and profitable
private label program, with the ability to custom-
ize almost all of our products. Among our current
private label partners, we saw increased demand
with our Odor Star® line of chlorine dioxide-based
technology—both the liquid (Performacide®) and gas
(NosGUARDSG) products—accounting for over 58% of
the approximately $8.4 million in sales the category
saw for 2020, an increase more than 375% over 2019.
A Growing Market
The continued adoption of legal cannabis across
the country has contributed to that growth. The
U.S. cannabis industry is worth an estimated
$61 billion.1 Given the market potential, Odor
Star private label products are set for success.
viii
have found a solid path forward using this
Performacide® is a winner for several reasons:
product to provide disinfection as a service.
With the looming threat of COVID having mostly
subsided, the lingering effects on many industries
has yet to be determined. Customers are more
aware and alert to cleaning protocols than years
past. So as the worry for surface disinfection
may gradually decrease in homes across the US,
The pre-measured pouches ship dry,
reducing costs by not shipping water
or air. This reduces the disinfectant’s
overall carbon footprint.
The self-contained pouch also has no
quantifiable shelf life. While bleach
and disinfecting wipes have expiration
dates set from their date of manufac-
ture, the patented Performacide® pouch is
not limited by such constraints. This makes
it ideal for long-term storage, prepping, or
disaster relief causes.
On-the-spot chlorine di-
oxide generation is easy
with Performacide®.
The pouch is simply
dropped into water.
Other comparable
products on the mar-
ket, such as tabs or
liquids, require open
exposure to a poten-
tially dangerous chemi-
cal reaction.
the heightened standards have not. Businesses
Spray and go. Performacide®
and restaurants will still be held to these higher
standards of cleaning, a reason Performacide®
and its private label partners continue to play a
pivotal role in no-hassle, spray-and-go disinfection
routines in workplaces throughout the country.
A NEW BEGINNING
Performacide®, registered under the Compa-
ny’s wholly owned subsidiary Odor Star® LLC,
finally came into its own in 2020.
Performacide® is an EPA-registered disinfec-
tant, sanitizer, fungicide, and deodorizer. The
product is packaged in self-contained, pre-mea-
sured pouches which are activated on-site to
create a powerful chlorine dioxide solution.
require zero wiping after spray-
ing, reducing time and energy on
each cleaning task. The product also
doesn’t leave any poisonous or carcino-
genic residuals.
Pre-pandemic, Performacide® found its home
mostly in home use, but has now expanded
into hardware, pet, marine, and RV.
The outlook for Performacide® remains
solid, even as the COVID-19 scare
tapers. Having won over a firm
customerbase, the potential for
the product is only growing.
ix
ENTERING NEW
MARKETS
By acquiring brands rich in market oppor-
tunity, we open new avenues of revenue.
The acquisition of Check Corporation
and the Damp Check® brand in late 2019
opened doors into the self storage sector.
(VIRTUALLY) THE BEST
Developing new, innovative products sparks
interests from customers regardless of medium.
With many tradeshows cancelled last year and
many more attended virtually, the Company
leveraged every tool possible to connect with
customers. From 3D booth walkthroughs to
creating an in-house video productin studio
in our Fort Lauderdale headquarters, we
were able to capture sales and introduce
new products in new and innovative ways.
The self-storage market is growing. The valua-
tion of the self-storage market reached $87.65
billion USD in 2019. By 2025, that valuation
is expected to grow to $115.62 billion2.
As Damp Check® already has a strong presence
at one of the top players in the US segment,
we look forward to leveraging this opportu-
nity with additional offerings and products as
we enter the 2021-22 season, furthering our
foothold in this vast and growing market.
HERE ARE A FEW OF
THOSE NEW PRODUCTS
AND WHY THEY WORK...
x
BOILER SYSTEM ANTIFREEZE
A warm floor on a cold morning. Never running out of hot water.
These are a few of the benefits of a hydronic heating system--one
of the *hottest* interior upgrades to modern RVs. These systems
require a quality heat transfer antifreeze to circulate the heat
throughout the cabin. New Star brite Boiler System Antifreeze
is formulated to withstand a high range of temperatures to keep
hydronic heating systems running smoothly and comfortably, and at
peak performance. Now available through distributors nationwide.
ULTIMATE
WATER ABSORBER
With over 3-square-feet of PVA-drying ability, our
Ultimate Water Absorber is super soft, lint-free, and priced to
sell. It comes in its own carrying case for easy use-and-store, and
the case is even squared off, so it doesn’t roll right off a deck (if
you’ve used other brands, you’ll totally get this). It’s super absor-
bent, and is great for drying everything: use it after cleaning to
prevent mold and mildew smells, throw it down as a rug to dry
dirty feet (or shoes!) and avoid slips, rub down the dog before it
jumps in the truck (it doesn’t pull hair), and when you’re done,
just throw it in the wash machine. It’s a really versatile item.
ULTIMATE
MAGIC SPONGE XTEND + REFILL
Reach out and clean something with the Magic Sponge Xtend.
This product is a novel item to the marine industry. It takes one of our fastest
growing sellers—our Ultimate Magic Sponge, which is an improved-upon
version of a melamine scuff eraser—and, essentially, puts it on a stick. Simple
idea, but huge impact for boat maintenance. Easily erase messes without
the pain of kneeling on non-skid or straining to clean hard-to-reach
areas. It attaches to all handles, with a quick connect and screw-
thread adapter included. And the attachment pad can be used
with all of the Star brite scrubber pads as well. It’s an easy choice.
xi
MARINE DESCALING FLUID
New Marine Descaling Fluid safely and quickly busts
through scale, corrosion, salt, and calcium deposits in
raw water-cooled systems, and at a fraction of the cost
of similar products. When your raw water system is bar-
nacled with deposits, it can cause your engine to run hot
or result in AC system inefficiencies by restricting water
flow. A simple recirculation of Marine Descaling Fluid can
remedy these unseen overheating issues without a costly
repair. Plus, it won’t damage seals, gaskets, or rubber
impellers. Available in concentrate or ready-to-use.
Poised to displace competition, this new, smart-
ly-priced option for easy servicing is ideal
for both service yards and end-users.
NO DAMP HANGING BAG
25-COUNT BULK PACK
New this season, Star brite has packed convenience
and savings into one box. The No Damp® Hanging
Bag is a staple for boat and RV winterization,
able to be hung throughout a stored boat or
RV to protect against excess moisture. The new
Hanging Bag 25-Count Bulk Pack saves time,
space, packaging, and costs—allowing more
units to be readied at a faster rate with less waste.
The Star brite No Damp Hanging Bag Bulk Pack is
available now through all distributor partners.
xii
WE INVEST IN
THE FUTURE
Building beyond tomorrow is the
strategy for success today.
The record-setting financial numbers that the
New planned Kinpak expansion paves
the road for continued growth
With new business and new market opportunities,
we’re investing again. Kinpak is expanding its
manufacturing and distribution facilities by an
additional 69,000 sq. ft. on its 23-acre site. This
planned expansion will bring the total facility square
Company delivered in 2020 are in part the
footage to exceed 370,000 sq. ft. of dedicated space
result of our long-term strategy of investments
for production, warehousing, and distribution.
in our manufacturing plant, Kinpak, Inc.
Our 2017 plant expansion was essential to support
the increase in business we actualized in 2020.
Without the plant expansion, we would not have
had the capacity to meet customer demands.
While many companies affected by the coronavi-
rus pandemic experienced layoffs and furloughs,
Kinpak was able to continue operations, and
continued operating throughout every lock-
down. We now employ approximately 145 full
time employees with benefits—an increase of
approximately 50% from the beginning of 2020.
Our innovative planning and investment strate-
gy has remained solid; previous manufacturing
expansions and upgrades proved extremely
beneficial in our financial success in 2020. While
other suppliers and manufacturers—dependent
on imports and outsourcing of materials and
products—could not meet customer demands,
our made-in-USA, vertical manufacturing facility
was well-positioned to ramp up production. This
increase in production resulted in an overall increase
in gross margin for the Company, as the fixed plant
expenses were spread over the higher production
volume, delivering a higher return per product.
We’ve already broken ground, and we’re pro-
jected to complete the project by early 2022.
xiii
THE YEAR
AHEAD...
Only a few short months into 2021 and signs are
positive of another great financial year to look
forward to. Warmer weather has allowed boats to
splash sooner even in northern states, kicking off the
season in a much-anticipated end to the lockdown.
Yet?, airing on Discovery Channel. The show will
feature RV travels across the United States with special
filming rights throughout the national park system.
Both Star brite and Star tron are primary sponsors.
While we are achieving outstanding growth, and our
financial position remains very strong, our market
share is still just a ripple in the wave of potential
that is Ocean Bio-Chem, Inc. Boat and RV sales
have skyrocketed3* over the past year. And of those
Our marketing plans are in full swing. One of the unex-
new boat owners, 10% are first-time buyers. We’re
pected outcomes of the stay-at-home order was that
excited. The industry is experiencing an influx of
television and streaming viewership of our sponsored
new energy—a younger generation—all wanting
media broke records. In addition to high viewership,
to bring friends and family into the lifestyle. For
because some of our shows were the very few that
us, that represents a new and lasting customer
could continue production throughout the pandemic,
that wants the same outstanding results that
they were broadcast well beyond their initial region
our products provide our current customers.
and into markets hungry for fresh programming,
gaining new viewers and new potential customers.
We are optimistic about the continued growth
of our business and profits, as well as our OBCI
family. Thank you to every team member for con-
tributing to the outstanding results we delivered
in 2020. Let’s keep our heads up and lines tight.
Thank you.
Peter G. Dornau
Chairman of the Board, President and Chief Executive Officer
This fall, we’re proud to sponsor one of the first
mainstream RV-themed television series, RV There
xiv
xiv
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, 2020
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
Trading Symbol
OBCI
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 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm
that prepared or issued its audit report.
☐
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 30, 2020 was $40,247,940,
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 26, 2021, 9,481,799 shares of the registrant’s common stock were outstanding.
Portions of the registrant’s definitive proxy statement, which will be filed not later than April 30, 2021, are incorporated by reference in
Part III of this report.
DOCUMENTS INCORPORATED BY REFERENCE
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
6
6
6
6
6
6
6
11
11
11
11
12
12
12
12
12
12
13
14
15
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, our ability to provide required capital to support inventory
levels, the effect of price increases in raw materials that are petroleum or chemical based or commodity chemicals on our margins, 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 impact of the COVID-19 pandemic on our business and the economy in
general, 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
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, home care 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 2020 and 2019 totaled approximately
$2,212,000 and $1,788,000, representing 4.0% and 4.2% 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:
The Company’s wholly owned subsidiary, KINPAK Inc. (“Kinpak”) has been engaged since 2017 in a project involving the expansion
of its manufacturing, warehouse and distribution facilities in Montgomery, Alabama, as well as the purchase and installation of
associated machinery and equipment (the “Expansion Project”). Kinpak has completed the construction of, and placed into service, an
approximately 85,000 square foot addition to the facilities and an expansion of a tank farm to accommodate an additional 500,000
gallons of tank capacity. At December 31, 2020, the Company had unused proceeds from the industrial development bond of
approximately $477,000 in a custodial account restricted for the use of funding additional capital improvements. The Company intends
to utilize the remaining proceeds to purchase machinery and equipment to expand production capacity. See Note 8 to the consolidated
financial statements included in this report for additional information.
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
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 both retailers as well as 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 three customers exceeded 10% of our consolidated net sales, and in the aggregate constituted approximately 41.5%
and 43.2% of our consolidated net sales, for the years ended December 31, 2020 and 2019, respectively. Net sales to our four largest
unaffiliated customers for the years ended December 31, 2020 and 2019 amounted to approximately 49.6.% and 52.0% of our
consolidated net sales, respectively, and at December 31, 2020 and 2019, outstanding accounts receivable balances from our four largest
unaffiliated customers aggregated approximately 70.6% and 64.9% 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: At December 31, 2020 we had open orders of approximately $7.1 million. These orders are
not on backorder and are scheduled to be shipped to customers during the first quarter of 2021. We generally do not give customers the
right to return products. The majority of our products are non-seasonal and are 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.
2
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.
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.
Governmental Regulation: We believe that the high cost of acquiring federal and state licenses in order to sell chlorine dioxide products
provide a high barrier to entry for competitors.
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, 2020, we had 192 full-time employees and eight part-time employees. The following table provides
information regarding personnel working for the Company and its subsidiaries at December 31, 2020:
Location
Fort Lauderdale, Florida
Fort Lauderdale, Florida
Montgomery, Alabama
Description
Administrative, sales, and marketing
Manufacturing and distribution
Manufacturing and distribution
Number of
Employees
451
6
1492
200
1 Includes three part-time employees.
2 Includes five part-time employees.
____________________________________________________3______________________________________________________
Item 1A. Risk Factors
If we do not compete effectively, our business will suffer.
We confront aggressive competition in the sale of our products. In each of the markets in which we sell our products, we compete with
a number of national and regional competitors. Competition in the automotive market is particularly intense, with many national and
regional companies marketing competitive products. Many of our competitors in the automotive market are more established and have
greater financial resources than we do. Moreover, we confront intense competition with respect to our Performacide® disinfectant,
sanitizing and deodorizing products from a large number of competitors, many of which are well established and have substantially
greater financial resources than we do. Our inability to successfully compete in our principal markets would have a material adverse
effect on our financial condition, results of operations and cash flows.
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 four largest unaffiliated customers accounted for 49.6% of our consolidated net sales in 2020; our largest unaffiliated
customer accounted for 16.0% of our consolidated net sales in 2020. 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
50.6% 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
$2,212,000 and $1,788,000 during the years ended December 31, 2020 and 2019, respectively. In addition, we provided administrative
services and advances for business related expenditures to the affiliated companies. During the years ended December 31, 2020 and
2019, fees for administrative services aggregated approximately $871,000 and $779,000, 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 $199,000 and $113,000, respectively. Receivables due from the affiliated companies in connection with product sales,
administrative services, and advances for business related expenditures totaled approximately $1,496,000 and $962,000 at December
31, 2020 and 2019, respectively. The accounts receivable turnover ratio for the year ended December 31, 2020 with respect to sales to
the affiliated companies was approximately 3.2 and with respect to administrative services and advances for business related
expenditures was approximately 2.0. 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 4 and 10 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
2020, the world began experiencing an economic slowdown due to restrictions imposed related to the COVID-19 pandemic. We believe
that in 2020 the COVID-19 pandemic did not adversely affect our business. However, the pandemic is ongoing and potential economic
problems caused by the pandemic and other factors could have a material adverse effect on our business, results of operations, financial
condition, cash flows, and stock price.
If we do not effectively utilize or successfully assert intellectual property rights, our competitiveness could be materially
adversely affected.
We rely on trademarks and trade names in connection with our products, the most significant of which are Star brite® and
Star Tron®. In addition, we own patents we have viewed as providing some degree of competitive support for our Performacide®
products. We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights. We cannot assure
that these intellectual property rights will be effectively utilized or, if necessary, successfully asserted. There is a risk that we will not
be able to obtain and perfect our own intellectual property rights, or, where appropriate, license from others intellectual property rights
necessary to support new product introductions. Our intellectual property rights, and any additional rights we may obtain in the future,
may be invalidated, circumvented or challenged, and the legal costs necessary to protect our intellectual property rights could be
significant. 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.
__________________________________________________4________________________________________________________
Our business involves the use of chemicals.
At our Kinpak facility we blend various chemicals that can cause explosions or harmful gas to be released. Mishandling of chemicals
can potentially result in people being hurt or killed, property damaged, and business interruption. On December 9, 2019, there was a
chemical reaction incident at the Kinpak facility that resulted in three employees suffering injuries, which we do not believe to be
serious. The chemical incident damaged various manufacturing equipment with a net book value of $50,520. The Company recorded a
loss for the $50,520 and an offsetting insurance claim receivable of $50,520 in 2019.
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. It is possible that we could become subject to environmental liabilities in the future that could have a material adverse
effect on our business, financial condition, results of operations and cash flows.
Our business, results of operations, financial condition, cash flows, and stock price could in the future be materially adversely
affected by the ongoing COVID-19 pandemic.
The COVID-19 pandemic has caused substantial damage to the national and global economies and remains a significant threat. The
extent to which COVID-19 might impact our business, results of operations, financial condition, cash flow, and stock price is highly
uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the
severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the
outbreak.
Our global manufacturing facilities remain open, though a range of external factors related to the pandemic that are not within our
control, including the potential impact of the pandemic on our workforce, could affect our ability to keep our manufacturing facilities
fully operational. Additionally, global or national supply chains may be affected if the pandemic persists for an extended period. Any
decline or lower than expected demand in our served markets could diminish demand for our products and services, which would
adversely affect our financial condition, results of operations, cash flow, and stock price. Moreover, the COVID-19 pandemic may
adversely affect the financial condition of our customers and suppliers in the future or their ability to purchase Company products, may
delay customers’ purchasing decisions, result in a shift away from discretionary products, and may result in longer payment terms or
inability to collect customer payments. These issues may also materially affect our future access to our sources of liquidity, particularly
our cash flows from operations, financial condition and ability to consummate future acquisitions.
If significant portions of our workforce are unable to work effectively, including because of illness, quarantines or absenteeism;
government actions; facility closures; work slowdowns or stoppages; limited supplies or resources; or other circumstances related to
COVID-19, our operations could be impacted. We may be unable to perform fully on our customer obligations and we may incur
liabilities and suffer losses as a result.
The duration and intensity of the impact of the COVID-19 pandemic and any resulting disruption to our operations is uncertain but could
have a material impact on our operations, cash flows, and financial condition.
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, 2020, 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.
Weather conditions can adversely affect our sales.
Our sales can be adversely affected by prolonged cold winters which curtail boating activity and by natural disasters such as
hurricanes, floods and tornados. During 2019 both the second and third quarters were adversely affected by weather conditions.
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.
_________________________________________________5______________________________________________________
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 4 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.
PART II
Item 5. Market for 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, 2020, there were 90 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.
During 2020, we started paying regular quarterly dividends of $0.02 per share, however 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.
The Company’s wholly owned subsidiary, KINPAK Inc. (“Kinpak”) has been engaged since 2017 in a project involving the expansion
of its manufacturing, warehouse and distribution facilities in Montgomery, Alabama, as well as the purchase and installation of
associated machinery and equipment (the “Expansion Project”). Kinpak has completed the construction of, and placed into service, an
approximately 85,000 square foot addition to the facilities and an expansion of a tank farm to accommodate an additional 500,000
_________________________________________________6______________________________________________________
gallons of tank capacity. At December 31, 2020, the Company had unused proceeds from the industrial development bond of
approximately $477,000 in a custodial account restricted for the use of funding additional capital improvements. The Company intends
to utilize the remaining proceeds to purchase machinery and equipment to expand production capacity. See Note 8 to the consolidated
financial statements included in this report for additional information.
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. In addition, we use historical and current information to estimate future credit losses.to determine if
the allowance is adequate. Because we cannot predict future changes in the financial stability of our customers, actual future losses from
uncollectible accounts may differ from estimates. If the financial condition of customers were to deteriorate, resulting in their inability
to make payments, a larger reserve might be required. In the event we determine a smaller or larger reserve is appropriate, we would
record a benefit or charge to selling and administrative expenses in the period in which such a determination was made. The adequacy
of this allowance is reviewed each reporting period and adjusted as necessary. Our allowance for doubtful accounts was approximately
$326,000 and $162,000 at December 31, 2020 and 2019, respectively, which was approximately 3.8% and 2.2% of gross accounts
receivable at December 31, 2020 and 2019, 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
$197,000 and $6,000 in 2020 and 2019, respectively.
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 approximately $290,000 and $244,000 at December 31, 2020 and 2019,
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.
_________________________________________________7______________________________________________________
In assessing the realizability of our deferred tax assets, we evaluate positive and negative evidence and use judgments regarding past
and future events, including operating results and available tax planning strategies that could be implemented to realize the deferred tax
assets. 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.
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 other intangible assets including patents, royalty rights, other
trademarks and trade names, customer lists, and product formulas that have finite lives. 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 2020, 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.
_________________________________________________8______________________________________________________
Results of Operations:
The following table provides a summary of our financial results for the years ended December 31, 2020 and 2019:
For The Years Ended December 31,
2020
2019
Percent
Change
Percentage of Net Sales
2020
2019
Net sales
Cost of goods sold
Gross profit
Advertising and promotion
Selling and administrative
Operating income
Interest (expense), net
Gain on insurance settlement
Provision for income taxes
Net income
$ 55,561,169 $ 42,259,487
32,059,747 26,659,427
23,501,422 15,600,060
3,147,289
7,839,411
4,613,360
(118,642 )
-
(996,004 )
3,498,714
2,980,356
8,357,504
12,163,562
(132,466 )
201,210
(2,615,623 )
9,616,683 $
$
31.5 %
20.3 %
50.6 %
(5.3) %
6.6 %
163.7 %
11.7 %
N/A
162.6 %
174.9 %
100.0 %
57.7 %
42.3 %
5.4 %
15.0 %
21.9 %
0.2 %
0.4 %
4.7 %
17.3 %
100.0 %
63.1 %
36.9 %
7.4 %
18.6 %
10.9 %
0.3 %
N/A
2.4 %
8.3 %
Net sales increased by approximately $13,202,000, or 31.5%, during 2020 as compared to 2019. The increase was principally a result
of increased sales that we believe were associated with the impact of the COVID-19 pandemic and its effect on the activities of certain
portions of the population. Among other things, we experienced increased sales of our Teak Care products for home improvement
projects and Star Tron Enzyme Fuel Treatment for the storage of fuels in boats and other gas-powered engines. We believe that following
the easing of certain initial lock down restrictions through the summer and fall of 2020, a portion of the U.S. population increased their
participation in outdoor recreation activities. As a result, sales of products such as boats, RVs, kayaks and paddleboards were at high
levels over the past year, which in turn led to increased sales of our core product groups, marine, RV and outdoor products. Additionally,
we experienced strong sales of Performacide®, our chloride dioxide-based product, since it can be used against SARS CoV 2, the cause
of COVID-19.
Cost of goods sold increased by approximately $5,400,000 or 20.3% in 2020, as compared to 2019. The increase in cost of goods sold
was a result of higher sales volume, partially offset by improved operating efficiencies at our manufacturing subsidiary, Kinpak.
Gross profit increased by approximately $7,901,000, or 50.6%, in 2020 as compared to 2019. The increase in gross profit was
principally a result of increased sales volume. As a percentage of net sales, gross profit increased to 42.3% in 2020 from 36.9% in 2019,
primarily because of a more profitable sales mix and improved operating efficiencies at our manufacturing subsidiary, Kinpak.
Advertising and promotion expenses decreased by approximately $167,000, or 5.3%, during 2020 as compared to 2019. As a
percentage of net sales, advertising and promotion expense decreased to 5.4% in 2020 from 7.4% in 2019. The decrease in advertising
and promotion expenses was principally a result of decreased trade show expenses as a result of the travel and social distancing
restrictions implemented due to the COVID-19 pandemic social distancing policies, decreased magazine advertising, decreased
customer cooperative advertising, and a decrease in product samples used to promote sales, partially offset by increases in internet and
television advertising.
Selling and administrative expenses increased by approximately $518,000, or 6.6%, during 2020 as compared to 2019. The increase
in selling and administrative expenses was primarily a result of increased sales commissions, a higher noncash adjustment to our trade
accounts receivable allowance account, and increased employee salaries, partially offset by a decrease in expenses related to salesmen
travel, meals, and entertainment as a result of the COVID-19 pandemic. As a percentage of net sales, selling and administrative expenses
decreased to 15.0% in 2020 from 18.6% in 2019.
Interest (expense), net during 2020 increased by approximately $14,000, or 11.7%, as compared to 2019.
Gain on insurance settlement was approximately $201,000 during the year ended December 31, 2020. We had no such gain in 2019.
The Company received approximately $487,000 from our insurance company to cover losses from a chemical incident at our Kinpak
facility that took place in December 2019. For more information please refer to Recent Developments and Note 16 included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Provision for income taxes increased by approximately $1,620,000 or 4.7% in 2020, as compared to 2019. The increase was principally
a result of higher net income. As a percentage of income before taxes our provision for income taxes decreased to 21.4% in 2020 from
22.2% in 2019.
9
Liquidity and Capital Resources:
Our cash balance was approximately $11,124,000 at December 31, 2020 compared to approximately $6,125,000 at December 31, 2019.
In addition, we had restricted cash of approximately $477,000 and $1,885,000 at December 31, 2020 and 2019, 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, 2020 and 2019:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate fluctuations on cash
Net increase in cash and restricted cash
Years Ended December 31,
2020
2019
$ 6,207,205 $ 5,991,728
(793,474 )
(1,350,099 )
(923,898 )
(1,267,090 )
2,140
716
$ 3,590,732 $ 4,276,496
Net cash provided by operating activities during 2020 increased by approximately $215,000 or 3.6%, as compared to 2019. The increase
in cash provided by operating activities was principally a result of the increase in the Company’s net income, partially offset by changes
in working capital.
Inventories, net were approximately $13,176,000 and $9,555,000 at December 31, 2020 and 2019, respectively, representing an increase
of approximately $3,621,000, or 37.9%, in 2020. We believe the higher levels of inventories were necessary to meet the Company’s
short-term needs.
Net trade accounts receivable at December 31, 2020 aggregated approximately $8,327,000, an increase of approximately $1,195,000,
or 16.8%, compared to approximately $7,132,000 in net trade accounts receivable outstanding at December 31, 2019. The increase
principally was due to an increase in net sales during the fourth quarter of 2020, as compared to the fourth quarter of 2019. Receivables
due from affiliated companies aggregated approximately $1,496,000 at December 31, 2020, an increase of approximately $534,000, or
55.5%, from receivables due from affiliated companies of approximately $962,000 at December 31, 2019. The increase was principally
due to an increase in net sales to the affiliated companies during the fourth quarter of 2020, as compared to the fourth quarter of 2019.
Net cash used in investing activities during 2020 increased by approximately $557,000, or 70.2%, as compared to 2019. The increase in
cash used in investing activities was a result of an increase of approximately $1,118,000 in cash used for purchases of property, plant
and equipment, partially offset by approximately $487,000 of insurance proceeds (see Results of Operations) received during 2020 and
a decrease of $75,000 for purchases of intangible assets. The cash used for purchases of plant, property and equipment primarily relates
to machinery and equipment at our manufacturing subsidiary Kinpak. In 2019, the Company used $75,000 to acquire intangible assets,
while there were no purchases of intangible assets in 2020.
Net cash used in financing activities during 2020 increased by approximately $343,000 or 37.1%, as compared to 2019. The increase in
cash used in financing activities was principally a result of an increase of approximately $289,000 in dividends paid to common
shareholders. Additionally, payments on long term debt increased by approximately $62,000 in 2020, as compared to 2019.
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, 2020 and 2019, we had outstanding balances of
approximately $3,719,000 and $3,974,000, respectively, under Kinpak’s obligations relating to the industrial development bond
financing respectively, and no borrowings under our revolving credit facility.
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, 2020, 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.
10
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,
2020, we were in compliance with these financial covenants.
In connection with our 2018 acquisition of assets of Snappy Marine, we issued 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). At December 31, 2020,
we had an outstanding balance of $516,666 under the promissory note (including $497,405 recorded as principal and $19,261 to be
recorded as interest expense over the remaining term of the note). We also obtained financing through leases for office equipment,
totaling approximately $100,000 and $26,000 at December 31, 2020 and 2019, 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. In 2020, we recorded $167 in foreign currency translation
adjustments, which resulted in a corresponding increase in shareholders’ equity. In 2019, we recorded $1,243 in foreign currency
translation adjustments, which resulted in a corresponding increase 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 Disclosures 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.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures:
Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of
the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that
as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable
assurance that information we are required to disclose in reports that we file or submit under the Exchange Act are (i) recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms,
and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
Change in Internal Controls over Financial Reporting. No change in internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting.
11
Management’s Annual Report on Internal Control over Financial Reporting
Management of Ocean Bio-Chem, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management evaluated the Company’s internal control over financial reporting as of December 31, 2020. 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, 2020, the Company’s internal control over financial reporting was effective.
Item 9B. Other Information
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information required by this item is incorporated by reference to the Company’s definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
Item 11. Executive Compensation
Information required by this item is incorporated by reference to the Company’s definitive proxy statement, which will be filed with the
Commission no later than 120 days after the close of the fiscal year covered by this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related 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______________________________________________________
Item 15. Exhibits, Financial Statement Schedules
PART IV
(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
4
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
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).
Description of Common Stock (incorporated by reference to Exhibit 4 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2019).
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.
_________________________________________________13_______________________________________________________
101
The following materials from Ocean Bio-Chem Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020,
formatted in XBLR (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets at December 31, 2020 and
December 31, 2019; (ii) Consolidated Statements of Operations for the years ended December 31, 2020 and 2019; (iii)
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020 and 2019; (iv) Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2020 and 2019, (v) Consolidated Statements of
Cash Flows for the years ended December 31, 2020 and 2019 and (vi) Notes to Consolidated Financial Statements.
* Filed herewith.
† Constitutes management contract or compensatory plan or arrangement required to be filed as in exhibit to this report.
Item 16. Form 10-K Summary
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Company has elected not
to include a summary.
____________________________________________________14_____________________________________________________
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 29, 2021
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
Date
/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
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
March 29, 2021
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
15
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of independent registered public accounting firm
Consolidated balance sheets
Consolidated statements of operations
Consolidated statements of comprehensive income
Consolidated statements of shareholders’ equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Page
F-2 – F-3
F-4
F-5
F-6
F-7
F-8 – F-9
F-10 - F-21
F-1
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 sheets of Ocean Bio-Chem, Inc. (the Company) as of December
31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, shareholders’ equity,
and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes and schedules
(collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
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 audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex
judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Revenue
As described in Note 1 to the Company’s consolidated financial statements, the Company recognizes revenue upon transfer
of control of promised products to customers in an amount that reflects the consideration the Company expects to receive
in exchange for those products. The Company also offers sales allowances to certain customers, which are recorded as a
reduction of net sales. In addition, the allowances for doubtful accounts 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.
We identified the Company’s estimate of the allowance for doubtful accounts and accrual for the sales allowances as critical
audit matters. The principal considerations for our determination of these critical audit matters related to the high degree of
subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these judgments and assumptions
by the Company involves auditor judgment due to the nature and extent of audit evidence and effort required to address
these matters.
F-2
The primary procedures we performed to address these critical audit matters included the following:
• We selected a sample of customer agreements and performed the following procedures:
- Obtained and read sales allowance agreements for each selection.
- Tested management’s identification and treatment of contract terms.
- Assessed the terms in the customer agreement and evaluated the appropriateness of management’s
application of their accounting policies, along with their use of estimates, in the determination of revenue
recognition conclusions.
• We evaluated the reasonableness of management’s estimate of the sales allowances included within accrued
expenses payable on the consolidated balance sheets.
• We evaluated the relevance and the reasonableness of assumptions related to the evaluation of the allowance for
doubtful accounts, current economic conditions, and other risk factors used in development of the qualitative factors
by comparing these data points to audit evidence gathered.
We have served as the Company’s auditor since 2018.
Tampa, Florida
March 29, 2021
4806 West Gandy Boulevard ● Tampa, Florida 33611 ● 813.440.6380
F-3
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2020 AND 2019
ASSETS
Current Assets:
Cash
Trade accounts receivable less allowances of approximately $326,000 and $162,000, respectively
Receivables due from affiliated companies
Insurance claim receivable
Restricted cash
Inventories, net
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment, net
Operating lease – right to use
Intangible assets, net
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt, net
Current portion of operating lease liability
Accounts payable - trade
Accrued expenses payable
Total Current Liabilities
Deferred tax liability
Operating lease liability, less current portion
Long-term debt, less current portion and debt issuance costs
Total Liabilities
COMMITMENTS AND CONTINGENCIES
Shareholders’ Equity:
Common stock - $.01 par value, 12,000,000 shares authorized; 9,481,799 shares and 9,442,809
shares issued and outstanding, respectively
Additional paid in capital
Accumulated other comprehensive loss
Retained earnings
Total Shareholders’ Equity
2020
2019
8,326,939
1,496,104
-
477,426
13,175,756
1,259,786
$ 11,123,726 $ 6,125,322
7,132,256
962,154
50,520
1,885,098
9,555,071
935,022
35,859,737 26,645,443
10,101,962
268,920
1,665,299
9,338,227
352,190
1,949,947
$ 47,895,918 $ 38,285,807
$
500,694 $
86,377
1,966,010
1,142,825
3,695,906
483,477
83,270
1,047,385
1,214,938
2,829,070
380,218
182,543
3,730,180
7,988,847
311,374
268,920
4,142,179
7,551,543
94,818
94,428
10,816,100 10,503,171
(294,491 )
29,290,477 20,431,156
39,907,071 30,734,264
(294,324 )
Total Liabilities and Shareholders’ Equity
$ 47,895,918 $ 38,285,807
The accompanying notes are an integral part of these consolidated financial statements.
F-4
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2020 AND 2019
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), net
Gain on insurance settlement
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.
2020
2019
$ 55,561,169 $ 42,259,487
32,059,747 26,659,427
23,501,422 15,600,060
2,980,356 3,147,289
8,357,504 7,839,411
11,337,860 10,986,700
12,163,562 4,613,360
(132,466 )
201,210
(118,642 )
-
12,232,306 4,494,718
(2,615,623 )
(996,004 )
$
9,616,683 $ 3,498,714
$
$
1.02 $
0.37
0.08 $
0.05
F-5
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2020 AND 2019
Net income
Foreign currency translation adjustment
Comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
2020
2019
$ 9,616,683 $ 3,498,714
167
1,243
$ 9,616,850 $ 3,499,957
F-6
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2020 AND 2019
Common Stock
Shares
Amount
Additional
Paid In
Capital
Comprehensive Retained
Earnings
Loss
Total
Accumulated
Other
January 1, 2019
9,338,191 $
93,382 $ 10,235,827 $
(295,734 ) $ 17,399,776 $ 27,433,251
Net income
Dividends, common stock
-
-
-
-
-
-
Options exercised
27,928
279
13,520
Stock based compensation
83,000
830
274,710
-
3,498,714
3,498,714
-
(468,306 )
(468,306 )
-
-
-
13,799
-
275,540
Shares withheld in consideration of
employee tax obligations related to
stock-based compensation
Cumulative effect adjustment on
adoption of ASU 2016-02 Leases
(Topic 842)
Foreign currency
translation adjustment
(6,310 )
(63 )
(20,886 )
-
-
(20,949 )
-
-
-
-
972
972
-
-
-
1,243
-
1,243
December 31, 2019
9,442,809
94,428
10,503,171
(294,491 )
20,431,156
30,734,264
Net income
Dividends, common stock
-
-
-
-
-
-
Options exercised
15,296
153
20,547
Stock based compensation
25,150
252
312,358
-
9,616,683
9,616,683
-
(757,362 )
(757,362 )
-
-
-
20,700
-
312,610
Shares withheld in consideration of
employee tax obligations related to
stock-based compensation
Foreign currency translation
adjustment
(1,456 )
(15 )
(19,976 )
-
-
(19,991 )
-
-
-
167
-
167
December 31, 2020
9,481,799 $
94,818 $ 10,816,100 $
(294,324 ) $ 29,290,477 $ 39,907,071
The accompanying notes are an integral part of these consolidated financial statements.
F-7
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2020 AND 2019
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
Provision for slow moving and obsolete inventory
Impairment of equipment
Other operating non-cash items
Cash used related to 2019 chemical incident
Gain on insurance settlement
Changes in assets and liabilities:
Trade accounts receivable
Receivables due from affiliated companies
Inventories
Prepaid expenses and other current assets
Accounts payable – trade
Accrued expenses payable
Net cash provided by operating activities
Cash flows from investing activities:
Insurance proceeds received for damaged machinery and equipment
Purchases of property, plant and equipment
Purchase of intangible assets
Net cash used in investing activities
Cash flows from financing activities:
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
Proceeds from CARES Act note
Repayment of CARES Act note
Dividends paid to common shareholders
Proceeds from exercise of stock options
Net cash used in financing activities
Effect of exchange rate on cash
Net increase in cash and restricted cash
Cash and restricted cash at beginning of period
Cash and restricted cash at end of period
2020
2019
$ 9,616,683 $ 3,498,714
1,373,337
68,844
312,610
196,887
46,175
65,725
(549 )
(200,665)
(201,210)
1,289,531
31,025
275,540
6,134
(39,903 )
-
(897 )
-
-
(1,389,520 )
(536,000)
(3,666,860)
(324,764)
918,625
(72,113)
6,207,205
(1,479,704 )
83,836
2,570,645
75,619
(424,845 )
106,033
5,991,728
486,657
(1,836,756 )
-
(1,350,099 )
-
(718,474 )
(75,000 )
(793,474 )
(510,437 )
-
-
(19,991 )
1,556,800
(1,556,800)
(757,362 )
20,700
(1,267,090 )
(448,442 )
1,000,000
(1,000,000 )
(20,949 )
-
-
(468,306 )
13,799
(923,898 )
716
2,140
3,590,732
4,276,496
8,010,420
3,733,924
$ 11,601,152 $ 8,010,420
F-8
Supplemental disclosure of cash flow information:
Cash paid for interest during period
$
141,021 $
156,623
Cash paid for income taxes during period
$ 2,627,384 $
778,009
Operating lease right to use asset exchanged for operating lease liability
Finance lease right to use assets exchanged for finance lease liabilities
Cash paid under operating lease
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
$
$
$
- $
432,466
96,039 $
94,800 $
44,979
94,800
$ 11,123,726 $ 6,125,322
1,885,098
$ 11,601,152 $ 8,010,420
477,426
$
$
- $
-
- $
100,000
(2,988
97,012
The accompanying notes are an integral part of these consolidated financial statements.
F-9
OCEAN BIO-CHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020 AND 2019
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 – The Company recognizes revenue based on Accounting Standards Update (“ASU”) 2014-09, “Revenue from
Contracts with Customers” (Topic 606). Under ASU 2014-09, revenue from a performance obligation satisfied at a point in time is
recognized at the point in time that the Company determines that the customer obtains control over the promised good or service. The
amount of revenue recognized reflects the consideration to which the Company expects to be entitled to in exchange for the promised
goods or services .Under ASU 2014-09, 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. Sales allowances provided by the
Company to customers are recorded as a reduction of net sales.
Leases - On January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842). Based on this standard, the Company
determines if an agreement is a lease at inception. Operating leases are included in operating lease – right to use, current portion of
operating lease liability, and operating lease liability, less current portion in the Company’s consolidated balance sheets. Finance leases
are included in property, plant, and equipment, net, current portion of long-term debt, net and long-term debt, less current portion and
debt issuance costs in the Company’s consolidated balance sheets.
As permitted under ASU 2016-02, the Company has made an accounting policy election not to apply the recognition provisions of ASU
2016-02 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); instead, the Company will recognize the lease payments for short term leases on a
straight-line basis over the lease term. The Company did not have any short- term leases at December 31, 2020 and 2019.
Collectability of accounts receivable – Trade accounts receivable at December 31, 2020 and 2019 are net of allowances for doubtful
accounts aggregating approximately $326,000 and $162,000, 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. In addition, we use historical and
current information to estimate future credit losses.to determine if the allowance is adequate. Because we cannot predict future changes
in the financial stability of our customers, actual future losses from uncollectible accounts may differ from estimates. If the financial
condition of customers were to deteriorate, resulting in their inability to make payments, a larger reserve might be required. In the event
we determine a smaller or larger reserve is appropriate, we would record a benefit or charge to selling and administrative expenses in
the period in which such a determination was made. During the years ended December 31, 2020 and 2019, the Company recorded bad
debt expense of approximately $197,000 and $6,000, 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 net realizable value. 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.
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 $1,456,000 and $1,148,000 for the years ended
December 31, 2020 and 2019, respectively.
__________________________________________________F-10______________________________________________________
Advertising and promotion expense – Advertising and promotion expense consists of advertising costs and marketing expenses,
including catalog costs and expenses relating to participation at trade shows. Advertising costs are expensed in the period in which the
advertising occurs and totaled approximately $2,980,000 and $3,147,000 in 2020 and 2019, 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 $1,069,073 (of which $970,221
is included in cost of goods sold and $98,852 is included in selling and administrative expenses) and $1,015,998 (of which $909,411 is
included in cost of goods sold and $106,587 is included in selling and administrative expenses) for the years ended December 31, 2020
and 2019, 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 $54,000 and $59,000 of research and
development costs for the years ended December 31, 2020 and 2019, 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. At December 31, 2020, the
Company had no outstanding stock options.
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.
Concentration of cash – During the years ended and at December 31, 2020 and 2019, 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.
________________________________________________F-11________________________________________________________
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,
2020.
The Company is no longer subject to income tax examinations for years before 2017.
Intangible assets – The Company’s intangible assets consist of trademarks, trade names, customer lists, product formulas, patents and
royalty rights. At December 31, 2020, The Company had intangible assets with a cost of approximately $3,375,000, of which
approximately $2,793,000 have finite lives and approximately $582,000 have indefinite lives. The Company amortizes intangible assets
with finite lives over the shorter of their estimated useful or legal life. The useful life is reevaluated for each reporting period. The
Company evaluates intangible assets with finite and indefinite lives for impairment at least annually or when events or changes in
circumstances indicate that an impairment may exist. The Company determined that none of its intangible assets were impaired in 2020
or 2019.
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 13.
Note 2 – Inventories
The composition of the Company’s inventories at December 31, 2020 and 2019 are as follows:
Raw materials
Finished goods
Inventories, gross
Inventory reserves
Inventories, net
2020
2019
$ 5,393,961 $ 3,872,752
8,072,176 5,926,525
13,466,137 9,799,277
(290,381 )
(244,206 )
$ 13,175,756 $ 9,555,071
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
$629,000 and $562,000 at December 31, 2020 and 2019, respectively.
________________________________________________F-12________________________________________________________
Note 3 – Property, Plant and Equipment
The Company’s property, plant and equipment at December 31, 2020 and 2019 consisted of the following:
Land
Building and Improvements
Manufacturing and warehouse equipment
Office equipment and furniture
Leasehold improvements
Finance leases – right to use
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
5 years
3 years
2020
2019
278,325 $
278,325
9,563,406 9,563,406
11,959,563 10,699,461
1,880,387 1,778,781
577,068
45,951
10,020
142,612
24,856,828 23,095,624
587,183
113,741
10,020
464,203
(14,754,866 ) (13,757,397 )
$ 10,101,962 $ 9,338,227
The Company’s wholly owned subsidiary, Kinpak Inc. (“Kinpak”), has been engaged since 2017 in a project involving the expansion
of its manufacturing, warehouse and distribution facilities in Montgomery, Alabama, as well as the purchase and installation of
associated machinery and equipment (the “Expansion Project”). Kinpak has completed the construction of, and placed into service, an
approximately 85,000 square foot addition to the facilities and an expansion of a tank farm to accommodate an additional 500,000
gallons of tank capacity. The final phase of the Expansion Project entails the evaluation, purchase and installation of additional
equipment. The Company is financing the Expansion Project through a $4,500,000 industrial development bond, which is described in
Note 8. At December 31, 2020, the Company had unused proceeds from the industrial development bond of approximately $477,000
in a custodial account restricted for the use of funding additional capital improvements. The Company intends to utilize the remaining
proceeds to purchase machinery and equipment to expand production capacity.
Note 4 – Leases
The Company has one operating lease and two finance leases.
Under the operating lease, 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. Operating lease expense was approximately $98,000 and $100,000 for the years ended December 31, 2020 and 2019, respectively.
At December 31, 2020 and 2019, the Company had a right to use asset and a corresponding liability of $268,920 and $352,190,
respectively related to the operating lease. Set forth below is a schedule of future minimum rent payments under the operating lease.
Years ending December 31,
2021
2022
2023
Total future minimum lease payments
Less imputed interest
Total operating lease liability
$
$
94,800
94,800
94,800
284,400
(15,480 )
268,920
The Company’s two finance leases relate to office equipment. See Note 3 for information regarding the Company’s finance lease right
to use assets and Note 8 for information regarding the finance lease payment schedule.
F-13
Costs incurred with respect to the Company’s leases during 2020 and 2019 are set forth below.
Operating lease expense
Finance lease amortization
Finance lease interest
Total lease expense
2020
2019
$
$
98,086 $
22,167
1,137
121,390 $
99,792
22,756
945
123,493
The remaining lease term with respect to the operating lease, weighted average remaining lease term with respect to the finance leases
and discount rate with respect to the operating lease and finance leases at December 31, 2020 and 2019 are set forth below:
Remaining lease term – operating lease
Weighted average remaining lease term – finance leases
Discount rate – operating lease
Weighted average discount rate – finance leases
Note 5 – Intangible Assets
The Company’s intangible assets at December 31, 2020 and 2019 consisted of the following:
December 31,
December 31,
2020
3.0 years
4.6 years
3.7 %
1.8 %
2019
4.0 years
2.6 years
3.7 %
3.0 %
Net
Accumulated
Amortization
Cost
$
622,733 $
1,715,325
584,468
292,234
160,000
544,644 $
78,089
626,413 1,088,912
314,256
270,212
157,127
135,107
26,915
133,085
$ 3,374,760 $ 1,709,461 $ 1,665,299
Accumulated
Amortization
Cost
$
622,733 $
1,715,325
584,468
292,234
160,000
Net
492,308 $
130,425
587,387 1,127,938
431,149
153,319
215,575
76,659
44,860
115,140
$ 3,374,760 $ 1,424,813 $ 1,949,947
December 31, 2020
Intangible Assets
Patents
Trade names and trademarks
Customer list
Product formulas
Royalty rights
Total intangible assets
December 31, 2019
Intangible Assets
Patents
Trade names and trademarks
Customer list
Product formulas
Royalty rights
Total intangible assets
F-14
On December 27, 2019, the Company acquired intangible assets of Check Corporation, a manufacturer and distributer of mildew and
humidity control products.
The allocated cost of the intangible assets acquired from Check Corporation 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 Check Corporation
Amount
$
65,445
58,805
29,402
153,652
$
Life
5 years
5 years
5 years
Amortization expense related to intangible assets aggregated $284,648 and $253,917 for the years ended December 31, 2020 and 2019,
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, 2020,
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.
At December 31, 2020 and 2019, the Company had no borrowings under the revolving line of credit provided by the Business Loan
Agreement.
Note 7 – Accrued Expenses Payable
Accrued expenses payable at December 31, 2020 and 2019 consisted of the following:
Accrued customer promotions
Accrued payroll, commissions, and benefits
Other
Total accrued expenses payable
F-15
2020
2019
$
342,481 $
440,302
360,042
530,957
417,629
266,352
$ 1,142,825 $ 1,214,938
Note 8 – Long Term Debt
Industrial Development Bond Financing
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, 2020, the Company
was in compliance with these financial covenants.
Through December 31, 2020, of the $4,500,000 proceeds of the Bond sale, there are unused proceeds of approximately $477,000
remaining that are held in a custodial account and may be drawn by Kinpak from time to time to fund additional expenditures related to
the Expansion Project. Due to restrictions under, among other things, the Internal Revenue Code and the Lease on Kinpak’s utilization
of the funds held in the custodial account, such funds are classified as restricted cash on the Company’s consolidated balance sheets.
The Company intends to utilize the remaining proceeds to purchase machinery and equipment to expand production capacity.
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 assets of Snappy Marine, 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.
_________________________________________________F-16______________________________________________________
In connection with the Company’s agreement to purchase assets of Check Corporation, the Company agreed to pay Check Corporation
$100,000 in equal installments of approximately $4,348 over a 23-month period that commenced on January 15, 2020 with a final
payment due and payable on November 15, 2021. The Company recorded $97,012 as principal, and the remaining $2,988, representing
an imputed interest rate of 3.15% per annum, will be recorded as interest expense over the 23 months.
On June 22, 2020, the Company entered into a lease agreement with Canon Solutions America, Inc. to lease office equipment. The lease
obligates the Company to pay $100,009 in 63 equal monthly payments of $1,587. The lease is classified as a finance lease. The Company
recorded a lease liability which is included in long term debt and a corresponding right to use asset that is included in property, plant
and equipment of $96,039 based on a discount rate of 1.53%.
At December 31, 2020 and 2019, the Company was obligated under lease agreements covering office equipment utilized in the
Company’s operations (inclusive of the lease referenced in the preceding paragraph). The office equipment leases, aggregating
approximately $100,000 and $26,000 at December 31, 2020 and 2019, respectively, have maturities through 2025 and carry interest
rates ranging from approximately 1.53% to 3.86% per annum. The office equipment leases are classified as finance leases. During the
years ended December 31, 2020 and 2019, the Company paid $23,304 ($22,167 principal and $1,137 interest) and $23,701 ($22,756
principal and $945 interest), respectively, under the lease agreements.
The following table provides information regarding the Company’s long-term debt at December 31, 2020 and 2019:
Current Portion
Long Term Portion
Obligations related to industrial development bond financing $
Note payable related to Snappy Marine asset acquisition
Obligation related to Check Corporation asset acquisition
Equipment leases
Total principal of long- term debt
Debt issuance costs
Total long- term debt
$
263,881 $
188,187
47,082
21,160
520,310
(19,616 )
500,694 $
December 31,
2020
December 31,
2019
December 31,
2020
3,454,904 $
309,218
-
78,847
3,842,969
(112,789 )
3,730,180 $
December 31,
2019
3,718,785
497,405
47,082
11,312
4,274,584
(132,405 )
4,142,179
255,471 $
182,869
49,930
14,823
503,093
(19,616 )
483,477 $
Required principal payments under the Company’s industrial development bond financing and other long- term obligations are set forth
below:
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
Note 9 – Income Taxes
$ 520,310
487,427
418,325
308,995
314,577
2,313,645
$ 4,363,279
The components of the Company’s provision for income taxes for the years ended December 31, 2020 and 2019 are as follows:
Federal – current
Federal – deferred
State – current
State – deferred
Total provision for income taxes
2020
2019
$ 2,475,632 $ 921,954
29,628
43,025
1,397
$ 2,615,623 $ 996,004
65,745
71,147
3,099
________________________________________________F-17_______________________________________________________
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
Permanent adjustments
Tax credits and other
Provision for income taxes
%
2020
$ 2,568,784
67,569
(2,302 )
9,679
(28,107)
$ 2,615,623
21.0 % $
0.5 %
(0.0 )%
0.1 %
(0.2 )%
21.4 % $
%
2019
943,891
33,954
(1,149 )
11,911
7,397
996,004
21.0 %
0.8 %
(0.0 )%
0.3 %
0.1 %
22.2 %
The Company’s deferred tax liability consisted of the following at December 31, 2020 and 2019:
Deferred tax liability
Inventory reserves
Trade accounts receivable allowances
Depreciation and amortization
Total net deferred tax liability
Note 10 – Related Party Transactions
2020
2019
$
$
63,855 $
71,678
(515,751)
(380,218) $
53,701
35,541
(400,616 )
(311,374 )
The Company sells products to companies affiliated with Peter G. Dornau, who is the Company’s Chairman, President and Chief
Executive Officer. The affiliated companies resell, outside of the United States and Canada, products they purchase from the Company.
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 $2,212,000 and
$1,788,000 for the years ended December 31, 2020 and 2019, respectively; fees for administrative services aggregated approximately
$871,000 and $779,000, 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 $199,000 and $113,000 during the years ended
December 31, 2020 and 2019, respectively. The Company had accounts receivable from the affiliated companies in connection with the
product sales, administrative services and business-related expenditures aggregating approximately $1,496,000 and $962,000 at
December 31, 2020 and 2019, 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 approximately $77,000 ($48,000 for research and
development, $9,000 for charter boat services that the Company used to provide sales incentives for customers and $20,000 for the
production of television commercials) and $94,000 ($42,000 for research and development, $31,000 for charter boat services that the
Company used to provide sales incentives for customers, and $21,000 for the production of television commercials) for the years ended
December 31, 2020 and 2019, 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 4 for a description of the lease terms.
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, 2020 and 2019, the Company paid an aggregate of approximately $1,365,000
and $1,424,000, respectively, in insurance premiums on policies obtained through the insurance broker.
F-18
Note 11 – Stock Options and Awards
On May 29, 2015, the Company’s shareholders approved the Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan (the “Plan”). The
Plan provides for grants of several types of awards at the discretion of the Equity Grant Committee of the Company’s Board of Directors,
including stock options, stock units, stock awards, stock appreciation rights and other stock-based awards. The Plan authorizes the
issuance of 630,000 shares of Company common stock, subject to anti-dilution adjustments upon the occurrence of certain events
affecting the common stock. During 2020 and 2019, the Company granted stock awards under the Plan aggregating 25,150 and 83,000
shares of common stock, respectively, to officers, key employees, and directors. Following the withholding of an aggregate of 1,456
and 6,310 shares of common stock, respectively, in connection with a tax withholding feature of the Plan, 23,694 and 76,690 shares
were issued to the award recipients, during 2020 and 2019, respectively. 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 $312,610 and $275,540 in
2020 and 2019, respectively. The value of the shares the Company withheld for taxes related to the stock awards was $19,991 and
$20,949 in 2020 and 2019, respectively. At December 31, 2020, 153,850 shares remained available for future issuance under the
Plan. 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. The Company had no outstanding
options under the Prior Plans on December 31, 2020. The last tranche of non-qualified options was exercised before their expiration
date of April 25, 2020. There was no compensation expense attributable to stock options recognized during 2020 and 2019, and at
December 31, 2020 and 2019, there was no unrecognized compensation cost related to share based compensation arrangements
During 2020, stock options to purchase an aggregate of 20,000 shares of common stock were exercised. The Company received a total
of $20,700, withheld 4,704 shares in connection with the net exercise feature of the stock options and issued an aggregate of 15,296
shares to the option holders who exercised their options.
During 2019, stock options to purchase an aggregate of 30,000 shares of common stock were exercised. The Company received a total
of $13,799, withheld 2,072 shares in connection with the net exercise feature of the stock options and issued an aggregate of 27,928
shares to the option holders who exercised their options.
The following table provides information relating to stock option transactions during the years ended December 31, 2020 and 2019:
Options outstanding beginning of the year
Options exercised
Total
Note 12 – Customer Concentration
2020
Weighted
Average
Exercise
2019
Weighted
Average
Exercise
Shares
Price
Shares
Price
20,000 $
(20,000 )
-- $
2.07
2.07
--
50,000 $
(30,000 )
20,000 $
1.24
0.69
2.07
During the years ended December 31, 2020 and 2019, the Company had net sales to each of three major customers that constituted in
excess of 10% of its net sales. Net sales to these three customers respectively represented approximately 41.5% (16.0%, 15.0%, and
10.5%) and 43.2% (21.7%, 11.2%, and 10.3%) of the Company’s net sales, respectively, for the years ended December 31, 2020 and
2019.
At December 31, 2020 and 2019, three customers constituted at least 10% of the Company’s gross trade accounts receivable. The gross
trade accounts receivable balances for these customers represented approximately 63.6% (28.8%, 21.1%, and 13.7%) and 56.8% (28.0%,
15.3%, and 13.5%) of the Company’s gross trade accounts receivable, respectively, at December 31, 2020, and 2019.
F-19
Note 13 – 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
Years Ended December 31,
2020
2019
$
9,616,683 $
3,498,714
Weighted average number of common shares outstanding
9,460,659
9,391,264
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
$
1.02 $
0.37
$
9,616,683 $
3,498,714
9,460,659
9,391,264
3,687
9,464,346
8,170
9,399,434
Earnings per common share – Diluted
$
1.02 $
0.37
The Company had no stock options outstanding at December 31, 2020 and 2019, respectively that were anti-dilutive and therefore not
included in the diluted earnings per common share calculation.
Note 14 – Cash Dividends
The Company’s board of directors declared the following cash dividends during the years ended December 31, 2020 and 2019:
Year ended December 31, 2020
Declaration
Date
05/26/20
05/26/20
08/26/20
11/23/20
Total
Type
Special
Quarterly
Quarterly
Quarterly
Record Date
06/09/20
06/09/20
09/09/20
12/03/20
Payment Date
06/23/20
06/23/20
09/23/20
12/17/20
Dividend
Per Share
$0.02
0.02
0.02
0.02
$0.08
Amount
$189,242
189,242
189,242
189,636
$757,362
Year ended December 31, 2019
Declaration
Date
03/22/19
Type
Special
Record Date
04/05/19
Payment Date
04/19/19
Dividend
Per Share
$0.05
Amount
$468,306
F-20
Note -15 – Recent Accounting Pronouncements
Accounting Guidance Adopted by the Company
In June 2016, the Financial Accounting Standards Board (“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, expected credit losses will be measured based not only on past events and current conditions,
but also on reasonable and supportable forecasts. 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. The Company adopted ASU 2016-13 on January
1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
F-21
EXHIBIT 21
The following is a list of the Registrant’s subsidiaries:
Name
of Organization
Ownership %
Jurisdiction
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
Florida
Florida
Florida
Florida
Florida
Florida
Alabama
Florida
100
100
100
100
100
100
100
100
EXHIBIT 31.1
I, Peter G. Dornau, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
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, 2021
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
I, Jeffrey S. Barocas, certify that:
CERTIFICATION
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Ocean Bio-Chem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Dated: March 29, 2021
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
EXHIBIT 32.1
I, Peter G. Dornau, Chief Executive Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
2.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
By:
/s/ Peter G. Dornau
Peter G. Dornau
Chairman of the Board, President and
Chief Executive Officer
Dated: March 29, 2021
CERTIFICATION PURSUANT TO RULE 13a-14(b)
UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350
EXHIBIT 32.2
I, Jeffrey S. Barocas, Chief Financial Officer of Ocean Bio-Chem, Inc. (the "Company"), hereby certify that, based on my
knowledge:
1.
2.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and result of operations of the Company.
By:
/s/ Jeffrey S. Barocas
Jeffrey S. Barocas
Vice President, Chief Financial Officer
Dated: March 29, 2021
Endnotes
1
2
3
https://flowhub.com/cannabis-industry-statistics
https://www.forbes.com/sites/forbesrealestatecouncil/2020/12/01/a-look-at-self-storage-growth-trends-now-and-post-pandemic/
https://www.cnbc.com/2021/03/19/boat-sales-took-off-during-pandemic-dealers-cant-keep-up-with-demand.html
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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, Florida 33611
Reports and Publications
A free copy of the Company’s 2020
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 2020 and 2019:
2020
2019
High
$7.95
$17.41
$22.55
$18.03
Low
$3.18
$4.05
$11.55
$11.23
High
$3.99
$3.78
$3.72
$3.68
Low
$3.17
$2.90
$3.21
$3.28
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
OCEAN BIO-CHEM, INC. BOARD OF DIRECTORS
Peter G. Dornau
Jeffrey S. Barocas
Diana M. Conard*
Gregor M. Dornau
William W. Dudman
James M. Kolisch
Kimberly A. Krause*
John B. Turner*
*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
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.NOSGUARD.com
www.ODORSTAR.com • www.PERFORMACIDE.com
www.AUTOODORELIMINATOR.com
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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.NOSGUARD.com
www.ODORSTAR.com • www.PERFORMACIDE.com
www.AUTOODORELIMINATOR.com
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