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, 20162018

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)

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:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ☐  No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐

Indicate by check mark whether registrant has submitted electronically and posted on its corporate Web site, if any every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes ☒x     No  ☐¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  ☐  No  ☒

The aggregate market value of the Common Stockregistrant’s common stock held by non-affiliates of the registrant atas of June 30, 201629, 2018 was $7,071,550,$10,837,621, based upon the closing price of the registrant’s common stock on such date as reported by the NASDAQ Capital Market.  For purposes of making this computation only, all executive officers, directors and beneficial owners of more than five percent of the registrant's Common Stockregistrant’s common stock are deemed to be affiliates.

At March 31, 2017, 9,146,93728, 2019, 9,366,119 shares of the registrant’s Common Stockcommon stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant'sregistrant’s definitive proxy statement, which will be filed not later than April 30, 2017,2019, are incorporated by reference in Part III of this report.

OCEAN BIO-CHEM, INC.

TABLE OF CONTENTS

Forward-looking Statements:

Certain statements contained in this Annual Report on Form 10-K, including without limitation, theestimated costs of expansion of facilities operated by our manufacturing and warehouse facilities,wholly-owned subsidiary, KINPAK Inc. (“Kinpak”), our ability to locate substitute third party manufacturing facilities in the event arrangements with any third party manufacturer are discontinued,without a substantial adverse effect on our ability to renew or replace our revolving credit facility, anticipated decreases in sellingmanufacturing and administrative expenses, our ability to provide required capital to support inventory levels,distribution, the effect of price increases in raw materials that are petroleum or chemical based or commodity chemicals on our margins, and the sufficiency of funds provided through operations and existing sources of financing to satisfy our cash requirements 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,"“believe,” “may,” “will,” “expect,” “anticipate,” “intend,” or "could,"“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 whichthat may cause actual results to be materially different from those expressed or implied by such forward-looking statements. Factors that may affect these results include, but are not limited to, the highly competitive nature of our industry; reliance on certain key customers; changes in consumer demand for marine, recreational vehicle and automotive products; expenditures on, and the effectiveness of our advertising and promotional efforts; unanticipated litigation developments; exposure to market risks relating to changes in interest rates, foreign currency exchange rates and prices for raw materials that are petroleum or chemical based, and other factors.factors discussed below under Item 1A, “Risk Factors.”

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PART I

Item 1. Business

General:

We are principally engaged in the manufacture, marketing and distribution of a broad line of appearance, performance and maintenance products for the marine, automotive, power sports, recreational vehicle and outdoor power equipment markets, under the Star brite® and Star Tron® brand names. We sell these products within the United States of America and Canada.  In addition, we produce private label formulations of many of our products for various customers and provide custom blending and packaging services for these and other products.  We also manufacture, market and distribute chlorine dioxide-based deodorizing disinfectant, sanitizing and deodorizingsanitizing products under the Performacide®Star brite® and Star brite®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"” “we” or "our.“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 20162018 and 20152017 totaled approximately $1,850,000$2,190,000 and $2,075,000$2,070,000 or 5.1%5.2% and 6.1%5.5% of our net sales, respectively.  See Note 910 to the consolidated financial statements included in this report for additional information.

Because our operations involve, in all material respects, substantially similar manufacturing and distribution processes, our operations constitute one reportable segment for financial reporting purposes.

Recent Developments:

We are proceeding withnearing completion of a project to expandinvolving the expansion of the manufacturing, warehouse and distribution facilities of our subsidiary, Kinpak,KINPAK Inc. ("Kinpak"(“Kinpak”), in Montgomery, Alabama. AsAlabama, as well as the purchase and installation of associated machinery and equipment (the “Expansion Project”). The remaining work on the Expansion Project involves completion of a bottle filling line and the purchase and installation of additional equipment. We currently contemplated,are operating in the project will entailexpanded facilities. At December 31, 2018, we have spent an aggregate of approximately 85,000 square feet addition$6.0 million on the Expansion Project, and the total cost of the Expansion Project is estimated to be approximately $6.7 million.

Pursuant to an asset acquisition agreement dated July 13, 2018, we acquired assets of Snappy Marine, Inc. (“Snappy Marine”), a Florida corporation that marketed and distributed Snappy Teak-NU^®, a cleaning product for teak surfaces on boats, for an aggregate purchase price of $1,358,882. See Note 4 to the facilities and an expansion of Kinpak’s outdoor blended tank farmconsolidated financial statements included in this report for additional information. We have added Snappy Teak-NU^® to accommodate an additional 500,000 gallons in tank capacity, thereby doubling the tank farm’s current capacity. The first phase of the project, involving expansion of the tank farm, was initiated earlier in 2017. We are using internal funds for this phase, although we currently are in negotiations to finance the costs of the entire project. Nevertheless, we cannot assure that such financing will be obtained. We currently estimate that the project cost will be approximately $4.7 million.our product portfolio.

Products:

The products that we manufacture and market include the following:

Marine:  Our marine line consists of polishes, cleaners, protectants and waxes under the Star brite^® brand name, enzyme fuel treatment under the Star Tron^® brand name, and private label products sold by some of our customers.  The marine line also includes motor oils, boat washes, vinyl cleaners, protectants, teak cleaners, teak oils, bilge cleaners, hull cleaners, silicone sealants, polyurethane sealants, polysulfide sealants, gasket materials, lubricants, antifouling additives and anti-freeze coolants.  In addition, we manufacture a line of brushes, poles,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). ItStar 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, which is fuel containing 10% ethanol.fuel.  Other specialty recreational vehicle/power sports products include cleaners, polishes, detergents, fabric cleaners and protectors,protectants, silicone sealants, waterproofers, gasket materials, degreasers, vinyl cleaners and protectors,protectants, toilet treatment fluids and anti-freeze/coolant.

Outdoor Power Equipment/ Lawn & Garden: We market Star Tron® as a solution to help rectify a number of operating engine problems associated with E-10 fuel in commercial lawn equipment and other home and garden power equipment.

Disinfectants, Sanitizers and Deodorizers:Disinfectant Group: Our line of disinfectant sanitizinggroup includes chlorine dioxide based deodorizers, disinfectants and deodorizing products are marketedsanitizers, which we sell under the Performacide^®and Star brite^®and Performacide^® brand names.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, and home restoration, pet care and agriculture markets, and to institutions such as schools and to travel and leisure facilities such as hotels and cruise ships.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 the majoritymost of our products at Kinpak’s manufacturing facilities in Montgomery, Alabama.  In addition, we contract with various third party manufacturers to manufacture some of our products, which are manufactured to our specifications using our provided formulas.  Each third party manufacturer enters into a confidentiality agreement with us.

We purchase raw materials from a variety of suppliers; all raw materials used in manufacturing are readily available from alternative sources.  We design our own packaging and supply our outside manufacturers with the appropriate design or packaging.  We believe that our internal manufacturing capacity and our arrangements with our current outside manufacturers are adequate for our present needs.

In the event that arrangements with any third party manufacturer are discontinued, we believe that we will be able to locate substitute manufacturing facilities without a substantial adverse effect on our manufacturing and distribution.

Marketing and Significant Customers: Our branded and private label products are sold through national retailers such as Wal-Mart, Tractor Supply, West Marine and Bass Pro Shops.  Additionally, we market our products via online retailers.  We also sell to national and regional distributors that resell our products to specialized retail outlets.  In the case of Performacide^® disinfectant/sanitizing products, we sell to distributors that resell our products, in some cases under private labels, to end users principally in the marine, automotive, home restoration, automotive, law enforcement and agriculture markets.

Net sales to each of two customers exceeded 10% of our consolidated net sales, and in the aggregate constituted approximately 33.0%33.1% and 38.2%34.4% of our consolidated net sales for the years ended December 31, 20162018 and 2015,2017, respectively.  Net sales to our five largest unaffiliated customers for the years ended December 31, 20162018 and 20152017 amounted to approximately 48.8%52.7% and 49.0%52.1% of our consolidated net sales, respectively, and at December 31, 20162018 and 2015,2017, outstanding accounts receivable balances from our five largest unaffiliated customers aggregated approximately 36.0%60.5% and 39.4%50.9% of our consolidated accounts receivable, respectively.

We market our products through both internal salesmen and external sales representatives who work on an independent contractor commission basis.  Our personnel also participate in sales presentations and trade shows.  In addition, we market our brands and products through advertising campaigns in national magazines, on television, on the internet, in newspapers and through product catalogs.  Our products are distributed primarily from Kinpak’s manufacturing and distribution facility in Montgomery, Alabama.  Since 2008, we have participated in a vendor managed inventory program with one major customer. See Note 2 to the consolidated financial statements included in this report for additional information.

Backlog, seasonality, and selling terms: We had no significant backlog of orders at December 31, 2016.2018.  We generally do not give customers the right to return products.  The majority of our products is non-seasonal and is sold throughout the year.  Normal trade terms offered to credit customers range from 30 to 180 days depending on the nature of the customer.days.  However, at times we offer extended payment terms or discount arrangements as purchasing incentives to customers.  TheseHistorically, these initiatives dohave not materially affect customaryaffected our overall profit margins.

Competition:

Competition with respect to our principal product lines is described below.  The principal elements of competition affecting all of our product lines are brand recognition, price, service and the ability to deliver products on a timely basis.

Marine:  We have several national and regional competitors in the marine marketplace.  We do not believe that any competitor or small group of competitors hold a dominant market share.  We believe that we can increase or maintain our market share through expenditures directed to our present advertising and distribution channels.

Automotive:  There are a large number of companies, both national and regional, that compete with us.  Many are more established and have greater financial resources than we do.  While our market share is small, the total market size is substantial.  We believe that we have established a reasonableseek to maintain and possibly increase our market share through our present advertising and distribution channels, considering the large size of this market.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 similar 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®Tron^®’s unique formulation and by increasing our advertising and attendance at trade shows.

Disinfectants, Sanitizers and DeodorantsDisinfectant 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 Performacide^®products.

Trademarks:  We have obtained registered trademarks for Star brite®, Star Tron®, Performacide^®and other trade names used on our products.  We view our trademarks as significant assets because they provide product recognition.  We believe that our intellectual property is protected,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 “ClO₂Patents”).  The ClO₂ patents expire in 2022.  We have encountered difficulty in protecting the ClO₂patents through litigation.  See “Risk Factors - If we do not utilize or successfully assert intellectual property rights, our competitiveness could be materially adversely affected,” in Item 1A of this report for additional information.  A 2014 adverse judgment in patent litigation that was upheld on appeal in 2015 has limited the scope of protection provided by the patent.  To date, we do not believe the judgment has materially impaired our ability to effectively market and distribute our Performacide^®products.  However, we are unable to predict the long-term competitive effect of the judgment on these products. 

New Product Development:  We continue to develop specialized products for the marine, automotive, recreational vehicle/power sports and outdoor power equipment/lawn and garden markets.  Expenditures for new product development have not been significant and are charged to operations in the year incurred.

Personnel:  At December 31, 2016,2018, we had 128151 full-time employees.employees and one part-time employee.  The following table provides information regarding personnel working for the Company and its subsidiaries at December 31, 2016:2018:

* Includes one part-time employee.

Item 1A. Risk Factors

If we do not compete effectively, our business will suffer.

We confront aggressive competition in the sale of our products.  In each of the markets in which we sell our products, we compete with a number of national and regional competitors.  Competition in the automotive market is particularly intense, with many national and regional companies marketing competitive products.  Many of our competitors in the automotive market are more established and have greater financial resources than we do.  Moreover, we confront intense competition with respect to our Performacide^® disinfectant, sanitizing and deodorizing products from a large number of competitors, many of which are well established and have substantially greater financial resources than we do. Our inability to successfully compete in our principal markets would have a material adverse effect on our financial condition, results of operations and cash flows.

Our business is, to a significant extent, dependent on a small number of major customers, and the loss of any of these customers could adversely affect our financial condition, results of operations and cash flows.

Net sales to our five largest unaffiliated customers accounted for 52.7% of our consolidated net sales in 2018; the two largest unaffiliated customers accounted for 33.1% of our consolidated net sales in 2018. The loss of any of these customers would have a material adverse effect on our financial condition, results of operations and cash flows.

Our Chairman, President and Chief Executive Officer is a majority shareholder who controls us, and his interests may conflict with or differ from the Company’s interests.

Peter G. Dornau, our Chairman, President and Chief Executive Officer, together with a family entity he controls, owns approximately 51.1% of our common stock.  As a result, Mr. Dornau has the power to elect all of our directors and effectively has the ability to prevent any transaction that requires the approval of our Board of Directors and our shareholders.   Products that we manufacture and that are sold outside of the United States and Canada are purchased from us and distributed by two companies owned by Mr. Dornau, which we refer to as the “affiliated companies.”  The affiliated companies also collectively own the rights to the Star brite® and Star Tron® trademarks and related products outside of the United States and Canada. Sales to the affiliated companies aggregated approximately $2,190,000 and $2,070,000 during the years ended December 31, 2018 and 2017, respectively.  In addition, we provided administrative services and advances for business related expenditures to the affiliated companies. During the years ended December 31, 2018 and 2017, fees for administrative services aggregated approximately $760,000 and $764,000, respectively, and amounts billed to the affiliated companies to reimburse the Company for business related expenditures made on behalf of the affiliated companies aggregated approximately $151,000 and $120,000 during the years ended December 31, 2018 and 2017, respectively.  Receivables due from the affiliated companies in connection with product sales, administrative services, and advances for business related expenditures totaled approximately $1,046,000 and $1,584,000 at December 31, 2018 and 2017, respectively. The accounts receivable turnover ratio for the year ended December 31, 2018 with respect to sales to the affiliated companies was approximately 3.5 and with respect to administrative services and advances for business related expenditures was approximately 1.3. Management believes that the sales and provision of administrative services to the affiliated companies do not involve more than normal credit risk.

We have entered into other transactions with entities owned by Mr. Dornau.  See Notes 10 and 11 to the consolidated financial statements included in this report for additional information.

Economic conditions can adversely affect our business.

We are subject to risks arising from adverse changes in general domestic and global economic conditions, including recession or economic slowdown and disruption of credit markets, which may impair the ability of our customers to satisfy obligations due to us.  In addition, we believe that adverse economic conditions in recent years adversely constrained discretionary spending, which we believe has, at times, adversely affected our product lines,sales, particularly thosewith respect to products directed to the marine and recreational vehicle markets.  AWhile published reports indicate that economic conditions, particularly in the United States, generally have improved over the past several years, a future decline in economic conditions could have a material adverse effect on our financial condition, results of operations and cash flows.

If we do not effectively utilize or successfully assert intellectual property rights, our competitivenesscompetiveness could be materially adversely affected.

We rely on trademarks and trade names in connection with our products, the most significant of which are Star brite® and Star Tron®.  In addition, we own patents we have viewed as providing some degree of competitive support for our Performacide^® products. We rely on trademark, trade secret, patent and copyright laws to protect our intellectual property rights.  We cannot assure that these intellectual property rights will be effectively utilized or, if necessary, successfully asserted.  There is a risk that we will not be able to obtain and perfect our own intellectual property rights, or, where appropriate, license from others intellectual property rights necessary to support new product introductions.  Our intellectual property rights, and any additional rights we may obtain in the future, may be invalidated, circumvented or challenged, in the future, and the legal costs necessary to protect our intellectual property rights could be significant.  In this regard, in 2013, we filed a patent infringement lawsuit in the United States District Court for the Southern District of Florida with respect to a U.S. patent relating to a delivery system for use with products containing chlorine dioxide, but the District Court granted the defendants'defendants’ motion for summary judgment, which the Federal Circuit Court of Appeals affirmed in January 2015. As a result, in March 2015, we stipulated to the dismissal with prejudice of our patent infringement claims in another lawsuit related to the same patent, and, in response, the court dismissed our claims. We are unable to predict the long-term competitive effect of the adverse outcome in the patent litigation on our Performacide^®products. Our failure to perfect or successfully assert intellectual property rights could harm our competitive position and could have a material adverse effect on our financial condition, results of operations and cash flows.

Environmental matters may cause potential liability risks.

We must comply with various environmental laws and regulations in connection with our operations, including those relating to the handling and disposal of hazardous wastes and the remediation of contamination associated with the use and disposal of hazardous substances.  A release of such substances due to accident or intentional act could result in substantial liability to governmental authorities or to third parties.  In addition, we are subject to reporting requirements with respect to certain materials we use in our manufacturing operations.  In January 2011, Kinpak, which owns our manufacturing facility in Montgomery, Alabama, became subject to a consent agreement and final order with the United States Environmental Protection Agency relating to its alleged failure to complete and submit certain required forms with respect to toxic and hazardous chemicals used at its facilities.  Under the consent agreement and final order, Kinpak paid a civil penalty of $110,000.  It is possible that we could become subject to additional environmental liabilities in the future that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our variable rate indebtedness exposes us to risks related to interest rate fluctuation and matures in August 2017.2021.

We have a revolving line of credit with a variable interest rate.  Interest on the revolving line of credit is payable at the 30 dayone month LIBOR rate plus 1.50%1.35% per annum, computed on a 365/360 basis. During the year endedAt December 31, 2016, we did not utilize the revolving line of credit, and at December 31, 2016,2018, we did not have any borrowings outstanding under the revolving line of credit. However, if we borrow amounts under the revolving line of credit in the future, and if interest rates were to increase significantly, our financial condition, results of operations and cash flows could be materially adversely affected. Moreover, we believe, but cannot assure, that we could obtain a renewal of the revolving line of credit or a suitable replacement facility when the current facility terminates in August 2017.2021. 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.

Our Chairman, President and Chief Executive Officer is a majority shareholder who controls us, and his interest may conflict with or differ from the Company's interests.

Peter G. Dornau, our Chairman, President and Chief Executive Officer, together with a family entity he controls, owns approximately 51.9% of our Common Stock.  As a result, Mr. Dornau has the power to elect all of our directors and effectively has the ability to prevent any transaction that requires the approval of our Board of Directors and our shareholders.   Products that we manufacture and that are sold outside of the United States and Canada are purchased from us and distributed by two companies owned by Mr. Dornau, which we refer to as the “affiliated companies.”  Sales to the affiliated companies aggregated approximately $1,850,000 and $2,075,000 during the years ended December 31, 2016 and 2015, respectively.  An affiliated company owns the rights to the Star brite® and Star Tron® trademarks and related products outside of the United States and Canada.

In addition, we provided administrative services to the affiliated companies for fees aggregating approximately $621,000 and $527,000 during the years ended December 31, 2016 and 2015, respectively.  While the terms of the sales to the affiliated companies differed from the terms of sale to other customers, the affiliated companies bear their own warehousing, distribution, advertising, selling and marketing costs, as well as their own freight charges (we pay freight charges in connection with sales to our domestic customers on all but small orders).  Moreover, we do not pay sales commissions with respect to products sold to the affiliated companies.  As a result, we believe our profit margins with respect to sales of our products to the affiliated companies are similar to the profit margins we realize with respect to sales of the same products to our larger domestic customers.  Management believes that the sales to the affiliated companies do not involve more than normal credit risk or present other unfavorable features.  We have entered into other transactions with entities owned by Mr. Dornau.  See Notes 9 and 10 to the consolidated financial statements included in this report for additional information

Trading in our Common Stockcommon stock has been limited, and our stock price could potentially be subject to substantial fluctuations.

Our common stock is listed on the NASDAQ Capital Market, but trading in our stock has been limited.  Our stock price could be affected substantially by a relatively modest volume of transactions.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

Our executive offices and one of our manufacturing facilities are located in Fort Lauderdale, Florida and are leased from an entity controlled by our Chairman, President and Chief Executive Officer.  The lease covers approximately 12,700 square feet of office, manufacturing, and warehouse space.  The lease expires in December 2023. See Note 1011 to the consolidated financial statements included in this report for additional information.

We own Kinpak’sKinpak leases its Alabama manufacturing facility, which currently containsfacilities 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 187,000272,000 square feet of office, plant and warehouse space on 20 acres of land. The facility also includes a 500,000 gallon outdoor blending tank farm.  

In addition, we lease a 15,000 foot warehouse in Montgomery, Alabama, near the Kinpak manufacturing facility. We use the warehouse to fabricate and assemble brushes used for cleaning boats, automobiles and recreational vehicles. The lease expires in July 2018.  

We are proceeding with an expansion project relating to Kinpak’s manufacturing and warehouse facilities. See “Business – Recent Developments” in Item 1 of this report for additional information.

Item 3. Legal Proceedings

Not applicable

Item 4.  Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NASDAQ Capital Market under the symbol OBCI.  A summary of the high and low sales prices during each quarter of 2016 and 2015 is presented below.

On December 31, 2016,2018, there were 116109 holders of record and approximately 1,200 beneficial ownersrecord. We believe that a substantially greater number of holders of our common stock.stock are beneficial owners whose shares are held by brokers and other institutions for the account of the beneficial owners.

On March 25, 2016, the Board of Directors of Ocean Bio-Chem, Inc. declaredWhile we have provided a special cash dividend to our shareholders in each of $0.06 per share payable on April 26, 2016, to shareholders of record on April 12, 2016.  The Company did not pay any dividends in 2015. Payment2017 and 2018, payment of dividends in the future will be subject to the discretion of the Board of Directors in light of numerous factors, including the Company'sour 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 Item 8a separate section of this report.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. While the terms of thebusiness, and management believes that sales to the affiliated companies differed from the terms of sale to other customers, the affiliated companies bear their own warehousing, distribution, advertising, selling and marketing costs, as well as their own freight charges (the Company pays freight charges in connection with sales to its domestic customers on all but small orders).  Moreover, the Company does not pay sales commissions with respect to products sold to the affiliated companies.  As a result, the Company believes its profit margins with respect to sales of its products to the affiliated companies are similar to the profit margins it realizes with respect to sales of the same products to its larger domestic customers. Management believes that the sales to the affiliated companies diddo not involve more than normal credit risk or present other unfavorable features.risk.

We have commenced anare nearing completion of the Expansion Project, which involves the expansion of Kinpak’s manufacturing and warehouse facilities in Montgomery, Alabama. See “Business - Recent Developments” in Item 1 of this report.report for additional information.

Our operating resultsIn July 2018, we acquired assets of Snappy Marine, a company that marketed and distributed Snappy Teak-NU^®, a cleaning product for 2016 and 2015 were adversely affected by professional fees and expenses related to litigation against a competitor in which we and the competitor each claimed that the other was engaged in false advertising and related violations of law (the “Advertising Litigation”). Following a trial in which it was determined that neither party was liableteak surfaces on boats. See Note 4 to the consolidated financial statements included in this report for additional information. We have added Snappy Teak-NU^® to our product portfolio.

Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act, which was enacted on December 22, 2017, changed United States tax law significantly. The most important change affecting Ocean Bio-Chem, Inc. is the reduction in the United States corporate income tax rate to 21%, effective January 1, 2018. Among other things, the Advertising Litigation was concluded. Our professional fees and expenses relatedreduction in the corporate tax rate resulted in a substantial decrease in our provision for income taxes, which is discussed in more detail below under “Results of Operations – Provision for income taxes.”

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606). The Company adopted the new guidance using the full retrospective method, under which the Company applies the new guidance toeach comparative period presented.  See note 1 to the Advertising Litigation were approximately $1,146,000consolidated financial statements included in 2016 and $1,174,000 in 2015.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.

Revenue recognition and collectabilityCollectability of trade accounts receivable

Revenue from product sales is recognized when persuasive evidence of a contract exists, the sales price is fixed and determinable, the title of goods pass to the customer, and collectability of the related receivable is probable.  With respect to a customer for whom the Company manages the inventory at the customer's location, revenue is recognized when the products are sold to a third party.  

In the ordinary course of business, we grant non-interest bearing trade credit to our unaffiliated customers on normal credit terms.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 their current credit information.  We monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience, specific customer collection issues and reviews of agings of trade receivables based on contractual terms.information relating to the customers.  We generally do not require collateral on trade accounts receivable.  We maintain an allowance for doubtful accounts based on our historical collection experience and expected collectability of the trade accounts receivable, after considering our historical collection experience, the period the trade accounts receivable arelength of time an account is outstanding, the financial position of the customer if known and information provided by credit rating services.   The adequacy of this allowance is reviewed each reporting period and adjusted as necessary.  Our allowance for doubtful accounts was approximately $75,000$171,000 and $78,000$79,000 at December 31, 20162018 and 2015,2017, respectively, which was approximately 1.5%2.9% and 1.6% of gross accounts receivable at December 31, 20162018 and 2015.2017, respectively.  If the financial condition of our customers were to deteriorate, resulting in increased uncertainty as to their ability to make payments, or if unexpected events or significant future changes in trends were to occur, we may be required to increase the allowance.allowance or incur a bad debt expense. In this regard, we incurred bad debt expense of approximately $35,000 and $199,000 in 2018 and 2017, respectively. The 2017 bad debt expense principally resulted from a customer’s bankruptcy.

Inventories

InventoriesOur inventories primarily are composed of raw materials and finished goods and are stated at the lower of cost or market,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 marketnet 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 $268,159$284,109 and $279,882$274,295 at December 31, 20162018 and 2015,2017, respectively.

Income taxes

IncomeWe account for income taxes are accounted for under the asset and liability method.  Under this method, deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured and recorded using currently enacted tax rates, which we expect will apply to taxable income in the years in which the differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases are recovered or settled.  The differences are attributable to differing methods of financial statement and income tax treatment with respect to depreciation and reserves for trade accounts receivable and inventories. The likelihood of a material change in our expected realization of deferred tax assets is dependent on, among other factors, changes in tax law, future taxable income and settlements with tax authorities.  While management believes that its judgments and interpretations regarding income taxes are appropriate, significant differences in actual experience may require future adjustments to our tax assets and liabilities, which could be material.

In assessing the realizability of our deferred tax assets, we evaluate positive and negative evidence and use judgments regarding past and future events, including operating results and available tax planning strategies that could be implemented to realize the deferred tax assets.  Based on this assessment,We record a valuation allowance when necessary to reduce our deferred tax assets to the net amount that we determine when itbelieve is more likely than not that all or some portion of our deferredto be realized. We consider available evidence, both positive and negative, and use judgments regarding past and future events, including operating results and available tax assets may not be realized,planning strategies, in which case we would applyassessing the need for a valuation allowance, in an amount equal to future tax benefits that may not be realized, to offset our deferred tax assets.  We currently do not apply a valuation allowance to our deferred tax assets.  However, if facts and circumstances change in the future, a valuation allowance may be required.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. Our intangible assets include trademarks, tradenames, patents and royalty rights. We own several trademarks and trade names, including Star brite®, and Performacide®. We have determined that these intangible assets have indefinite lives and, therefore, are not amortized. In addition, we own severalintangible assets that have finite lives, including patents the most significant of which are the ClO₂ Patents, which relate to a device for producing chlorine dioxideand royalty rights, as well as intangible assets valued at $1,307,250 that we acquired from Snappy Marine in July 2018, including Snappy Marine trademarks and trade names, customer lists and product formulas. As these intangible assets have finite lives, their carrying value is incorporated in our deodorizer, sanitizer and disinfectant products. We amortize our patentsamortized over their remaining life on a straight line basis; amortization expense related to these patents was approximately $51,000 for each of the years ended December 31, 2016 and 2015. In 2013, we acquired royalty rights relating to sales of products encompassing the ClO₂ Patents’ technology (we purchased these rights from an unaffiliated entity that previously owned the ClO₂ Patents and retained the royalty rights after selling the patents). We are amortizing the royalty rights over their remaining life on a straight line basis; amortization expense relatinguseful lives. See Note 5 to the royalty rights was approximately $18,000consolidated financial statements included in this report for each of the years ended December 31, 2016 and 2015.additional information regarding our intangible assets.

We evaluate our indefinite-lived intangible assets (trademarks and trade names) for impairment annually and at other times if events or changes in circumstances indicate that an impairment may have occurred. In evaluating our indefinite-lived intangible assets for impairment, we assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If, after completing the qualitative assessment, we determine it is more likely than not that the fair value of the indefinite-lived intangible asset is greater than its carrying amount, the asset is not impaired. If we conclude it is more likely than not that the fair value of the indefinite-lived intangible assets is less than the carrying value, we would then proceed to a quantitative impairment test, which consists of a comparison of the fair value of the intangible assets to their carrying amounts. In 2016,2018, we performed a qualitative assessment on all of our indefinite lived assets and determined, based on the assessment, that their fair values were more likely than not higher than their carrying values.

We assess the remaining useful life and recoverability of intangible assets having finite lives (patents and royalty rights) whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Such events or circumstances may include, for example, the occurrence of an adverse change with respect to a product line that utilizes the intangible assets. Significant judgments in this area involve determining whether such an event or circumstance has occurred. Any impairment loss, if indicated, equals the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Results of Operations:

The following table provides a summary of our financial results for the years ended December 31, 20162018 and 2015:2017:

Net sales for the year ended December 31, 20162018 increased by approximately $2,218,000$3,859,000 or 6.5%10.2%, as compared to the year ended December 31, 2015.2017. The net sales increase principally is attributable to sales of our Star brite^®branded and private label marine products, winterizing products, and disinfectant group products. The Company’s four largest customers accounted for approximately $2,100,000 of the increase in net sales.

Cost of goods soldincreased by approximately $3,093,000 or 12.7% in 2018, as compared to 2017. The increase in cost of goods sold is principally is a result of increased sales of Star brite® branded marine productsvolume and, to both retailersa lesser extent, increased labor and wholesale distributors ofincreased costs associated with our products. In particular, we believe that the increased sales reflect the benefit of the inclusion of our products in more of our large national “brickexpanded manufacturing and mortar” retail chain customers’ locations, as well as the provision of increased shelf space for our products by these customers. In addition, our sales to online retailers also increased as a result of higher consumer demand.distributing facility.

Cost of goods solddecreased by approximately $316,000 or 1.4% in 2016, as compared to 2015. The decrease in cost of goods sold despite the increase in net sales reflects the more favorable product mix resulting from increased sales of Star brite® branded marine products.

Gross profit increased by approximately $2,534,000$765,000 or 22.3% during 2016,5.6% for the year ended December 31, 2018, as compared to 2015.the year ended December 31, 2017. As a percentage of net sales, gross profit increaseddecreased to 38.3%34.4% in 20162018 from 33.4%35.9% in 2015.2017. The increasesincrease in gross profit andin 2018 is primarily attributable to increased sales volume. The decrease in gross profit as a percentage of net sales during 2018 is principally a result of the more favorable productour sales mix, discussed above.   lower profit margins on sales of our winterizing products, and increased costs associated with our expanded manufacturing and distributing facility.

Advertising and promotion expenseincreased by approximately $106,000$392,000 or 3.5%14.7% during 2016,2018, as compared to 2015.2017.  As a percentage of net sales, advertising and promotion expense decreasedincreased to 8.6%7.3% in 2016 compared to 8.9%2018 from 7.0% in 2015.2017.  The gross increase in advertising and promotion expense is primarily a result of a $176,000 increase in customerincreased internet, magazine, and television advertising, as well as cooperative advertising partially offset by a $66,000 decrease in other marketing expenses.with certain key customers.

Selling and administrative expenses increased by approximately $81,000$341,000 or 1.1%4.7%, during 2016,2018, as compared to 2015, reflecting an2017. The increase in noncash stock basedselling and administrative expenses is principally a result of higher employee compensation expense, higher sales commissions as a result of approximately $131,000. This increase wasincreased sales, and amortization expense related to intangible assets purchased in 2018, partially offset by a decreasereduction in bad debt expense. In 2017, bad debt expense was approximately $199,000, of which approximately $28,000$188,000 resulted from a customer’s bankruptcy. Bad debt expense was approximately $35,000 in legal fees and expenses related to the Advertising Litigation; such fees and expenses were approximately $1,146,000 and $1,174,000 during 2016 and 2015, respectively.  The Company expects selling and administrative expenses to decline substantially in 2017 as a result of the conclusion of the Advertising Litigation during 2016.2018. As a percentage of net sales, selling and administrative expenses decreased to 21.218.3 % in 20162018 from 22.3%19.2% in 2015.2017.

Interest expense, net decreased byfor the year ended December 31, 2018 was approximately $16,000 or 47.0%$122,000; for the year ended December 31, 2017, interest income, net was approximately $2,000. Interest expense in 2016, as compared2018 primarily resulted from interest incurred on our obligations under the industrial development bond financing related to 2015.  The decrease reflects the declining principal outstandingexpansion of Kinpak’s manufacturing, warehouse and distribution facilities, borrowings under our term loan.

Provision for income taxes – Our provision for income taxes for 2016 was approximately $983,000, or 31.9%revolving line of credit, and interest on a promissory note we provided in 2018 in connection with our pretax income, compared to approximately $243,000 in 2015 or 34.5%acquisition of pretax income. Our lower tax rate in 2016 is attributable primarily to an increased benefit with respect to a domestic production activities deduction. For additional information, seeSnappy Marine assets, (see Note 84 to the consolidated financial statements included in this report.report). In 2017, we capitalized interest incurred on our obligations under the industrial development bond financing and our revolving line of credit used to fund a portion of the Expansion Project. In both periods, interest income was generated by an escrow account in which a portion of the funds relating to the industrial development bond financing were deposited pending our utilization of such funds in connection with the Expansion Project.

Provision for income taxes decreased by approximately $283,000 for the year ended December 31, 2018, or 26.3%, as compared to the year ended December 31, 2017. The decrease is principally a result of the Tax Cuts and Jobs Act, which lowered our U.S. corporate income tax rate from 34% to 21%. The expense also decreased because our income before income taxes decreased by approximately $91,000 to approximately $3,586,000 in 2018 from approximately $3,677,000 in 2017. As a percentage of income before taxes our provision for income taxes decreased to 22.1% in 2018 from 29.2% in 2017.

Liquidity and Capital Resources:

Our cash balance was approximately $4,070,000$1,401,000 at December 31, 20162018 compared to approximately $2,468,000$2,418,000 at December 31, 2015.  2017. In addition, we had restricted cash of approximately $2,333,000 and $2,747,000 at December 31, 2018 and 2017, respectively. The restricted cash constitutes amounts held in a custodial account that are to be used from time to time to fund additional capital expenditures in connection with the Expansion Project. See Note 8 to the consolidated financial statements included in this report for additional information.

The following table summarizes our cash flows for the years ended December 31, 20162018 and 2015:2017:

Net cash provided by operating activities for the year ended December 31, 2016 increased2018 decreased by approximately $2,213,000$1,710,000 or 272.4%58.4%, as compared to the year ended December 31, 2015. The comparative increase in cash provided by operating activities during2017. In the year ended December 31, 2016 is attributable to an increase in2018, the Company’s net income of approximately $1,634,000 increasedand noncash expenses ofincreased by approximately $61,000, and net favorable$439,000; however this increase was more than offset by changes in working capital (excluding cash) of $517,000approximately $2,149,000, which primarily resulted from increased inventories. During 2018, the Company increased its gross inventories by approximately $3,021,000, as compared to the same periodan increase of approximately $480,000 in 2015.2017.

Inventories, net were approximately $8,601,000$12,085,000 and $7,915,000$9,074,000 at December 31, 20162018 and 2015,2017, respectively, representing an increase of approximately $686,000$3,011,000 or 8.7%33.2% in 2016.2017. The 2016 increase inhigher levels of inventories reflects anticipated demand in the first quartersales volume of 2017. Moreover, inventory levels at December 31, 2015 reflect the shipment of a large order a major customer in late December 2016.our products during 2019.

Net trade accounts receivable at December 31, 20162018 aggregated approximately $4,932,000, a decrease$5,659,000, an increase of approximately $160,000$695,000 or 3.1%14.0% compared to approximately $5,092,000$4,964,000 in net trade accounts receivable outstanding at December 31, 2015.2017.  The increase principally is due to a change in payment terms for our largest customer from 30 days to 90 days, which became effective in 2018. Receivables due from affiliated companies aggregated approximately $1,190,000$1,046,000 at December 31, 2016, an increase2018, a decrease of approximately $139,000,$538,000, or 13.2% over34.0%, from receivables due from affiliated companies of approximately $1,051,000$1,584,000 at December 31, 2015.2017.

Net cash used in investing activities for the year ended December 31, 20162018 decreased by approximately $511,000 or 53.5%,$3,540,000, as compared to the year ended December 31, 2015. Our purchases of property, plant and equipment during 2016, principally consisting of manufacturing equipment, was considerably below the2017, primarily due to a reduced level of such purchasesexpenditures related to the Expansion Project. During 2018, our cash expenditures related to the Expansion Project were approximately $927,000, as compared to approximately $4,900,000 in 2015. Net2017. In addition, net cash used in investing activities duringfor the year ended December 31, 2015 was offset2018 also reflects approximately $377,000 of cash used in small part by cash proceedsconnection with our acquisition of $55,000 fromSnappy Marine assets. See Note 4 to the sale of a recreational vehicle we usedconsolidated financial statements included in this report for advertising and exhibiting our products at trade shows and other events.additional information.

Net cash used in financing activities for the year ended December 31, 2016 increased2018 was approximately $913,000, while net cash provided by approximately $528,000, or 117.2%, as compared tofinancing activities for the year ended December 31, 2015. The increase2017 was approximately $3,442,826. In both periods, cash was used to pay dividends, repay long term debt, and pay taxes related to net share settlements of stock awards. During the year ended December 31, 2017, we received proceeds of $4,500,000 in connection with the 2016 period is principally dueindustrial development bond financing related to our payment of a special cash dividend aggregating approximately $541,000,the Expansion Project, partially offset by debt issuance costs related to the financing of approximately $22,000$196,000, and we received as a result of$26,400 in proceeds from the exercise of stock options.

See Notes 46 and 68 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 and a term loan.credit. At December 31, 20162018 and 2015,2017, we had outstanding balances of approximately $4,222,000 and $4,463,000, under Kinpak’s obligations relating to the industrial development bond financing respectively, and no borrowings under our current and previous revolving line of credit and outstanding balances of approximately $260,000 and $692,000, respectively, under our term loan. facilities.

The loan agreement relatedpertaining 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 requiring a minimum debt coverage ratio (generally, EBITDAR (net operating profit plus depreciation, amortization and lease/rent expense) divided by current maturities of long-term debt plus interest and lease/rent expense) of 1.75that are described in Note 6 to 1.00, calculated on a trailing twelve month basis, and a maximum debt to capitalization ratio (generally, funded debt divided by the sum of total net worth and funded debt) of 0.75 to 1, calculated quarterly.consolidated financial statements included in this report. At December 31, 2016,2018, we were in compliance with these financial covenants.The revolving credit facility is subject to several events of default, including a decline of the majority shareholder’s ownership below 50% of our debt coverage ratio was approximately 10.60 to 1.00, and our debt to capitalization ratio was approximately 0.02 to 1.00.outstanding shares.

In additionOur guarantee of Kinpak’s obligations related to the industrial development bond financing are subject to various covenants, including financial covenants that are described in Note 8 to the consolidated financial statements included in this report. As of December 31, 2018, we were in compliance with these financial covenants.

See Note 8 to the consolidated financial statements included in this report for information concerning a promissory note we provided in connection with our acquisition of Snappy Marine assets. At December 31, 2018, we had an outstanding balance of $916,666 under the promissory note (including $857,976 recorded as principal and $58,690 to be recorded as interest expense over the remaining term loan, we haveof the note). We also obtained financing through capital leases for office equipment, totaling approximately $69,000$31,000 and $88,000$50,000 at December 30, 201631, 2018 and December 31, 2015,2017, respectively.

Some of our assets and liabilities are denominated in Canadian dollars and are subject to currency exchange rate fluctuations. We do not engage in currency hedging and address currency risk as a pricing issue. InFor the yearyears ended December 31, 2016,2018 and 2017, we recorded $2,113$7,683 and $1,496 in foreign currency translation adjustments, (decreasing shareholders’ equity by $2,113).

During the past few years, we have introduced a number of new products.  At times, new product introductions have required us to increase our overall inventory and haverespectively, which resulted in lower inventory turnover rates.  The effects of reduced inventory turnover have not been material to our overall operations.  We believe that all capital required to fund any inventory increases will continue to be provided by operations and, if necessary, our current revolving line of credit or a renewal or replacement of the facility.  However, we cannot assure that we will be able to secure such a renewal or replacement of our revolving line of credit.corresponding decrease in shareholders’ equity.

Many of the raw materials that we use in the manufacturing process are petroleum or chemical based and commodity chemicals that are subject to fluctuating prices. The nature of our business does not enable us to pass through the price increases to our national retailer customers and to our distributors as promptly as we experience increases in raw material costs. This may, at times, adversely affect our margins.

As noted above,During the Company is proceeding withpast few years, we have introduced a projectnumber of new products.  At times, new product introductions have required us to expand Kinpak’s manufacturing, warehouseincrease our overall inventory and distribution facilitieshave resulted in Montgomery, Alabama. As currently contemplated, the project will entail an approximately 85,000 square feet additionlower inventory turnover rates.  The effects of reduced inventory turnover have not been material to the facilities and an expansion of Kinpak’s outdoor blended tank farm to accommodate an additional 500,000 gallons in tank capacity, thereby doubling the tank farm’s current capacity. The first phase of the project, involving expansion of the tank farm, was initiated earlier in 2017. We are using internal funds for this phase, although we currently are in negotiations to finance the costs of the entire project. Nevertheless, we cannot assure that such financing will be obtained. We currently estimate that the project cost will be approximately $4.7 million.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. However, inAlthough 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 eventsame bank that is providing our current revolving line of credit facility, we anticipate that we are notwill be able to obtain additional financing for our expansion project, completionmaintain borrowings, if any, under the current revolving line of credit facility until the project may be delayed.end of its stated term.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The audited consolidated financial statements of the Company required pursuant to this Item 8 are included in a separate section commencing on page F-1 and are incorporated herein by reference.

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"“Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act are (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Change in Internal Controls over Financial Reporting.  No change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Management of Ocean Bio-Chem, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management evaluated the Company’s internal control over financial reporting as of December 31, 2016.2018. In making this assessment, management used the framework established inInternal Control-Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2016,2018, the Company’s internal control over financial reporting was effective.

Item 9B.  Other Information

Not applicable.

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Information required by this item is incorporated by reference to the Company'sCompany’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'sCompany’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 ShareholderStockholder Matters

Information required by this item is incorporated by reference to the Company'sCompany’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'sCompany’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'sCompany’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.

PART IV

Item 15.  Exhibits, Financial Statements,Statement Schedules and Reports Filed on Form 8K

* 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

summary.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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.

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Ocean Bio-Chem, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Ocean Bio-Chem, Inc. and Subsidiaries(the Company) as of December 31, 20162018, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended. Ocean Bio-Chem, Inc.'s management is responsible for theseended December 31, 2018, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the consolidated financial statements.statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flow for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).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.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. OurAs part of our audit, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An

Our audit also includesincluded performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audit provides a reasonable basis for our opinion.

Adjustments to Prior Period Financial Statements

The consolidated financial statements of the Company as of December 31, 2017, were audited by other auditors whose report dated March 30, 2018, expressed an unmodified opinion on those consolidated financial statements. As discussed in paragraph 3 of Note 1 to the consolidated financial statements, the Company has adjusted its 2017 consolidated financial statements to retrospectively apply the change in accounting related to Accounting Standards Update 2014-09, “Revenue from Contracts with Customers(Topic 606)”. The other auditors reported on the consolidated financial statements before the retrospective adjustment.

As part of our audit of the 2018 consolidated financial statements, we also audited the adjustments to the 2017 consolidated financial statements to retrospectively apply the change in accounting as described in paragraph 3 of Note 1. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the Company’s 2017 consolidated financial statements other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2017 consolidated financial statements as a whole.

  4806 West Gandy Boulevard  ● Tampa, Florida 33611 ●  813.440.6380 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Ocean Bio Chem, Inc.

Opinion on the Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting for revenue from contracts with customers as described in paragraph 3 of Note 1, the consolidated balance sheet of Ocean Bio-Chem, Inc. and Subsidiaries (the “Company”) as of December 31, 2017 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion the consolidated2017 financial statements, referredbefore the effects of the adjustments to aboveretrospectively apply the change in accounting for revenue from contracts with customers as described in paragraph 3 of Note 1 present fairly, in all material respects, the consolidated financial position of Ocean Bio-Chem, Inc. and Subsidiariesthe Company as of December 31, 2016,2017 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting for revenue from contracts with customers as described in paragraph 3 of Note 1 and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Accell Audit and Compliance, P.A. (The 2017 financial statements before the effects of the adjustments discussed in paragraph 3 of Note 1 are not presented herein.)

/s/ EisnerAmper LLPBasis for Opinion

Fort Lauderdale, Florida

March 31, 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ToThese financial statements are the Boardresponsibility of Directors and Shareholders of

Ocean Bio-Chem, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Ocean Bio-Chem, Inc. and Subsidiaries as of December 31, 2015 and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended. Ocean Bio-Chem, Inc.'s management is responsible for these consolidated financial statements.Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).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.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. OurAs part of our audit included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An

Our audit also includesincluded 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 supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audit provides a reasonable basis for our opinion.opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ocean Bio-Chem, Inc. and Subsidiaries as of December 31, 2015 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Goldstein Schechter Koch P.A.

Certified Public AccountantsEisnerAmper LLP

We have served as the Company’s auditor from 2017 until 2018.

EisnerAmper LLP

Fort Lauderdale, Florida

March 30, 20162018 except for paragraph 2 of Note 16 which is as of March 29, 2019

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 20162018 AND 20152017