On December 31, 2017,2019, there were 112100 holders of record. Because manyWe believe that a substantially greater number of holders of our common stock are beneficial owners whose shares are held by brokers and other institutions on behalffor the account of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.beneficial owners.

On April 13, 2017, the Board of Directors of Ocean Bio-Chem, Inc. declared

While we have provided a special cash dividend of $0.06 per share payable on May 11, 2017 to our shareholders of record on April 27, 2017.  

On March 25,in every year since 2016, the Board of Directors of Ocean Bio-Chem, Inc. declared a special dividend of $0.06 per share payable on April 26, 2016 to shareholders of record on April 12, 2016. 

Paymentpayment 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®brite^® and other trademarks within the United States and Canada. In addition, we produce private label formulations of many of our products for various customers and provide custom blending and packaging services for these and other products. We also manufacture, market and distribute a line of products including disinfectants, sanitizers and deodorizers. We sell our products through national retailers and to national and regional distributors. In addition, we sell products to two companies affiliated with Peter G. Dornau, our Chairman, President and Chief Executive Officer; these companies distribute the products outside of the United States and Canada. Transactions with the affiliated companies were made in the ordinary course of business, and management believes that sales to the affiliated companies do not involve more than normal credit risk.

We are nearing completionThe 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. At December 31, 2019, Kinpak had spent an aggregate of approximately $6,117,000 on the Expansion Project. Of that amount, approximately $2,654,000 was provided through a $4,500,000 industrial development bond financing, which involvesis described in Note 8, of the expansionconsolidated financial statements.

On December 9, 2019, there was a chemical incident at our Kinpak facility. As a precautionary measure several employees were sent to the hospital. We believe that no one suffered any serious injuries, and that we do not have any liability relating to personal injuries.

The chemical incident damaged some of Kinpak’s manufacturing and warehouse facilities in Montgomery, Alabama. See “Business - Recent Developments” in Item 1 of this report for additional information.

The Tax Cuts and Jobs Act, which was enacted onequipment. At December 22, 2017, changes 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 from 35% to 21%, effective January 1, 2018. Among other things, the reduction in the corporate tax rate resulted in a substantial decrease in our deferred tax liabilities, which is discussed in more detail below under “Results of Operations – Provision for income taxes.”

Our operating results for 2016 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 which31, 2019, it was determined that neither partymanufacturing equipment with a book value of $50,520 was liableno longer useable. The Company recorded a loss for the $50,520 and an offsetting gain and receivable of $50,520 in 2019. The Company is still assessing the total property damage from the chemical incident.

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842). The Company adopted the new guidance using the modified retrospective method, under which the Company recorded an immaterial cumulative adjustment to retained earnings rather than retrospectively adjusting prior periods. As a result, the Company’s balance sheet presentation at December 31, 2019 is not comparable to the other,presentation at December 31, 2018.  The adoption of ASU 2016-02 resulted in the Advertising Litigation was concluded. Our professional feesrecognition of approximately $432,000 as an operating lease right to use asset and expenses relateda corresponding operating lease liability, and the reclassification of office equipment with a net book value of approximately $27,000 to the Advertising Litigation were approximately $1,146,000 in 2016. As the Advertising Litigation was concluded in 2016, we had no expenses relateda finance lease – right to the Advertising Litigation during 2017.use asset within property, plant and equipment.

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 bearingnon-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 their current credit information.information relating to the customers. We generally do not require collateral on trade accounts receivable. We maintain an allowance for doubtful accounts based on expected collectability of the trade accounts receivable, after considering our historical collection experience, the length of time an account is outstanding, the financial position of the customer if known and information provided by credit rating services.  The adequacy of this allowance is reviewed each reporting period and adjusted as necessary. Our allowance for doubtful accounts was approximately $79,000$162,000 and $75,000$171,000 at December 31, 20172019 and 2016,2018, respectively, which was approximately 1.6%2.2% and 1.5%2.9% of gross accounts receivable at December 31, 20172019 and 2016,2018, 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 a bad debt expense of approximately $199,000$6,000 and $35,000 in 2017, most of which resulted from a customer’s bankruptcy.2019 and 2018, 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 $274,295$244,206 and $268,159$284,109 at December 31, 20172019 and 2016,2018, respectively.

Income taxes

We account for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized to reflect the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured and recorded using currently enacted tax rates, which we expect will apply to taxable income in the years in which the differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases are recovered or settled. The differences are attributable to differing methods of financial statement and income tax treatment with respect to depreciation and reserves for trade accounts receivable and inventories. The likelihood of a material change in our expected realization of deferred tax assets is dependent on, among other factors, changes in tax law, future taxable income and settlements with tax authorities. In this regard, the enactment of the Tax Cuts and Jobs Act resulted in a meaningful reduction in our net deferred tax liability as of December 31, 2017, reflecting the Tax Cuts and Jobs Act’s reduction of the United States corporate income tax rate. 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. 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. Our intangible assets include trademarks, tradenames, patents and royalty rights. We own several trademarks and trade names, including Star brite®brite^® and Performacide®Performacide^®. We have determined that these intangible assets have indefinite lives and, therefore, are not amortized. In addition, we own severalother intangible assets including patents, the most significant of which are the ClO₂ Patents, which relate to a device for producing chlorine dioxideroyalty 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 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 the ClO₂patents was approximately $52,000 ($51,000 for ClO₂patents and $1,000 for other patents) for each of the years ended December 31, 2017 and 2016. In 2013, we acquired royalty rights relating to sales of products encompassing the ClO₂ Patents’ technology (we purchased these rights from an unaffiliated entity that previously owned the ClO₂ Patents and retained the royalty rights after selling the patents). We are amortizing the royalty rights over their remaining life on a straight line basis; amortization expense relating to the royalty rights was approximately $18,000 for each of the years ended December 31, 2017 and 2016.useful lives. See Note 75 to the consolidated financial statements included in this report for additional information.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 2017,2019, 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, 20172019 and 2016:2018:

Net sales for the year ended December 31, 2017 increased by approximately $2,728,000$460,000, or 7.5%1.1%, during 2019 as compared to the year ended December 31, 2016. The net sales increase principally is attributable to sales of our marine products to two of our largest customers. In addition, we experienced sales growth generally with respect to a wide range of customers, including mass merchandisers, large home improvement and marine/sports retail chains, and online retailers.2018.

Cost of goods sold increaseddecreased by approximately $2,105,000$743,000 or 9.4%2.7% in 2017,2019, as compared to 2016.2018. The increasedecrease in cost of goods sold is principallywas primarily a result of a more favorable sales mix, in which sales of higher margin branded marine products increased as a percentage of overall sales, volume, higher raw material costs on ourand lower margin private label marine products and winterizing products and higher manufacturing costs.decreased as a percentage of overall sales.

Gross profit increased by approximately $623,000$1,203,000, or 4.5% during 2017,8.4%, in 2019 as compared to 2016.2018. As a percentage of net sales, gross profit decreasedincreased primarily because of a more favorable sales mix to 37.2%36.9% in 20172019 from 38.3%34.4% in 2016.2018. The higher gross profit percentage along with increased net sales led to the increase in gross profit in 2017 is primarily attributable2019, as compared to increased sales volume. The decrease in gross profit as a percentage of net sales during 2017 is principally a result of lower profit margins on sales of our winterizing products due to both lower sales prices and higher raw material costs.   2018.

Advertising and promotion expenseincreased by approximately $407,000$96,000, or 13.0%3.2%, during 2017,2019 as compared to 2016.2018.  As a percentage of net sales, advertising and promotion expense increased to 9.1%7.4% in 2017 compared to 8.6%2019 from 7.3% in 2016.2018.  The increase in advertising and promotion expense is primarilywas principally a result of increases in sponsorship of a NASCAR driver, product samples used to promote sales and advertising in customer cooperative advertising allowances provided to select customers and other marketing expenses.catalogs.

Selling and administrative expenses decreasedincreased by approximately $363,000$201,000, or 4.7%2.6%, during 2017,2019 as compared to 2016.2018. The decrease reflects the conclusionincrease in selling and administrative expenses was principally a result of the Advertising Litigationhigher employee payroll and benefits, an increase in 2016. In 2016, legal fees and expensesamortization expense related to the Advertising Litigation were approximately $1,146,000. This decrease wasintangible assets we acquired from Snappy Marine in July 2018, and administrative expenses at our manufacturing plant, partially offset by increased employee compensation expenses (including salaries, commissionsa decrease in our provision for bad debts, and stock awards); bad debt expense of approximately $199,000, of which approximately $188,000 resulted from a customer’s bankruptcy; and increased costs of computer programming and other information technology services.depreciation. As a percentage of net sales, selling and administrative expenses decreasedincreased to 18.7 %18.6% in 20172019 from 21.2%18.3% in 2016.2018. 

Interest income,expense, net for the year ended December 31, 2017 wasduring 2019 decreased by approximately $2,000; for the year ended December 31, 2016, interest expense, net was approximately $18,000. Interest income in 2017 was generated principally by an escrow account in which a portion of the funds relating$3,000, or 2.7%, as compared to an industrial development bond financing were deposited pending our utilization of such funds in connection with the Expansion Project. The interest income was offset principally by interest under an earlier term loan that matured on July 6, 2017; we paid all remaining principal and interest on the maturity date. The term loan also was the source of our primary interest obligation in 2016.2018.

Provision for income taxes increased by approximately $91,000 for the year ended December 31, 2017,$205,000 or 29.2% of our pretax income,25.9% in 2019, as compared to approximately $983,000 in the year ended December 31, 2016, or 31.9% of our pretax income.2018. The increase inwas principally a result of higher net income. As a percentage of income before taxes our provision for income taxes which principally was dueincreased to the increase22.2% in our operating income, was offset2019 from 22.1% in part by the benefit reflecting the reduction of our U.S. corporate income tax rate from 34% to 21% under the Tax Cuts and Jobs Act. We revalued our net deferred tax liabilities to give effect to the reduction in the corporate income tax rate, which resulted in an approximately $91,000 tax benefit. For additional information, see Note 8 to the consolidated financial statements included in this report.2018.

Liquidity and Capital Resources:

Our cash balance was approximately $2,418,000$6,125,000 at December 31, 20172019 compared to approximately $4,070,000$1,401,000 at December 31, 2016.  2018. In addition, we had restricted cash of approximately $1,885,000 and $2,333,000 at December 31, 2019 and 2018, 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, 20172019 and 2016:2018:

Net cash provided by operating activities for the year ended December 31, 2017 decreasedduring 2019 increased by approximately $97,000$4,774,000 or 3.2%391.9%, as compared to 2018. The increase was principally a result of the year ended December 31, 2016. The comparative decrease is attributableCompany decreasing its gross inventories during 2019 by approximately $2,571,000 as compared to the Company increasing its gross inventories by approximately $3,021,000 in 2018. Other changes in working capital (excluding cash) ofused approximately $1,099,000 for the year ended December 31, 2017$1,412,000 more in cash during 2019 than 2018. Net income combined with noncash expenses increased by approximately $594,000 during 2019 as compared to changes of approximately $344,000 during the year ended December 31, 2016. These changes were mostly offset by an increase in net income of approximately $508,000 combined with an increase of noncash expenses of approximately $158,000 during the year ended December 31, 2017 as compared to the year ended December 31, 2016.2018.

Inventories, net were approximately $9,074,000$9,555,000 and $8,601,000$12,085,000 at December 31, 20172019 and 2016,2018, respectively, representing an increasea decrease of approximately $473,000$2,530,000 or 5.5%20.9% in 2017. The 2017 increase in2019. We believe the lower levels of inventories reflects anticipated demand inare sufficient to meet the first quarter of 2018.Company’s short-term needs.

Net trade accounts receivable at December 31, 20172019 aggregated approximately $4,964,000,$7,132,000, an increase of approximately $32,000$1,473,000, or 0.7%26.0%, compared to approximately $4,932,000$5,659,000 in net trade accounts receivable outstanding at December 31, 2016.2018.  The increase principally was due to an increase in net sales during the month ended December 31, 2019, as compared to the month ended December 31, 2018. Receivables due from affiliated companies aggregated approximately $1,584,000$962,000 at December 31, 2017, an increase2019, a decrease of approximately $394,000,$84,000, or 33.1% over8.0%, from receivables due from affiliated companies of approximately $1,190,000$1,046,000 at December 31, 2016.2018.

Net cash used in investing activities for the year ended December 31, 2017 increasedduring 2019 decreased by approximately $7,579,000,$942,000, or 54.3%, as compared to 2018. The decrease was a result of the year ended December 31, 2016. The increase isCompany decreasing its cash used for purchases of property, plant and equipment and intangible assets. Cash used for purchases of plant, property and equipment decreased by approximately $640,000, primarily attributable to expenditures related tobecause the Expansion Project and the classification of unused cash proceeds of an industrial development bond financing with respect to the Expansion Project as restricted cash. The classification results from a lease agreement that places limitations on our use of cash we received from the industrial development bond financing.is mostly completed. See “Overview” above for additional information. Cash used for purchases of intangible assets decreased by approximately $302,000. In 2019, the Company used $75,000 to acquire intangible assets from Check Corporation, and in 2018, the Company used $376,722 to acquire intangible assets from Snappy Marine. See Note 65 to the consolidated financial statements included in this report for additional information.

Net cash provided byused in financing activities for the year ended December 31, 2017 wasduring 2019 increased by approximately $3,400,000$11,000 or 1.2%, as compared to net2018. In both years, the Company’s primary use of cash used of approximately $979,000 for the year ended December 31, 2016. During the year ended December 31, 2017, we received proceeds of $4,500,000 from the industrial development bondin financing relatingactivities was to the Expansion Projectpay dividends to common shareholders and had lowerto make payments on long term debt because a term loan that had been outstanding since 2011 matured on July 6, 2017, at which date we repaid all outstanding principal and interest. These increases to cash were partially offset by payments for debt issuance costs.long-term debt.

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. At December 31, 20172019 and 2016,2018, we had outstanding balances of approximately $4,463,000$3,974,000 and $260,000,$4,222,000, under Kinpak’s obligations relating to the industrial development bond financing and a previously outstanding term loan respectively, and no borrowings under our current and previous revolving credit facilities.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 requiringthat are described in Note 6 to the consolidated financial statements included in this report.  At December 31, 2019, we were in compliance with these financial covenants. The revolving credit facility is subject to several events of default, including a minimum fixed charge coverage ratio (generally, the ratio of (A) EBITDA for the four most recently completed fiscal quarters minus the sum of Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures during such period to (B) current maturities of Company long-term debt (as defined) asdecline of the endmajority shareholder’s ownership below 50% of the most recent fiscal quarter plus scheduled 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. The agreement relating to the revolving line of credit generally defines “long term debt”  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.”our outstanding shares.

Our guarantee of Kinpak’s obligations related to the industrial development bond financing effectively isare subject to substantiallyvarious covenants, including financial covenants that are described in Note 8 to the sameconsolidated financial covenants. For the year endedstatements included in this report. As of December 31, 2017, the Company’s fixed charge coverage ratio was approximately 7.30 to 1.00, and at December 31, 2017, the Company’s debt to capitalization ratio was approximately 0.15 to 1.00.

2019, we were in compliance with these financial covenants.

In addition toconnection with our 2018 acquisition of assets of Snappy Marine, we issued a promissory note in the industrial revenue bond financingamount of $1,000,000, including interest (of the $1,000,000 amount of the promissory note, $930,528 was recorded as principal, and the revolving lineremaining $69,472, representing an imputed interest rate of credit,2.87% per annum, is being recorded as interest expense over the term of the note). At December 31, 2019, we havehad an outstanding balance of $716,666 under the promissory note (including $680,274 recorded as principal and $36,392 to be recorded as interest expense over the remaining term of the note). We also obtained financing through capital leases for office equipment, totaling approximately $50,000$26,000 and $69,000$31,000 at December 31, 20172019 and 2016,December 31, 2018, respectively.

Some of our assets and liabilities are denominated in Canadian dollars and are subject to currency exchange rate fluctuations. We do not engage in currency hedging and address currency risk as a pricing issue. For the year ended December 31, 2017,In 2019, we recorded $1,496$1,243 in foreign currency translation adjustments, (decreasing shareholders’ equity by $1,496).

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 havewhich 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,corresponding increase in shareholders’ equity. In 2018, we cannot assure that we will be able to secure suchrecorded $7,683 in foreign currency translation adjustments, which resulted in 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 past few years, we are in the final stages of the Expansion Project, which entails an approximately 85,000 square feet addition to Kinpak’s manufacturing facilities and an expansion of Kinpak’s outdoor tank farm to accommodate an additional 500,000 gallons in tank capacity. The addition to the facilities and expansion of the tank farm are completed. The remaining parts of the Expansion Project involve additional upgrades to the warehouse facilities and the installationhave introduced a number of new manufacturing equipment.products. At December 31, 2017, expenditurestimes, new product introductions have required us to increase our overall inventory and have resulted in connection with the Expansion Project aggregated approximately $5.1 million, and we estimate that the total costlower inventory turnover rates. The effects of the Expansion Project will be approximately $6.0 million. The Expansion Project is expectedreduced inventory turnover have not been material to be completed and placed into service during 2018. The Expansion Project is being financed primarily with the proceeds of the industrial development bond financing, which is described in Note 6 to the consolidated financial statements included in this report. The Expansion Project also is being funded with cash fromour overall operations.

We believe that funds provided through operations, our revolving line of credit, and other sources of financing will be sufficient to satisfy our cash requirements over at least the next twelve months. Although amounts outstanding under our revolving line of credit facility are payable on demand, based on our experience with respect to previous revolving line of credit facilities with the same bank that is providing our current revolving line of credit facility, we anticipate that we will be able to maintain borrowings, if any, under the current revolving line of credit facility until the end of its stated term.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 8.  Financial Statements and Supplementary Data

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

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures:

Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) at the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act are (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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

Management’s Annual Report on Internal Control over Financial Reporting

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

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

Management evaluated the Company’s internal control over financial reporting as of December 31, 2017.2019. 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, 2017,2019, 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’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.

PART IV

Item 15. Exhibits, Financial Statement Schedules

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.