10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

 or

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 0-11102

OCEAN BIO-CHEM, INC.

(Exact name of registrant as specified in its charter)

Florida	59-1564329
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4041 SW 47 Avenue, Fort Lauderdale, Florida	33314
(Address of principal executive offices)	(Zip Code)

954-587-6280

(Registrant’s telephone number, including area code)

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 the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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

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

At November 14, 2018, 9,338,191 shares of the registrant’s Common Stock were outstanding.

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I	Financial Information:
Item 1.	Financial Statements	1
	Condensed consolidated balance sheets at September 30, 2018 (unaudited) and December 31, 2017	1
	Condensed consolidated statements of operations (unaudited) for the three and nine months ended September 30, 2018 and 2017	2
	Condensed consolidated statements of comprehensive income  (unaudited) for the three and nine months ended September 30, 2018 and 2017	3
	Condensed consolidated statements of cash flows (unaudited) for the nine months ended September 30, 2018 and 2017	4
	Notes to condensed consolidated financial statements	5-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
PART II	Other Information:
Item 1A.	Risk Factors	19
Item 6.	Exhibits	20
	Signatures	21

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PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current Assets:
Cash	$	1,835,123		$	2,418,484
Trade accounts receivable less allowances of approximately $214,000 and $79,000, respectively		10,792,379			4,963,895
Receivables due from affiliated companies		638,526			1,584,365
Restricted cash		2,562,725			2,747,360
Inventories, net		11,652,868			9,074,426
Prepaid expenses and other current assets		1,259,085			1,013,213
Total Current Assets		28,740,706			21,801,743
Property, plant and equipment, net		9,728,231			9,291,667
Intangible assets, net		2,113,690			897,408
Total Assets	$	40,582,627		$	31,990,818
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt, net	$	420,779		$	240,017
Revolving line of credit		2,750,000			---
Accounts payable - trade		3,409,146			1,807,120
Accrued expenses payable		1,557,213			812,062
Total Current Liabilities		8,137,138			2,859,199
Deferred tax liability		264,777			153,895
Long-term debt, less current portion and debt issuance costs		4,621,841			4,081,793
Total Liabilities		13,023,756			7,094,887
Commitments and contingencies (Note 10)
Shareholders’ Equity:
Common stock - $.01 par value, 12,000,000 shares authorized; 9,338,191 and 9,254,580 shares issued and outstanding		93,382			92,546
Additional paid in capital		10,235,827			9,931,634
Accumulated other comprehensive loss		(292,064	)		(288,051	)
Retained earnings		17,521,726			15,159,802
Total Shareholders’ Equity		27,558,871			24,895,931
Total Liabilities and Shareholders’ Equity	$	40,582,627		$	31,990,818

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net sales	$	13,181,781		$	11,335,078		$	32,964,533		$	29,178,074
Cost of goods sold		8,670,825			7,520,921			20,821,446			18,330,616
Gross profit		4,510,956			3,814,157			12,143,087			10,847,458
Operating Expenses:
Advertising and promotion		718,424			544,154			2,363,568			1,906,841
Selling and administrative		2,108,846			2,010,617			5,952,693			5,538,478
Total operating expenses		2,827,270			2,554,771			8,316,261			7,445,319
Operating income		1,683,686			1,259,386			3,826,826			3,402,139
Other expense
Interest expense, net		(52,921	)		(259	)		(79,205	)		(3,149	)
Income before income taxes		1,630,765			1,259,127			3,747,621			3,398,990
Provision for income taxes		(358,297	)		(405,501	)		(830,422	)		(1,088,928	)
Net income	$	1,272,468		$	853,626		$	2,917,199		$	2,310,062
Earnings per common share – basic	$	0.14		$	0.09		$	0.32		$	0.25
Earnings per common share – diluted	$	0.14		$	0.09		$	0.31		$	0.25
Dividends declared per common share	$	—		$	—		$	0.06		$	0.06

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net Income	$	1,272,468		$	853,626		$	2,917,199		$	2,310,062
Foreign currency translation adjustment		(169	)		(120	)		(4,013	)		(920	)
Comprehensive income	$	1,272,299		$	853,506		$	2,913,186		$	2,309,142

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30,
	2018			2017
Cash flows from operating activities:
Net income	$	2,917,199		$	2,310,062
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		849,772			726,126
Deferred income taxes		110,882			21,737
Stock based compensation		330,823			324,145
Provision for bad debts		77,732			61,116
Other operating non-cash items		42			(2,839	)
Changes in assets and liabilities:
Trade accounts receivable		(5,906,216	)		(3,576,111	)
Receivables due from affiliated companies		945,839			(89,833	)
Inventories		(2,582,134	)		(1,529,362	)
Prepaid expenses and other current assets		(245,872	)		(72,218	)
Accounts payable – trade		1,602,026			1,264,044
Income taxes payable		---			(1,447	)
Accrued expenses payable		745,151			327,736
Net cash used in operating activities		(1,154,756	)		(236,844	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(1,180,656	)		(3,563,259	)
Purchase of intangible assets		(376,722	)		---
Net cash used in investing activities		(1,557,378	)		(3,563,259	)
Cash flows from financing activities:
Proceeds from long term debt		---			4,500,000
Payments on long-term debt		(224,430	)		(275,220	)
Borrowings on revolving line of credit		2,750,000			1,000,000
Payments for taxes related to net share settlements of stock awards		(25,794	)		(22,468	)
Dividends paid to common shareholders		(555,275	)		(549,255	)
Payments for debt issuance costs		---			(170,022	)
Net cash provided by financing activities		1,944,501			4,483,035
Effect of exchange rate on cash		(363	)		523
Net (decrease) increase  in cash and restricted cash		(767,996	)		683,455
Cash and restricted cash at beginning of period		5,165,844			4,070,445
Cash and restricted cash at end of period	$	4,397,848		$	4,753,900
Supplemental disclosure of cash flow information:
Cash paid for interest during period	$	78,013		$	2,336
Cash paid for income taxes during period	$	630,000		$	1,157,400
Cash	$	1,835,123		$	1,320,287
Restricted cash		2,562,725			3,433,613
Total cash and restricted cash	$	4,397,848		$	4,753,900
Noncash investing and financing activities:
Issuance of note payable for asset acquisition	$	1,000,000		$	---
Imputed interest		(69,472	)		---
Principal portion of note payable issued for asset acquisition	$	930,528		$	---

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

OCEAN BIO-CHEM, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

Interim reporting

The accompanying unaudited condensed consolidated financial statements include the accounts of Ocean Bio-Chem, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period data have been reclassified to conform to the current period presentation.  Unless the context indicates otherwise, the term “Company” refers to Ocean Bio-Chem, Inc. and its subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and assumptions.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted by the Company

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09, which has been modified on several occasions, provides new guidance designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also requires disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new guidance effective January 1, 2018, using the full retrospective method, under which the Company applies the new guidance to each comparative period presented. Under the new guidance, the Company’s performance obligation to its customers under agreements currently in force is satisfied when the goods are shipped or picked up by the customer and title of the goods is transferred (generally upon such shipment or pick up); with regard to a customer for which the Company’s inventory is held at the customer’s warehouses, the Company’s performance obligation is deemed satisfied when the Company is notified of sales by the customer. While the timing of the Company’s revenue recognition did not change, certain allowances provided by the Company to customers, primarily for cooperative advertising, are now considered a reduction of net sales instead of an advertising and promotion expense. This reclassification did not affect net income.

5

In November 2016, the FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The new guidance also requires disclosure of such amounts in the statements of cash flows or in the financial statement footnotes if restricted cash and restricted cash equivalents are presented in separate line items in the balance sheet. The Company adopted this guidance effective January 1, 2018. In accordance with the new guidance, the Company includes additional disclosures regarding its cash and restricted cash amounts in its statement of cash flows for each comparative period presented.

Accounting Guidance Not Yet Adopted by the Company

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under this new guidance, lessees (including lessees under leases classified as finance leases, which are to be classified based on criteria similar to that applicable to capital leases under current guidance, and leases classified as operating leases) will recognize a right-to-use asset and a lease liability on the balance sheet, initially measured as the present value of lease payments under the lease. Under current guidance, operating leases are not recognized on the balance sheet. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; the guidance provides certain practical expedients. The Company is currently evaluating this guidance to determine its impact on the Company’s financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other,” which simplifies the quantitative test for goodwill impairment. Under current guidance, if a reporting unit’s carrying value exceeds its fair value, the entity must determine the implied value of goodwill. This determination is made by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole as if the reporting unit had just been acquired. Under the new guidance, a determination of the implied value of goodwill will no longer be required; a goodwill impairment will be equal to the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” which replaces the “incurred loss” model under current GAAP with a forward-looking “expected loss” model, principally in connection with financial assets subject to credit losses. Under current GAAP, an entity reflects credit losses on financial assets measured on an amortized cost basis only when it is probable that losses have been incurred, generally considering only past events and current conditions in making these determinations. The guidance under ASU 2016-13 prospectively replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, beginning when such assets are first acquired. Under the expected loss model, credit losses will be measured based not only on past events and current conditions, but also on reasonable and supportable forecasts that affect the collectability of financial assets. The guidance also expands disclosure requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as of January 1, 2019. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s financial statements. 

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3. INVENTORIES

The Company’s inventories at September 30, 2018 and December 31, 2017 consisted of the following:

	September 30, 2018			December 31, 2017
Raw materials	$	4,861,236		$	3,994,624
Finished goods		7,069,619			5,354,097
Inventories, gross		11,930,855			9,348,721
Inventory reserves		(277,987	)		(274,295	)
Inventories, net	$	11,652,868		$	9,074,426

The inventory reserves shown in the table above reflect slow moving and obsolete inventory.

The Company operates a vendor managed inventory program with one of its customers to improve the promotion of the Company’s products.  Under the program, Company inventory is held at the customer’s warehouses. The Company manages the inventory levels at the warehouses and recognizes revenue as the products are sold by the customer. The inventories managed at the customer’s warehouses, which are included in inventories, net, amounted to approximately $825,000 and $494,000 at September 30, 2018 and December 31, 2017, respectively.

4. PROPERTY, PLANT & EQUIPMENT

 The Company’s property, plant and equipment at September 30, 2018 and December 31, 2017 consisted of the following:

	Estimated Useful Life	September 30, 2018			December 31, 2017
Land		$	278,325		$	278,325
Building and Improvements	30 years		9,548,922			4,673,409
Manufacturing and warehouse equipment	6-20 years		10,393,794			9,616,086
Office equipment and furniture	3-5 years		1,803,309			1,367,244
Leasehold improvements	10-15 years		571,483			567,898
Vehicles	3 years		10,020			10,020
Construction in process			285,565			5,197,780
Property, plant and equipment, gross			22,891,418			21,710,762
Less accumulated depreciation			(13,163,187	)		(12,419,095	)
Property, plant and equipment, net		$	9,728,231		$	9,291,667

Construction in progress at September 30, 2018 and December 31, 2017 includes $218,024 and $5,087,897, respectively, relating to the expansion of the manufacturing, warehouse and distribution facilities of the Company’s wholly-owned subsidiary, KINPAK Inc. (“Kinpak”), in Montgomery, Alabama. Depreciation expense totaled $261,623 (of which $219,731 is included in cost of goods sold and $41,892 is included in selling and administrative expenses) and $221,115 (of which $175,142 is included in cost of goods sold and $45,973 is included in selling and administrative expenses) for the three months ended September 30, 2018 and 2017, respectively. Depreciation expense totaled $744,092 (of which $616,902 is included in cost of goods sold and $127,190 is included in selling and administrative expenses) and $673,416 (of which $528,512 is included in cost of goods sold and $144,904 is included in selling and administrative expenses) for the nine months ended September 30, 2018 and 2017, respectively.

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5. SNAPPY MARINE ASSET ACQUISITION

Pursuant to an asset acquisition agreement dated July 13, 2018, the Company acquired assets of Snappy Marine, Inc., a Florida corporation that marketed and distributed Snappy Teak – NU^®, a cleaning product for teak decks on boats (“Snappy Marine”). The acquired assets consist of, among other things, Snappy Marine’s trademarks, tradenames and other intellectual property used in its business, including trademarks with respect to “Snappy Marine^®” and “Snappy Teak – NU^®,” and specified marketing, sales and distribution contracts. In addition, the Company acquired limited quantities of product inventory and raw materials. The purchase price for the assets set forth in the asset purchase agreement is $1,358,882 ($1,350,000 for intellectual property and $8,882 for inventory). The Company paid $345,882 to Snappy Marine at the closing of the transaction on July 13, 2018 and deposited an additional $13,000 in escrow; the escrow amount may be used by the Company to procure registrations with respect to certain intellectual property rights. Any unused escrow amounts generally will be provided to Snappy Marine. In addition, the Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be recorded as interest expense over the term of the note). The note is payable in equal installments of $16,667 over a 60 month period that commenced on August 1, 2018, with a final payment due and payable on July 1, 2023. If the note is prepaid in full, the entire outstanding balance of the note (including all unpaid amounts allocated to interest over the remaining term of the note) must be paid. Under circumstances set forth in the asset purchase agreement, the Company may be obligated to pay certain customer refunds, price adjustments and warranty claims asserted through January 31, 2019 with regard to teak products sold by Snappy Marine.  The Company may offset such payments against amounts payable under the promissory note, subject to an aggregate maximum offset of $25,000. In addition to the amounts paid to Snappy Marine, the Company also incurred $39,722 in legal costs directly related to the asset acquisition.

6. INTANGIBLE ASSETS

The Company’s intangible assets at September 30, 2018 and December 31, 2017 consisted of the following:

September 30, 2018 

Intangible Asset	Cost		Accumulated Amortization		Net
Patents	$	622,733	$	426,888	$	195,845
Trade names and trademarks		1,649,880		554,965		1,094,915
Customer list		525,663		21,903		503,760
Product formula		262,832		10,951		251,881
Royalty rights		160,000		92,711		67,289
Total intangible assets	$	3,221,108	$	1,107,418	$	2,113,690

December 31, 2017

Intangible Asset	Cost		Accumulated Amortization		Net
Patents	$	622,733	$	387,636	$	235,097
Trade names and trademarks		1,131,125		549,561		581,564
Royalty rights		160,000		79,253		80,747
Total intangible assets	$	1,913,858	$	1,016,450	$	897,408

On July 13, 2018, the Company acquired intangible assets related to the Snappy Marine Asset Acquisition (see note 5).

The allocated cost of the intangible assets acquired from Snappy Marine consists of the following: 

Intangible Asset	Amount		Life
Trademarks and trade names	$	518,755	20 years
Customer list		525,663	5 years
Product formula		262,832	5  years
Total intangible assets acquired from Snappy Marine	$	1,307,250

Amortization expense related to intangible assets was $55,828 and $17,570 for the three months ended September 30, 2018 and 2017, and $90,968 and $52,710 for the nine months ended September 30, 2018 and 2017.

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7. REVOLVING LINE OF CREDIT

On August 31, 2018, the Company and Regions Bank entered into a Business Loan Agreement (the “Business Loan Agreement”), under which the Company was provided a revolving line of credit. Under the Business Loan Agreement, the Company may borrow up to the lesser of (i) $6,000,000 or (ii) a borrowing base equal to 85% of Eligible Accounts (as defined in the Business Loan Agreement) plus 50% of Eligible Inventory (as defined in the Business Loan Agreement). Interest on amounts borrowed under the revolving line of credit is payable monthly at the one month LIBOR rate plus 1.35% per annum, computed on a 365/360 basis. Eligible Accounts do not include, among other things, accounts receivable from affiliated entities.

Outstanding amounts under the revolving line of credit are payable on demand. If no demand is made, the Company may repay and reborrow funds from time to time until expiration of the revolving line of credit on August 31, 2021, at which time all outstanding principal and interest will be due and payable. The Company’s obligations under the revolving line of credit are principally secured by the Company’s accounts receivable and inventory. The Business Loan Agreement includes financial covenants requiring that the Company maintain a minimum fixed charge coverage ratio (generally, the ratio of (A) EBITDA for the most recently completed four fiscal quarters minus the sum of the Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures during such period to (B) prior year current maturities of Company long term debt plus interest expense incurred over the most recently completed four fiscal quarters) of 1.20 to 1, tested quarterly, and a maximum “debt to cap” ratio (generally, funded debt divided by the sum of net worth and funded debt) of 0.75 to 1, as of the end of each fiscal quarter. For purposes of computing the fixed charge coverage ratio, “EBITDA” generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income; “unfunded capital expenditures” generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures; “long term debt” generally is defined as “debt instruments with a maturity principal due date of one year or more in length,” including, among other listed contractual debt instruments, “revolving lines of credit” and “capital leases obligations” and “prior year current maturities of long term debt” generally is defined as the principal portions of long-term debt maturing within one year as listed at the last quarter end of the prior completed four fiscal quarters. At September 30, 2018, the Company was in compliance with these financial covenants. The revolving line of credit is subject to several events of default, including a decline in the majority shareholder’s ownership below 50% of all outstanding shares.

On August 31, 2017, the Company and Regions Bank entered into a Business Loan Agreement (the “Predecessor Agreement’), under which the Company was provided a revolving line of credit in the maximum amount of $6,000,000.  The Predecessor Agreement, as amended, was substantially similar to the Business Loan Agreement, with the following exceptions:  (i) if no demand for payment was made by Regions Bank, all outstanding amounts were due and payable one year from the date of the Predecessor Agreement; (ii) Interest on amounts borrowed under the Predecessor Agreement was payable monthly at the one month LIBOR rate plus 1.5% per annum, computed on a 365/360 basis.  The Predecessor Agreement expired on August 31, 2018 and was replaced by the Business Loan Agreement.

At September 30, 2018 and December 31, 2017, the Company had $2,750,000 and $0 borrowings, respectively, under the revolving line of credit provided by the Business Loan Agreement and the Predecessor Agreement.

8. LONG TERM DEBT

Industrial Development Bond Financing

On September 26, 2017, Kinpak indirectly obtained a $4,500,000 loan from Regions Capital Advantage, Inc. (the “Lender”). The proceeds of the loan are being used principally to pay or reimburse costs of constructing an approximately 85,000 square foot addition to Kinpak’s manufacturing, warehouse and distribution facilities in Montgomery, Alabama, and costs of purchasing and installing associated machinery and equipment (the “Project”).

The loan was funded by the Lender’s purchase of a $4,500,000 industrial development bond (the “Bond”) issued by The Industrial Development Board of the City of Montgomery, Alabama (the “IDB”). The Bond is a limited obligation of the IDB and is payable solely out of revenues and receipts derived from the leasing or sale of Kinpak’s facilities. In this regard, Kinpak is obligated to fund the IDB’s payment obligations by providing rental payments under a lease between the IDB and Kinpak (the “Lease”), under which Kinpak leases its facilities from the IDB. Under the Lease, prior to the maturity date of the Bond, Kinpak may repurchase the facilities for $1,000 if the Bond has been redeemed or fully paid.

The Bond bears interest at the rate of 3.07% per annum, calculated on the basis of a 360-day year and the actual number of days elapsed (subject to increase to 6.07% per annum upon the occurrence of an event of default), and is payable in 118 monthly installments of $31,324 beginning on November 1, 2017 and ending on August 1, 2027, with a final principal and interest payment to be made on September 1, 2027 in the amount of $1,799,201. The Bond provides that the interest rate will be subject to adjustment if it is determined by the United States Treasury Department, the Internal Revenue Service, or a similar government entity that the interest on the Bond is includable in the gross income of the Lender for federal income tax purposes.

9

Under the Lease, Kinpak is required to make rental payments for the account of the IDB to the Lender in such amounts and at such times as are necessary to enable the payment of all principal and interest due on the Bond and other charges, if any, payable in respect of the Bond. The Lease also provides that Kinpak may redeem the Bond, in whole or in part, by prepaying its rental payment obligations in an amount sufficient to effect the redemption. In addition, the Lease contains provisions relating to the Project, including limitations on utilization of Bond proceeds, deposit of unused proceeds into a custodial account (as described below) and investment of monies held in the custodial account.

Payment of amounts due and payable under the Bond and other related agreements are guaranteed by the Company and its other consolidated subsidiaries. In connection with a guarantee agreement under which the Company provided its guarantee, the Company is subject to certain covenants, including financial covenants requiring that the Company maintain (i) a minimum fixed charge ratio (generally, the ratio of (A) EBITDA minus the sum of Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures to (B) current maturities of Company long-term debt plus interest expense) of 1.2 to 1, tested quarterly, and (ii) a ratio of funded debt (as defined in the guaranty agreement) divided by the sum of net worth and funded debt of 0.75 to 1, tested quarterly. For purposes of computing the fixed charge coverage ratio, “EBITDA” generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income. “Unfunded capital expenditures” generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures. At September 30, 2018, the Company was in compliance with these financial covenants.

Through September 30, 2018, of the $4,500,000 proceeds of the Bond sale, approximately $1,918,000 has been applied to reimburse Kinpak for Project expenditures and approximately $54,000 was paid directly to other parties for certain transaction costs. The remaining amount is held in a custodial account and may be drawn by Kinpak from time to time to fund additional expenditures related to the Project. Because the Lease contains limitations on the manner in which Kinpak may utilize funds held in the custodial account, such funds are classified as restricted cash on the Company’s balance sheets.

The Company incurred debt issuance costs of $196,095 in connection with the financing. These costs are shown as a reduction of the debt balance and are being amortized in accordance with the effective interest method.

Other Long Term Obligations

In connection with the Company’s agreement to purchase the assets of Snappy Marine (see Note 5 above), the Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the promissory note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be recorded as interest expense over the term of the note). The note is payable in equal installments of $16,667 over a 60 month period that commenced on August 1, 2018, with a final payment due and payable on July 1, 2023.

At September 30, 2018 and December 31, 2017, the Company was obligated under capital lease agreements covering equipment utilized in the Company’s operations.  The capital leases, aggregating approximately $34,000 and $50,000 at September 30, 2018 and December 31, 2017, respectively, mature on July 1, 2020 and carry an interest rate of 2%.

The following table provides information regarding the Company’s long-term debt at September 30, 2018 and December 31, 2017:

	Current Portion						Long Term Portion
	September 30, 2018			December 31, 2017			September 30, 2018			December 31, 2017
Obligations related to industrial development bond financing	$	246,070		$	240,395		$	4,037,060		$	4,222,241
Note payable related to asset acquisition		176,433			---			725,178			---
Capitalized equipment leases		17,892			19,238			16,527			31,188
Total principal of long term debt		440,395			259,633			4,778,765			4,253,429
Debt issuance costs		(19,616	)		(19,616	)		(156,924	)		(171,636	)
Total long term debt	$	420,779		$	240,017		$	4,621,841		$	4,081,793

Required principal payments under the Company’s long term obligations are set forth below:

Twelve month period ending September 30,
2019	$	440,395
2020		451,589
2021		448,687
2022		462,388
2023		443,135
Thereafter		2,972,966
Total	$	5,219,160

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9. RELATED PARTY TRANSACTIONS

During the three and nine months ended September 30, 2018 and 2017, the Company sold products to companies affiliated with Peter G. Dornau, who is the Company’s Chairman, President and Chief Executive Officer. The affiliated companies distribute the products outside of the United States and Canada. The Company also provides administrative services to these companies. Sales to the affiliated companies aggregated approximately $344,000 and $239,000 during the three months ended September 30, 2018 and 2017, respectively, and approximately $1,533,000 and $1,525,000 for the nine months ended September 30, 2018 and 2017, respectively. Fees for administrative services aggregated approximately $224,000 and $261,000 (including approximately $23,000 and $29,000, respectively, to reimburse the Company for business related expenditures that it made on behalf of the affiliated companies) during the three months ended September 30, 2018 and 2017, respectively.  Fees for administrative services aggregated approximately $653,000 and $690,000 for each of the nine month periods ended September 30, 2018 and 2017 (including approximately $76,000 and $78,000, respectively, to reimburse the Company for business related expenditures that it made on behalf of the affiliated companies).  The Company had accounts receivable from the affiliated companies in connection with the product sales and administrative services aggregating approximately $639,000 and $1,584,000 at September 30, 2018 and December 31, 2017, respectively. 

An entity that is owned by the Company’s Chairman, President and Chief Executive Officer provides several services to the Company.  Under this arrangement, the Company paid the entity $10,500 for research and development services for each of the three month periods ended September 30, 2018 and 2017, and $31,500 for such services during each of the nine month periods ended September 30, 2018 and 2017. The research and development expenses are included in the statements of operations for the three and nine months ended September 30, 2018 and 2017 as a selling and administrative expense. In addition, during the three months ended September 30, 2018 and 2017, the Company paid this entity $3,500 and $8,750, respectively, for providing charter boat services for marketing and entertainment of Company customers, and $14,000 and $53,750 for such services during the nine months ended September 30, 2018 and 2017. The charter boat services are included in the statements of operations for the three and nine months ended September 30, 2018 and 2017 as an advertising and promotion expense. During the nine months ended September 30, 2018, the Company also paid this entity $21,000 for the production of television commercials, which is being expensed over a twelve month period ending on March 31, 2019.

The Company leases office and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by its Chairman, President and Chief Executive Officer.  See Note 10 for a description of the lease terms.

A director of the Company is Regional Executive Vice President of an insurance broker through which the Company sources most of its insurance needs.  During the three months ended September 30, 2018 and 2017, the Company paid an aggregate of approximately $610,000 and $673,000, respectively, and during the nine months ended September 30, 2018 and 2017, the Company paid an aggregate of approximately $1,059,000 and $1,112,000, respectively, in insurance premiums on policies obtained through the insurance broker.

10.       COMMITMENTS AND CONTINGENCIES

The Company leases its executive offices and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by Peter G. Dornau, the Company’s Chairman, President and Chief Executive Officer. The lease, as extended, expires on December 31, 2023. The lease requires an annual minimum base rent of $94,800 and provides for a maximum annual 2% increase in subsequent years, although the entity has not raised the minimum base rent since the Company entered into a previous lease agreement in 1998. Additionally, the leasing entity is entitled to reimbursement of all taxes, assessments, and any other expenses that arise from ownership. Each of the parties to the lease has agreed to review the terms of the lease every three years at the request of the other party.  Rent expense under the lease was approximately $24,000 for each of the three months ended September 30, 2018 and 2017 and was approximately $73,000 for each of the nine months ended September 30, 2018 and 2017. 

The Company also leased a 15,000 square foot warehouse in Montgomery, AL near its Kinpak manufacturing facility for the purpose of fabricating and assembling brushes used for cleaning boats, automobiles, and recreational vehicles. The Company paid monthly rent of $4,375 under the lease, which commenced on August 1, 2016 and expired on July 31, 2018. The Company has relocated the brush fabrication and assembly operations from the leased warehouse to Kinpak’s facilities, which have been expanded in connection with the Project. See Note 8 above.

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11. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the reporting period.  Diluted earnings per share reflect additional dilution from potential common stock issuances upon the exercise of outstanding stock options.  The following table sets forth the computation of basic and diluted earnings per common share, as well as a reconciliation of the weighted average number of common shares outstanding to the weighted average number of shares outstanding on a diluted basis.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Earnings per common share – Basic
Net income	$	1,272,468	$	853,626	$	2,917,199	$	2,310,062
Weighted average number of common shares outstanding		9,269,704		9,220,401		9,260,219		9,174,305
Earnings per common share – Basic	$	0.14	$	0.09	$	0.32	$	0.25
Earnings per common share – Diluted
Net income	$	1,272,468	$	853,626	$	2,917,199	$	2,310,062
Weighted average number of common shares outstanding		9,269,704		9,220,401		9,260,219		9,174,305
Dilutive effect of employee stock-based awards		39,612		59,067		40,969		65,705
Weighted average number of common shares outstanding - Diluted		9,309,316		9,279,468		9,301,188		9,240,010
Earnings per common share – Diluted	$	0.14	$	0.09	$	0.31	$	0.25

The Company had no stock options outstanding during each of the three and nine month periods ended September 30, 2018 and 2017, respectively, that were antidilutive and therefore not included in the diluted earnings per common share calculation.

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12. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

On May 25, 2018, as part of the Company’s regular compensation for its non-employee directors, the Company issued stock awards to the directors, aggregating 4,000 shares of Company common stock, under the Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan.

On September 11, 2018, a former director exercised a stock option to purchase 10,000 shares of stock. The Company withheld 1,490 shares in connection with the net exercise of the stock option by the former director and delivered 8,510 shares to the former director.

On September 19, 2018, the Company issued 71,101 shares of common stock to its officers and other employees (net of 6,299 shares retained by the Company as a result of tax withholding elections made by some of the recipients) as stock awards under the Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan.

Stock compensation expense during the three months ended September 30, 2018 and 2017 was $316,953 and $306,785, respectively, and during the nine months ended September 30, 2018 and 2017 was $330,823 and $324,145, respectively. At September 30, 2018, there was no unrecognized compensation expense related to stock options.  

The following table provides information regarding outstanding stock options, all of which were granted under the Company’s 2008 Non-Qualified Stock Option Plan.

Date Granted	Shares Underlying Options Outstanding		Shares Underlying Exercisable Options		Exercise Price		Expiration Date	Weighted Average Remaining Term
1/11/09		30,000		30,000	$	0.69	1/10/19		0.3
4/26/10		20,000		20,000	$	2.07	4/25/20		1.6
		50,000		50,000	$	1.24			0.8

13. CASH DIVIDENDS

On March 19, 2018, the Company’s Board of Directors declared a special cash dividend of $0.06 per common share payable on April 16, 2018 to all shareholders of record on April 2, 2018.  There were 9,254,580 shares of common stock outstanding on April 2, 2018; therefore, dividends aggregating $555,275 were paid on April 16, 2018.

On April 13, 2017, the Company’s Board of Directors declared a special cash dividend of $0.06 per common share payable on May 11, 2017 to all shareholders of record on April 27, 2017.  There were 9,154,243 shares of common stock outstanding on April 27, 2018; therefore, dividends aggregating $549,255 were paid on May 11, 2017.

14. MAJOR CUSTOMERS

During the three months ended September 30, 2018 and 2017, the Company’s four largest customers in terms of net sales accounted for approximately 52.1% (20.9%, 16.9%, 7.8%, 6.5%) and 51.1% (23.4%, 18.2%, 5.6%, 3.9%), respectively, of the Company’s net sales, and during the nine months ended September 30, 2018 and 2017 these customers accounted for approximately 50.5% (22.9%, 10.3%, 9.1%, 8.2%) and 50.1% (24.5%, 11.5%, 7.6%, 6.5%), respectively, of the Company’s net sales.

At September 30, 2018 and December 31, 2017, trade accounts receivable due from the Company’s four largest customers constituted 62.3% (25.1%, 17.0%, 10.3%, 9.9%) and 46.4% (14.0%, 11.5%, 11.4%, 9.5%) of the Company’s outstanding trade accounts receivable. In February 2018, the Company changed payment terms for its largest customer from 30 days to 90 days.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements:

Certain statements contained in this Quarterly Report on Form 10-Q, including without limitation, estimated costs of expansion of facilities operated by our wholly-owned subsidiary, Kinpak Inc. (“Kinpak”), our ability to provide required capital to support inventory levels, the effect of price increases in raw materials that are petroleum or chemical based or commodity chemicals on our margins and the sufficiency of funds provided through operations and existing sources of financing to satisfy our cash requirements constitute forward-looking statements. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “believe,” “may,” “will,” “expect,” “anticipate,” “intend,” or “could,” including the negative or other variations thereof or comparable terminology, are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from those expressed or implied by such forward-looking statements. Factors that may affect these results include, but are not limited to, the highly competitive nature of our industry; reliance on certain key customers; changes in consumer demand for marine, recreational vehicle and automotive products; expenditures on, and the effectiveness of our advertising and promotional efforts; unanticipated litigation developments; exposure to market risks relating to changes in interest rates, foreign currency exchange rates and prices for raw materials that are petroleum or chemical based, and other factors addressed in Part I, Item 1A (“Risk Factors”) in our annual report on Form 10-K for the year ended December 31, 2017.

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.

We have been engaged in a project involving the expansion of Kinpak’s manufacturing, warehouse and distribution facilities in Montgomery, Alabama. Construction of the facilities is largely complete, subject only to completion of a filling line, and we are conducting operations in the expanded facilities. Aside from the filling line, the only part of the project that has not been completed is the evaluation, purchase and installation of certain equipment. At September 30, 2018, we have spent an aggregate of approximately $5.9 million, and the total cost of the 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., a Florida corporation (“Snappy Marine”) that marketed and distributed Snappy Teak – NU^®, a cleaning product for teak decks on boats. The assets include, among other things, specified intellectual property, marketing, sales and distribution contracts, and limited quantities of inventory and raw materials. See Note 5 to the condensed consolidated financial statements included in this report for additional information. For a number of years prior to the transaction, we manufactured and blended components of Snappy Teak – NU^® for Snappy Marine.

Critical accounting estimates:

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2017 for information regarding our critical accounting estimates.

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Results of Operations:

Three Months Ended September 30, 2018 Compared to the Three Months Ended September 30, 2017

The following table provides a summary of our financial results for the three months ended September 30, 2018 and 2017:

	For The Three Months Ended September 30,
							Percent			Percentage of Net Sales
	2018			2017			Change			2018			2017
Net sales	$	13,181,781		$	11,335,078			16.3	%		100.0	%		100.0	%
Cost of goods sold		8,670,825			7,520,921			15.3	%		65.8	%		66.4	%
Gross profit		4,510,956			3,814,157			18.3	%		34.2	%		33.6	%
Advertising and promotion		718,424			544,154			32.0	%		5.5	%		4.8	%
Selling and administrative		2,108,846			2,010,617			4.9	%		16.0	%		17.7	%
Operating income		1,683,686			1,259,386			33.7	%		12.8	%		11.1	%
Interest expense, net		(52,921	)		(259	)		N/A			0.4	%		0.0	%
Provision for income taxes		(358,297	)		(405,501	)		(11.6	)%		2.7	%		3.6	%
Net income	$	1,272,468		$	853,626			49.1	%		9.7	%		7.5	%

Net sales for the three months ended September 30, 2018 increased by approximately $1,847,000, or 16.3%, as compared to the three months ended September 30, 2017. The increase in net sales is principally a result of increased sales of Star brite^® branded marine products, Star brite^® branded and private label winterizing products, and Star Tron® branded fuel treatment products. As previously reported, net sales during the three months ended September 30, 2017 were adversely affected by severe weather conditions, particularly as a result of Hurricane Harvey and Hurricane Irma, which caused some of our customers to temporarily close their retail facilities in the Houston metropolitan area and in numerous Florida locations.

Cost of goods sold increased by approximately $1,150,000, or 15.3%, during the three months ended September 30, 2018, as compared to the three months ended September 30, 2017.  The increase in cost of goods sold is primarily a result of higher sales volume.

Gross profit increased by approximately $697,000 for the three months ended September 30, 2018, as compared to the same period in 2017. Gross profit increased due to our higher sales volume. As a percentage of net sales, gross profit was approximately 34.2% and 33.6% for the three month periods ended September 30, 2018 and 2017, respectively. The increase in gross profit as a percentage of net sales is principally due to our sales mix which included a greater proportion of Star brite^® branded marine products.

Advertising and promotion expenses increased by approximately $174,000, or 32.0%, during the three months ended September 30, 2018, as compared to the same period in 2017.  The increase is principally a result of increased internet and television advertising, as well as greater cooperative advertising with certain customers. As a percentage of net sales, advertising and promotion expenses increased to 5.5% for the three months ended September 30, 2018, from 4.8% for the same period in 2017.  

Selling and administrative expenses increased by approximately $98,000, or 4.9%, during the three months ending September 30, 2018, as compared to the same period in 2017. The increase in selling and administrative expenses is principally a result of higher employee compensation, higher sales commissions due to increased sales, and an increase in noncash expenses, principally reflecting an increase in amortization expense related to the intangible assets acquired from Snappy Marine, discussed in Note 5 to the condensed consolidated financial statements included in this report. As a percentage of net sales, selling and administrative expenses decreased to 16.0% for the three months ended September 30, 2018, from 17.7% for the same period in 2017. 

Interest expense, net for the three months ended September 30, 2018 increased by approximately $53,000, as compared to the three months ended September 30, 2017. The increase principally results from interest incurred with respect to our obligations under the industrial development bond financing related to the expansion of Kinpak’s manufacturing, warehouse and distribution facilities. See Note 8 to the condensed consolidated financial statements included in this report for additional information. In addition, the increase in interest expense, net reflects higher borrowings and increased rates of interest under our revolving line of credit.

Provision for income taxes for the three months ended September 30, 2018 was approximately $358,000, or 22.0% of our pretax income, compared to approximately $406,000, or 32.2% of pretax income, for the same period in 2017. The lower 2018 tax rate reflects the reduction of our U.S. corporate income tax rate from 34% to 21% under the Tax Cuts and Jobs Act.  

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Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017

The following table provides a summary of our financial results for the nine months ended September 30, 2018 and 2017:

	For The Nine Months Ended September 30,
							Percent			Percentage of Net Sales
	2018			2017			Change			2018			2017
Net sales	$	32,964,533		$	29,178,074			13.0	%		100.0	%		100.0	%
Cost of goods sold		20,821,446			18,330,616			13.6	%		63.2	%		62.8	%
Gross profit		12,143,087			10,847,458			11.9	%		36.8	%		37.2	%
Advertising and promotion		2,363,568			1,906,841			24.0	%		7.2	%		6.5	%
Selling and administrative		5,952,693			5,538,478			7.5	%		18.1	%		19.0	%
Operating income		3,826,826			3,402,139			12.5	%		11.6	%		11.7	%
Interest expense, net		(79,205	)		(3,149	)		N/A			0.2	%		0.0	%
Provision for income taxes		(830,422	)		(1,088,928	)		(23.7	)%		2.5	%		3.7	%
Net income	$	2,917,199		$	2,310,062			26.3	%		8.8	%		7.9	%

Net sales for the nine months ended September 30, 2018 increased by approximately $3,786,000, or 13.0%, as compared to the nine months ended September 30, 2017. The increase primarily reflects higher sales of Star brite® branded products, Star brite^® branded and private label winterizing products, and Star Tron® branded fuel treatment products.

Cost of goods sold increased by approximately $2,491,000, or 13.6%, during the nine months ended September 30, 2018 as compared to the same period in 2017.  The increase in cost of goods sold is principally a result of higher sales volume and, to a lesser extent, increased manufacturing costs.

Gross profit increased by approximately $1,296,000, or 11.9%, during the nine months ended September 30, 2018 as compared to the same period in 2017. Gross profit increased due to higher sales volume. As a percentage of net sales, gross profit was approximately 36.8% and 37.2% for the nine month periods ended September 30, 2018 and 2017, respectively. 

Advertising and promotion expenses increased by approximately $457,000, or 24.0%, during the nine months ended September 30, 2018, as compared to the same period in 2017. The increase is principally a result of increased internet, magazine, and television advertising, as well as greater cooperative advertising with certain customers. As a percentage of net sales, advertising and promotion expenses increased to approximately 7.2% for the nine months ended September 30, 2018, from 6.5% for the same period in 2017.

Selling and administrative expenses increased by approximately $414,000, or 7.5%, during the nine months ended September 30, 2018, as compared to the same period in 2017. The increase in selling and administrative expenses is principally a result of higher employee compensation due to increased headcount and higher salaries, higher sales commissions as a result of increased sales, and an increase in noncash expenses, principally reflecting an increase in deferred tax expense and amortization expense related to the intangible assets acquired from Snappy Marine, discussed in Note 5 to the condensed consolidated financial statements included in this report. As a percentage of net sales, selling and administrative expenses decreased to 18.1% for the nine months ended September 30, 2018, from 19.0% for the same period in 2017. 

Interest expense, net for the nine months ended September 30, 2018 increased by approximately $76,000, as compared to the nine months ended September 30, 2017. The increase principally resulted from interest incurred with respect to our obligations under the industrial development bond financing related to the expansion of Kinpak’s manufacturing, warehouse and distribution facilities, as well as increased borrowings and higher interest rates under our revolving line of credit.

Provision for income taxes for the nine months ended September 30, 2018 was approximately $830,000, or 22.2% of our pretax income, compared to approximately $1,089,000, or 32.0% of pretax income, for the same period in 2017. The lower 2018 tax rate reflects the reduction of our U.S. corporate income tax rate from 34% to 21% under the Tax Cuts and Jobs Act.  

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Liquidity and capital resources:

Our cash balance was approximately $1,835,000 at September 30, 2018 compared to approximately $2,418,000 at December 31, 2017. In addition, we had restricted cash of approximately $2,563,000 and $2,747,000 at September 30, 2018 and December 31, 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 of Kinpak’s manufacturing, warehouse and distribution facilities. See Note 8 to the condensed consolidated financial statements included in this report for additional information.

The following table summarizes our cash flows for the nine months ended September 30, 2018 and 2017:

	Nine Months Ended September 30,
	2018			2017
Net cash used in operating activities	$	(1,154,756	)	$	(236,844	)
Net cash used in investing activities		(1,557,378	)		(3.563,259	)
Net cash provided by financing activities		1,944,501			4,483,035
Effect of exchange rate fluctuations on cash		(363	)		523
Net (decrease) increase in cash and restricted cash	$	(767,996	)	$	683,455

Net cash used by operating activities for the nine months ended September 30, 2018 was approximately $1,155,000, as compared to net cash used in operating activities of approximately $237,000 for the nine months ended September 30, 2017. The higher amount of cash used in the 2018 period is principally a result of increases in our trade accounts receivable and inventories during the 2018 period, partially offset by a decrease in receivables due from affiliated parties, increases in accounts payable and accrued expenses, an increase in net income plus noncash expenses and changes in other components of working capital.

Net trade accounts receivable at September 30, 2018 aggregated approximately $10,792,000, an increase of approximately $5,828,000 or 117.4% as compared to approximately $4,964,000 in net trade accounts receivable outstanding at December 31, 2017.  The increase is principally a result of sales during the third quarter of 2018 and a change in payment terms to our largest customer from 30 days to 90 days, which became effective in February 2018. See Note 14 to the condensed consolidated financial statements included in this report for additional information regarding our largest customers. Receivables due from affiliated companies aggregated approximately $639,000 at September 30, 2018, a decrease of approximately $946,000, or 59.7%, from receivables due from affiliated companies of approximately $1,584,000 at December 31, 2017. The decrease reflects payments to us by the affiliated companies during the nine months ended September 30, 2018.

Inventories, net were approximately $11,653,000 and $9,074,000 at September 30, 2018 and December 31, 2017, respectively, representing an increase of approximately $2,579,000 or 28.4% during the nine months ended September 30, 2018. The increase in inventories reflects anticipated increases in sales of our products.

Net cash used in investing activities for the nine months ended September 30, 2018 decreased by approximately $2,006,000 or 56.3%, as compared to the nine months ended September 30, 2017. Expenditures in both periods are primarily attributable to the expansion of Kinpak’s manufacturing, warehouse and distribution facilities in Montgomery, Alabama. See “Overview” above for additional information. The 2018 period also includes approximately $377,000 of cash used in connection with our acquisition of the assets of Snappy Marine. See Note 5 to the condensed consolidated financial statements included in this report for additional information.

Net cash provided by financing activities for the nine months ended September 30, 2018 decreased by approximately $2,538,000 or 56.6%, as compared to the nine months ended September 30, 2017. During the 2017 period, we received $4,500,000 in connection with the industrial development bond financing related to the expansion of Kinpak’s facilities, partially offset by debt issuance costs related to the financing. Borrowings under our revolving line of credit generated $2,750,000 and $1,000,000 during the nine months ended September 30, 2018 and 2017, respectively.

See Notes 7 and 8 to the condensed 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, the payment of which we have guaranteed, and a revolving line of credit. At September 30, 2018 and December 31, 2017, we had outstanding balances of approximately $4,283,000 and $4,463,000, respectively, under Kinpak’s obligations relating to the industrial development bond financing, and borrowings of $2,750,000 and $0, respectively, under our revolving credit facility.

The loan agreement pertaining to our revolving credit facility, as amended, has a stated term that expires on August 31, 2021, although, as was the case with earlier revolving lines of credit provided to us in recent years, amounts outstanding are payable on demand. Nevertheless, the loan agreement pertaining to our revolving line of credit, as amended, contains various covenants, including financial covenants that are described in Note 7 to the condensed consolidated financial statements included in this report.At September 30, 2018, we were in compliance with these financial covenants. The revolving credit facility is subject to several events of default, including a decline of the majority shareholder’s ownership below 50% of our outstanding shares.

Our guarantee of Kinpak’s obligations related to the industrial development bond financing are subject to various covenants, including financial covenants that are described in Note 8 to the condensed consolidated financial statements included in this report. As of September 30, 2018, we were in compliance with these financial covenants.

17

In addition to the industrial development bond financing and the revolving line of credit, and in connection with our acquisition of the assets of Snappy Marine, we issued a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the promissory note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, to be recorded as interest expense over the term of the note). As of September 30, 2018, we had an outstanding balance of $966,666 under the promissory note (including $901,611 recorded as principal and $65,055 to be recorded as interest expense over the remaining term of the note). See Note 5 to the condensed consolidated financial statements included in this report for additional information. We also obtained financing through capital leases for office equipment, totaling approximately $34,000 and $50,000 at September 30, 2018 and December 31, 2017, respectively.

Some of our assets and liabilities are denominated in Canadian dollars and are subject to currency exchange rate fluctuations. We do not engage in currency hedging and address currency risk as a pricing issue. For the nine months ended September 30, 2018, we recorded $4,013 in foreign currency translation adjustments (decreasing shareholders’ equity by $4,013).

During the past few years, we have introduced a number of new products.  At times, new product introductions have required us to increase our overall inventory and have resulted in lower inventory turnover rates.  The effects of reduced inventory turnover have not been material to our overall operations.  We believe that all required capital to maintain such increases will continue to be provided by operations and our current revolving line of credit or a renewal or replacement of the facility

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.

We believe that funds provided through operations and our revolving line of credit will be sufficient to satisfy our cash requirements over at least the next twelve months.

18

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4. 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 concluded that the Company’s disclosure controls and procedures as of the end of the period covered by this report are effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed 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 the disclosure.

Change in Internal Controls over Financial Reporting:

No change in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-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.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which could materially affect the Company’s business, financial condition or future results. 

19

Item 6. Exhibits

Exhibit No.	Description
10.1.1	Business Loan Agreement, dated August 31, 2018, between the Company and Regions Bank (the “Business Loan Agreement”).
10.1.2	Promissory Note, dated August 31, 2018, issued by the Company to Regions Bank in connection with the revolving line of credit under the Business Loan Agreement (the “Promissory Note”).
10.1.3	Letter, dated August 31, 2018, from Regions Bank to the Company, regarding certain terms under the Business Loan Agreement and the Promissory Note.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act.
32.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C. Section 1350.
101	The following materials from Ocean Bio-Chem, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 and (v) Notes  to Condensed Consolidated Financial Statements.

20

SIGNATURES

Pursuant to the requirements 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.

	OCEAN BIO-CHEM, INC.
Dated: November 14, 2018	/s/ Peter G. Dornau
	Peter G. Dornau
	Chairman of the Board, President and
	Chief Executive Officer
Dated: November 14, 2018	/s/ Jeffrey S. Barocas
	Jeffrey S. Barocas
	Vice President and
	Chief Financial Officer

21

EX-10.1.1

Exhibit 10.1.1

EX-10.1.2

Exhibit 10.1.2

EX-10.1.3

Exhibit 10.1.3

August 31, 2018

Mr. Jeffrey Barocas

Ocean Bio-Chem, Inc.

4041 S.W. 47 Ave.

Ft. Lauderdale, FL 33314

Dear Jeff:

The purpose of this letter is to document an agreement between Ocean Bio-Chem, Inc. and Regions Bank regarding specific terms and conditions relating to the renewal of a $6,000,000 line of credit. The terms presented below will supersede any conflicting language in the Promissory Note (Note), Business Loan Agreement (BLA), and Commercial Security Agreement (Security Agreement), each to be dated August 31, 2018. Capitalized terms not defined in this letter will have the meanings ascribed to them in the Note, BLA, or the Security Agreement, as applicable.

ALL DOCUMENTS

● Change in Ownership-Regions agrees that a change in ownership of 25% or more will not constitute an event of default. Instead, a default will be triggered in the event that the majority shareholder’s ownership drops below 50% of all outstanding shares.

BUSINESS LOAN AGREEMENT (BLA)

● Hazardous Substances. Regions agrees that clauses (1), (2) and (3) of the provision Hazardous Substances shall read as follows: Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower’s ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral except in material compliance with Environmental Laws. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral except in material compliance with Environmental Laws; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contactor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral except in material compliance with Environmental Laws; and any such activity shall be conducted in material compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws.

● Environmental Compliance and Reports. Regions agrees that the provision Environmental Compliance and Reports shall read as follows: Borrower shall comply in all material respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower’s part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to an in material compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities or otherwise in material compliance with Environmental Laws; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower’s part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

● Indebtedness and Liens. Regions agrees that the provision Indebtedness and Liens shall read as follows: (1) Except for trade debt incurred in the normal course of business, indebtedness otherwise disclosed to Lender and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer or lease any of Borrower’s assets (except for inventory sold or accounts collected in the ordinary course of business, or as otherwise provided for in this Agreement), (3) mortgage, assign, pledge, grant a security interest in, or encumber any of Borrower’s assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower’s accounts, exceptto Lender.

● Subsidiaries and Affiliates of Borrower. Regions agrees that the provision of Subsidiaries and Affiliates of Borrower shall be renamed “Subsidiaries of Borrower” and the phrase “and affiliates” and the phrase “or affiliates” deleted therefrom.

● EBITDA. Under Additional Definitions, EBITDA should mirror the EBITDA measurement found within the definition of Fixed Charge Coverage Ratio (Minimum) which reads as follows: defined as Net Income before taxes and depreciation plus amortization plus interest expense plus non-recurring and/or non-cash losses and expenses minus nonrecurring and/or non-cash gains and income.

● Eligible Accounts. Regions agrees that the second clause under this section (related to exclusions to eligible accounts) should read as follows “Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with Borrower or its officers or its directors”.

2

● Eligible Inventory. Regions agrees that the second clause under this section (related to exclusions to eligible inventory) should read as follows “Inventory which Lender reasonably deems to be obsolete, unsaleable, damaged, defective, or unfit for further processing”.

SECURITY AGREEMENT

● Enforceability of Collateral. Regions agrees that second sentence of the provision Enforceability of Collateral shall read as follows: There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts many be claimed concerning the Collateral except those deductions or discounts in the ordinary course of business and those disclosed to Lender in writing.

● Transactions Involving Collateral. Regions agrees that the first sentence of the provision Transactions Involving Collateral shall read as follows: Except for inventory sold or accounts collected in the ordinary course of Granter’s business, or as otherwise provided for in this Agreement, Granter shall not sell, offer to sell, or otherwise transfer of dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement and Permitted Liens, without the prior written consent of Lender.

● Title. Regions agrees that the first sentence of the provision Title shall read as follows: Granter represents and warrants to Lender that Granter holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement and Permitted Liens.

● Hazardous Substances. Regions agrees that the first sentence of the provision Hazardous Substances shall read as follows: Grantor represents and warrants that the collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance except in material compliance with Environmental Laws.

Sincerely,

/s/ Draper L. Stanford

Draper L. Stanford

Vice President

Regions Bank

3

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Peter G. Dornau certify that:

1.  I have reviewed this Quarterly Report on Form 10-Q of Ocean Bio-Chem, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  November 14, 2018	By:	/s/ Peter G. Dornau
		Peter G. Dornau
		Chairman of the Board, President and
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Jeffrey S. Barocas certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ocean Bio-Chem, Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  November 14, 2018	By:	/s/ Jeffrey S. Barocas
		Jeffrey S. Barocas
		Vice President
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO RULE 13a-14(b)

UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350

I, Peter G. Dornau, Chief Executive Officer of Ocean Bio-Chem, Inc. (the “Company”), hereby certify that, based on my knowledge:

1.	The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 14, 2018	By:	/s/ Peter G. Dornau
		Peter G. Dornau
		Chairman of the Board, President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO RULE 13a-14(b)

UNDER THE SECURITIES EXCHANGE ACT AND 18 U.S.C. 1350

I, Jeffrey S. Barocas, Chief Financial Officer of Ocean Bio-Chem, Inc. (the “Company”), hereby certify that, based on my knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  November 14, 2018	By:	/s/ Jeffrey S. Barocas
		Jeffrey S. Barocas
		Vice President
		Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 14, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	OCEAN BIO CHEM INC
Entity Central Index Key	0000350737
Trading Symbol	OBCI
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2018
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		9,338,191

XML

Condensed Consolidated Balance Sheets - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current Assets:
Cash	$ 1,835,123	$ 2,418,484
Trade accounts receivable less allowances of approximately $214,000 and $79,000, respectively	10,792,379	4,963,895
Receivables due from affiliated companies	638,526	1,584,365
Restricted cash	2,562,725	2,747,360
Inventories, net	11,652,868	9,074,426
Prepaid expenses and other current assets	1,259,085	1,013,213
Total Current Assets	28,740,706	21,801,743
Property, plant and equipment, net	9,728,231	9,291,667
Intangible assets, net	2,113,690	897,408
Total Assets	40,582,627	31,990,818
Current Liabilities:
Current portion of long-term debt, net	420,779	240,017
Revolving line of credit	2,750,000
Accounts payable - trade	3,409,146	1,807,120
Accrued expenses payable	1,557,213	812,062
Total Current Liabilities	8,137,138	2,859,199
Deferred tax liability	264,777	153,895
Long-term debt, less current portion and debt issuance costs	4,621,841	4,081,793
Total Liabilities	13,023,756	7,094,887
Commitments and contingencies (Note 10)
Shareholders' Equity:
Common stock - $.01 par value, 12,000,000 shares authorized; 9,338,191 and 9,254,580 shares issued and outstanding	93,382	92,546
Additional paid in capital	10,235,827	9,931,634
Accumulated other comprehensive loss	(292,064)	(288,051)
Retained earnings	17,521,726	15,159,802
Total Shareholders' Equity	27,558,871	24,895,931
Total Liabilities and Shareholders' Equity	$ 40,582,627	$ 31,990,818

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Consolidated Balance Sheets [Abstract]
Trade accounts receivable less allowances	$ 214,000	$ 79,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	12,000,000	12,000,000
Common stock, shares issued	9,338,191	9,254,580
Common stock, shares outstanding	9,338,191	9,254,580

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Condensed Consolidated Statements of Operations [Abstract]
Net sales	$ 13,181,781	$ 11,335,078	$ 32,964,533	$ 29,178,074
Cost of goods sold	8,670,825	7,520,921	20,821,446	18,330,616
Gross profit	4,510,956	3,814,157	12,143,087	10,847,458
Operating Expenses:
Advertising and promotion	718,424	544,154	2,363,568	1,906,841
Selling and administrative	2,108,846	2,010,617	5,952,693	5,538,478
Total operating expenses	2,827,270	2,554,771	8,316,261	7,445,319
Operating income	1,683,686	1,259,386	3,826,826	3,402,139
Other expense
Interest expense, net	(52,921)	(259)	(79,205)	(3,149)
Income before income taxes	1,630,765	1,259,127	3,747,621	3,398,990
Provision for income taxes	(358,297)	(405,501)	(830,422)	(1,088,928)
Net income	$ 1,272,468	$ 853,626	$ 2,917,199	$ 2,310,062
Earnings per common share - basic	$ 0.14	$ 0.09	$ 0.32	$ 0.25
Earnings per common share - diluted	0.14	0.09	0.31	0.25
Dividends declared per common share			$ 0.06	$ 0.06

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Condensed Consolidated Statements of Comprehensive Income [Abstract]
Net Income	$ 1,272,468	$ 853,626	$ 2,917,199	$ 2,310,062
Foreign currency translation adjustment	(169)	(120)	(4,013)	(920)
Comprehensive income	$ 1,272,299	$ 853,506	$ 2,913,186	$ 2,309,142

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net income	$ 2,917,199	$ 2,310,062
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	849,772	726,126
Deferred income taxes	110,882	21,737
Stock based compensation	330,823	324,145
Provision for bad debts	77,732	61,116
Other operating non-cash items	42	(2,839)
Changes in assets and liabilities:
Trade accounts receivable	(5,906,216)	(3,576,111)
Receivables due from affiliated companies	945,839	(89,833)
Inventories	(2,582,134)	(1,529,362)
Prepaid expenses and other current assets	(245,872)	(72,218)
Accounts payable - trade	1,602,026	1,264,044
Income taxes payable		(1,447)
Accrued expenses payable	745,151	327,736
Net cash used in operating activities	(1,154,756)	(236,844)
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,180,656)	(3,563,259)
Purchase of intangible assets	(376,722)
Net cash used in investing activities	(1,557,378)	(3,563,259)
Cash flows from financing activities:
Proceeds from long term debt		4,500,000
Payments on long-term debt	(224,430)	(275,220)
Borrowings on revolving line of credit	2,750,000	1,000,000
Payments for taxes related to net share settlements of stock awards	(25,794)	(22,468)
Dividends paid to common shareholders	(555,275)	(549,255)
Payments for debt issuance costs		(170,022)
Net cash provided by financing activities	1,944,501	4,483,035
Effect of exchange rate on cash	(363)	523
Net (decrease) increase in cash and restricted cash	(767,996)	683,455
Cash and restricted cash at beginning of period	5,165,844	4,070,445
Cash and restricted cash at end of period	4,397,848	4,753,900
Supplemental disclosure of cash flow information:
Cash paid for interest during period	78,013	2,336
Cash paid for income taxes during period	630,000	1,157,400
Cash	1,835,123	1,320,287
Restricted cash	2,562,725	3,433,613
Total cash and restricted cash	4,397,848	4,753,900
Noncash investing and financing activities:
Issuance of note payable for asset acquisition	1,000,000
Imputed interest	(69,472)
Principal portion of note payable issued for asset acquisition	$ 930,528

XML

Summary of Accounting Policies

9 Months Ended

Sep. 30, 2018

Summary of Accounting Policies [Abstract]

SUMMARY OF ACCOUNTING POLICIES

1. SUMMARY OF ACCOUNTING POLICIES

Interim reporting

The accompanying unaudited condensed consolidated financial statements include the accounts of Ocean Bio-Chem, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period data have been reclassified to conform to the current period presentation.  Unless the context indicates otherwise, the term “Company” refers to Ocean Bio-Chem, Inc. and its subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and assumptions.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2018

Recent Accounting Pronouncements [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Guidance Adopted by the Company

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09, which has been modified on several occasions, provides new guidance designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also requires disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new guidance effective January 1, 2018, using the full retrospective method, under which the Company applies the new guidance to each comparative period presented. Under the new guidance, the Company’s performance obligation to its customers under agreements currently in force is satisfied when the goods are shipped or picked up by the customer and title of the goods is transferred (generally upon such shipment or pick up); with regard to a customer for which the Company’s inventory is held at the customer’s warehouses, the Company’s performance obligation is deemed satisfied when the Company is notified of sales by the customer. While the timing of the Company’s revenue recognition did not change, certain allowances provided by the Company to customers, primarily for cooperative advertising, are now considered a reduction of net sales instead of an advertising and promotion expense. This reclassification did not affect net income.

In November 2016, the FASB issued ASU 2016-18, which requires that a statement of cash flows explain the change during the reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The new guidance also requires disclosure of such amounts in the statements of cash flows or in the financial statement footnotes if restricted cash and restricted cash equivalents are presented in separate line items in the balance sheet. The Company adopted this guidance effective January 1, 2018. In accordance with the new guidance, the Company includes additional disclosures regarding its cash and restricted cash amounts in its statement of cash flows for each comparative period presented.

Accounting Guidance Not Yet Adopted by the Company

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under this new guidance, lessees (including lessees under leases classified as finance leases, which are to be classified based on criteria similar to that applicable to capital leases under current guidance, and leases classified as operating leases) will recognize a right-to-use asset and a lease liability on the balance sheet, initially measured as the present value of lease payments under the lease. Under current guidance, operating leases are not recognized on the balance sheet. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; the guidance provides certain practical expedients. The Company is currently evaluating this guidance to determine its impact on the Company’s financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other,” which simplifies the quantitative test for goodwill impairment. Under current guidance, if a reporting unit’s carrying value exceeds its fair value, the entity must determine the implied value of goodwill. This determination is made by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole as if the reporting unit had just been acquired. Under the new guidance, a determination of the implied value of goodwill will no longer be required; a goodwill impairment will be equal to the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses,” which replaces the “incurred loss” model under current GAAP with a forward-looking “expected loss” model, principally in connection with financial assets subject to credit losses. Under current GAAP, an entity reflects credit losses on financial assets measured on an amortized cost basis only when it is probable that losses have been incurred, generally considering only past events and current conditions in making these determinations. The guidance under ASU 2016-13 prospectively replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, beginning when such assets are first acquired. Under the expected loss model, credit losses will be measured based not only on past events and current conditions, but also on reasonable and supportable forecasts that affect the collectability of financial assets. The guidance also expands disclosure requirements. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as of January 1, 2019. The Company is currently evaluating the impact the adoption of this new standard will have on the Company’s financial statements.

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Inventories

9 Months Ended

Sep. 30, 2018

Inventories [Abstract]

INVENTORIES

3. INVENTORIES

The Company’s inventories at September 30, 2018 and December 31, 2017 consisted of the following:

	September 30, 2018			December 31, 2017
Raw materials	$	4,861,236		$	3,994,624
Finished goods		7,069,619			5,354,097
Inventories, gross		11,930,855			9,348,721
Inventory reserves		(277,987	)		(274,295	)
Inventories, net	$	11,652,868		$	9,074,426

The inventory reserves shown in the table above reflect slow moving and obsolete inventory.

The Company operates a vendor managed inventory program with one of its customers to improve the promotion of the Company’s products.  Under the program, Company inventory is held at the customer’s warehouses. The Company manages the inventory levels at the warehouses and recognizes revenue as the products are sold by the customer. The inventories managed at the customer’s warehouses, which are included in inventories, net, amounted to approximately $825,000 and $494,000 at September 30, 2018 and December 31, 2017, respectively.

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Property, Plant & Equipment

9 Months Ended

Sep. 30, 2018

Property, Plant & Equipment [Abstract]

PROPERTY, PLANT & EQUIPMENT

4. PROPERTY, PLANT & EQUIPMENT

 The Company’s property, plant and equipment at September 30, 2018 and December 31, 2017 consisted of the following:

	Estimated Useful Life	September 30, 2018			December 31, 2017
Land		$	278,325		$	278,325
Building and Improvements	30 years		9,548,922			4,673,409
Manufacturing and warehouse equipment	6-20 years		10,393,794			9,616,086
Office equipment and furniture	3-5 years		1,803,309			1,367,244
Leasehold improvements	10-15 years		571,483			567,898
Vehicles	3 years		10,020			10,020
Construction in process			285,565			5,197,780
Property, plant and equipment, gross			22,891,418			21,710,762
Less accumulated depreciation			(13,163,187	)		(12,419,095	)
Property, plant and equipment, net		$	9,728,231		$	9,291,667

Construction in progress at September 30, 2018 and December 31, 2017 includes $218,024 and $5,087,897, respectively, relating to the expansion of the manufacturing, warehouse and distribution facilities of the Company’s wholly-owned subsidiary, KINPAK Inc. (“Kinpak”), in Montgomery, Alabama. Depreciation expense totaled $261,623 (of which $219,731 is included in cost of goods sold and $41,892 is included in selling and administrative expenses) and $221,115 (of which $175,142 is included in cost of goods sold and $45,973 is included in selling and administrative expenses) for the three months ended September 30, 2018 and 2017, respectively. Depreciation expense totaled $744,092 (of which $616,902 is included in cost of goods sold and $127,190 is included in selling and administrative expenses) and $673,416 (of which $528,512 is included in cost of goods sold and $144,904 is included in selling and administrative expenses) for the nine months ended September 30, 2018 and 2017, respectively.

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Snappy Marine Asset Acquisition

9 Months Ended

Sep. 30, 2018

Snappy Marine Asset Acquisition [Abstract]

SNAPPY MARINE ASSET ACQUISITION

5. SNAPPY MARINE ASSET ACQUISITION

Pursuant to an asset acquisition agreement dated July 13, 2018, the Company acquired assets of Snappy Marine, Inc., a Florida corporation that marketed and distributed Snappy Teak – NU^®, a cleaning product for teak decks on boats (“Snappy Marine”). The acquired assets consist of, among other things, Snappy Marine’s trademarks, tradenames and other intellectual property used in its business, including trademarks with respect to “Snappy Marine^®” and “Snappy Teak – NU^®,” and specified marketing, sales and distribution contracts. In addition, the Company acquired limited quantities of product inventory and raw materials. The purchase price for the assets set forth in the asset purchase agreement is $1,358,882 ($1,350,000 for intellectual property and $8,882 for inventory). The Company paid $345,882 to Snappy Marine at the closing of the transaction on July 13, 2018 and deposited an additional $13,000 in escrow; the escrow amount may be used by the Company to procure registrations with respect to certain intellectual property rights. Any unused escrow amounts generally will be provided to Snappy Marine. In addition, the Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be recorded as interest expense over the term of the note). The note is payable in equal installments of $16,667 over a 60 month period that commenced on August 1, 2018, with a final payment due and payable on July 1, 2023. If the note is prepaid in full, the entire outstanding balance of the note (including all unpaid amounts allocated to interest over the remaining term of the note) must be paid. Under circumstances set forth in the asset purchase agreement, the Company may be obligated to pay certain customer refunds, price adjustments and warranty claims asserted through January 31, 2019 with regard to teak products sold by Snappy Marine.  The Company may offset such payments against amounts payable under the promissory note, subject to an aggregate maximum offset of $25,000. In addition to the amounts paid to Snappy Marine, the Company also incurred $39,722 in legal costs directly related to the asset acquisition.

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Intangible Assets

9 Months Ended

Sep. 30, 2018

Intangible Assets [Abstract]

INTANGIBLE ASSETS

6. INTANGIBLE ASSETS

The Company’s intangible assets at September 30, 2018 and December 31, 2017 consisted of the following:

September 30, 2018 

Intangible Asset	Cost		Accumulated Amortization		Net
Patents	$	622,733	$	426,888	$	195,845
Trade names and trademarks		1,649,880		554,965		1,094,915
Customer list		525,663		21,903		503,760
Product formula		262,832		10,951		251,881
Royalty rights		160,000		92,711		67,289
Total intangible assets	$	3,221,108	$	1,107,418	$	2,113,690

December 31, 2017

Intangible Asset	Cost		Accumulated Amortization		Net
Patents	$	622,733	$	387,636	$	235,097
Trade names and trademarks		1,131,125		549,561		581,564
Royalty rights		160,000		79,253		80,747
Total intangible assets	$	1,913,858	$	1,016,450	$	897,408

On July 13, 2018, the Company acquired intangible assets related to the Snappy Marine Asset Acquisition (see note 5).

The allocated cost of the intangible assets acquired from Snappy Marine consists of the following: 

Intangible Asset	Amount		Life
Trademarks and trade names	$	518,755	20 years
Customer list		525,663	5 years
Product formula		262,832	5  years
Total intangible assets acquired from Snappy Marine	$	1,307,250

Amortization expense related to intangible assets was $55,828 and $17,570 for the three months ended September 30, 2018 and 2017, and $90,968 and $52,710 for the nine months ended September 30, 2018 and 2017.

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Revolving Line of Credit

9 Months Ended

Sep. 30, 2018

Revolving Line of Credit [Abstract]

REVOLVING LINE OF CREDIT

7. REVOLVING LINE OF CREDIT

On August 31, 2018, the Company and Regions Bank entered into a Business Loan Agreement (the “Business Loan Agreement”), under which the Company was provided a revolving line of credit. Under the Business Loan Agreement, the Company may borrow up to the lesser of (i) $6,000,000 or (ii) a borrowing base equal to 85% of Eligible Accounts (as defined in the Business Loan Agreement) plus 50% of Eligible Inventory (as defined in the Business Loan Agreement). Interest on amounts borrowed under the revolving line of credit is payable monthly at the one month LIBOR rate plus 1.35% per annum, computed on a 365/360 basis. Eligible Accounts do not include, among other things, accounts receivable from affiliated entities.

Outstanding amounts under the revolving line of credit are payable on demand. If no demand is made, the Company may repay and reborrow funds from time to time until expiration of the revolving line of credit on August 31, 2021, at which time all outstanding principal and interest will be due and payable. The Company’s obligations under the revolving line of credit are principally secured by the Company’s accounts receivable and inventory. The Business Loan Agreement includes financial covenants requiring that the Company maintain a minimum fixed charge coverage ratio (generally, the ratio of (A) EBITDA for the most recently completed four fiscal quarters minus the sum of the Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures during such period to (B) prior year current maturities of Company long term debt plus interest expense incurred over the most recently completed four fiscal quarters) of 1.20 to 1, tested quarterly, and a maximum “debt to cap” ratio (generally, funded debt divided by the sum of net worth and funded debt) of 0.75 to 1, as of the end of each fiscal quarter. For purposes of computing the fixed charge coverage ratio, “EBITDA” generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income; “unfunded capital expenditures” generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures; “long term debt” generally is defined as “debt instruments with a maturity principal due date of one year or more in length,” including, among other listed contractual debt instruments, “revolving lines of credit” and “capital leases obligations” and “prior year current maturities of long term debt” generally is defined as the principal portions of long-term debt maturing within one year as listed at the last quarter end of the prior completed four fiscal quarters. At September 30, 2018, the Company was in compliance with these financial covenants. The revolving line of credit is subject to several events of default, including a decline in the majority shareholder’s ownership below 50% of all outstanding shares.

On August 31, 2017, the Company and Regions Bank entered into a Business Loan Agreement (the “Predecessor Agreement’), under which the Company was provided a revolving line of credit in the maximum amount of $6,000,000.  The Predecessor Agreement, as amended, was substantially similar to the Business Loan Agreement, with the following exceptions:  (i) if no demand for payment was made by Regions Bank, all outstanding amounts were due and payable one year from the date of the Predecessor Agreement; (ii) Interest on amounts borrowed under the Predecessor Agreement was payable monthly at the one month LIBOR rate plus 1.5% per annum, computed on a 365/360 basis.  The Predecessor Agreement expired on August 31, 2018 and was replaced by the Business Loan Agreement.

At September 30, 2018 and December 31, 2017, the Company had $2,750,000 and $0 borrowings, respectively, under the revolving line of credit provided by the Business Loan Agreement and the Predecessor Agreement.

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Long Term Debt

9 Months Ended

Sep. 30, 2018

Long Term Debt [Abstract]

LONG TERM DEBT

8. LONG TERM DEBT

Industrial Development Bond Financing

On September 26, 2017, Kinpak indirectly obtained a $4,500,000 loan from Regions Capital Advantage, Inc. (the “Lender”). The proceeds of the loan are being used principally to pay or reimburse costs of constructing an approximately 85,000 square foot addition to Kinpak’s manufacturing, warehouse and distribution facilities in Montgomery, Alabama, and costs of purchasing and installing associated machinery and equipment (the “Project”).

The loan was funded by the Lender’s purchase of a $4,500,000 industrial development bond (the “Bond”) issued by The Industrial Development Board of the City of Montgomery, Alabama (the “IDB”). The Bond is a limited obligation of the IDB and is payable solely out of revenues and receipts derived from the leasing or sale of Kinpak’s facilities. In this regard, Kinpak is obligated to fund the IDB’s payment obligations by providing rental payments under a lease between the IDB and Kinpak (the “Lease”), under which Kinpak leases its facilities from the IDB. Under the Lease, prior to the maturity date of the Bond, Kinpak may repurchase the facilities for $1,000 if the Bond has been redeemed or fully paid.

The Bond bears interest at the rate of 3.07% per annum, calculated on the basis of a 360-day year and the actual number of days elapsed (subject to increase to 6.07% per annum upon the occurrence of an event of default), and is payable in 118 monthly installments of $31,324 beginning on November 1, 2017 and ending on August 1, 2027, with a final principal and interest payment to be made on September 1, 2027 in the amount of $1,799,201. The Bond provides that the interest rate will be subject to adjustment if it is determined by the United States Treasury Department, the Internal Revenue Service, or a similar government entity that the interest on the Bond is includable in the gross income of the Lender for federal income tax purposes.

Under the Lease, Kinpak is required to make rental payments for the account of the IDB to the Lender in such amounts and at such times as are necessary to enable the payment of all principal and interest due on the Bond and other charges, if any, payable in respect of the Bond. The Lease also provides that Kinpak may redeem the Bond, in whole or in part, by prepaying its rental payment obligations in an amount sufficient to effect the redemption. In addition, the Lease contains provisions relating to the Project, including limitations on utilization of Bond proceeds, deposit of unused proceeds into a custodial account (as described below) and investment of monies held in the custodial account.

Payment of amounts due and payable under the Bond and other related agreements are guaranteed by the Company and its other consolidated subsidiaries. In connection with a guarantee agreement under which the Company provided its guarantee, the Company is subject to certain covenants, including financial covenants requiring that the Company maintain (i) a minimum fixed charge ratio (generally, the ratio of (A) EBITDA minus the sum of Company’s distributions to its shareholders, taxes paid and unfunded capital expenditures to (B) current maturities of Company long-term debt plus interest expense) of 1.2 to 1, tested quarterly, and (ii) a ratio of funded debt (as defined in the guaranty agreement) divided by the sum of net worth and funded debt of 0.75 to 1, tested quarterly. For purposes of computing the fixed charge coverage ratio, “EBITDA” generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income. “Unfunded capital expenditures” generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures. At September 30, 2018, the Company was in compliance with these financial covenants.

Through September 30, 2018, of the $4,500,000 proceeds of the Bond sale, approximately $1,918,000 has been applied to reimburse Kinpak for Project expenditures and approximately $54,000 was paid directly to other parties for certain transaction costs. The remaining amount is held in a custodial account and may be drawn by Kinpak from time to time to fund additional expenditures related to the Project. Because the Lease contains limitations on the manner in which Kinpak may utilize funds held in the custodial account, such funds are classified as restricted cash on the Company’s balance sheets.

The Company incurred debt issuance costs of $196,095 in connection with the financing. These costs are shown as a reduction of the debt balance and are being amortized in accordance with the effective interest method.

Other Long Term Obligations

In connection with the Company’s agreement to purchase the assets of Snappy Marine (see Note 5 above), the Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the promissory note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be recorded as interest expense over the term of the note). The note is payable in equal installments of $16,667 over a 60 month period that commenced on August 1, 2018, with a final payment due and payable on July 1, 2023.

At September 30, 2018 and December 31, 2017, the Company was obligated under capital lease agreements covering equipment utilized in the Company’s operations.  The capital leases, aggregating approximately $34,000 and $50,000 at September 30, 2018 and December 31, 2017, respectively, mature on July 1, 2020 and carry an interest rate of 2%.

The following table provides information regarding the Company’s long-term debt at September 30, 2018 and December 31, 2017:

	Current Portion						Long Term Portion
	September 30,  2018			December 31,  2017			September 30,  2018			December 31, 2017
Obligations related to industrial development bond financing	$	246,070		$	240,395		$	4,037,060		$	4,222,241
Note payable related to asset acquisition		176,433			---			725,178			---
Capitalized equipment leases		17,892			19,238			16,527			31,188
Total principal of long term debt		440,395			259,633			4,778,765			4,253,429
Debt issuance costs		(19,616	)		(19,616	)		(156,924	)		(171,636	)
Total long term debt	$	420,779		$	240,017		$	4,621,841		$	4,081,793

Required principal payments under the Company’s long term obligations are set forth below:

Twelve month period ending September 30,
2019	$	440,395
2020		451,589
2021		448,687
2022		462,388
2023		443,135
Thereafter		2,972,966
Total	$	5,219,160

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Related Party Transactions

9 Months Ended

Sep. 30, 2018

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

9. RELATED PARTY TRANSACTIONS

During the three and nine months ended September 30, 2018 and 2017, the Company sold products to companies affiliated with Peter G. Dornau, who is the Company’s Chairman, President and Chief Executive Officer. The affiliated companies distribute the products outside of the United States and Canada. The Company also provides administrative services to these companies. Sales to the affiliated companies aggregated approximately $344,000 and $239,000 during the three months ended September 30, 2018 and 2017, respectively, and approximately $1,533,000 and $1,525,000 for the nine months ended September 30, 2018 and 2017, respectively. Fees for administrative services aggregated approximately $224,000 and $261,000 (including approximately $23,000 and $29,000, respectively, to reimburse the Company for business related expenditures that it made on behalf of the affiliated companies) during the three months ended September 30, 2018 and 2017, respectively.  Fees for administrative services aggregated approximately $653,000 and $690,000 for each of the nine month periods ended September 30, 2018 and 2017 (including approximately $76,000 and $78,000, respectively, to reimburse the Company for business related expenditures that it made on behalf of the affiliated companies).  The Company had accounts receivable from the affiliated companies in connection with the product sales and administrative services aggregating approximately $639,000 and $1,584,000 at September 30, 2018 and December 31, 2017, respectively. 

An entity that is owned by the Company’s Chairman, President and Chief Executive Officer provides several services to the Company.  Under this arrangement, the Company paid the entity $10,500 for research and development services for each of the three month periods ended September 30, 2018 and 2017, and $31,500 for such services during each of the nine month periods ended September 30, 2018 and 2017. The research and development expenses are included in the statements of operations for the three and nine months ended September 30, 2018 and 2017 as a selling and administrative expense. In addition, during the three months ended September 30, 2018 and 2017, the Company paid this entity $3,500 and $8,750, respectively, for providing charter boat services for marketing and entertainment of Company customers, and $14,000 and $53,750 for such services during the nine months ended September 30, 2018 and 2017. The charter boat services are included in the statements of operations for the three and nine months ended September 30, 2018 and 2017 as an advertising and promotion expense. During the nine months ended September 30, 2018, the Company also paid this entity $21,000 for the production of television commercials, which is being expensed over a twelve month period ending on March 31, 2019.

The Company leases office and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by its Chairman, President and Chief Executive Officer.  See Note 10 for a description of the lease terms.

A director of the Company is Regional Executive Vice President of an insurance broker through which the Company sources most of its insurance needs.  During the three months ended September 30, 2018 and 2017, the Company paid an aggregate of approximately $610,000 and $673,000, respectively, and during the nine months ended September 30, 2018 and 2017, the Company paid an aggregate of approximately $1,059,000 and $1,112,000, respectively, in insurance premiums on policies obtained through the insurance broker.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

10.       COMMITMENTS AND CONTINGENCIES

The Company leases its executive offices and warehouse facilities in Fort Lauderdale, Florida from an entity controlled by Peter G. Dornau, the Company’s Chairman, President and Chief Executive Officer. The lease, as extended, expires on December 31, 2023. The lease requires an annual minimum base rent of $94,800 and provides for a maximum annual 2% increase in subsequent years, although the entity has not raised the minimum base rent since the Company entered into a previous lease agreement in 1998. Additionally, the leasing entity is entitled to reimbursement of all taxes, assessments, and any other expenses that arise from ownership. Each of the parties to the lease has agreed to review the terms of the lease every three years at the request of the other party.  Rent expense under the lease was approximately $24,000 for each of the three months ended September 30, 2018 and 2017 and was approximately $73,000 for each of the nine months ended September 30, 2018 and 2017. 

The Company also leased a 15,000 square foot warehouse in Montgomery, AL near its Kinpak manufacturing facility for the purpose of fabricating and assembling brushes used for cleaning boats, automobiles, and recreational vehicles. The Company paid monthly rent of $4,375 under the lease, which commenced on August 1, 2016 and expired on July 31, 2018. The Company has relocated the brush fabrication and assembly operations from the leased warehouse to Kinpak’s facilities, which have been expanded in connection with the Project. See Note 8 above.

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Earnings Per Share

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

EARNINGS PER SHARE

11. EARNINGS PER SHARE

Basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the reporting period.  Diluted earnings per share reflect additional dilution from potential common stock issuances upon the exercise of outstanding stock options.  The following table sets forth the computation of basic and diluted earnings per common share, as well as a reconciliation of the weighted average number of common shares outstanding to the weighted average number of shares outstanding on a diluted basis.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Earnings per common share – Basic
Net income	$	1,272,468	$	853,626	$	2,917,199	$	2,310,062
Weighted average number of common shares outstanding		9,269,704		9,220,401		9,260,219		9,174,305
Earnings per common share – Basic	$	0.14	$	0.09	$	0.32	$	0.25
Earnings per common share – Diluted
Net income	$	1,272,468	$	853,626	$	2,917,199	$	2,310,062
Weighted average number of common shares outstanding		9,269,704		9,220,401		9,260,219		9,174,305
Dilutive effect of employee stock-based awards		39,612		59,067		40,969		65,705
Weighted average number of common shares outstanding - Diluted		9,309,316		9,279,468		9,301,188		9,240,010
Earnings per common share – Diluted	$	0.14	$	0.09	$	0.31	$	0.25

The Company had no stock options outstanding during each of the three and nine month periods ended September 30, 2018 and 2017, respectively, that were antidilutive and therefore not included in the diluted earnings per common share calculation.

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Securities Authorized for Issuance under Equity Compensation Plans

9 Months Ended

Sep. 30, 2018

Securities Authorized for Issuance under Equity Compensation Plans [Abstract]

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

12. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

On May 25, 2018, as part of the Company’s regular compensation for its non-employee directors, the Company issued stock awards to the directors, aggregating 4,000 shares of Company common stock, under the Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan.

On September 11, 2018, a former director exercised a stock option to purchase 10,000 shares of stock. The Company withheld 1,490 shares in connection with the net exercise of the stock option by the former director and delivered 8,510 shares to the former director.

On September 19, 2018, the Company issued 71,101 shares of common stock to its officers and other employees (net of 6,299 shares retained by the Company as a result of tax withholding elections made by some of the recipients) as stock awards under the Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan.

Stock compensation expense during the three months ended September 30, 2018 and 2017 was $316,953 and $306,785, respectively, and during the nine months ended September 30, 2018 and 2017 was $330,823 and $324,145, respectively. At September 30, 2018, there was no unrecognized compensation expense related to stock options.  

The following table provides information regarding outstanding stock options, all of which were granted under the Company’s 2008 Non-Qualified Stock Option Plan.

Date Granted	Shares Underlying Options Outstanding		Shares Underlying Exercisable Options		Exercise Price		Expiration Date	Weighted Average Remaining Term
1/11/09		30,000		30,000	$	0.69	1/10/19		0.3
4/26/10		20,000		20,000	$	2.07	4/25/20		1.6
		50,000		50,000	$	1.24			0.8

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Cash Dividends

9 Months Ended

Sep. 30, 2018

Cash Dividends [Abstract]

CASH DIVIDENDS

13. CASH DIVIDENDS

On March 19, 2018, the Company’s Board of Directors declared a special cash dividend of $0.06 per common share payable on April 16, 2018 to all shareholders of record on April 2, 2018.  There were 9,254,580 shares of common stock outstanding on April 2, 2018; therefore, dividends aggregating $555,275 were paid on April 16, 2018.

On April 13, 2017, the Company’s Board of Directors declared a special cash dividend of $0.06 per common share payable on May 11, 2017 to all shareholders of record on April 27, 2017.  There were 9,154,243 shares of common stock outstanding on April 27, 2018; therefore, dividends aggregating $549,255 were paid on May 11, 2017.

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Major Customers

9 Months Ended

Sep. 30, 2018

Major Customers [Abstract]

MAJOR CUSTOMERS

14. MAJOR CUSTOMERS

During the three months ended September 30, 2018 and 2017, the Company’s four largest customers in terms of net sales accounted for approximately 52.1% (20.9%, 16.9%, 7.8%, 6.5%) and 51.1% (23.4%, 18.2%, 5.6%, 3.9%), respectively, of the Company’s net sales, and during the nine months ended September 30, 2018 and 2017 these customers accounted for approximately 50.5% (22.9%, 10.3%, 9.1%, 8.2%) and 50.1% (24.5%, 11.5%, 7.6%, 6.5%), respectively, of the Company’s net sales.

At September 30, 2018 and December 31, 2017, trade accounts receivable due from the Company’s four largest customers constituted 62.3% (25.1%, 17.0%, 10.3%, 9.9%) and 46.4% (14.0%, 11.5%, 11.4%, 9.5%) of the Company’s outstanding trade accounts receivable. In February 2018, the Company changed payment terms for its largest customer from 30 days to 90 days.

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Summary of Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Summary of Accounting Policies [Abstract]

Interim reporting

Interim reporting

The accompanying unaudited condensed consolidated financial statements include the accounts of Ocean Bio-Chem, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period data have been reclassified to conform to the current period presentation.  Unless the context indicates otherwise, the term “Company” refers to Ocean Bio-Chem, Inc. and its subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

The financial information furnished herein reflects all adjustments, consisting of normal recurring items that, in the opinion of management, are necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018.

The information included in this Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Use of estimates

Use of estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and assumptions.

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Inventories (Tables)

9 Months Ended

Sep. 30, 2018

Inventories [Abstract]

Schedule of inventories

	September 30, 2018			December 31, 2017
Raw materials	$	4,861,236		$	3,994,624
Finished goods		7,069,619			5,354,097
Inventories, gross		11,930,855			9,348,721
Inventory reserves		(277,987	)		(274,295	)
Inventories, net	$	11,652,868		$	9,074,426

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Property, Plant & Equipment (Tables)

9 Months Ended

Sep. 30, 2018

Property, Plant & Equipment [Abstract]

Schedule of property, plant and equipment

	Estimated Useful Life	September 30, 2018			December 31, 2017
Land		$	278,325		$	278,325
Building and Improvements	30 years		9,548,922			4,673,409
Manufacturing and warehouse equipment	6-20 years		10,393,794			9,616,086
Office equipment and furniture	3-5 years		1,803,309			1,367,244
Leasehold improvements	10-15 years		571,483			567,898
Vehicles	3 years		10,020			10,020
Construction in process			285,565			5,197,780
Property, plant and equipment, gross			22,891,418			21,710,762
Less accumulated depreciation			(13,163,187	)		(12,419,095	)
Property, plant and equipment, net		$	9,728,231		$	9,291,667

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2018

Intangible Assets [Abstract]

Schedule of intangible assets

September 30, 2018 

Intangible Asset	Cost		Accumulated Amortization		Net
Patents	$	622,733	$	426,888	$	195,845
Trade names and trademarks		1,649,880		554,965		1,094,915
Customer list		525,663		21,903		503,760
Product formula		262,832		10,951		251,881
Royalty rights		160,000		92,711		67,289
Total intangible assets	$	3,221,108	$	1,107,418	$	2,113,690

December 31, 2017

Intangible Asset	Cost		Accumulated Amortization		Net
Patents	$	622,733	$	387,636	$	235,097
Trade names and trademarks		1,131,125		549,561		581,564
Royalty rights		160,000		79,253		80,747
Total intangible assets	$	1,913,858	$	1,016,450	$	897,408

Schedule of allocated cost of intangible assets acquired from Snappy Marine

Intangible Asset	Amount		Life
Trademarks and trade names	$	518,755	20 years
Customer list		525,663	5 years
Product formula		262,832	5  years
Total intangible assets acquired from Snappy Marine	$	1,307,250

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Long Term Debt (Tables)

9 Months Ended

Sep. 30, 2018

Long Term Debt [Abstract]

Schedule of company's long term debt

	Current Portion						Long Term Portion
	September 30,  2018			December 31,  2017			September 30,  2018			December 31, 2017
Obligations related to industrial development bond financing	$	246,070		$	240,395		$	4,037,060		$	4,222,241
Note payable related to asset acquisition		176,433			---			725,178			---
Capitalized equipment leases		17,892			19,238			16,527			31,188
Total principal of long term debt		440,395			259,633			4,778,765			4,253,429
Debt issuance costs		(19,616	)		(19,616	)		(156,924	)		(171,636	)
Total long term debt	$	420,779		$	240,017		$	4,621,841		$	4,081,793

Schedule of principal payments under long term obligations

Twelve month period ending September 30,
2019	$	440,395
2020		451,589
2021		448,687
2022		462,388
2023		443,135
Thereafter		2,972,966
Total	$	5,219,160

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Schedule of computation of basic and diluted earnings per common share

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Earnings per common share – Basic
Net income	$	1,272,468	$	853,626	$	2,917,199	$	2,310,062
Weighted average number of common shares outstanding		9,269,704		9,220,401		9,260,219		9,174,305
Earnings per common share – Basic	$	0.14	$	0.09	$	0.32	$	0.25
Earnings per common share – Diluted
Net income	$	1,272,468	$	853,626	$	2,917,199	$	2,310,062
Weighted average number of common shares outstanding		9,269,704		9,220,401		9,260,219		9,174,305
Dilutive effect of employee stock-based awards		39,612		59,067		40,969		65,705
Weighted average number of common shares outstanding - Diluted		9,309,316		9,279,468		9,301,188		9,240,010
Earnings per common share – Diluted	$	0.14	$	0.09	$	0.31	$	0.25

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Securities Authorized for Issuance under Equity Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2018

Securities Authorized for Issuance under Equity Compensation Plans [Abstract]

Schedule of outstanding stock options under company's stock options plans

Date Granted	Shares Underlying Options Outstanding		Shares Underlying Exercisable Options		Exercise Price		Expiration Date	Weighted Average Remaining Term
1/11/09		30,000		30,000	$	0.69	1/10/19		0.3
4/26/10		20,000		20,000	$	2.07	4/25/20		1.6
		50,000		50,000	$	1.24			0.8

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Inventories (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Summary of inventories
Raw materials	$ 4,861,236	$ 3,994,624
Finished goods	7,069,619	5,354,097
Inventories, gross	11,930,855	9,348,721
Inventory reserves	(277,987)	(274,295)
Inventories, net	$ 11,652,868	$ 9,074,426

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Inventories (Details Textual) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Inventories (Textual)
Inventories managed at the customer's warehouses	$ 825,000	$ 494,000

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Property, Plant & Equipment (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Summary of property, plant and equipment
Land	$ 278,325	$ 278,325
Building and Improvements	9,548,922	4,673,409
Manufacturing and warehouse equipment	10,393,794	9,616,086
Office equipment and furniture	1,803,309	1,367,244
Leasehold improvements	571,483	567,898
Vehicles	10,020	10,020
Construction in process	285,565	5,197,780
Property, plant and equipment, gross	22,891,418	21,710,762
Less accumulated depreciation	(13,163,187)	(12,419,095)
Property, plant and equipment, net	$ 9,728,231	$ 9,291,667
Building and Improvements [Member]
Summary of property, plant and equipment
Estimated Useful Life	30 years
Manufacturing and warehouse equipment [Member] | Minimum [Member]
Summary of property, plant and equipment
Estimated Useful Life	6 years
Manufacturing and warehouse equipment [Member] | Maximum [Member]
Summary of property, plant and equipment
Estimated Useful Life	20 years
Office equipment and furniture [Member] | Minimum [Member]
Summary of property, plant and equipment
Estimated Useful Life	3 years
Office equipment and furniture [Member] | Maximum [Member]
Summary of property, plant and equipment
Estimated Useful Life	5 years
Leasehold improvements [Member] | Minimum [Member]
Summary of property, plant and equipment
Estimated Useful Life	10 years
Leasehold improvements [Member] | Maximum [Member]
Summary of property, plant and equipment
Estimated Useful Life	15 years
Vehicles [Member]
Summary of property, plant and equipment
Estimated Useful Life	3 years

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Property, Plant & Equipment (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Property, Plant & Equipment (Textual)
Construction in process	$ 285,565		$ 285,565		$ 5,197,780
Depreciation included in cost of goods sold	219,731	$ 175,142	616,902	$ 528,512
Depreciation expense	261,623	221,115	744,092	673,416
Depreciation included in selling and administrative expenses	41,892	$ 45,973	127,190	$ 144,904
Kinpak [Member]
Property, Plant & Equipment (Textual)
Construction in process	$ 218,024		$ 218,024		$ 5,087,897

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Snappy Marine Asset Acquisition (Details)	Jul. 13, 2018 USD ($)
Snappy Marine Asset Acquisition (Textual)
Purchase price of asset acquisition	$ 1,358,882
Purchase price of Intellectual Property acquisition	1,350,000,000
Purchase price of Inventory acquisition	8,882,000
Promissory note, aggregate maximum offset amount	25,000
Legal costs directly related to asset acquisition	39,722
Snappy Marine, Inc. [Member]
Snappy Marine Asset Acquisition (Textual)
Cash paid at closing to seller	345,882
Cash held back to pay for intellectual property rights registration	13,000
Monthly installment	$ 16,667
Debt payment, terms	Over a 60 month period that commenced on August 1, 2018, with a final payment due and payable on July 1, 2023.
Promissory note, description	The Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be recorded as interest expense over the term of the note).

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Intangible Assets (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	$ 3,221,108	$ 1,913,858
Intangible assets, Accumulated Amortization	1,107,418	1,016,450
Intangible assets, Net	2,113,690	897,408
Patents [Member]
Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	622,733	622,733
Intangible assets, Accumulated Amortization	426,888	387,636
Intangible assets, Net	195,845	235,097
Trade names and trademarks [Member]
Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	1,649,880	1,131,125
Intangible assets, Accumulated Amortization	554,965	549,561
Intangible assets, Net	1,094,915	581,564
Customer list [Member]
Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	525,663
Intangible assets, Accumulated Amortization	21,903
Intangible assets, Net	503,760
Product formula [Member]
Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	262,832
Intangible assets, Accumulated Amortization	10,951
Intangible assets, Net	251,881
Royalty rights [Member]
Indefinite-lived Intangible Assets [Line Items]
Intangible assets, Cost	160,000	160,000
Intangible assets, Accumulated Amortization	92,711	79,253
Intangible assets, Net	$ 67,289	$ 80,747

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Intangible Assets (Details 1)	9 Months Ended
	Sep. 30, 2018 USD ($)
Indefinite-lived Intangible Assets [Line Items]
Total intangible assets acquired from Snappy Marine	$ 1,307,250
Trademarks and trade names [Member]
Indefinite-lived Intangible Assets [Line Items]
Total intangible assets acquired from Snappy Marine	$ 518,755
Estimated useful life of intangible assets	20 years
Customer list [Member]
Indefinite-lived Intangible Assets [Line Items]
Total intangible assets acquired from Snappy Marine	$ 525,663
Estimated useful life of intangible assets	5 years
Product formula [Member]
Indefinite-lived Intangible Assets [Line Items]
Total intangible assets acquired from Snappy Marine	$ 262,832
Estimated useful life of intangible assets	5 years

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Intangible Assets (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Intangible Assets (Textual)
Amortization expense	$ 55,828	$ 17,570	$ 90,968	$ 52,710

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Revolving Line of Credit (Details) - Business Loan Agreement [Member] - USD ($)		1 Months Ended
	Aug. 31, 2017	Aug. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Revolving Line of Credit (Textual)
Term of revolving line of credit, description		The Company was provided a revolving line of credit. Under the Business Loan Agreement, the Company may borrow up to the lesser of (i) $6,000,000 or (ii) a borrowing base equal to 85% of Eligible Accounts (as defined in the Business Loan Agreement) plus 50% of Eligible Inventory (as defined in the Business Loan Agreement).
Maximum revolving credit line of credit provided in business loan agreement		$ 6,000,000
Percentage of eligible accounts receivables as part of borrowing base		85.00%
Percentage of eligible inventory as part of the borrowing base		50.00%
Description of interest on the revolving line of credit	(i) if no demand for payment was made by Regions Bank, all outstanding amounts were due and payable one year from the date of the Predecessor Agreement; (ii) Interest on amounts borrowed under the Predecessor Agreement was payable monthly at the one month LIBOR rate plus 1.5% per annum, computed on a 365/360 basis. The Predecessor Agreement expired on August 31, 2018 and was replaced by the Business Loan Agreement.	LIBOR rate plus 1.35% per annum, computed on a 365/360 basis.
Due date of outstanding principal and interest borrowed under revolving line of credit		Aug. 31, 2021
Financial covenants under credit agreement, description		The Company maintain a minimum fixed charge coverage ratio (generally, the ratio of (A) EBITDA for the most recently completed four fiscal quarters minus the sum of the Company's distributions to its shareholders, taxes paid and unfunded capital expenditures during such period to (B) prior year current maturities of Company long term debt plus interest expense incurred over the most recently completed four fiscal quarters) of 1.20 to 1, tested quarterly, and a maximum "debt to cap" ratio (generally, funded debt divided by the sum of net worth and funded debt) of 0.75 to 1, as of the end of each fiscal quarter. For purposes of computing the fixed charge coverage ratio, "EBITDA" generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income; "unfunded capital expenditures" generally is defined as capital expenditures made from Company funds other than funds borrowed through term debt incurred to finance such capital expenditures; "long term debt" generally is defined as "debt instruments with a maturity principal due date of one year or more in length," including, among other listed contractual debt instruments, "revolving lines of credit" and "capital leases obligations" and "prior year current maturities of long term debt" generally is defined as the principal portions of long-term debt maturing within one year as listed at the last quarter end of the prior completed four fiscal quarters.
Majority shareholder's ownership, percentage			50.00%
Revolving line of credit	$ 6,000,000		$ 2,750,000	$ 0

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Long Term Debt (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Summary of long term debt
Total principal of long term debt, Current Portion	$ 440,395	$ 259,633
Total principal of long term debt, Long Term Portion	4,778,765	4,253,429
Debt issuance costs, Current Portion	(19,616)	(19,616)
Debt issuance costs, Long Term Portion	(156,924)	(171,636)
Total long term debt, Current Portion	420,779	240,017
Total long term debt, Long Term Portion	4,621,841	4,081,793
Obligations related to industrial development bond financing [Member]
Summary of long term debt
Obligations related to industrial development bond financing, Current Portion	246,070	240,395
Obligations related to industrial development bond financing, Long Term portion	4,037,060	4,222,241
Note payable related to asset acquisition [Member]
Summary of long term debt
Note payable related to asset acquisition, Current Portion	176,433
Note payable related to asset acquisition, Long Term Portion	725,178
Capitalized equipment leases [Member]
Summary of long term debt
Capitalized equipment leases, Current Portion	17,892	19,238
Capitalized equipment leases, Long Term Portion	$ 16,527	$ 31,188

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Long Term Debt (Details 1)	Sep. 30, 2018 USD ($)
Summary of principal payments under Company's long term obligations
2019	$ 440,395
2020	451,589
2021	448,687
2022	462,388
2023	443,135
Thereafter	2,972,966
Total	$ 5,219,160

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Long Term Debt (Details Textual)	1 Months Ended	9 Months Ended
	Sep. 26, 2017 USD ($) ft²	Sep. 30, 2018 USD ($) Installments	Dec. 31, 2017 USD ($)
Industrial Development Bond Financing [Member]
Long Term Debt (Textual)
Area of land | ft²	85,000
Term loan, description		The $4,500,000 proceeds of the Bond sale, approximately $1,918,000 has been applied to reimburse Kinpak for Project expenditures and approximately $54,000 was paid directly to other parties for certain transaction costs.
Lender's purchase of industrial development bond	$ 4,500,000
Repurchase price of facilities if bond has been redeemed or fully paid		$ 1,000
Bond redemptions, description		The Bond bears interest at the rate of 3.07% per annum, calculated on the basis of a 360-day year and the actual number of days elapsed (subject to increase to 6.07% per annum upon the occurrence of an event of default), and is payable in 118 monthly installments of $31,324 beginning on November 1, 2017 and ending on August 1, 2027, with a final principal and interest payment to be made on September 1, 2027 in the amount of $1,799,201.
Number of installments | Installments		118
Proceeds of the bond sale	$ 4,500,000
Payments for debt issuance costs		$ 196,095
Financial covenants under credit agreement, description		The Company is subject to certain covenants, including financial covenants requiring that the Company maintain (i) a minimum fixed charge ratio (generally, the ratio of (A) EBITDA minus the sum of Company's distributions to its shareholders, taxes paid and unfunded capital expenditures to (B) current maturities of Company long-term debt plus interest expense) of 1.2 to 1, tested quarterly, and (ii) a ratio of funded debt (as defined in the guaranty agreement) divided by the sum of net worth and funded debt of 0.75 to 1, tested quarterly. For purposes of computing the fixed charge coverage ratio, "EBITDA" generally is defined as net income before taxes and depreciation expense plus amortization expense, plus interest expense, plus non-recurring and/or non-cash losses and expenses, minus non-recurring and/or non-cash gains and income.
Other Long Term Obligations [Member]
Long Term Debt (Textual)
Aggregate capital lease		$ 34,000	$ 50,000
Maturity period for capital lease		Mature on July 1, 2020.
Percentage of interest rates		2.00%
Promissory note, description		The Company's agreement to purchase the assets of Snappy Marine (see Note 5 above), the Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest (of the $1,000,000 amount of the promissory note, $930,528 was recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be recorded as interest expense over the term of the note).
Monthly installment		$ 16,667
Debt payment, terms		Over a 60 month period that commenced on August 1, 2018, with a final payment due and payable on July 1, 2023.

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Related Party Transactions (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Related Party Transactions (Textual)
Sales to the affiliated companies	$ 344,000	$ 239,000	$ 1,533,000	$ 1,525,000
Administrative fees	224,000	261,000	653,000	690,000
Receivables due from affiliated companies	639,000		639,000		$ 1,584,000
Amount paid for the production of television commercials			21,000
Reimburse business related expenditures	23,000	29,000	76,000	78,000
Services provided for marketing events	3,500	8,750	14,000	53,750
Research and development services	10,500	10,500	31,500	31,500
Insurance broker [Member]
Related Party Transactions (Textual)
Insurance premiums paid	$ 610,000	$ 673,000	$ 1,059,000	$ 1,112,000

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Commitments and Contingencies (Details)		3 Months Ended		9 Months Ended
	Aug. 01, 2016 USD ($) ft²	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)
Fort Lauderdale, Florida [Member]
Commitments and contingencies (Textual)
Extended expiration date of lease				Dec. 31, 2023
Minimum base rent				$ 94,800
Maximum annual percentage increase in base rent				2.00%
Period to review term of lease				3 years
Rent expense under the lease		$ 24,000	$ 24,000	$ 73,000	$ 73,000
Montgomery, AL [Member]
Commitments and contingencies (Textual)
Area of rent leases | ft²	15,000
Monthly rent	$ 4,375
Expiration date	Jul. 31, 2018

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Earnings Per Share (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings per common share - Basic
Net income	$ 1,272,468	$ 853,626	$ 2,917,199	$ 2,310,062
Weighted average number of common shares outstanding	9,269,704	9,220,401	9,260,219	9,174,305
Earnings per common share - Basic	$ 0.14	$ 0.09	$ 0.32	$ 0.25
Earnings per common share - Diluted
Net income	$ 1,272,468	$ 853,626	$ 2,917,199	$ 2,310,062
Weighted average number of common shares outstanding	9,269,704	9,220,401	9,260,219	9,174,305
Dilutive effect of employee stock-based awards	39,612	59,067	40,969	65,705
Weighted average number of common shares outstanding - Diluted	9,309,316	9,279,468	9,301,188	9,240,010
Earnings per common share - Diluted	$ 0.14	$ 0.09	$ 0.31	$ 0.25

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Securities Authorized for Issuance under Equity Compensation Plans (Details)	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Summary of outstanding options, exercisable options, exercise price, expiration date, weighted average remaining life under company stock option plans
Shares Underlying Options Outstanding	50,000
Shares Underlying Exercisable Options	50,000
Exercise Price | $ / shares	$ 1.24
Weighted Average Remaining Term	9 months 18 days
1/11/09 [Member]
Summary of outstanding options, exercisable options, exercise price, expiration date, weighted average remaining life under company stock option plans
Date Granted	Jan. 11, 2009
Shares Underlying Options Outstanding	30,000
Shares Underlying Exercisable Options	30,000
Exercise Price | $ / shares	$ 0.69
Expiration Date	Jan. 10, 2019
Weighted Average Remaining Term	3 months 19 days
4/26/10 [Member]
Summary of outstanding options, exercisable options, exercise price, expiration date, weighted average remaining life under company stock option plans
Date Granted	Apr. 26, 2010
Shares Underlying Options Outstanding	20,000
Shares Underlying Exercisable Options	20,000
Exercise Price | $ / shares	$ 2.07
Expiration Date	Apr. 25, 2020
Weighted Average Remaining Term	1 year 7 months 6 days

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Securities Authorized for Issuance under Equity Compensation Plans (Details Textual) - USD ($)		1 Months Ended		3 Months Ended		9 Months Ended
	Sep. 11, 2018	Sep. 19, 2018	May 25, 2018	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Securities Authorized for Issuance Under Equity Compensation Plans (Textual)
Number of shares retained for tax withholding	1,490
Shares issued related to option exercise	8,510
Stock compensation expense				$ 316,953	$ 306,785	$ 330,823	$ 324,145
Director [Member]
Securities Authorized for Issuance Under Equity Compensation Plans (Textual)
Exercised stock option to purchase	10,000
2015 Equity Compensation Plan [Member]
Securities Authorized for Issuance Under Equity Compensation Plans (Textual)
Common stock, shares issued			4,000
Number of shares retained for tax withholding		6,299
Shares issued related to officers and employees, description		The Company issued 71,101 shares of common stock to its officers and other employees (net of 6,299 shares retained by the Company as a result of tax withholding elections made by some of the recipients) as stock awards under the Ocean Bio-Chem, Inc. 2015 Equity Compensation Plan.

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Cash Dividends (Details) - USD ($)		1 Months Ended	9 Months Ended
	May 11, 2017	Apr. 16, 2018	Sep. 30, 2018	Sep. 30, 2017	Apr. 27, 2018	Apr. 02, 2018	Mar. 19, 2018	Dec. 31, 2017	Apr. 13, 2017
Cash Dividends (Textual)
Common stock, shares outstanding			9,338,191					9,254,580
Dividends paid to common shareholders			$ 555,275	$ 549,255
Shareholders [Member]
Cash Dividends (Textual)
Common stock, shares outstanding					9,154,243	9,254,580
Dividends paid to common shareholders	$ 549,255	$ 555,275
Dividends declared per common share							$ 0.06		$ 0.06

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Major Customers (Details) - Customers	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Net sales [Member]
Major Customers (Textual)
Concentration risk, percentage	52.10%	51.10%	50.50%	50.10%
Number of customers	4	4	4	4
Net sales [Member] | Customer One [Member]
Major Customers (Textual)
Concentration risk, percentage	20.90%	23.40%	22.90%	24.50%
Net sales [Member] | Customer Two [Member]
Major Customers (Textual)
Concentration risk, percentage	16.90%	18.20%	10.30%	11.50%
Net sales [Member] | Customer Three [Member]
Major Customers (Textual)
Concentration risk, percentage	7.80%	5.60%	9.10%	7.60%
Net sales [Member] | Customer Four [Member]
Major Customers (Textual)
Concentration risk, percentage	6.50%	3.90%	8.20%	6.50%
Trade accounts receivable [Member]
Major Customers (Textual)
Concentration risk, percentage			62.30%		46.40%
Number of customers	4		4		4
Trade accounts receivable [Member] | Customer One [Member]
Major Customers (Textual)
Concentration risk, percentage			25.10%		14.00%
Trade accounts receivable [Member] | Customer Two [Member]
Major Customers (Textual)
Concentration risk, percentage			17.00%		11.50%
Trade accounts receivable [Member] | Customer Three [Member]
Major Customers (Textual)
Concentration risk, percentage			10.30%		11.40%
Trade accounts receivable [Member] | Customer Four [Member]
Major Customers (Textual)
Concentration risk, percentage			9.90%		9.50%