Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations

Forward-looking Statements:

Certain statements contained herein, including without limitation expectations as to future sales and operating results, constitute forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigations Reform Act of 1995. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "will", "expect", "anticipate", "intend", "could" or the negative other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may affect the Company's results include, but are not limited to, the highly competitive nature of the Company's industry; reliance on certain key customers; consumer demand for marine recreational vehicle and automotive products; advertising and promotional efforts, and other factors. The Company will not undertake and specifically declines any obligation to update or correct any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview:

We are a leading manufacturer and distributor of chemical formulations serving the appearance and functional categories of the marine, automotive, recreational vehicle and home care markets. We were founded in 1973 and have conducted operations within the aforementioned categories since then. During 1984, we changed our corporate name to Ocean Bio-Chem, Inc. (the parent company) from our former name, Star Brite Corporation. Our operations were conducted as a privately owned company through March, 1981 when we completed our initial public offering of common stock.

Critical accounting policies and estimates:

See Note 1 "Summary of Accounting Policies" in the Notes to the Unaudited Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements and their effect, if any, on the Company.

Liquidity and Capital Resources:

The primary sources of our liquidity are our operations and short-term borrowings from Regions Bank pursuant to a revolving line of credit aggregating $6 million. Such line matures May 31, 2011, bears interest at the 30 Day LIBOR plus 250 basis points (approximately 5.0% at June 30, 2008) and is secured by our trade receivables, inventory and intangible assets. As of each year-end, December 31, we are required to maintain a minimum working capital of $1.5 million and meet certain other financial covenants during the term of the agreement. As of June 30, 2008, we were obligated under this arrangement in the amount of $2,900,000.

In connection with the purchase and expansion of the Alabama facility, we closed on Industrial Development Bonds during 1997 aggregating approximately $5 million. The proceeds were utilized for both the repayment of certain advances used to purchase the Alabama facility and to expand such facility. During July 2002, we completed a second Industrial Development Bond financing aggregating $3.5 million through the City of Montgomery, Alabama. Such transaction funded an approximate 70,000 square foot addition to the manufacturing facility as well as the remaining machinery and equipment additions required therein. This project was substantially completed during 2003.

In order to market the Industrial Development Bonds at favorable rates, we obtained a substitute irrevocable letter of credit for the 1997 issue and a new irrevocable letter of credit for the 2002 issue. Under such letters of credit agreements, maturing on July 31, 2008, we are required to maintain a stipulated level of working capital, a designated maximum debt to tangible ratio, and a required debt service coverage ratio. Such letters of credit are secured by a first priority mortgage on the underlying Alabama facility and equipment.

The bonds are marketed weekly at the prevailing rates for such tax-exempt instruments. During the six months ended June 30, 2008 and 2007 such bonds carried interest ranging between 1.5% and 3.7%, and 3.3% and 3.7%, respectively. Interest and principal are payable quarterly. We believe current operations are sufficient to meet these obligations.

On April 12, 2005 we entered into a financing obligation with Regions Bank whereby they advanced us $500,000 to finance equipment acquisitions at our Kinpak facility. Such obligation is due in monthly installments of principal aggregating approximately $8,300 plus interest at prevailing rates (the outstanding balance and interest rate on this obligation at June 30, 2008 were approximately $183,300. The maturity on this obligation is April 15, 2010.

We are involved in making sales in the Canadian market and must deal with the currency fluctuations of the Canadian currency.

We do not engage in currency hedging and deal with such currency risk as a pricing issue.

During the past few years, we have introduced various new products to our customers. At times this has required us to carry greater amounts of overall inventory and has resulted in lower inventory turnover rates. The effects of such inventory turnover have not been material to our overall operations. We believe that all required capital to maintain such increases can continue to be provided by operations and current financing arrangements. As of June 30, 2008, the inventory value was approximately $7,591,000, an increase of $1,597,000. The inventory increase is a seasonal increase, in anticipation of colder weather in the northern parts of the United States and the start of the Company's winterizing programs including sale of antifreeze.

Many of the raw materials that we use in the manufacturing process are commodities that are subject to fluctuating prices. We react to long-term increases by passing along all or a portion of such increases to our customers.

As of June 30, 2008 and through the date hereof, we did not and do not have any material commitments for capital expenditures, nor do we have any other present commitment that is likely to result in our liquidity increasing or decreasing in any material way. In addition, except for our need for additional capital to finance inventory purchases, we know of no trend, additional demand, event or uncertainty that will result in, or that is reasonably likely to result in, our liquidity increasing or decreasing in any material way.

Results of Operations:

For The Three Months Ended June 30, 2008 compared to the Three Months ended June 30, 2007

Net sales were approximately $ 4,991,000 for the three months ended June 30, 2008 compared to $5,434,000 for the comparative quarter 2007, a decrease of $443,000 or 8.2%. Due to the unprecedented increase in petroleum prices, slowing economy, and the tightening credit market for the purchase of new boats, the recreational boating industry has been adversely affected. The manufacturing of new boats has slowed, with plants closures, in addition to the curtailed use of recreation boats due to high fuel prices. We believe we are well positioned when the industry recovers.

Cost of goods sold as a percentage of net sales increased to 65.8% of sales compared to 60.3% for the comparative 2007 quarter. This increase in the cost of goods sold percentage of 5.6 % was a result of the unprecedented increase in oil prices and the resulting increase in the Company's raw material costs that could not be fully passed on to our customers. In addition due to higher oil prices, transportation costs increased for both inbound raw materials as well as outbound freight to our customers.

Advertising and promotion was approximately $467,000 for both comparative quarters. Management has taken initiatives to reduce spending for advertising and promotion for the balance of the year.

Selling and administrative expenses decreased approximately $62,600 to $1,149,000 for 2008, from $1,190,900 for 2007. Management has taken steps to reduce spending. Cost savings were realized in compensation expense as well as computer consulting services.

Interest expense decreased to approximately $95,000 for the quarter ended June 30, 2008 compared to the corresponding quarter in 2007. Reduced borrowings and interest rates decreased interest expense 10% or approximately $10,600.

Our net loss for the quarter ended June 30, 2008 amounted to approximately $18,000 compared to a net income of $395,000 for the comparable period in 2007. The Company has a net tax expense for the quarter of approximately $9,000, as a result of tax accruals.

For the Six Months Ended June 30, 2008 Compared To The Six Months Ended June 30, 2007

Net sales were approximately $8,736,000 for the six month period ending June 30, 2008 compared to approximately $9,456,000 for the 2007 comparative period, a decrease of approximately $720,000 or 7.6%. The decrease in sales for the six month period as discussed above in the current quarter MD&A narrative is related to unprecedented higher oil prices and tightened credit for the purchase of new boats, resulting in less of the Company's products being sold to boat manufacturers and less products sold at retail due to reduced usage of recreational boats from higher fuel prices.

Cost of goods sold as a percentage of sales increased to 70.5% of sales compared to 64.7% for the comparative 2007 six month period. As discussed above in the quarterly narrative the increase in cost of goods sold percentage of 5.6 % was a result of the unprecedented increase in oil prices and the resulting increase in the Company's raw material costs that could not be fully passed on to our customers. In addition due to higher oil prices, transportation costs increased for both inbound raw materials as well as outbound freight to our customers.

Advertising and promotion was approximately $670,000 compared to $674,000 for the comparative period of 2007. Management has taken advantage of reduced advertising rates for unsold space and will continue to avail itself of this avenue for advertising Starbrite products for the balance of the year.

Selling and administrative expenses decreased to approximately $2,076,000 for the six months ended June 30, 2008 compared to $2,225,000 for the six months ended June 30, 2007, which corresponds to a decrease of $149,000 or 6.7%. The significant component of this decrease was caused by a reduction of commission expense in relation with reduced sales volume as well as reduced general and administrative compensation expense.

Interest expense for 2008 decreased approximately $43,000 when compared to the same six month period of 2007. This principally resulted from reduced borrowings and interest rates for the comparative periods.

The loss was approximately $224,000 for the six months ended June 30, 2008 compared to a net income of approximately $231,460 for the six months ended June 30, 2007.