The following discussion should be read in conjunction with our consolidated financial statements contained herein as Item 15.

The Company adopted SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB No. 108), effective January 1, 2007. In accordance with the requirements of SAB No. 108, the Company has recorded an adjustment in the amount of approximately $70,000 to the opening retained earnings balance as of January 1, 2007 in the accompanying consolidated financial statements, to correct errors in the accounting of share-based compensation and contingent legal liabilities in 2006.

In 2007, the Company made certain revisions in the valuation of stock option grants that vested in 2006. The revised valuation resulted in an increase in compensation expense of approximately $40,000 for 2006. Also in 2007, the Company discovered that a liability in the amount of approximately $30,000 for legal costs incurred in 2006 should have been recorded as of December 31, 2006 under the criteria of Statement of Financial Accounting Standards No. 5. There was no corporate tax effect for the adjustments due to the Company's tax position in 2006.

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:

Principles of consolidation - Our consolidated financial statements include the accounts of the parent company and its wholly owned subsidiaries. All significant inter-company accounts and transactions are eliminated in consolidation.

Collectability of accounts receivable - Included in the consolidated balance sheets as of December 31, 2008 and 2007 are allowances for doubtful accounts aggregating approximately $117,600 and $47,000 respectively. Such amounts are based on management's estimates of the creditworthiness of its customers, current economic conditions and other historical information. Consolidated bad debt expense charged against operations for the years ended December 31, 2008 and 2007 aggregated approximately $83,500 and $ 24,000 respectively. The foregoing includes as of December 31, 2008 an additional allowance for doubtful accounts aggregating approximately $69,000 to reflect risks related to bankruptcy filings occurred in 2009 before this filing. With the economic slow down it is expected to increase the Company's risk related to sales and collection of accounts receivable. At the time of this filing we have incurred, in 2009, one customer filing for bankruptcy (Boater's World), representing a maximum risk of loss on unrecoverable receivables of approximately $210 thousand in total, approximately $69 thousand related to December 31, 2008 receivables. We do not know yet and cannot predict if we will be able to collect accounts receivable with more or less difficulty than in the past. The Company's Management understands that the economic conditions in the industry may result in additional difficulties for our customers, but is unable to qualify this risk at this time.

Revenue recognition - Revenue from product sales is recognized when persuasive evidence of a contract exists, delivery to customer has occurred, the sales price is fixed and determinable, and collectability of the related receivable is probable.

Inventories - Inventories are primarily composed of raw materials and finished goods and are stated at the lower of cost, or market using the first-in, first-out method,

Prepaid expenses - In any given year we introduce certain new products to our customers. In connection therewith, we produce new collateral materials to be distributed over an introduction period of time. We follow the policy of Statement of Position (SOP) 93-7 amortizing these costs based on actual usage. Advertising expenses are expensed in the period the advertising either is aired on TV or in the month an advertisement appears in a magazine in accordance with SOP 93-7.

Property, plant and equipment - Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. Stock based compensation - At December 31, 2008, the Company had options outstanding under four stock-based compensation plans and one non-qualified plan, which are described below. On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R (revised 2004), "Share-Based Payment". ("SFAS No. 123R"), which requires the measurement and recognition of compensation cost for all share-based payment awards made to employees and directors based on estimated fair values. Prior to the adoption of SFAS No. 123R, the Company accounted for its stock-based employee compensation related to stock options under the intrinsic value recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and the disclosure alternative prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." Accordingly, The Company presents pro- forma information for the periods prior to the adoption of SFAS No. 123R and no employee compensation cost was recognized for the stock- based compensation plans other than the grant date intrinsic value, if any, for the options granted prior to January 1, 2006.

Concentration of cash - At various times of the year and at December 31, 2008, we had a concentration of cash in one bank in excess of prevailing insurance offered through the Federal Deposit Insurance Corporation at such institution. Management does not consider the excess deposits to be a significant risk.

Fair value of financial instruments - The carrying amount of cash approximates its fair value. The fair value of long-term debt is based on current rates at which we could borrow funds with similar remaining maturities, and the carrying amount approximates fair value.
Income taxes - We file consolidated federal and state income tax returns. We have adopted Statement of Financial Accounting Standards No. 109 in the accompanying consolidated financial statements. The temporary differences included therein are attributable to differing methods of reflecting depreciation and stock based compensation for financial statement and income tax purposes. We adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an Interpretation of FASB Statement No. 109" ("FIN 48"), which clarified the accounting for uncertainty in income taxes recognized in accordance with SFAS 109, on January 1, 2007. FIN 48 clarifies the application of SFAS 109 by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements.

Trademarks, trade names and patents - The Star brite trade name and trademark were purchased in 1980 for $880,000. The cost of such intangible assets was amortized on a straight-line basis over an estimated useful life of 40 years through December 31, 2001. Effective January 1, 2002 and pursuant to Statement of Financial Accounting Standards No. 142, we have determined that these intangible assets have indefinite lives and therefore we no longer recognize amortization expense. In addition, we own two patents that we believe are valuable in limited product lines, but not material to our success or competitiveness in general. There are no capitalized costs of these two patents.

Translation of Canadian currency - The accounts of our Canadian subsidiary are translated in accordance with Statement of Financial Accounting Standards No. 52, which requires that foreign currency assets and liabilities be translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as the translation adjustment in shareholders' equity.

Performance Comparisons

N/A

Liquidity and Capital Resources:

Cash decreased in the year to approximately $ 527 thousand dollars from approximately $751 thousand dollars, a decrease of approximately $224 thousand dollars. The amount of short-term borrowings outstanding at December 31, 2008 was approximately $ 2.80 million dollars. This is an increase of $ 1.05 million dollars from the December 31, 2007, balance of approximately $ 1.75 million dollars. The decreased cash and increased borrowings are result of increased accounts receivable due from affiliated companies and an increase of inventories.

During the year ended December 31, 2008 the Company continued to focus on programs to effectively manage accounts receivable - trade. In 2008, net sales and accounts receivable remained close to their prior year levels: trade accounts receivable aggregated approximately $ 2.0 million dollars at both December 31, 2008 and 2007.

In addition, inventory levels increased, from approximately $6.0 million dollars to $6.5 million dollars, comparing December 31, 2008 and 2007, an increase of approximately $500 thousand or 8.3%. The increase was mainly attributable to raw material price increases (petroleum based chemicals) from our vendors on key raw materials in addition to a vendor managed inventory program for one of our customers, increasing inventories approximately $200 thousand dollars.

Accounts payable at December 31, 2008 decreased to approximately $0.9 million dollars from $1.0 million dollars. This decrease was offset by an increase in accrued payables of approximately $0.9 million.

The primary sources of our liquidity are our operations and borrowings from Regions Bank pursuant to a revolving line of credit aggregating $6 million. In 2007, the line carried interest based on the 30 day LIBOR rate plus 275 basis points (approximately 6.0% at December 31, 2007) payable monthly, and was collateralized by the Company's inventory, trade receivables, and intangible assets. This financing matured on May 31, 2008, and was renewed for three years. Such line matures May 31, 2011, bears interest at the 30 Day LIBOR plus 250 basis points (approximately 3.6% at December 31, 2008) and is secured by our trade receivables, inventory and intangible assets. 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. At December 31, 2008 and 2007 the Company was in compliance with its debt covenants. As of December 31, 2008, and 2007 we were obligated under this arrangement in the amount of $2.8 million dollars and $ 1.8 million dollars, respectively.

In connection with the purchase and expansion of the Alabama facility, we closed on Industrial Development Bonds during 1997. The proceeds were utilized for both the repayment of certain advances used to purchase the Alabama facility and to expand such facility for our future needs. 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, 2009, renewable annually, 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 year ended December 31, 2008 such bonds carried interest ranging between 1.5% and 8.6% annually. The bonds when tendered by Regions Bank carry an interest rate of prime rate plus 2%. Interest and principal are payable quarterly. We believe current operations are sufficient to meet these obligations. The bonds maturity dates are March 2012 and July 2017 for the 1997 and 2002 series bonds. In September and October 2008 both bond issues were tendered due to the volatility of the credit markets. Both issues were successfully remarketed before year end.

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 December 31, 2008 was approximately $133,000 and interest rate is LIBOR plus 2.5% per annum (or approximately 3.6% at December 31, 2008).

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.

In the year ended December 31, 2008 the Company recorded a $71 thousand dollar foreign currency translation adjustment (decreasing shareholders equity by $71 thousand dollars) as a result of the weakening of the Canadian dollar in relationship to the US dollar, in the conversion of the Company's Canadian subsidiary balance sheet to US dollars.

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.

Many of the raw materials that we use in the manufacturing process are petroleum chemical based and commodity chemicals that are subject to fluctuating prices. The cost of petroleum and related products, major components in many of our products, which were already in an increasing cost spiral, became even more unstable in 2008. The practical dynamics of our business do not afford us the same pricing flexibility with our customers, available to our suppliers. We cannot as immediately as our suppliers pass along the price increases to our national retailers and distributors.

As of December 31, 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:

Net sales decreased to $20.9 million dollars from $21.3 million dollars, a decrease of $394 thousand dollars or 1.85%. The 1.85% decrease in net sales was reflective of the overall slowdown of the economy, the tightening of credit markets for the financing of new/used boats and the historically high prices of fuel which directly affects recreational boat usage. Considering these factors the Company has made inroads in 2008 expanding distribution to new customers in both the boating and automotive markets. In 2008 the Company also increased its sales of StarTron(r) to both the automotive as well as the power sports markets.

Cost of Sales and Gross Margins - For the year, gross profit decreased approximately $0.8 million dollars or 12.3%, from approximately $6.8 million dollars in 2007, to approximately $6.0 million dollars in 2008. Gross margin percentages also decreased from approximately 32% to 29%, a change of approximately 3%. This 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 the Company had a higher sales mix of lower margin antifreeze products in 2008 compared to prior year. In 2009 we will continue management's initiatives to decrease raw material costs.

Operating Expenses - For the year, total operating expenses aggregated approximately $5.6 million dollars, a decrease of approximately $359 thousand dollars from 2007. As a percentage of net sales operating expenses decreased from 27.8% to 26.7%.

Advertising & Promotion decreased $231 thousand dollars. Reduced cost of advertising, and placement in trade magazines reduced controllable advertising expenses. Marketing has pursued' initiatives to promote and advertise StarTron/Starbrite products in both the TV Media as well as target advertising in specific industry magazines.

Selling, general & administrative expenses remained flat between the two years. The Company reduced its non cash compensation expense for stock awards which was offset by higher operating expenses.

Interest expense decreased approximately $96 thousand dollars to $257 thousand in 2008, compared to $355 thousand in 2007. This principally resulted from lower interest rates in 2008.

Operating Profit - Operating profits decreased to approximately $423 thousand dollars in 2008 from an operating profit of approximately $907 thousand in 2007, a decrease of $483 thousand dollars or 53%.

Income Taxes - The Company fully utilized its net operating losses (NOL's) in 2007. As a result the Company had a tax expense of $291 thousand dollars in 2008.
Net Income decreased to approximately $154 thousand dollars in 2008, from a net income of approximately $725 thousand in 2007 a decrease of $571 thousand dollars. The decrease resulted primarily from a combination of higher costs of goods as a result of the impact of higher material cost due to higher oil prices. In addition the Company had fully utilized its tax carry forward in 2007 and had an income tax provision of $291 thousand in 2008, compared to $200 thousand dollar income tax provision in 2007.

Contractual obligations:

The following table reflects our contractual obligations for the years ended December 31,

                                                                          2014 &
                              Total           2009      2010 - 2013     thereafter
                            -----------    -----------    -----------   -----------
Long-term debt obligations  $ 3,958,348    $   559,996    $ 1,838,352   $ 1,560,000
Line of credit                2,800,000      2,800,000             -             -
Capital leases                   60,680         24,541         36,139            -
Other                         1,033,324        101,828        428,089       503,407
                            -----------    -----------    -----------   -----------
                            $ 7,852,352    $ 3,486,365    $ 2,302,580   $ 2,063,407
                            ===========    ===========    ===========   ===========