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 borrowings from Regions Bank pursuant to a revolving line of credit aggregating $6 million. On May 31, 2008 this line of credit was renewed for three years. Such line matures May 31, 2011, bears interest at the 30 Day LIBOR plus 250 basis points (approximately 3.1% at March 31, 2009) 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 March 31, 2009 the Company was in compliance with its debt covenants, and was obligated under this arrangement in the amount of $3,200,000.

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, AL. 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.

The bonds maturity dates are respectively March 2012 and July 2017 for the 1997 and 2002 series bonds.

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 collateral on Kinpak manufacturing equipment.

The bonds are marketed weekly at the prevailing rates for such tax-exempt instruments. Principal and accrued interest retiring the underlying bonds are payable quarterly through March 2012 and July 2017 for the 1997 and 2002 series, respectively. At March 31, 2009, $1,020,000 and $2,690,000 were outstanding attributable to the 1997 and 2002 series, respectively. During the three months ended March 31, 2009 interest rates ranged between 1.5% and 5.25%.

Repayment of the bonds is guaranteed by a Letter of Credit issued by the Company's primary commercial bank. Security for the Letter of Credit is a priority first mortgage on the Kinpak facility and collateral on Kinpak manufacturing equipment. On February 10, 2009 the Company received notification that its City of Montgomery, AL Series 1997 and Series 2002 Industrial Revenue Bonds with an approximate balance of $1,105,000 and $2,720,000, respectively, were tendered by various bondholders. At March 31, 2009, $1,020,000 and $2,690,000 were outstanding, respectively. There has been no default on these bonds by the Company. It is the understanding of the Company that due to the tight credit markets, these bonds were tendered. As a result the Company has been temporarily obligated to its primary commercial bank, for a few weeks during the first quarter 2009, until the credit markets improved sufficiently to remarket these bonds. The interest rate on the loans during this period was prime rate plus 2%, or approximately 5.25%. We believe current operations are sufficient to meet these obligations. Interest expenses for the quarter ending March 31, 2009 were approximately $47,000.

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 March 31, 2009 was approximately $108,000 and interest rate is LIBOR plus 2.5% per annum (or approximately 3.1% at March 31, 2009).

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.

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 costs of petroleum and related products, major components in many of our products, have been increasingly unstable since 2008. The practical dynamics of our business do not afford us the same pricing flexibility with our customers, than available to our suppliers. We cannot pass along price increases to our national retailers and distributors as promptly as our suppliers do.

As of March 31, 2009 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 March 31, 2009 compared to the Three Months ended March 31, 2008

Net sales were approximately $4,110,000 for the three months ended March 31, 2009 compared to $3,745,000 for the comparative quarter 2008, an increase of approximately $365,000 or 10%. The Company increased its sales of private label marine products to two newer customers. The Company also increased sales of its fuel treatment product StarTron, to the automotive and power sports markets in the northern parts of the United States. The addition of up to 10% ethanol in gasoline has generated engine problems, which has created a demand for StarTron, to help cure water in fuel problems. All types of combustion engines are susceptible to water in fuel problems including motor cycles, small engines (lawn mowers, trimmers), snow mobiles, autos and trucks which create opportunities for us to increase sales. The increase in sales was partially offset by a decrease in sales to Boaters' World which filed for bankruptcy protection early in the 1st quarter 2009.

Cost of goods sold as a percentage of sales decreased to 64.7% of sales compared to 76.7% for the comparative 2008 quarter. This decrease in the cost of goods sold percentage of 12%, was primarily a result of increased selling prices to our customers made in 2008, combined with decreased oil prices and the resulting decrease in the Company's raw material costs. In addition, the Company's freight out expense also decreased as a result of lower petroleum cost.

Advertising and promotion expenses were approximately $322,000 compared to $202,000 for the comparative 2008 first quarter. The increase in advertising expense of approximately $120,000 was a result of increased customer cooperative, promotional, and catalog allowances. In addition, we increased our advertising expenditures in both TV and print advertising. We also initiated an advertising program on the Internet, on both Face Book and Twitter. Initial results look promising. Selling and administrative expenses decreased approximately $75,000 to $852,000 from $927,000, for comparative quarters. Lower operating expenses were recognized in the quarter for accounting & legal services, lower travel expenses, and higher charges to affiliated companies for administrative services. These lower costs were partially offset by higher non cash compensation expense and charges to income to increase bad debt allowances. Management continues to monitor all expenses to reduce spending.

Interest expense increased by approximately $6,000 for the quarter ended March 31, 2009 compared to the corresponding quarter in 2008. The higher interest expense in 2009 is associated with the financing of higher levels of inventory, in addition to higher average interest expense as a result of the industrial revenue bonds being tendered.

Operating income increased to approximately $205,000 from a loss of $323,000, a change of $529,000 or 164%. This is a result of higher sales volume, higher gross margin percent, and lower operating expenses.

Net profit for the quarter ended March 31, 2009 was approximately $126,000 compared to a net loss of $206,000 for the comparable period in 2008. The Company had income tax expense for the quarter of $91,000, as a result of the Company being in a tax paying position, as compared to the comparative quarter 2008 in which the Company was in a loss position.