The Company’s intangible assets at June 30, 20182019 and December 31, 20172018 consisted of the following:

June 30, 2018 2019

December 31, 20172018 

At June 30, 2018 and December 31, 2017, the trade names and trademarks are considered indefinite-lived. The patents (the most significant of which (the “ClO₂ Patents”) relate to a device for producing chlorine dioxide (ClO₂) that is incorporated into the Company’s disinfectant, sanitizer and deodorizer products) had a carrying value, net of amortization, of $208,929 at June 30, 2018 (of which $205,791 is attributable to the ClO₂ Patents). The ClO₂ Patents expire in 2022 and the other patents expire in 2021. The royalty rights (which the Company purchased from an unaffiliated entity that previously owned the ClO₂ Patents and retained the royalty rights after selling the patents) expire in December 2021 and are amortized on a straight line basis over their remaining useful lives.

Amortization expense related to intangible assets was $63,479 and $17,570 ($13,084 attributable to the patents and $4,486 attributable to the royalty rights) for each of the three months ended June 30, 2019 and 2018, respectively, and 2017,$126,959 and $35,140 ($26,168 attributable to the patents and $8,972 attributable to the royalty rights) for each of the six months ended June 30, 2019 and 2018, and 2017.respectively.

On August 31, 2017,2018, 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 1.5%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, 2018,2021, 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 among other things, the Company’s accounts receivable and inventory.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 as of the end of the most recent fiscal quarter plus scheduled interest expense incurred over the most recently completed four fiscal quarters) of 1.20 to 1, tested quarterly, and a maximum “debt to cap” ratio (generally, funded debt divided by the sum of net worth and funded debt) of 0.75 to 1, as of the end of each fiscal quarter. 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; and “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.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 June 30, 2018,2019, 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.

At June 30, 20182019 and December 31, 2017,2018, the Company had $1,100,000$400,000 and $0no borrowings, respectively, under the revolving line of credit provided by the Business Loan Agreement.

The Business Loan Agreement terminates on August 31, 2018. The Company is engaged in negotiations with its principal lending bank regarding its revolving credit facility, and expects to enter into an agreement with the bank for a renewal or replacement of its existing facility. However, the Company cannot assure that its negotiations will be successful.

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 additionrelating to Kinpak’s manufacturing, warehouse and distribution facilities in Montgomery, Alabama, and costs of purchasing and installing associated machinery and equipment (the “Project”).the Expansion 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. UnderKinpak inherited the lease structure when it first acquired its facilities from its predecessor-in-interest in 1996. The Lease provides that 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 Expansion 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 the guarantee agreement under which the Company provided its guarantee, the Company is subject to certain covenants, including financial covenants requiring that effectively are substantially the same asCompany maintain (i) a minimum fixed charge ratio (generally, the financial covenants includedratio 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 Business Loan Agreement describedguaranty 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 June 30, 2019, the Company was in Note 6.compliance with these financial covenants.

Through June 30, 2018,2019, of the $4,500,000 proceeds of the Bond sale, approximately $1,704,000$2,343,000 has been applied to reimburse Kinpak for Expansion 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 Expansion 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 issuancefinancing 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 accordanceover the life of the Bond.

Other Long Term Obligations

In connection with the effectiveCompany’s agreement to purchase assets of Snappy Marine, Inc. (“Snappy Marine”) on July 13, 2018, the Company provided to Snappy Marine a promissory note in the amount of $1,000,000, including interest method.

Capital Lease Obligations(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, is being 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.

At June 30, 20182019 and December 31, 2017,2018, the Company was obligated under capital lease agreements covering equipment utilized in the Company’s operations.  The capitalequipment leases, aggregating approximately $39,000$38,000 and $50,000$31,000 at June 30, 20182019 and December 31, 2017,2018, respectively, mature on July 1, 2020have maturities through 2024 and carry an interest rate ofrates ranging from 2%. to 4% per annum. The equipment leases are classified as finance leases. During the six months ended June 30, 2019 and 2018, the Company paid approximately $11,850 ($11,345 principal and $505 interest) and $11,667 ($11,179 principal and $488 interest), respectively, under the lease agreements.

The following table provides information regarding the Company’s long-term debt at June 30, 20182019 and December 31, 2017:2018:

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

During the three and six months ended June 30, 20182019 and 2017,2018, 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 productsresell, outside of the United States and Canada.Canada, products they purchase from the Company. The Company also provides administrative services to these companies.companies and pays certain business related expenditures for the affiliated companies, for which the Company is reimbursed. Sales to the affiliated companies aggregated approximately $502,000 and $369,000 and $539,000 duringfor the three months ended June 30, 20182019 and 2017,2018, respectively, and approximately $1,189,000$1,254,000 and $1,286,000$1,189,000 for the six months ended June 30, 20182019 and 2017,2018, respectively. Fees for administrative services aggregated approximately $251,000$215,000 and $260,000 (including$227,000 for the three months ended June 30, 2019 and 2018, respectively, and approximately $24,000$370,000 and $28,000, respectively,$376,000 for the six months ended June 30, 2019 and 2018, respectively. Amounts billed to the affiliated companies to reimburse the Company for business related expenditures that it made on behalf of the affiliated companies)companies aggregated approximately $25,000 and $24,000 during the three months ended June 30, 2019 and 2018, respectively, and 2017, respectively.  Fees for administrative services aggregated approximately $429,000 for each of$57,000 and $53,000 during the six month periodsmonths ended June 30, 2019 and 2018, and 2017 (including approximately $53,000 and $49,000, respectively, to reimburse the Company for business related expenditures that it made on behalf of the affiliated companies).respectively.  The Company had accounts receivable from the affiliated companies in connection with the product sales, and administrative services and business related expenditures aggregating approximately $888,000$940,000 and $1,584,000$1,046,000 at June 30, 20182019 and December 31, 2017,2018, 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 $10,500an aggregate of $14,000 ($10,500 for research and development services and $3,500 for each ofcharter boat services that the three month periods ended June 30, 2018Company used to provide sales incentives for external sales representatives) and 2017,$37,500 ($10,500 for research and development services, $6,000 for charter boat services that the Company used to provide sales incentives for external sales representatives, and $21,000 for such services during eachthe production of the six month periods ended June 30, 2018 and 2017. The research and development expenses are included in the statements of operationstelevision commercials) for the three and six months ended June 30, 2018 and 2017 as a selling and administrative expense. In addition, during the three months ended June 30, 2019 and 2018, respectively, and 2017, the Company paid this entity $6,000$41,000 ($21,000 for research and $0, respectively,development services and $20,000 for providing charter boat services that the Company used to provide sales incentives for marketingexternal sales representatives) and entertainment$52,500 ($21,000 for research and development services, $10,500 for charter boat services that the Company used to provide sales incentives for external sales representatives, and $21,000 for the production of Company customers, and $10,500 and $45,000television commercials) for such services during the six months ended June 30, 2019 and 2018, respectively . Expenditures for the research and 2017. Thedevelopment services are included in the consolidated statements of operations within selling and administrative expenses. Expenditures for the charter boat services are included in the consolidated statements of operations for the three and six months ended June 30, 2018 and 2017 as anwithin advertising and promotion expense. Duringexpenses. The expenditures made in the three and six months ended June 30, 2018 the Company also paid this entity $21,000period for the production of television commercials which will be expensedwere included in the consolidated statements of operations within advertising and promotion expenses 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 95 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 June 30, 20182019 and 2017,2018, the Company paid an aggregate of approximately $261,000$275,000 and $244,000,$261,000, respectively, and during in the six months ended June 30, 20182019 and 2017,2018, the Company paid an aggregate of approximately $449,000$500,000 and $439,000,$449,000, respectively in insurance premiums on policies obtained through the insurance broker.

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 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 $25,000 for each of the three months ended June 30, 2018 and 2017 and was approximately $49,000 for each of the six months ended June 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 are being expanded in connection with the Project. See Note 7 above.

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.

The Company had no stock options outstanding during each of the three and six month periods ended June 30, 20182019 and 2017,2018, respectively, that were antidilutive and therefore not included in the diluted earnings per common share calculation.

Stock compensation expense during the three and six months ended June 30, 2019 and 2018 was $13,260 and 2017 was $13,870, and $17,360, respectively, all of which relates to the shares of Company common stock issued to the Company’s non-employee directors as part of their compensation for service on the Board of Directors. There isAt June 30, 2019, there was no unrecognized compensation expense related to stock options.

The following table provides information regarding outstanding stock options, all of which wereIn 2010, the Company granted, under the Company’sits 2008 Non-Qualified Stock Option Plan.Plan, stock options to purchase 20,000 shares of its common stock at an exercise price per share of $2.07 that remained outstanding at June 30, 2019. The stock options expire on April 25, 2020.

On March 22, 2019, the Company’s Board of Directors declared a special cash dividend of $0.05 per common share payable on April 19, 2019 to all shareholders of record on April 5, 2019.  There were 9,366,119 shares of common stock outstanding on April 5, 2019; therefore, dividends aggregating $468,306 were paid on April 19, 2019.

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.

During the three months ended June 30, 2019 and 2018, and 2017, the Company’s three largest customers in terms ofCompany had net sales accounted forto each of three customers that constituted in excess of 10% of its net sales. Net sales to these three customers respectively represented approximately 51.0% (20.4%, 17.5%, and 13.1%) and 50.5% (26.0%, 14.3%, 10.2%) and 43.6% (20.8%, 12.2%, 10.6%), respectively, of the Company’s net sales, respectively, for the three months ending June 30, 2019 and during2018. During the six months ended June 30, 20182019 and 20172018 these customers accounted forrespectively represented approximately 47.5% (22.8%, 13.2%, and 11.5%) and 43.6% (24.3%, 10.8%, and 8.5%) and 42.2% (25.3%, 8.0%, 8.9%), respectively, of the Company’s net sales.

At June 30, 2018 and December 31, 2017,2019, three customers constituted in excess of 10% of the Company’s gross trade accounts receivable due fromand at December 31, 2018 two customers constituted in excess of 10% of the Company’s three largestgross trade accounts receivable. The gross trade accounts receivable balances for these customers constituted 67.7% (32.6%represented approximately 70.4% (28.1%, 22.1%24.7%, 13.0%) and 36.9% (14.0%, 11.5%, 11.4%17.6%) of the Company’s outstandinggross trade accounts receivable. In February 2018, the Company changed payment terms for its largest customer fromreceivable at June 30, days to 90 days.

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^®,” 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. The Company paid $345,882 to Snappy Marine at the closing2019. One of the transactionthree customers 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 amountanother customer accounted for 41.0% (25.2% and 15.8%) of the note, $930,528 is recorded as principal, and the remaining $69,472, representing an imputed interest rate of 2.87% per annum, will be charged to interest expense over the term of the note). The note is payable in equal installments of $16,667 over a 60 month period commencing 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 JanuaryCompany’s gross trade accounts receivable at December 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.

2018.

Forward-looking Statements:

Certain statements contained in this Quarterly Report on Form 10-Q, including without limitation,estimated costs of an expansion ofproject with respect to facilities operated by our wholly-owned subsidiary, KinpakKINPAK Inc. (“Kinpak”), anticipated demand for antifreeze products in the third and fourth quarters of 2018, 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, our ability to renew or replace our revolving line of credit facility, 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 involveare subject to 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 difficulties in negotiations relating to a renewal or replacement of our revolving credit agreement;adverse weather conditions; 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, 2017.2018.

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, sanitizerschlorine dioxide-based deodorizing, disinfectant and deodorizers.sanitizing products. 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 are nearing completion ofhave been engaged in a project involving the expansion of Kinpak’s manufacturing, warehouse and distribution facilities in Montgomery, Alabama.Alabama, as well as the purchase and installation of associated machinery and equipment (the “Expansion Project”). The remaining work on the Expansion Project involves the purchase and installation of additional equipment. We are conducting operations in the expanded facilities. At June 30, 2018,2019, we have spent an aggregate of approximately $5.8$6.1 million, and the total cost of the project is estimated to be approximately $6.7 million.

PursuantWe have enhanced our manufacturing efficiencies at Kinpak, with an additional new high speed filling line which allowed us to an asset acquisition agreement datedreduce man power accordingly. This improvement became effective in late July 13, 2018, we acquired assets of Snappy Marine, Inc., a Florida corporation (“Snappy Marine”) that has 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 14 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^® Snappy Marine.2019.

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, 20172018 for information regarding our critical accounting estimates.

Results of Operations:

Three Months Ended June 30, 20182019 Compared to the Three Months Ended June 30, 20172018

The following table provides a summary of our financial results for the three months ended June 30, 20182019 and 2017:2018: