Forward-looking Statements:





Certain statements contained in this Quarterly Report on Form 10-Q, including
without limitation, 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 are 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
impact of the COVID-19 pandemic on our business and the economy in general, 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; 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, availability in general of raw materials and other factors
addressed in the sections entitled "Risk Factors" in Part I, Item 1A of our
annual report on Form 10-K for the year ended December 31, 2021.



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 chlorine
dioxide-based deodorizing, disinfectant and 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.

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, 2021 for information
regarding our critical accounting estimates.



Results of Operations:

Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021

The following table provides a summary of our financial results for the three months ended March 31, 2022 and 2021:





                                                        For The Three Months Ended March 31,
                                                                     Percent            Percentage of Net Sales
                                      2022             2021           Change            2022               2021
Net sales                         $ 12,737,329     $ 13,131,224           (3.0 )%          100.0 %            100.0 %
Cost of goods sold                   8,001,347        7,750,503            3.2 %            62.8 %             59.0 %
Gross profit                         4,735,982        5,380,721          (12.0 )%           37.2 %             41.0 %
Advertising and promotion            1,071,579          941,814           13.8 %             8.4 %              7.2 %
Selling and administrative           2,000,030        1,972,812            1.4 %            15.7 %             15.0 %
Operating income                     1,664,373        2,466,095          (32.5 )%           13.1 %             18.8 %
Interest (expense), net                (31,682 )        (37,187 )        (14.8 )%            0.2 %              0.3 %
Provision for income taxes            (333,410 )       (524,639 )        (36.4 )%            2.6 %              4.0 %
Net income                        $  1,299,281     $  1,904,269          (31.8 )%           10.2 %             14.5 %




Net sales for the three months ended March 31, 2022 decreased by approximately
$394,000, or 3.0%, as compared to the three months ended March 31, 2021. The
three months ended March 31, 2021 benefitted from an unusually high amount of
open orders at the end of 2020, which was caused by an increase in demand for
marine products as the economy began to open from the pandemic.

Cost of goods sold increased by approximately $251,000, or 3.2%, during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021. The increase was principally a result of the mix of sales, and increases in freight, raw materials and other manufacturing cost increases.





                                       13





Gross profit decreased by approximately $645,000, or 12.0%, for the three months
ended March 31, 2022, as compared to the three months ended March 31, 2021.
Gross profit decreased due to the changes in net sales and cost of goods sold
described above. As a percentage of net sales, gross profit was approximately
37.2% and 41.0% for the three months ended March 31, 2022 and 2021,
respectively.



Advertising and promotion expenses increased by approximately $130,000, or
13.8%, during the three months ended March 31, 2022, as compared to the three
months ended March 31, 2021. The increase in advertising and promotion expenses
was principally a result of an increased focus on social media and digital
marketing. As a percentage of net sales, advertising and promotion expenses
increased to 8.4% for the three months ended March 31, 2022, from 7.2% for the
three months ended March 31, 2021.



Selling and administrative expenses increased by approximately $27,000, or 1.4%,
during the three months ended March 31, 2022, as compared to the three months
ended March 31, 2021. As a percentage of net sales, selling and administrative
expenses increased to 15.7% for the three months ended March 31, 2022, from
15.0% for the three months ended March 31, 2021.



Interest (expense), net for the three months ended March 31, 2022 decreased by
approximately $6,000 or 14.8%, as compared to the three months ended March

31,
2021.

Provision for income taxes for the three months ended March 31, 2022 was approximately $333,000, or 20.4% of our income before income taxes. For the three months ended March 31, 2021 the provision was approximately $525,000, or 21.6% of our income before income taxes.

Liquidity and capital resources:

Our cash balance was approximately $10,217,000 at March 31, 2022 and approximately $12,685,000 at December 31, 2021.





The following table summarizes our cash flows for the three months ended March
31, 2022 and 2021:



                                                           Three Months Ended
                                                               March 31,
                                                          2022            2021

Net cash (used in) provided by operating activities $ (238,837 ) $ 1,207,802 Net cash used in investing activities

                   (1,610,684 )      (915,899 )
Net cash used in financing activities                     (619,141 )      (414,546 )
Effect of exchange rate fluctuations on cash                   651

976


Net decrease in cash and restricted cash              $ (2,468,011 )   $  (121,667 )

Net cash used in operating activities for the three months ended March 31, 2022 was approximately $238,000, as compared to net cash provided by operating activities of approximately $1,208,000 for the three months ended March 31, 2021. During the three months ended March 31, 2022, net income decreased by approximately $605,000, noncash adjustments to net income increased by approximately $295,000, and changes in working capital used approximately $1,137,000 more in cash, as compared to the three months ended March 31, 2021.

Net trade accounts receivable at March 31, 2022 aggregated approximately $10,261,000, an increase of approximately $717,000, or 7.5%, as compared to approximately $9,544,000 in net trade accounts receivable outstanding at December 31, 2021. The increase was principally a result of our net sales during the first quarter of 2022. Receivables due from affiliated companies aggregated approximately $847,000 at March 31, 2022, a decrease of approximately $365,000, or 30.1%, from receivables due from affiliated companies of approximately $1,212,000 at December 31, 2021. The decrease was a result of payments received during the three months ended March 31, 2022.





Inventories, net were approximately $19,975,000 and $16,819,000 at March 31,
2022 and December 31, 2021, respectively, representing an increase of
approximately $3,156,000, or 18.8%, during the three months ended March 31,
2022. We believe the higher levels of inventories were necessary in order to
reduce potential supply chain problems and material price increases.



Net cash used in investing activities for the three months ended March 31, 2022
increased by approximately $695,000, or 75.9%, as compared to the three months
ended March 31, 2021. The increase in cash used was principally to expand our
manufacturing, warehouse and distribution facilities at Kinpak.



Net cash used in financing activities for the three months ended March 31, 2022
increased by approximately $205,000, or 49.4%, as compared to the three months
ended March 31, 2021. During the three months ended March 31, 2022, the Company
paid dividends to common shareholders aggregating approximately $380,000 and
made payments on long term debt of approximately $233,000, as compared to
dividends paid to common shareholders aggregating approximately $284,000 and
payments on long term debt of approximately $130,000 during the three months
ended March 31, 2021.



See Notes 6 and 7 to the condensed consolidated financial statements included in
this report for information concerning our principal credit facilities,
consisting of Kinpak's obligations relating to a term loan, the payment of which
we have guaranteed, an industrial development bond financing, the payment of
which we have guaranteed, and a revolving line of credit. At March 31, 2022 and
December 31, 2021, we had outstanding balances of approximately $4,822,000 and
$4,888,000, respectively under Kinpak's obligation relating to the term loan,
$3,220,000 and $3,334,000, respectively, under Kinpak's obligations relating to
the industrial development bond financing, and no borrowings under our revolving
credit facility.



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The loan agreement pertaining to our revolving credit facility, as amended, has
a stated term that expires on August 30, 2024, 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 contains various covenants, including financial
covenants that are described in Note 6 to the condensed consolidated financial
statements included in this report.  At March 31, 2022, 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 7 to the condensed consolidated financial statements
included in this report. At March 31, 2022, we were in compliance with these
financial covenants.




In connection with our acquisition of 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, is being recorded as interest expense over the term of the note). At
March 31, 2022, we had an outstanding balance of $266,666 under the promissory
note (including $261,322 recorded as principal and $5,344 to be recorded as
interest expense over the remaining term of the note).

We also obtained financing through leases for office equipment, totaling approximately $73,000 and $79,000 at March 31, 2022 and December 31, 2021, 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 three months ended
March 31, 2022, we recorded $962 in foreign currency translation adjustments
(increasing shareholders' equity by $962).



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.

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