United States

Securities and Exchange Commission

Washington, DC 20549

 

 

Form 10-Q

 

 

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the quarterly period ended:   Commission File No:
June 30, 2010   000-31279

 

 

OurPet’s Company

(Exact name of Registrant as specified in its charter)

 

 

 

Colorado   34-1480558
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

1300 East Street, Fairport Harbor, OH   44077
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: (440) 354-6500

 

 

Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company; See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

 

Large Accelerated Filer   ¨    Accelerated Filer   ¨
Non-Accelerated Filer   ¨    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

Indicate the number of shares of outstanding of each of the Registrant’s classes of common equity, as of the last practicable date: As of August 14, 2010, the Registrant had outstanding 15,648,826 shares of Common Stock, 189,616 shares of Convertible Preferred Stock, convertible into 1,896,160 shares of Common Stock, options exercisable for 1,645,516 shares of Common Stock and warrants exercisable for 4,863,552 shares of Common Stock.

 

 

 


Table of Contents

CONTENTS

 

     Page
Number

Part 1 – Financial Information

  

Item 1 – Financial Statements (Unaudited):

  

Consolidated Balance Sheets of OurPet’s Company and Subsidiaries as of June  30, 2010 and December 31, 2009

   3

Consolidated Statements of Operations of OurPet’s Company and Subsidiaries for the three month and six month periods ended June 30, 2010 and 2009

   5

Consolidated Statement of Stockholders’ Equity of OurPet’s Company and Subsidiaries for the six month period ended June 30, 2010

   6

Consolidated Statements of Cash Flows of OurPet’s Company and Subsidiaries for the six month periods ended June 30, 2010 and 2009

   7

Notes to Consolidated Financial Statements

   8

Item  2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations:

  

Overview

   11

Results of Operations

   11

Liquidity and Capital Resources

   14

Critical Accounting Policies/Estimates

   15

Off-Balance Sheet Arrangements

   15

Forward Looking Statements

   15

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

   16

Item 4(T) – Controls and Procedures

   16

Part II – Other Information

  

Item 1 – Legal Proceedings

   16

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

   17

Item 3 – Defaults Upon Senior Securities

   17

Item 5 – Other Information

   17

Item 6 – Exhibits

   17

Signatures

   18

Certifications

  

 

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OURPET’S COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

     June 30,
2010
   December  31,
2009
     (Unaudited)     

ASSETS

     

CURRENT ASSETS

     

Cash and cash equivalents

   $ 72,312    $ 84,555

Accounts receivable - trade, less allowance for doubtful accounts of $ 23,977 and $ 21,116

     2,445,990      1,881,179

Inventories

     3,478,681      2,984,035

Prepaid expenses

     235,008      93,130

Deferred Tax Asset less Valuation Allowance of $ -0- and $377,734

     31,090      125,370
             

Total current assets

     6,263,081      5,168,269
             

PROPERTY AND EQUIPMENT

     

Computers and office equipment

     366,146      339,077

Warehouse equipment

     281,060      254,811

Leasehold improvements

     223,953      129,572

Tooling

     3,556,734      3,432,508

Construction in progress

     347,367      302,991
             

Total

     4,775,260      4,458,959

Less accumulated depreciation

     2,738,119      2,504,154
             

Net property and equipment

     2,037,141      1,954,805
             

OTHER ASSETS

     

Patents, less amortization of $187,720 and $170,863

     270,096      279,719

Goodwill

     67,511      67,511

Domain names and other assets

     469,951      128,438
             

Total other assets

     807,558      475,668
             

Total assets

   $ 9,107,780    $ 7,598,742
             

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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OURPET’S COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

 

     June 30,
2010
    December 31,
2009
 
     (Unaudited)        

LIABILITIES

    

CURRENT LIABILITIES

    

Notes payable

   $ 1,445,000      $ 949,000   

Current maturities of long-term debt

     550,588        956,589   

Accounts payable - trade

     1,493,983        1,046,101   

Accrued expenses

     335,215        417,199   
                

Total current liabilities

     3,824,786        3,368,889   
                

LONG-TERM DEBT

    

Long-term debt - less current portion above

     855,850        1,254,080   
                

Total liabilities

     4,680,636        4,622,969   
                

STOCKHOLDERS’ EQUITY

    

COMMON STOCK,

    

no par value; 50,000,000 shares authorized, 15,423,667 and 15,378,984 shares issued and outstanding at June 30, 2010 and December 31, 2009 respectively

     4,253,243        4,235,093   

CONVERTIBLE PREFERRED STOCK,

    

no par value; convertible into Common Stock at the rate of 10 common shares for each preferred share; 66,000 shares authorized, 66,000 shares issued and outstanding

     602,679        602,679   

Series 2009 no par value; convertible into Common Stock at the rate of 10 common shares for each preferred share; 175,000 shares authorized, 123,616 shares issued and outstanding at June 30, 2010

     865,312        —     

PAID-IN CAPITAL

     88,696        75,944   

ACCUMULATED DEFICIT

     (1,382,786     (1,937,943
                

Total stockholders’ equity

     4,427,144        2,975,773   
                

Total liabilities and stockholders’ equity

   $ 9,107,780      $ 7,598,742   
                

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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OURPETS COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     For the Three Months Ended June 30,    For the Six Months Ended June 30,
     2010    2009    2010    2009

Net revenue

   $ 4,477,863    $ 3,605,332    $ 8,121,796    $ 6,995,711

Cost of goods sold

     3,114,448      2,521,688      5,611,982      4,911,999
                           

Gross profit on sales

     1,363,415      1,083,644      2,509,814      2,083,712

Selling, general and administrative expenses

     928,097      798,700      1,747,861      1,509,274

Litigation expense

     20,150      81,361      55,958      245,674
                           

Income from operations

     415,168      203,583      705,995      328,764

Other income and (expense), net

     —        37,722      —        37,720

Interest expense

     28,027      42,172      57,835      84,531
                           

Income before income taxes

     387,141      199,133      648,160      281,953

Income tax expense

     94,230      4,200      93,003      8,410
                           

Net income

   $ 292,911    $ 194,933    $ 555,157    $ 273,543
                           

Basic and Diluted Earnings Per Common Share After Dividend Requirements For Preferred Stock:

           

Net Income

   $ 0.01    $ 0.01    $ 0.03    $ 0.02
                           

Weighted average number of common and equivalent shares outstanding used to calculate basic and diluted earnings per share

     19,054,107      16,005,237      18,263,100      15,984,780
                           

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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OURPET’S COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2010

(Unaudited)

 

     Preferred Stock    Series 2009
Preferred  Stock
   Common Stock    Paid-In
Capital
    Accumulated
Deficit
    Total
Stockholders’
Equity
     Number of
Shares
   Amount    Number of
Shares
   Amount    Number of
Shares
   Amount       

Balance at December 31, 2009

   66,000    $ 602,679    —      $ —      15,378,984    $ 4,235,093    $ 75,944      $ (1,937,943   $ 2,975,773

Common Stock issued upon exercise of stock options

   —        —      —        —      44,683      18,150      (9,250     —          8,900

Preferred Stock issued

   —        —      123,616      865,312    —        —        —          —          865,312

Net income

   —        —      —        —      —        —        —          555,157        555,157

Stock-based compensation expense

   —        —      —        —      —        —        22,002        —          22,002
                                                          

Balance at June 30, 2010

   66,000    $ 602,679    123,616    $ 865,312    15,423,667    $ 4,253,243    $ 88,696      $ (1,382,786   $ 4,427,144
                                                          

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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OURPET’S COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     For the Six Months Ended
June 30,
 
     2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 555,157      $ 273,543   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Depreciation expense

     233,965        219,313   

Amortization expense

     16,858        14,904   

Stock option expense

     12,000        10,514   

Warrant expense

     10,002        7,800   

(Increase) decrease in assets:

    

Accounts receivable - trade

     (564,811     (344,324

Inventories

     (494,646     (85,485

Prepaid expenses

     (141,878     (95,652

Deferred Tax Asset less Valuation Allowance

     94,280        —     

Patent cost additions

     (7,235     (15,142

Domain names and other assets

     (341,513     2,350   

Increase (decrease) in liabilities:

    

Accounts payable - trade

     447,882        170,635   

Accrued expenses

     (81,984     9,574   
                

Net cash provided by (used in) operating activities

     (261,923     168,030   
                

CASH FLOWS FROM INVESTING ACTIVITIES

    

Acquisition of property and equipment

     (316,301     (87,994
                

Net cash (used in) investing activities

     (316,301     (87,994
                

CASH FLOWS FROM FINANCING ACTIVITIES

    

Principal payments on long-term debt

     (804,231     (70,640

Net borrowing on bank line of credit

     496,000        —     

Issuances of Common Stock

     8,900        —     

Issuances of Preferred Stock

     865,312     
                

Net cash (used in) provided by financing activities

     565,981        (70,640
                

Net (decrease) increase in cash

     (12,243     9,396   

CASH AT BEGINNING OF PERIOD

     84,555        363,573   
                

CASH AT END OF PERIOD

   $ 72,312      $ 372,969   
                

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    

Interest paid

   $ 104,071      $ 46,925   
                

Non cash exercise of stock option

   $ 9,250      $ —     
                

The accompanying notes are an integral part of the unaudited consolidated financial statements.

 

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OURPET’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2010

(Unaudited)

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements and include the accounts of OurPet’s Company and its wholly-owned subsidiaries (the “Company”), Virtu Company (“Virtu”) and SMP Company, Incorporated (“SMP”). In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented have been included. All intercompany transactions have been eliminated. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended December 31, 2009 included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 31, 2010.

INVENTORIES

Inventories are carried at the lower of cost, first-in, first-out method or market. Inventories at June 30, 2010 and December 31, 2009 consist of:.

 

     2010    2009

Finished goods

   $ 2,540,035    $ 2,163,787

Components and packaging

     938,646      820,248
             

Total

   $ 3,478,681    $ 2,984,035
             

All inventories are pledged as collateral for bank loans.

REVENUE RECOGNITION

With respect to revenue from product sales, revenue is recognized only upon shipment of products to customers. The Company derives its revenues from the sale of proprietary pet products under the OurPet’s ® , Pet Zone ® , SmartScoop ® , ecoPure Naturals ® , Play-N-Squeak ® , Durapet ® , Go! Cat Go™, Flappy ® and DockDogs ® labels. Net revenue is comprised of gross sales less discounts given to distributors and returns and allowances.

For the three months ended June 30, 2010, 39.8% of the Company’s revenue was derived from two major customers. Revenue generated from each of these customers amounted to $1,020,395 and $731,175, respectively which represents 22.8% and 16.3% of total revenue.

For the three months ended June 30, 2009, 41.7% of the Company’s revenue was derived from two major customers. Revenue generated from each of these customers amounted to $799,426 and $702,788, respectively which represents 22.2% and 19.5% of total revenue.

For the six months ended June 30, 2010, 39.5% of the Company’s revenue was derived from two major customers. Revenue generated from each of these customers amounted to $1,770,315 and $1,382,027, respectively, which represents 21.8% and 17.0% of total revenue.

For the six months ended June 30, 2009, 46.1% of the Company’s revenue was derived from two major customers. Revenue generated from each of these customers amounted to $1,639,795 and $1,586,627, respectively, which represents 23.4% and 22.7% of total revenue.

STOCK OPTIONS

“Share-Based Payment” standards require the grant-date value of all share-based payment awards that are expected to vest, including employee share options, to be recognized as employee compensation expense over the requisite service period. The Company adopted the modified prospective transition method on January 1, 2006. Under this transition method, the Company (1) did not restate any prior periods and (2) is recognizing compensation expense for all share-based payment awards that were outstanding, but not yet

 

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OURPET’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(Unaudited)

 

vested, as of January 1, 2006, based upon the same estimated grant-date fair values and service periods used to prepare the pro-forma disclosures. The amount of compensation expense recognized in 2010 and 2009 as a result of stock options is not material.

NET INCOME PER COMMON SHARE

Basic and diluted net income per common share is based on the net income attributable to common stockholders after preferred stock dividend requirements for the period, divided by the weighted average number of common and equivalent dilutive shares outstanding during the period. Potential common shares whose effect would be anti-dilutive have not been included. As of June 30, 2010, common shares that are or could be potentially dilutive include 1,605,516 stock options at exercise prices from $0.20 to $1.55 a share, 4,746,012 warrants to purchase Common Stock at exercise prices from $0.282 to $1.432 a share, 660,000 shares underlying our original series of Preferred Stock at a conversion rate of $1.00 per share and 1,236,160 shares underlying a second Series 2009 Preferred Stock at a conversion rate of $.70 per share. As of June 30, 2009, common shares that are or could be potentially dilutive include 1,588,000 stock options at exercise prices from $0.20 to $1.55 a share, 4,363,817 warrants to purchase Common Stock at exercise prices from $0.283 to $1.438 a share and 660,000 shares underlying the Preferred Stock at a conversion rate of $1.00 per share.

INCOME TAXES

As of June 30, 2010, the Company had net operating loss carryforwards (NOL’s) for federal income tax purposes of approximately $786,000. There can be no assurance that the Company will realize the entire benefit of the NOL’s. The federal NOL’s are available to offset future taxable income and expire from 2015 through 2028 if not utilized. In the second quarter of 2010 the Company recorded a $94,280 tax provision due to the expected utilization of net operating loss carryforwards. As of June 30,2009, the Company had not recorded tax provisions due to the expected utilization of net operating loss carryforwards. The effective tax rate for the six months ended June 30, 2010 and 2009 is different from the tax benefit that would result from applying the statutory tax rates primarily due to the recognition of valuation differences.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates discussed herein are based on certain market assumptions and pertinent information available to management as of December 31, 2009 and June 30, 2010. The respective carrying value of certain on balance sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The fair value of the Company’s long-term debt is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The carrying value approximates the fair value of the debt.

SUBSEQUENT EVENTS

The Company assessed events occurring subsequent to June 30, 2010 for potential recognition and disclosure in the consolidated financial statements.

On July 16, 2010, FirstMerit Bank, N.A. agreed to loan OurPet’s Company an additional $500,000 (the “Loan”) under their existing credit facility entered into on September 17, 2009. The Loan is payable in equal monthly installments of $14,817.00 over a three year term at a fixed interest rate of 4.18% and is evidenced by a Promissory Note (the “Note”) in the amount of $500,000 dated July 16, 2010. The first payment under the Note is due on August 16, 2010. OurPet’s used $400,000 of the proceeds from the Loan to pay off a secured debt obligation of Cosmic Pet Products, Inc., a developer and marketer of cat-related products whose assets OurPet’s agreed to purchase in June 2010, and the remaining $100,000 of the Loan proceeds to pay a portion of the cash disbursement requirements of the purchase price for such assets. The Loan is secured by a Commercial Security Agreement granting FirstMerit a security interest in the cash, accounts receivable, inventory and all other property and assets of OurPet’s, whether real or personal property. Steven Tsengas, OurPet’s President and Chief Executive Officer, and his wife, Evangelia, provided an unlimited guarantee of the Loan. In consideration for their guarantee of the Loan, OurPet’s Board of Directors authorized the issuance of 62,500 warrants for the right to purchase OurPet’s Common Stock. This transaction was previously reported on a Form 8-K filed on July 22, 2010.

 

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OURPET’S COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

JUNE 30, 2010

(Unaudited)

 

On July 30, 2010, the Company completed its purchase of the assets of Cosmic Pet Products for a total purchase price of $790,768. The Asset Purchase Agreement was previously reported on a Form 8-K filed on July 1, 2010. The assets purchased included inventory of approximately $437,000, net equipment and other fixed assets of approximately $141,000 and intangible assets and goodwill of approximately $213,000. The purchase price was paid with (i) $600,000 cash to Cosmic Pet Products (of which $400,000 was used to retire their secured line of credit ) and (ii) the remaining $190,768 through the issuance of approximately 220,000 shares of OurPet’s Common Stock at an issuance price of $.8665/share plus 55,000 Warrants (1 warrant for every 4 shares of Common Stock). The purchase closing was subsequently reported on a Form 8-K filed on August 5, 2010.

The following table summarizes the preliminary allocation of the net consideration paid to the fair value of the assets acquired from Cosmic Pet Products.

 

Inventories

   $ 436,869   

Fixed Assets

   $ 221,170   

Intangible Assets and Goodwill (to be identified)

   $ 213,001   

Capital Leases

   ($ 80,272
        

Total Purchase Price

   $ 790,768   
        

The Company has engaged an independent 3 rd party valuation of the intangible assets but will not have this completed by the filing date of this 10Q report.

As of the date of this report we are unable to supply supplemental pro forma information for either the quarterly or year to date reporting periods ending June 30, 2010 as financial statements for Cosmic Pet Products have not been prepared for any reporting period after December 31, 2009. We believe that after making every reasonable effort to do so, we have deemed it impracticable to apply the requirements of ASC 805-10-50 which requires the revenues and earnings of the combined entity for both the current quarterly and year to date reporting be reported as though the asset purchase had been completed as of the beginning of the annual reporting period.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 21, 2010, the FASB issued ASU No. 2010-6, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements . Effective December 15, 2009 we adopted the disclosure requirements requiring reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820, Fair Value Measurements . This adoption had no impact on these Consolidated Condensed Financial statements. Effective for fiscal years beginning after December 15, 2020, a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments will be required. We currently believe the adoption related to Level 3 financial instruments will have no impact on the Consolidated Financial Statements.

In February, 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure requirements (“ASU 2010-09”). ASU 2010-09 reiterates that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The updated guidance was effective upon issuance and was adopted by us in the second quarter of fiscal 2010.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

OurPet’s develops, designs, produces and markets a broad line of consumer brands containing innovative, high-quality accessory and consumable pet products. These products form our portfolio of brands, including Play-N-Squeak ® www.playnsqueak.com , SmartScoop ® www.smartscoop.com , ecoPure Naturals ® www.ecopurenaturals.com , Flappy ® Dog Toys www.flappydogtoys.com , Go! Cat Go ® ! cat toys, Durapet ® premium stainless steel bowls, Pet Zone ® dog waste management product, wild bird feeders, and dog houses, and a variety of raised feeders.

These products are manufactured by domestic and foreign subcontractors and then sold by us to retailers and distributors who then sell the products to the end consumer. According to the 2009/2010 APPA National Pet Owners Survey approximately 71.4 million U.S. households currently own a pet with an estimated pet population of 77.5 million dogs, 93.6 million cats and 15.0 million birds.

As discussed below and in Liquidity and Capital Resources on Pages 14 through 15, we have funded our operations principally from net cash provided from operating activities for the year ended December 31, 2009 and from financing activities in the six months ended June 30, 2010.

Under our line of credit facility with our bank we can borrow up to $2,000,000 based on the level of qualifying accounts receivable and inventories. At June 30, 2010 we had a balance due of $1,345,000 under the line of credit with the bank at an interest rate of prime plus .50%.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

In the following discussion all references to 2010 are for the three months ended June 30, 2010 and all references to 2009 are for the three months ended June 30, 2009.

Net revenue for 2010 was $4,477,863, an increase of 24.2% in revenue from $3,605,332 in 2009, consisting of net sales of proprietary products for the retail pet business. Of the $872,531 increase, approximately $283,000 came from our two largest customers and the balance of approximately $589,000 from all other customers. Total sales to all customers of new products in 2010 that were not sold in 2009, including new Play-N-Squeak products, Flappy dog toys and new Durapet bowl items were approximately $778,000. Our sales to foreign customers increased by approximately $81,000 or 52% from 2009, mainly due to increased sales in Canada.

While net revenue increased by 24.2% in 2010, cost of goods sold increased by 23.5%, from $2,521,688 in 2009 to $3,114,448 in 2010. This increase of approximately $593,000 was the result of the cost of purchased products sold increasing 25.0%, or approximately $524,000, due mainly to the increased amount of purchased products and increased freight costs needed for the higher volume sales in 2010, which were offset by improved product sourcing. Approximately $44,000 of the increase in cost of goods sold came from increased salaries, wages, payroll taxes, bonus/profit sharing and benefits due to additional staffing and associated benefits for our research & development and quality assurance and project management personnel. Lastly, approximately 1% of the increase came from an approximately $4,000 increase in quality assurance product testing costs. Our variable and fixed warehouse and overhead costs increased by 24.9% from the comparable quarter in 2009 due to the above noted increased costs for salaries, wages, and payroll taxes in our quality assurance and research and development departments along with increased accruals for operations employee bonus/ profit sharing costs.

The net revenue increase of 24.2%, as offset by 23.5% increase in the cost of goods sold, resulted in our gross profit on sales increasing by 25.8%, or $279,771 from $1,083,644 in 2009 to $1,363,415 in 2010.

Selling, general and administrative expenses in 2010 were $928,097, an increase of 16.2%, or $129,397, from $798,700 in 2009. This increase was primarily a result of (i) an increase in salaries and wages, payroll taxes and employee benefits of approximately $72,000 due to two additional employees in sales, marketing, and administration and an increase in accruals for managers’ bonus and employee profit sharing, (ii) an increase in sales and marketing expenses of approximately $40,000 mainly due to increased commissions, travel, promotional and marketing expenses, and (iii) an increase in professional expenses of approximately $10,000 mainly from higher investor relations costs and intellectual property protection costs.

Litigation expenses were $20,150 for 2010, a decrease of $61,211 from $81,361 for 2009. These expenses were for (i) legal fees and expenses related to our defense of patent infringement actions filed against us in late 2007 by a competitor alleging that our

 

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SmartScoop ® self scooping cat litter box infringes on their patents, and (ii) patent infringement suits we filed against several other competitors for their infringement on our Durapet ® and Play ‘N Squeak ® patents. The primary reason for the significant decrease in litigation expenses is due to the reduced SmartScoop ® case activity.

The income from operations improved by $211,585 from $203,583 in 2009 to $415,168 in 2010 as a result of our gross profit on sales increasing by $279,771, or 25.8%, and the decrease in litigation expenses of $61,211, which was partially offset by a 16.2% increase in selling, general and administrative expenses of $129,397.

Interest expense for 2010 was $28,027, a decrease of $14,145, from $42,172 in 2009. This decrease was due to (i) a decrease in interest expense for our bank line of credit of approximately $10,500, a result of the decrease in our average balance to $928,000 in 2010 from $1,800,000 in 2009 combined with a rate decrease to 3.750% in 2010 from 4.00% in 2009, and (ii) a decrease in interest expense of $8,100 related to outstanding balances on contributor notes which were reduced from $1,367,000 to $767,000 through a combination of payments and conversion of some of the notes into preferred stock, partially offset by an increase in interest expense of approximately $7,500 related to our three year $800,000 bank term loan obtained in September 2009. Also, interest expense for our older bank term notes decreased by approximately $2,900 due to the reduced principal balances from the monthly payments.

Other income and expense net for 2010 was $-0-, a decrease of $37,722 from $37,722 in 2009. This decrease was primarily due to the receipt in April 2009 of $37,659 in final settlement proceeds from an action we had filed against Akon Plastic Enterprises, Inc. and certain parties related to it.

Income tax expense net for 2010 was $94,230, an increase of $90,030 from $4,200 in 2009. This increase was primarily due to the federal income tax expense of $94,280 recognized from the adjustment of our Deferred Tax Asset to account for our anticipated utilization of tax loss carry forwards.

Net income for 2010 was $292,911 as compared to net income of $194,933 for 2009, or an increase in profit of $97,978. This increase was a result of the following changes from 2009 to 2010:

 

Net revenue increase of 24.2%

   $ 872,531   

Cost of goods sold increase of 23.5%

     (592,760
        

Gross profit on sales increase of 25.8%

     279,771   

Selling, general and administrative expenses increase of 16.2%

     (129,397

Litigation expense decrease

     61,211   
        

Income from operations

     211,585   

Other income and expense, net decrease

     (37,722

Interest expense decrease of 33.5%

     14,145   

Income tax expense increase

     (90,030
        

Increase in Profitability

   $ 97,978   
        

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

In the following discussion all references to 2010 are for the six months ended June 30, 2010 and all references to 2009 are for the six months ended June 30, 2009.

Net revenue for 2010 was $8,121,796, an increase of 16.1% in revenue from $6,995,711 in 2009, consisting of net sales of proprietary products for the retail pet business. Of the $1,126,085 increase, approximately $22,000 came from our two largest customers and the balance of approximately $1,104,000 from all other customers. Total sales to all customers of new products in 2010 that were not sold in 2009, including new Play-N-Squeak products, Flappy dog toys and new Durapet bowl items, were approximately $1,076,000. Our sales to foreign customers increased by approximately $122,000 or 25.5% from 2009, mainly due to increased sales in Canada which were partially offset by decreased sales to England.

While net revenue increased by 16.1% in 2010, cost of goods sold increased by 14.2%, from $4,911,999 in 2009 to $5,611,982 in 2010. This increase of approximately $700,000 was the result of the cost of purchased products sold increasing 14.0%, or approximately $571,000, due mainly to the increased amount of purchased products and increased freight costs needed for the higher volume sales in 2010, which were offset by improved product sourcing. Approximately $83,000 of the cost of goods sold increase came from increased salaries, wages, payroll taxes and benefits due to additional staffing and associated benefits for our research & development and quality assurance and project management personnel. Lastly, approximately 2% of the increase came from an approximately $14,000 increase in quality assurance product testing costs. Our variable and fixed warehouse and overhead costs

 

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increased by 21.5% from the comparable six months in 2009 due to the above noted increased costs for salaries, wages, bonus/profit sharing and payroll taxes in our quality assurance and research and development departments along with increased accruals for operations employee bonus/ profit sharing costs.

As a result of the net revenue increasing by 16.1% and the cost of goods sold increasing by 14.2%, the Company’s gross profit on sales increased by $426,102 or 20.5 % from $2,083,712 in 2009 to $2,509,814 in 2010.

Selling, general and administrative expenses in 2010 were $1,747,861, an increase of 15.8% or $238,587 from $1,509,274 for 2009. This increase was primarily the result of (i) increased salaries, wages, payroll taxes and employee benefits of approximately $124,000 due to the addition of one sales and one IT person as well as increased bonus/profit sharing accruals, (ii) increased marketing and promotion expenses of approximately $59,000, (iii) increased sales travel expenses of approximately $27,000, and (iv) increased professional expenses of approximately $25,000 which were mainly investor relations costs and legal expenses.

Litigation expenses in 2010 were $55,958, a decrease of $189,716 or 77.2% from $245,674 from 2009. These expenses were for (i) legal fees and expenses related to our defense of patent infringement actions filed against us in late 2007 by a competitor alleging that our SmartScoop™ self scooping cat litter box infringes on their patents, and (ii) our filing patent infringement suits against several other competitors for their infringing on our Durapet and Play ‘N Squeak patents. The primary reason for the significant decrease in litigation expenses is due to the reduced SmartScoop™ case activity.

Income from our operations improved by $377,231 from $328,764 in 2009 to $705,995 in 2010 as a result of our gross profit on sales increasing by $426,102 or 20.5% and the decrease in litigation expenses of $189,716 which was partially offset by a 15.8% increase in selling, general and administrative expenses of $238,587.

Interest expense for 2010 was $57,835, a decrease of $26,696, from $84,531 in 2009. This decrease was due to (i) an approximately $22,000 decrease in interest expense for the bank line of credit resultant from the decrease in our average rate paid from 4.0% in 2009 to 3.75% in 2010 along with the decrease in average principal balance outstanding from $1,800,000 in 2009 to $760,000 in 2010 and (ii) a reduction of approximately $14,000 in interest expense accrued for the promissory notes payable to the contributors resultant from the $600,000 paydown in February 2010 against the $1,367,500 average balance in 2009 to an outstanding balance of $767,000 from mid February 2010 and continuing year to date and (iii) the interest expense for the bank term notes and other subordinated debt decreased by approximately $3,000 due to the reduced principal balances from the monthly payments. These decreases were offset by an increase of approximately $7,000 in interest expense from the $800,000 bank term loan that started on September 17, 2009.

Other income and expense net for 2010 was $-0- a decrease from the $37,720 in other income recorded in 2009. This decrease was primarily due to the receipt in April 2009 of $37,659 in final settlement proceeds from an action we had filed against Akon Plastic Enterprises, Inc. and certain parties related to it.

Income tax expense net for 2010 was $93,003, an increase of $84,593 from $8,410 in 2009. This increase was primarily due to the federal income tax expense of $94,280 recognized from the adjustment of our Deferred Tax Asset to account for our anticipated utilization of tax loss carry forwards.

Net income for 2010 was $555,157 as compared to $273,543 for 2009 or an increase in profit of $281,614. This increase was a result of the following changes from 2009 to 2010.

 

Net revenue increase of 16.1%

   $ 1,126,085   

Cost of goods sold increase of 14.2%

     (699,983
        

Gross profit on sales increase of 20.5%

     426,102   

Selling, general and administrative expenses increase of 15.8%

     (238,587

Litigation expense decrease

     189,716   
        

Income (loss) from operations

     377,231   

Other income and expense, net decrease

     (37,720

Interest expense decrease of 31.6%

     26,696   

Income tax expense

     (84,593
        

Increase in Profitability

   $ 281,614   
        

 

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LIQUIDITY AND CAPITAL RESOURCES

Our operating activities provide cash from the sale of our products to customers with the principal use of cash being for the payments to suppliers that manufacture our products and for freight charges for shipments to our warehouse and to our customers. Our investing activities use cash mostly for the acquisition of equipment such as tooling, computers and software. Our financing activities provide cash, if needed, under our line of credit with our bank that had $655,000 in available funds at June 30, 2010 based upon the balance of accounts receivable and inventories at that date.

As of June 30, 2010, we had $2,851,438 in principal amount of indebtedness consisting of:

 

Bank line of credit

   Prime plus .50%    $ 1,345,000

Bank term notes

   4.61% and 7.60%      608,712

Contributor notes payable

   Prime plus 2%      767,500

Pet Zone Products Ltd term loan

   7.75%      19,201

Installment notes payable

   7.30%      11,025

Other notes payable

   Prime plus 3% & 10%      100,000

The bank line of credit indebtedness of $1,345,000 is from a line of credit with our bank under which we can borrow up to $2,000,000 based on the level of qualifying accounts receivable and inventories. The line of credit is renewable annually by the bank and therefore is classified as a current liability on our balance sheet. Currently the line of credit has been renewed by the bank through June 30, 2011. Under our agreement with the bank we are presently required to: (i) maintain a debt service coverage ratio of at least 1.15; (ii) maintain a tangible net worth of no less than $3,000,000; and (iii) obtain the bank’s permission to incur additional indebtedness, make any expenditures for property and equipment in excess of $500,000 in any fiscal year, redeem any of our capital stock, or pay cash dividends other than dividends on our preferred stock (subject to meeting the debt service coverage ratio). At June 30, 2010 we were in compliance with the covenants and default provisions under our agreement with the bank and had a debt service coverage ratio of 1.50 and a tangible net worth of $4,965,238.

On October 2, 2009, we obtained an $800,000 term loan (bank term note 2) from our bank. The term loan was the second of two credit facilities extended to us by our bank on September 17, 2009, the other being the renewal of our existing $2,000,000 line of credit through June 30, 2010. The term loan was used to pay down our line of credit by $800,000 from $1,800,000 to $1,000,000. The term loan has a fixed interest rate of 4.61% and is payable monthly over a three year period in equal installments of $23,859 that include interest. Effective October 2, 2009, the interest rate on our line of credit was reduced to prime plus .5% from prime plus .75%. Both bank loans are secured by our accounts receivable, inventory, equipment, trademarks, patents and the personal guarantee of certain stockholders.

Contributor notes totaling $1,367,500 were issued in 2008 to fund patent litigation expenses related to a lawsuit filed against us by a competitor. In February 2010, $600,000 of the Notes were retired through a cash payment of $329,988 and conversion of $270,012 of the notes to preferred stock. Of the remaining $767,500 in outstanding contributor notes, $265,000 is due June 20, 2011, $27,500 is due July 30, 2011, $25,000 is due July 24, 2011, $100,000 is due August 13, 2011, $50,000 is due on October 7, 2011 and $300,000 is due on October 31, 2012.

The installment notes payable are due in monthly payments of $560, including interest, through March 2012. The other notes payable are due in the amount of $75,000 on December 1, 2010, to Beachcraft L.P. and $25,000 on November 1, 2010 to Over the Hill Ltd., plus accrued interest. Our indebtedness, which is secured by liens on our assets, was used to finance our equipment and working capital requirements. The agreements related to such indebtedness contain the customary covenants and default provisions.

The note payable to Beachcraft L.P. was originally for $150,000, $75,000 of which was repaid in 2003. As of February 1, 2004, a new note payable to Beachcraft L.P. was issued to replace the $75,000 remaining balance. The replacement note is due on December, 2010 with interest payable quarterly at prime plus 3%. In consideration for this refinancing we issued warrants for the purchase of 56,250 shares of Common Stock to Beachcraft L.P. at an exercise price of $0.30 per share with an expiration date of February 1, 2010. Subsequent to their issuance the warrants were adjusted to 57,204 warrants exercisable at $0.295 per share in accordance with the anti-dilution provisions of the warrants. These warrants were exercised in 2007.

Our short-term and long-term liquidity will continue to depend on our ability to achieve cash-flow break even on our operations and to increase sales of our products. For the year ended 2008, we recorded a loss of approximately $1,728,000 due to approximately $2,323,000 of litigation expenses and therefore had to rely on our financing activities to fund operations. For the year ended December 31, 2009, litigation expenses were significantly lower, we recorded a profit of approximately $776,000 and were able to rely on cash from our operating activities to fund our operations. In 2010, we anticipate exceeding the required debt service coverage ratio and the tangible net worth required by our bank to maintain our line of credit and therefore we should be able to fund our operating cash requirements for 2010. We have no material commitments for capital expenditures.

 

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Net cash used in operating activities for the six months ended June 30, 2010 was $261,923. Cash was provided by the net income for the six months of $555,157, as well as the non-cash charges for depreciation of $233,965, amortization of $16,858, stock option expense of $12,000, and warrant expense of $10,002. Cash was used by the net change of $(1,089,905) in our operating assets and liabilities as follows:

 

Accounts receivable increase

   $ (564,811

Inventories increase

     (494,646

Prepaid expenses increase

     (141,878

Deferred Tax Asset less Valuation Allowance decrease

     94,280   

Patent costs increase

     (7,235

Domain names and other assets increase

     (341,513

Accounts payable increase

     447,882   

Accrued expenses decrease

     (81,984
        

Net change

   $ (1,089,905
        

Net cash used in investing activities for the six months ended June 30, 2010 was $316,301, which was used for the acquisition of property and equipment. Cash provided by financing activities for the six months ended June 30, 2010 was $565,981 and consisted of $865,312 from the issuance of preferred stock, $8,900 from the exercise of stock options and net increased borrowings on the bank line of credit of $496,000, offset by principal payments on debt of $804,231.

CRITICAL ACCOUNTING POLICIES/ESTIMATES

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles. We have identified the accounting policies below as critical to our business operations and understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see Summary of Significant Accounting Policies footnote to our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q. The application of these policies may require management to make judgments and estimates that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Inventories. Inventories are stated at the lower of cost or net realizable value. We estimate net realizable value based on intended use, current market value and inventory ageing analyses. We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Impairment of Long-Lived Assets . We review long-lived assets for possible impairment by evaluating whether the carrying amount of assets exceed its recoverable amount. Our judgment regarding the existence of impairment is based on legal factors, market conditions and operational performance of our assets. Future adverse changes in legal environment, market conditions or poor operating results could result in losses or an inability to recover the carrying value of the long-lived assets, thereby possibly requiring an impairment charge in the future.

Research and Development Expenses. Research and development expenditures are charged to operations when incurred and are included in cost of goods sold. If funding is not available from operations our ability to develop new and/or improved products could be adversely affected.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

FORWARD LOOKING STATEMENTS

When used in this Form 10-Q, statements that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “anticipates”, “intends”, “expects” and similar expressions are intended to identify such forward-looking statements, which speak only as of the date of this Form 10-Q. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Uncertainties, risks, and other factors that may cause actual results or performance to differ materially from any results of performance expressed or implied by forward-looking statements in this Form 10-Q include: (1) our ability to manage our operating expenses and

 

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realize operating efficiencies, (2) our ability to maintain and grow our sales with existing and new customers, (3) our ability to retain existing members of our senior management team and to attract additional management employees, (4) our ability to manage fluctuations in the availability and cost of key materials and tools of production, (5) general economic conditions that might impact demand for our products, (6) competition from existing or new participants in the pet products industry, (7) our ability to design and bring to market new products on a timely and profitable basis, (8) challenges to our patents or trademarks on existing or new products, (9) our ability to secure access to sufficient capital on favorable terms to manage and grow our business, or (10) our ability to successfully defend the alleged patent infringement actions against us.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, OurPet’s is not required to provide the information required by this item.

 

ITEM 4(T). CONTROLS AND PROCEDURES

As of June 30, 2010, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended. Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer each concluded that our disclosure controls and procedures are effective as of June 30, 2010. Further, there was no change during the last quarter in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

We are party to certain material legal proceedings which are described in our Annual Report on Form 10-K under the caption “Item 3 – Legal Proceedings” filed on March 31, 2010. Except as discussed herein, we have not been named in any new material legal proceedings and there have been no material developments in the previously reported legal proceedings.

On October 12, 2007, Applica Consumer Products, Inc. (“Applica”) filed an action in the U.S. District Court, Eastern District of Texas, against the Company alleging patent infringement of certain of its patents. Applica has alleged that the Company’s SmartScoop™ self-scooping cat litter box infringes upon patents Applica controls for self-cleaning litter boxes. Applica is seeking damages and a permanent injunction prohibiting the Company from further infringement of Applica’s patents. The case is currently fully stayed in view of the U.S. International Trade Commission (“ITC”) investigation discussed below. Certain activity regarding the patent suit is continuing and is in the discovery stage.

On or about December 2, 2007, Applica filed a complaint with the ITC in Washington D.C. whereby Applica sought an order to permanently exclude the Company from importing products that allegedly infringe on Applica’s patents. The ITC held a hearing on the matter in August 2008 and the Initial Determination was issued in December by the Administrative Law Judge with the ITC on the action filed against us by Applica and found in our favor on all but one claim. On April 7, 2009, the ITC issued a ruling upholding the Initial Determination by the ITC Administrative Law Judge. On April 21, 2009, we certified to the U.S. Customs that our new revised products were non-infringing so that we could continue to import the products and on May 28, 2009, U.S. Customs ruled in our favor that the new model SmartScoop TM can be freely imported into the United States. Applica appealed the ITC’s April 7, 2009 ruling in our favor but the Federal Circuit has recently dismissed Applica’s appeal. We separately appealed the ITC decision finding infringement under the one claim because we believe it was decided on incorrect facts. Our appeal remains pending and we currently do not anticipate a court ruling on it until closer to year end. In view of the Federal Circuit’s dismissal of Applica’s appeal and the U.S. Customs’ ruling that OurPet’s current design may be imported, we are cautiously optimistic that the ruling on our pending appeal will be favorable to the Company. Separately, pursuant to a reexamination proceeding in the patent office, the one claim upon which the ITC based its limited exclusion order has been found to be unpatentable. For this additional reason, we believe that the future impact on our business from Applica’s claims is likely to be low.

In addition to the above matters and in the normal course of conducting its business, we may become involved in various other litigation, including, but not limited to, preference claims by debtors in bankruptcy proceedings. We are not a party to any litigation or governmental proceeding which our management or legal representatives believe could result in any judgments or fines against us that would have a material adverse effect or impact in our financial position, liquidity or results of operation.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 28, 2010, warrants authorized by OurPet’s Board of Directors were issued to Steven and Evangelia Tsengas providing for the right to purchase in the aggregate 28,125 shares of OurPet’s common stock at $0.807 per share. The warrants were issued in consideration for Steven and Evangelia Tsengas’ commitment to the Ohio Department of Development (“ODOD”) to provide an unlimited guaranty for a loan pending with the ODOD. The warrants will vest over a 36 month period in which 1/36 th of the warrants granted vest each calendar month, so long as the guarantee remains outstanding. As the loan is not expected to fund for several months, the vesting of such warrants does not begin until the loan is fully completed and funded. In the event the loan fails to fund for any reason then the warrants are automatically cancelled. Upon exercise of the warrants, the shares will be restricted securities pursuant to Rule 144 of the Securities Act of 1933, as amended (the “Act”), in reliance on the exemption from registration provided by Section 4(2) of the Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 5. OTHER INFORMATION

The Annual Meeting of Stockholders of the Company was held on May 21, 2010. There were 14,112,866 shares of Common Stock present at the meeting in person or by proxy. The results of the vote taken at such meeting with respect to each nominee for director were as follows:

 

Nominee

   For    Against    Abstain    Broker Non-Votes

Joseph T. Aveni

   11,558,133    0    6659    2,547,824

Dr. William M. Fraser

   11,557,133    0    6659    2,548,824

James D. Ireland III

   11,546,133    0    6659    2,559,824

John Spirk

   11,560,133    0    6659    2,545,824

Dr. Steven Tsengas

   11,560,133    0    6659    2,545,824

A vote was taken on the proposal to ratify the appointment of Neece, Malec, Seifert & Vitaz, Inc. as our independent auditors for the year ending December 31, 2010. Of the 14,112,866 shares present at the meeting in person or by proxy, 13,192,664 were voted in favor of such proposal, 26,075 shares were voted against such proposal, and 0 shares abstained from voting.

 

ITEM 6. EXHIBITS

 

11*    Statement of Computation of Net Income Per Share.
31.1*    Rule 13a-14(a) Certification of the Principal Executive Officer.
31.2*    Rule 13a-14(a) Certification of the Principal Financial Officer.
32.1*    Section 1350 Certification of the Principal Executive Officer.
32.2*    Section 1350 Certification of the Principal Financial Officer.

 

 

  * Filed herewith

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      OURPET’S COMPANY
Dated: August 16, 2010      

/s/ Steven Tsengas

      Steven Tsengas
      Chairman, President and Chief
      Executive Officer
      (Principal Executive Officer)
Dated: August 16, 2010      

/s/ Scott R. Mendes

      Scott R. Mendes
      Chief Financial Officer and Treasurer
      (Principal Financial and Accounting Officer)

 

18

Exhibit 11

OURPET’S COMPANY AND SUBSIDIARIES

STATEMENT OF COMPUTATION OF NET INCOME PER SHARE

 

     Three Months Ended June 30,    Six Months Ended June 30,
     2010     2009    2010     2009

Net income (loss)

   $ 292,911      $ 194,933    $ 555,157      $ 273,543

Preferred Stock dividend requirements

     (14,480     —        (28,801     —  
                             

Net income (loss) attributable to common stockholders

   $ 278,431      $ 194,933    $ 526,356      $ 273,543
                             

Weighted average number of common shares outstanding

     15,409,491        15,312,984      15,396,918        15,312,984

Preferred Stock Common Share Equivalents

     1,236,160        660,000      1,050,308        660,000

Dilutive Stock Options outstanding for the Period

     823,259        32,253      546,062        11,796

Dilutive Warrants outstanding for the Period

     1,585,197        —        1,269,812        —  
                             

Weighted average number of common and equivalent shares outstanding

     19,054,107        16,005,237      18,263,100        15,984,780
                             

Net income (loss) per common share

   $ 0.01      $ 0.01    $ 0.03      $ 0.02
                             

Exhibit 31.1

Rule 13a-14(a) Certification of the Principal Executive Officer

I, Steven Tsengas, certify that:

1) I have reviewed this report on Form 10-Q of OurPet’s Company.

2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 16, 2010

/s/ Steven Tsengas                                                     

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

Rule 13a-14(a) Certification of the Principal Financial Officer

I, Scott R. Mendes, certify that:

1) I have reviewed this report on Form 10-Q of OurPet’s Company.

2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 16, 2010

/s/ Scott R. Mendes                                

Chief Financial Officer and Treasurer

(Principal Financial Officer)

Exhibit 32.1

Section 1350 Certification of the Chief Executive Officer

In connection with the Quarterly Report of OurPet’s Company (the “Company”) on Form 10-Q for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, being the Chairman, President and Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report.

 

 

/s/ Steven Tsengas

  BY STEVEN TSENGAS
  Chairman, President and
  Chief Executive Officer

Dated: August 16, 2010

This certification is made solely for the purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained in that statute, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to OurPet’s Company and will be retained by OurPet’s Company and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Section 1350 Certification of the Principal Financial Officer

In connection with the Quarterly Report of OurPet’s Company (the “Company”) on Form 10-Q for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, being the Chief Financial Officer and Treasurer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report.

 

 

/s/ Scott R. Mendes

  BY SCOTT R. MENDES
  Chief Financial Officer and Treasurer

Dated: August 16, 2010

This certification is made solely for the purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained in that statute, and not for any other purpose. A signed original of this written statement required by Section 906 has been provided to OurPet’s Company and will be retained by OurPet’s Company and furnished to the Securities and Exchange Commission or its staff upon request.