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(OPCO) Q3 2015 Results, Record Net Revenue Near $6M, Net Income Up 428%

FAIRPORT HARBOR, OH–(November 02, 2015) – OurPet’s Company (OTCQX: OPCO) (www.ourpets.com), a leading proprietary pet supply company, today reported record third-quarter revenue of $5.99 million, an increase of 7% from $5.60 million in revenues for the comparable three months of 2014. Net income for the third quarter ended September 30, 2015, increased 428% to $410,450, or $0.02 diluted earnings per share, compared to $77,751, or $0.00, for the year prior.

Dr. Steven Tsengas, President and CEO, commented, “We are pleased with our results for the third quarter in which we achieved record net revenue, gross margins improving to 34%, and net income from operations of almost 11% of sales. We continue to see strong sales growth in the Pet Specialty channel driven by our cat toys and bowls/feeder lines. E-commerce sales rebounded and grew 7% while the Food, Drug, Mass channel slightly decreased; however, we anticipate improved sales as the conversion to the PetZone brand is completed by year end. Unfortunately, with the strengthening of the U.S. dollar, international sales have been negatively impacted particularly in Canada and the United Kingdom.”

Dr. Tsengas continued, “We have expanded and strengthened our relationship with several domestic and international independent sales representative organizations, and have added another experienced salesperson to our staff. With the recent and anticipated introduction of a significant number of new innovative products in all our product categories, we are experiencing robust sales activity. Our Catty Whack™, winner of the SuperZoo ‘Best New Cat Product’ award, is beginning to ship and is receiving strong consumer reaction. We expect to release more information on other major, trend-setting products over the next six months.

“As we have previously communicated, the last five years have been challenging for OurPet’s as we have transitioned from a small- to a medium-sized company poised for accelerated future growth in both revenue and net income. This required large investments in management/operating informational systems; strengthening and, where appropriate, adding management and professional/technical talent; improving warehousing and inventory management efficiencies; strengthening relationships of strategic domestic and overseas suppliers; and strengthening our relationship with our banking resources. We sincerely believe that these improvements will positively impact revenue and profit results going into the fourth quarter of 2015 and beyond.”

2015 Third Quarter Results

Net revenue increased 7% to $5,986,645 for the 2015 third quarter versus the same period last year. The $386,000 increase was attributable to strong sales in the Pet Specialty and Value channels, partially offset by a decrease in the Food, Drug and Mass channel.

Gross Profit was $2,012,177 for the 2015 third quarter compared to $1,640,751 the prior year. Gross profit margin increased 4.3 percentage points to 33.6% for the 2015 third quarter from 29.3% for the same period a year ago due to continuous improvement initiatives, price increases, and product mix.

Income from operations increased to $649,023 for the 2015 third quarter from $152,768 a year ago. This increase was primarily due to higher gross profit and also benefited from lower selling, general, and administrative expenses.

Other income for the 2015 third quarter increased to $14,582 from $6,051 a year ago due to a higher amount of patent infringement settlements.

Income before taxes was almost five times greater at $627,686 for the 2015 third quarter compared to $127,666 a year ago.

Income tax expense for the 2015 third quarter increased to $217,236 from $49,915 a year ago due to the higher income.

Net income increased to $410,450 for the 2015 third quarter from $77,751 last year. Net income per diluted share increased to $0.02 for the third quarter of 2015 from $0.00 a year ago.

EBITDA was $825,696 for the 2015 third quarter versus $323,140 a year ago. A reconciliation of EBITDA to GAAP net income is provided in an attachment to the summary financial statements.

2015 First Nine Months Results

Net revenue increased 6% to $17,170,795 for the first nine months of 2015. The year-over-year increase was due to strong Pet Specialty sales, especially in the bowls and feeders category.

Gross profit increased 15% to $5,424,591 for the first nine months of 2015 versus the prior year. Gross profit margin increased 2.5 percentage points to 31.6% for the first nine months of 2015 from 29.1% the prior year due to the same factors that benefited the 2015 third quarter results.

Income from operations increased 143% to $1,427,797 for the first nine months of 2015, which was attributable to higher gross profit and lower selling, general, and administrative expenses.

Other income decreased to $40,582 for the first nine months of 2015 from $77,713 for the same period last year due to a greater amount of patent infringement settlements in 2014.

Income before taxes increased to $1,383,158 for the first nine months of 2015 compared to $566,658 for the same period a year ago.

Income tax expense was $496,839 for the first nine months of 2015 compared to $206,723 the prior year.

Net income for the first nine months of 2015 increased 146% to $886,319 from $359,935 for the same period in 2014. Net income per share increased to $0.04 for the first nine months of 2015 from $0.02 last year.

EBITDA increased 72% to $1,984,688 the first nine months of 2015 compared to $1,153,656 the prior year. A reconciliation of EBITDA to GAAP Net Income is provided in an attachment to the summary financial statements.

The Current Ratio improved to 5.61, reflecting or strong liquidity, while Stockholders’ Equity improved by $904,319 or 12.1% over the comparable date last year.

About OurPet’s Company

OurPet’s Company designs, produces and markets a broad line of innovative, high-quality accessory and consumable pet products in the U.S. and overseas. Investors and customers may visit www.ourpets.com for more information about our company and its products. OurPet’s websites include www.petzonebrand.com and www.ourpets.com.

Forward-Looking Statements

Certain of the matters set forth in this press release are forward-looking and involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions; growth in the industry; general economic conditions; addition or loss of significant customers; the loss of key personnel; product development; competition; risks of doing business abroad; foreign government regulations; fluctuations in foreign currency rates; rising costs for raw materials and sources of supply that may be limited or unavailable from time to time; the timing of orders booked; and the other risks that are described from time to time in OurPet’s SEC reports.

OURPET’S COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING RESULTS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Net revenue $ 5,986,645 $ 5,601,011 $ 17,170,795 $ 16,175,692
Cost of goods sold 3,974,468 3,960,260 11,746,204 11,462,593
Gross profit on sales 2,012,177 1,640,751 5,424,591 4,713,099
Selling, general and administrative expenses 1,363,154 1,487,983 3,996,794 4,126,635
Income from operations 649,023 152,768 1,427,797 586,464
Other (income) and expense, net (14,582 ) (6,051 ) (40,582 ) (77,713 )
Interest expense 35,919 31,153 85,221 97,519
Income before taxes 627,686 127,666 1,383,158 566,658
Income Tax expense 217,236 49,915 496,839 206,723
Net Income $ 410,450 $ 77,751 $ 886,319 $ 359,935
Basic and Diluted Net Income Per Common Share After Dividend Requirements For Preferred Stock $ 0.02 $ 0.00 $ 0.04 $ 0.02
Weighted average number of common shares outstanding used to calculate basic earnings per share 17,562,239 17,056,910 17,558,085 16,884,581
Weighted average number of common and equivalent shares outstanding used to calculate diluted earnings per share 19,824,793 18,037,565 19,220,115 18,160,977
OURPET’S COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2015 2014
ASSETS
Cash and equivalents $ 101,775 $ 192,448
Receivables, net 4,048,759 3,116,448
Inventories, net 7,802,675 6,894,115
Prepaid expenses 467,126 478,593
Total current assets 12,420,335 10,681,604
LONG TERM ASSETS
Property and equipment, net 1,867,252 1,769,548
Amortizable intangible assets, net 361,259 384,063
Non amortizable Intangible Assets 461,000 461,000
Goodwill 67,511 67,511
Deposits and Other assets 18,003 18,003
Total long term assets 2,775,025 2,700,125
Total assets $ 15,195,360 $ 13,381,729
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt 311,470 601,632
Accounts payable 1,244,885 1,489,982
Accrued expenses 656,652 565,491
Total current liabilities 2,213,007 2,657,105
LONG TERM LIABILITIES
Long-term debt – less current portion above 938,894 119,780
Revolving line of credit 3,473,032 2,862,032
Deferred income taxes 204,947 281,651
Total long term liabilities 4,616,873 3,263,463
Total liabilities 6,829,880 5,920,568
Stockholders’ Equity 8,365,480 7,461,161
Total liabilities and stockholders’ equity $ 15,195,360 $ 13,381,729
OURPET’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2015 2014
Unaudited
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 101,775 $ 192,448
Accounts receivable – trade, less allowance for doubtful accounts of $37,824 and $39,539 4,048,759 3,116,448
Inventories net of reserve 7,802,675 6,894,115
Prepaid expenses 467,126 478,593
Total current assets 12,420,335 10,681,604
PROPERTY AND EQUIPMENT
Computers and office equipment 1,020,239 883,163
Warehouse equipment 585,815 567,816
Leasehold improvements 289,217 276,952
Tooling 4,207,203 3,885,401
Construction in progress 222,573 157,031
Total 6,325,047 5,770,363
Less accumulated depreciation 4,457,795 4,000,815
Net property and equipment 1,867,252 1,769,548
OTHER ASSETS
Amortizable Intangible Assets, less amortization of $476,677 and $417,349 361,259 384,063
Intangible Assets 461,000 461,000
Goodwill 67,511 67,511
Deposits and other assets 18,003 18,003
Total other assets 907,773 930,577
Total assets $ 15,195,360 $ 13,381,729

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

OURPET’S COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30, December 31,
2015 2014
Unaudited
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt 311,470 601,632
Accounts payable – trade 1,244,885 1,489,982
Other accrued expenses 656,652 565,491
Total current liabilities 2,213,007 2,657,105
LONG-TERM LIABILITIES
Long-term debt – less current portion above 938,894 119,780
Revolving Line of Credit 3,473,032 2,862,032
Deferred Income Taxes 204,947 281,651
Total long term liabilities 4,616,873 3,263,463
Total liabilities 6,829,880 5,920,568
STOCKHOLDERS’ EQUITY
COMMON STOCK,
no par value; 50,000,000 shares authorized, 17,562,239 and 16,657,660 shares issued and outstanding at September 30, 2015 and December 31, 2014 respectively 5,031,766 5,031,766
CONVERTIBLE PREFERRED STOCK,
no par value; convertible into Common Stock at the rate of 10 common shares for each preferred share; 4,825,000 shares authorized, 63,500 shares issued and outstanding at September 30, 2015 and December 31, 2014 579,850 579,850
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 September 30, 2015 and December 31, 2014 865,312 865,312
PAID-IN CAPITAL 71,307 53,307
ACCUMULATED EARNINGS 1,817,245 930,926
Total stockholders’ equity 8,365,480 7,461,161
Total liabilities and stockholders’ equity $ 15,195,360 $ 13,381,729

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

OURPETS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2015 2014 2015 2014
Net revenue $ 5,986,645 $ 5,601,011 $ 17,170,795 $ 16,175,692
Cost of goods sold 3,974,468 3,960,260 11,746,204 11,462,593
Gross profit on sales 2,012,177 1,640,751 5,424,591 4,713,099
Selling, general and administrative expenses 1,363,154 1,487,983 3,996,794 4,126,635
Income from operations 649,023 152,768 1,427,797 586,464
Other income (14,582 ) (6,051 ) (40,582 ) (77,713 )
Interest expense 35,919 31,153 85,221 97,519
Income before income taxes 627,686 127,666 1,383,158 566,658
Income tax expense 217,236 49,915 496,839 206,723
Net income $ 410,450 $ 77,751 $ 886,319 $ 359,935
Basic and Diluted Earnings Per Common Share After Dividend Requirements For Preferred Stock:
Net Income $ 0.02 $ 0.00 $ 0.04 $ 0.02
Weighted average number of common shares outstanding used to calculate basic earnings per share 17,562,239 17,056,910 17,558,085 16,884,581
Weighted average number of common and equivalent shares outstanding used to calculate diluted earnings per share 19,824,793 18,037,565 19,220,115 18,160,977

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

OURPET’S COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
FOR THE NINE MONTHS ENDED September 30, 2015
Preferred Stock Series 2009 Preferred Stock Common Stock
Number of
Shares		 Amount Number of
Shares		 Amount Number of
Shares		 Amount Paid-In
Capital		 Accumulated
Earnings		 Total
Stockholders’
Equity
Balance at December 31, 2014 63,500 $ 579,850 123,616 $ 865,312 17,553,007 $ 5,031,766 $ 53,307 $ 930,926 $ 7,461,161
Common Stock issued upon exercise of stock options – – – – 9,232 – – – –
Net income – – – – – – – 886,319 886,319
Stock-Based compensation expense – – – – – – 18,000 – 18,000
Balance at September 30, 2015 (unaudited) 63,500 $ 579,850 123,616 $ 865,312 17,562,239 $ 5,031,766 $ 71,307 $ 1,817,245 $ 8,365,480

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

OURPET’S COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 886,319 $ 359,935
Adjustments to reconcile net income to net cash used in operating activities:
Loss on Disposal of Fixed Assets 20,657 12,323
Depreciation expense 456,981 430,988
Amortization expense 59,328 58,491
Stock option expense 18,000 9,000
(Increase) decrease in assets:
Accounts receivable – trade (932,311 ) (417,090 )
Inventories (908,560 ) (1,848,425 )
Prepaid expenses 11,467 33,901
Amortizable Intangible Asset Additions (36,524 ) (67,154 )
Increase (decrease) in liabilities:
Accounts payable – trade (245,097 ) 933,303
Accrued expenses 91,161 (415,195 )
Deferred tax liabilities (76,704 ) (58,234 )
Net cash used in operating activities (655,284 ) (968,157 )
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (490,341 ) (398,816 )
Net cash used in investing activities (490,341 ) (398,816 )
CASH FLOWS FROM FINANCING ACTIVITIES
Principal borrowings of long-term debt 1,000,000 –
Principal payments on long-term debt (556,048 ) (335,289 )
Borrowings on bank line of credit 611,000 1,649,000
Issuances of Common Stock – 72,500
Net cash provided by financing activities 1,054,952 1,386,211
Net increase (decrease) in cash (90,673 ) 19,238
CASH AT BEGINNING OF PERIOD 192,448 57,975
CASH AT END OF PERIOD $ 101,775 $ 77,213
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 126,552 $ 81,856
Income taxes paid $ 472,150 $ 425,466
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTIONS
Non cash exercise of stock options/ warrants $ 6,933 $ 539,128
Tooling Obtained through Asset Purchase $ 85,000 $ –

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

OURPET’S COMPANY AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Net income (loss) $ 410,450 $ 77,751 $ 886,319 $ 359,935
Preferred Stock dividend requirements – (24,610 ) (35,621 ) (73,028 )
Net income (loss) attributable to common stockholders $ 410,450 $ 53,141 $ 850,698 $ 286,907
Basic weighted average number of common shares outstanding 17,562,239 17,056,910 17,558,085 16,884,581
Preferred Stock Common Share Equivalents 1,871,160 – 1,236,160 –
Dilutive Stock Options outstanding for the Period 97,973 380,077 111,733 594,024
Dilutive Warrants outstanding for the Period 293,420 600,578 314,137 682,372
Diluted weighted average number of common and equivalent shares outstanding 19,824,793 18,037,565 19,220,115 18,160,978
Basic and Diluted Net income (loss) per common share $ 0.02 $ 0.00 $ 0.04 $ 0.02
EBITDA Q3’15
EBITDA Q3’15 Q3’14 1st nine
months
2015		 1st nine
months
2014
Net Income $ 410,450 $ 77,751 $ 886,319 $ 359,935
Interest 35,919 31,153 85,221 97,519
Tax Expense 217,236 49,915 496,839 206,723
Depreciation 143,135 143,977 456,981 430,988
Amortization 18,956 20,344 59,328 58,491
Total EBITDA $ 825,696 $ 323,140 $ 1,984,688 $ 1,153,656

The above table reconciles the Company’s disclosure of Net Income per GAAP with the non GAAP financial measure EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). As the investment community has often requested the EBITDA calculation to help them evaluate performance, Management has chosen to provide this disclosure. Although EBITDA is widely used in the investment community as a benchmark to reflect operating performance, financing capability and liquidity, it is not regarded as a measure of operating performance and liquidity under generally accepted accounting principles (“GAAP”). It also does not represent cash flows from operating activities. In addition, the Company’s EBITDA may not be comparable to similar indicators provided by other companies. The Presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), or any component thereof, in accordance with GAAP.

For further information, contact:

OurPet’s Company
Dr. Steven Tsengas
CEO
(440) 343-6500, x111

DreamTeamNetwork
Austin, Texas
www.DreamTeamNetwork.com
512.758.8877 Office
Editor@DreamTeamNetwork.com

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