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Quality Products Announces Results For the Three Months Ended December 31, 2010

Dépèche transmise le 14 février 2011 par Business Wire

COLUMBUS, Ohio--(BUSINESS WIRE)--Quality Products, Inc. (Pink Sheets: QPDC), a manufacturer and distributor of aircraft ground support equipment (“Columbus Jack & Regent Manufacturing”) and hydraulic press machine tools (“Multipress”), today reported fiscal 2011 first quarter operating results.

QUARTERLY RESULTS

Net income was $1,439,616 compared to $973,372 earned last year, an increase of $466,244 or 47.9%. Revenues were $4,797,693 compared to $4,845,662 last year, a decrease of $(47,969) or (1.0)%. The gross margin increased to 56.8% this year from 44.9% last year. As with most manufacturers, our margins can vary significantly depending on product mix and pricing pressures in the marketplace. Due to these factors, we consider the range of 35 – 40% to be normal for gross margins.

The Multipress segment continued showing improvement during the quarter. Shipments were $724,818 compared to $622,647 last year, an increase of $102,171 or 16.4%, and gross profit was $280,507 or 38.7% compared to $223,211 or 35.8%, an increase of $57,296 or 25.7%. Additionally, incoming orders were up by $661,949 or 142.8% compared to last year. Historically, the visibility of future business for this segment has rarely exceeded six months, making it difficult to predict long-term trends.

Shipments in the ground support equipment segment were $4,072,875 compared to $4,223,015 last year, a decrease of $(150,140) or (3.6)%. However, gross profit was $2,445,068 or 60.0% compared to $1,952,005 or 46.2% last year, an increase of $493,063 or 25.3%. Incoming orders increased by $642,213 or 22.1% compared to last year. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced it is likely this segment will be unfavorably impacted.

S G & A expenses were $838,990 or 17.5% of sales in the current quarter compared to $920,252 or 19.0% last year, a decrease of $(81,262) or (8.8)%. This is primarily due to lower sales commissions.

Other income in the latest quarter includes $310,000 of royalties for our joint participation in certain military contracts and approximately $226,000 of distributions and realized gains from our investments.

Income tax expense increased by approximately $294,000 primarily due to the increase in income.

Basic and diluted EPS were $0.58, up from $0.28 and the weighted average shares outstanding decreased to 2,474,490 from 3,480,065.

Backlog

On February 14th, the order backlog for Multipress was approximately $866,000, up slightly from the previous quarter’s reported level of $807,000, and up significantly from last year’s level of $410,000.

The backlog for Columbus Jack was approximately $4.7 million, down from the previous quarter’s reported level of $6.0 million, and down from last year’s level of $6.4 million.

We do not provide financial estimates for future periods.

Liquidity & Cash Uses for the Three Months Ended December 31, 2010

As shown in the December 31, 2010 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $10.3 million compared to $6.8 million of total liabilities. The balance outstanding under our credit lines was $4,000,000, leaving us with borrowing capacity of $500,000 at December 31, 2010, down by $2,266,000 from the previous quarter’s availability. Subsequent to quarter-end we have repaid $1,100,000 of our debt. On February 14th the balance outstanding under our credit lines was $2,900,000, leaving us with borrowing capacity of $1,600,000.

We generated positive operating cash flow of $1,375,888, while capital expenditures were $16,570. We used net cash of $116,835 to purchase investments. The items classified on the balance sheet as "short-term investments" consist of various publicly traded mutual funds and common stocks. The items classified as "non-current investments" are minority positions in numerous non-related party private equity companies in manufacturing, service, distribution, technology, real estate, and financial industries. These are considered long-term investments and are not intended to be liquidated on a short-term basis. Many of our “non-current” investments require the Company to commit to additional funding in excess of the initial contribution. These additional funds are collected from time-to-time, usually over 2 – 3 years, as the management of the investment deems it necessary. At December 31, 2010, we had remaining commitments to these entities of approximately $1.5 million. Subsequent to quarter-end, we have funded $4,710 of these remaining commitments.

We also used $5,562,893 to pay a common stock dividend, and $347,168 to repurchase shares of our common stock. Through February 14th we have repurchased 288,176 shares, or 57.6% of the 500,000 shares authorized by the Board on May 20, 2010.

Other Information

Quality Products’ large number of smaller shareholders has become increasingly costly and burdensome to service. In addition to the stock repurchase program referenced above, the Board of Directors is considering effecting a reverse stock split as another solution to this issue. Such an action, if it were to occur, would reduce the number of shareholders by paying cash for the resulting fractional shares. Should the Company decide to proceed with this action, it will issue a separate communication at a later date more fully describing the matter.

The Company is currently subject to an audit by the Internal Revenue Service (IRS) of its 2009 and 2008 tax years. Although not yet final, management believes no liability will result from this audit and therefore, no liability has been accrued in the financial statements.

During 2010, the Company’s subsidiary, Multipress, was named as a defendant in a pending lawsuit. The Company has not accrued a liability in the financial statements since an estimate of the range of loss cannot be made at this time. However, management expects the lawsuit to be dismissed and does not expect any liability to the Company to result from this matter.

Quality Products currently has 65 employees, down from 68 in the previous report.

Columbus Jack will occasionally be a joint participant in certain military contracts which are awarded in the name of the other participating entity. As such, we will not recognize revenues associated with those contracts, but instead will recognize our share of the contract profits as royalty income.

For more information on products and services please visit: www.columbusjack.com, www.multipress.com, and www.regentgse.com.

This press release, other than the historical information, consists of "forward-looking statements" (as defined in the Private Securities Litigation Reform Act of 1995), which are identified by the use of words such as "believes", "expects", "projects", and similar expressions. While these statements reflect the Company's current beliefs and are based on assumptions that the Company believes are reasonable, they are subject to uncertainties and risks that could cause actual results to differ materially from anticipated results.

QUALITY PRODUCTS, INC.

 

CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2010

 
ASSETS
 
CURRENT ASSETS:
Cash $ 1,057,771
Short-term Investments 2,947,378

Accounts receivable, net of allowance for doubtful accounts of $47,833

1,661,388

Inventories, net of reserve of $246,029 4,657,542
Deferred income taxes, current 302,670
Prepaid expenses and other current assets   150,713
Total current assets   10,777,462
 

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,686,415

1,078,118

 
INVESTMENTS, non-current 4,547,713
 

INTANGIBLE ASSETS, net of accumulated amortization of $1,540,851

817,587

 

GOODWILL, net of accumulated amortization of $19,174

2,723,247

 
TOTAL ASSETS $ 19,944,127
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Accounts payable $ 887,074
Accrued payroll and payroll related expenses 226,305
Other accrued expenses and current liabilities 422,006
Taxes payable 235,296
Customer deposits   306,622
Total current liabilities   2,077,303
 
PENSION OBLIGATION 173,790
 
DEFERRED TAXES, non-current 561,201
 
LONG-TERM DEBT:
Line of Credit 4,000,000
 
TOTAL LIABILITIES   6,812,294
 
 
STOCKHOLDERS' EQUITY:
 
Convertible preferred stock, Series A -
Convertible preferred stock, Series B -
Common stock 17
Additional paid-in capital 12,416,391
Accumulated other comprehensive gain 219,174
Retained earnings   496,251
Total stockholders' equity   13,131,833
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,944,127
 

QUALITY PRODUCTS, INC.

   

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009

 

Three Months

(UNAUDITED)

 

2010

2009

NET SALES $ 4,797,693 $ 4,845,662
 
COST OF GOODS SOLD   2,072,118     2,670,446  
 
GROSS PROFIT 2,725,575 2,175,216
 
S G & A EXPENSES   838,990     920,252  
 
OPERATING INCOME 1,886,585 1,254,964
 
OTHER INCOME:
Interest expense (5,650 ) (2,797 )
Interest income 1,208 17,074
Royalty/other income   545,220     397,140  
Other income, net   540,778     411,417  
 

INCOME BEFORE PROVISION FOR INCOME TAXES

2,427,363

1,666,381

 

PROVISION FOR INCOME TAXES

 

987,747

   

693,009

 
 
NET INCOME $ 1,439,616   $ 973,372  
 

UNREALIZED GAIN ON SHORT-TERM INVESTMENTS, NET OF TAX

 

150,895

 

49,125

 
COMPREHENSIVE INCOME $ 1,590,511   $ 1,022,497  
 
BASIC AND DILUTED INCOME PER SHARE:

$

.58

 

$

.28

 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic & Diluted 2,474,490 3,480,065
 

QUALITY PRODUCTS, INC.

   

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009

 

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,439,616 $ 973,372

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 109,454 112,221
Inventory reserve 5,485 --
Deferred taxes 586,909 535,198
Pension expense 27,269 7,462
Loss (gain) on disposal of assets 150 (4,500 )
(Gain) on sale of investments (65,233 ) (2,323 )
 

Changes in operating assets and liabilities:

Accounts receivable 116,071 234,275
Inventories (1,054,776 ) 172,219
Refundable income taxes 141,541 --
Other assets 26,231 167,479
Accounts payable 181,910 (249,478 )
Accrued payroll (343,611 ) (345,640 )
Accrued expenses (92,172 ) 11,399
Taxes payable 235,296 126,511
Customer deposits   61,748     70,098  
Net cash provided by operating activities   1,375,888     1,808,293  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,570 ) (465,810 )
Cash received from sale of asset -- 4,500
Cash received from sale of investments 555,469 75,791
Purchase of investments   (672,304 )   (940,122 )
Net cash (used) by investing activities   (133,405 )   (1,325,641 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on non-related party debt -- (158,438 )
Proceeds from (Payments on) Line of Credit 4,000,000 --
Common Stock Repurchased (347,168 ) (707,841 )
Dividends paid to common shareholders   (5,562,893 )   (691,446 )
Net cash (used) by financing activities   (1,910,061 )   (1,557,725 )
 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(667,578

)

 

(1,075,073

)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

1,725,349

   

3,409,060

 
 
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,057,771   $ 2,333,987  
 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest $ 5,650 $ 2,797
Cash paid for income taxes $ 24,000 $ 31,300

Business Wire

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