Dépêches

Quality Products Announces Results For the Three and Nine Months Ended June 30, 2011

Dépèche transmise le 10 août 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 third quarter and nine months operating results.

QUARTERLY RESULTS
Net income was $1,167,393 compared to $2,056,797 earned last year, a decrease of $(889,404) or (43.2)%. Revenues were $5,308,171 compared to $5,791,986 last year, a decrease of $(483,815) or (8.4)%. The gross margin decreased to 45.2% this year from 56.5% 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.

Shipments in the Multipress segment were $1,516,497 compared to $613,671, an increase of $902,826 or 147.1%, and gross profit was $517,445 or 34.1% compared to $253,921 or 41.4%, an increase of $263,524 or 103.8%. Incoming orders were $1,227,285 compared to $742,034 last year, an increase of $485,251 or 65.4%. 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 $3,791,674 compared to $5,178,315 last year, a decrease of $(1,386,641) or (26.8)%. Gross profit was $1,882,482 or 49.6% compared to $3,020,318 or 58.3% last year, a decrease of $(1,137,836) or (37.7)%. However, incoming orders were $5,499,591 compared to $4,139,380, an increase of $1,360,211 or 32.9% compared to last year. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will be unfavorably impacted.

S G & A expenses were $963,078 or 18.1% of sales in the current quarter compared to $1,058,140 or 18.3% last year, a decrease of $(95,062) or (9.0)%. This is primarily due to lower sales commissions and lower legal expenses.

Other income was $491,448 in the latest quarter compared to $1,072,015 last year, a decrease of $(580,567) or (54.2)%. The latest quarter includes approximately $292,000 of royalties for our joint participation in certain military contracts and approximately $202,000 of distributions and net realized gains from our investments. Last year included approximately $448,000 of royalties for our joint participation in certain military contracts and approximately $628,000 of distributions and net realized gains from our investments.

Income tax expense decreased by approximately $(471,000) primarily due to lower pre-tax income.

Basic and diluted EPS was $0.48, down from $0.71 and the weighted average shares outstanding decreased to 2,436,429 from 2,880,022.

FISCAL NINE MONTHS RESULTS
Net income was $4,127,469 compared to $4,474,482 earned last year, a decrease of $(347,013) or (7.8)%. Revenues were $16,164,752 compared to $15,881,922 last year, an increase of $282,830, or 1.8%. Gross margins were 47.8% this year, down from 50.3% last year. While the gross margin in the current year is very strong, it should not be considered representative of future performance. 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.

Shipments in the Multipress segment were $3,063,303 compared to $2,014,144 last year, an increase of $1,049,159 or 52.1%. Gross profit was $1,134,714 or 37.0% compared to $810,513 or 40.2%, an increase of $324,201 or 40.0%. Additionally, incoming orders were $3,589,324 compared to $1,984,504 last year, an increase of $1,604,820 or 80.9%. 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 $13,101,449 compared to $13,867,778 last year, a decrease of $(766,329) or (5.5)%. Gross profit was $6,599,345 or 50.4% compared to $7,185,536 or 51.8% last year, a decrease of $(586,191) or (8.2)%. However, incoming orders were $12,133,237 compared to $11,401,242 last year, an increase of $731,995 or 6.4%. A majority of this segment’s business is with the U.S. government, so if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will be unfavorably impacted.

S G & A expenses were $2,685,147 or 16.6% of sales in 2011 compared to $2,784,885 or 17.5% in 2010, a decrease of $(99,738) or (3.6)%. This difference primarily relates to higher sales commissions in 2010.

2011 other income was $1,724,268 compared to $2,112,462 in 2010, a decrease of $(388,194) or (18.4)%. 2011 includes approximately $1.27 million of royalties for our joint participation in certain military contracts and approximately $464,000 of distributions and net realized gains from our investments. 2010 included approximately $1.22 million of royalties for our joint participation in certain military contracts and approximately $858,000 of distributions and net realized gains from our investments.

Income tax expense decreased by approximately $(203,000) primarily due to lower taxable income in 2011.

Basic and diluted EPS increased to $1.68 from $1.37 and the weighted average shares outstanding decreased to 2,459,836 from 3,254,455.

Backlog
On August 10th, the order backlog for Multipress was approximately $1.0 million, up from the previous quarter’s reported level of $955,000, and up from last year’s level of $544,000.

The backlog for Columbus Jack was approximately $5.9 million, up from the previous quarter’s reported level of $4.7 million, and up from last year’s level of $5.6 million.

We do not provide financial estimates for future periods.

Liquidity & Cash Uses for the Nine Months Ended June 30, 2011
As shown in the June 30, 2011 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $9.6 million compared to $7.0 million of total liabilities. The balance outstanding under our credit lines was $643,778, leaving us with borrowing capacity of $3,856,222 at June 30, 2011, up by $1,156,222 from the previous quarter’s availability. Subsequent to quarter-end we borrowed from our credit lines and paid a cash dividend to our common shareholders. On August 10th the balance outstanding under our credit lines was $2,696,685, leaving us with borrowing capacity of $1,803,315.

We generated positive operating cash flow of $5,028,229, while capital expenditures were $39,488. We used net cash of $109,664 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 for short-term liquidation. 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 June 30, 2011, we had remaining commitments to these entities of approximately $1.40 million. Subsequent to quarter-end, we have funded $90,352 of these remaining commitments.

During the nine months we used $5,562,893 to pay a common stock dividend. Subsequent to quarter-end, on July 1st, we paid a common stock dividend of $1.25 per share or a total of $3,039,149. We also used $1,057,760 to repurchase shares of our common stock during the nine months. Through August 10th we have repurchased 330,432 shares, or 66.1% 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.

During 2010 & 2011, the Company’s subsidiary, Multipress, was named as a defendant in multiple lawsuits. 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 lawsuits to be dismissed and does not expect any liability to the Company to result from this matter.

Quality Products currently has 67 employees, unchanged from 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)

JUNE 30, 2011

 
ASSETS
 
CURRENT ASSETS:
 
Cash $ 627,551
Short-term Investments 2,935,965

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

1,872,459

Inventories, net of reserve of $246,029 4,221,947
Refundable income taxes 35,347
Deferred income taxes, current 302,670
Prepaid expenses and other current assets   123,739
Total current assets   10,119,678
 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,828,080

959,371

 
INVESTMENTS, non-current 4,610,979
 

INTANGIBLE ASSETS, net of accumulated amortization of $1,602,840

755,597

 

GOODWILL, net of accumulated amortization of $19,174

2,723,247

 
TOTAL ASSETS $ 19,168,872
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 
Accounts payable $ 894,188
Dividends payable 3,039,149
Accrued payroll and payroll related expenses 560,709
Other accrued expenses and current liabilities 209,388
Taxes payable 89,339
Accrued warranty 283,496
Customer deposits   562,491
Total current liabilities   5,638,760
 
PENSION OBLIGATION 173,790
 
DEFERRED TAXES, non-current 561,201
 
LONG-TERM DEBT:
Line of Credit 643,778
 
TOTAL LIABILITIES   7,017,529
 
 
STOCKHOLDERS' EQUITY:
 
Convertible preferred stock, Series A -
Convertible preferred stock, Series B -
Common stock 17
Additional paid-in capital 11,705,800
Accumulated other comprehensive gain 300,569
Retained earnings   144,957
Total stockholders' equity   12,151,343
 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,168,872
 
               
 

QUALITY PRODUCTS, INC.

 

 

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2011 AND 2010

 
 

Three Months

Nine Months

(UNAUDITED)

(UNAUDITED)

 

2011

2010

2011

2010

NET SALES $ 5,308,171 $ 5,791,986 $ 16,164,752 $ 15,881,922
 
COST OF GOODS SOLD   2,908,244     2,517,713     8,430,693     7,885,873  
 
GROSS PROFIT 2,399,927 3,274,273 7,734,059 7,996,049
 

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

 

963,078

   

1,058,140

   

2,685,147

   

2,784,885

 
 
INCOME FROM OPERATIONS

1,436,849

2,216,133

5,048,912

5,211,164

 
OTHER INCOME:
Interest expense (7,458 ) (20,230 ) (28,628 ) (23,027 )
Interest income 180 10,388 1,568 31,190
Royalty and other income

498,726

1,081,857

1,751,328

2,104,299

 
Other income, net   491,448     1,072,015     1,724,268     2,112,462  
 

INCOME BEFORE PROVISION FOR INCOME TAXES

1,928,297

3,288,148

6,773,180

7,323,626

 

PROVISION FOR INCOME TAXES

 

760,904

   

1,231,351

   

2,645,711

   

2,849,144

 
 
NET INCOME $ 1,167,393   $ 2,056,797   $ 4,127,469   $ 4,474,482  

UNREALIZED GAIN (LOSS) ON SHORT-TERM INVESTMENTS, NET OF TAX

 

(31,730

 

)

 

(287,482

 

)

 

232,291

 

(157,061

 

)

 
COMPREHENSIVE INCOME $ 1,135,663   $ 1,769,315   $ 4,359,760   $ 4,317,421  
 
 
 
 
 
BASIC INCOME PER SHARE:

$

.48

 

$

.71

 

$

1.68

 

$

1.37

 
 
DILUTED INCOME PER SHARE:

$

.48

 

$

.71

 

$

1.68

 

$

1.37

 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic 2,436,429 2,880,022 2,459,836 3,254,455
Diluted 2,436,429 2,880,022 2,459,836 3,254,455
 
           
 

QUALITY PRODUCTS, INC.

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE NINE MONTHS ENDED JUNE 30, 2011 AND 2010

 

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,127,469 $ 4,474,482

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

Depreciation and amortization 313,108 334,855
Inventory reserve 5,485 --
Deferred taxes 508,235 2,352,044
Pension expense 45,283 22,908
Provision for warranty liability -- 14,708
Loss (gain) on disposal of assets 150 (4,476 )
(Gain) on sale of investments (42,861 ) (121,145 )
 

Changes in operating assets and liabilities:

Accounts receivable (94,999 ) (428,130 )
Inventories (619,181 ) (70,460 )
Refundable income taxes 106,194 --
Other assets (52,989 ) 286,651
Accounts payable 189,024 106,277
Accrued payroll (9,207 ) (52,188 )
Accrued expenses (39,306 ) 110,270
Taxes payable 274,207 (324,660 )

Business Wire

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