Quality Products Announces Results For the Three Months Ended December 31, 2012
Quality Products Announces Results For the Three Months Ended December 31, 2012
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 2013 first quarter operating results.
QUARTERLY RESULTS
Net income was $983,020 compared to $1,075,544 earned last year, a decrease of $(92,524) or (8.6)%. Revenues were $4,761,168 compared to $4,775,209 last year, a decrease of $(14,041) or (0.3)%. The gross margin decreased to 44.1% this year from 49.7% 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 $1,225,096 compared to $914,843, an increase of $310,253 or 33.9%, and gross profit was $479,520 or 39.1% compared to $323,348 or 35.3%, an increase of $156,172 or 48.3%. Incoming orders were $1,654,097 compared to $1,524,973 last year, an increase of $129,124 or 8.5%. 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 $3,536,072 compared to $3,860,366 last year, a decrease of $(324,294) or (8.4)%. Gross profit was $1,618,976 or 45.8% compared to $2,051,703 or 53.1% last year, a decrease of $(432,727) or (21.1)%. Incoming orders were $2,619,664 compared to $3,037,279 last year, a decrease of $(417,615) or (13.7)%. A majority of this segment's business is with the U.S. government from which we have experienced a reduction in orders. This may be a temporary slowdown until Congress resolves the budget issues, but if defense spending is reduced, which based on recent government discussions appears probable, it is likely this segment will continue to be unfavorably impacted. However, in contrast to the recent trend of incoming orders, subsequent to quarter-end we received over $2.0 million of military-related orders from various customers. Historically, when equipment orders have declined, the impact has been somewhat muted by an increase in higher-margin parts orders as customers repair existing equipment instead of buying new equipment. However, we are unable to quantify this effect.
S G & A expenses were $877,804 or 18.4% of sales in the current quarter compared to $874,078 or 18.3% last year, essentially unchanged as lower bad debt expenses offset increased compensation and benefits.
Other income was $386,991 in the latest quarter compared to other income of $244,904 last year, an increase of $142,087 or 58.0%. The latest quarter includes $60,816 of royalties from our joint participation in certain military contracts and approximately $355,000 of distributions and net realized gains from our investments. Last year included $125,000 of royalties from our joint participation in certain military contracts and approximately $119,000 of distributions and net realized gains from our investments. Interest expense, which reduces total other income, increased from $8,290 last year to $34,198 this year, resulting from our higher debt level.
Income tax expense was $624,663 in the latest quarter compared to $670,333 last year, a decrease of $(45,670) or (6.8)%. This primarily resulted from lower taxable income in the latest period.
Basic and diluted EPS was $0.41, down from $0.45 and the weighted average shares outstanding decreased to 2,380,714 from 2,414,142.
Backlog
On February 13th the order backlog for Multipress was approximately $1.5 million, unchanged from the previous quarter's reported level of $1.5 million, and unchanged from last year's level of $1.5 million.
The backlog for Columbus Jack was approximately $5.2 million, up from the previous quarter's reported level of $3.6 million, and up from last year's level of $3.5 million.
We do not provide financial estimates for future periods.
Liquidity & Cash Uses for the Three Months Ended December 31, 2012
As shown in the December 31, 2012 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $8.1 million compared to $11.2 million of total liabilities. The balance outstanding under our credit lines was $7,934,374, leaving us with borrowing capacity of $4,565,626 at December 31, 2012, down by $2,203,025 from the previous quarter's availability.
We generated positive operating cash flow of $632,446, while capital expenditures were $39,830. We received net cash of $312,512 from the sale and purchase of 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 December 31, 2012, we had remaining commitments to these entities of approximately $877,000 which does not appear as a liability on our balance sheet. Subsequent to quarter-end, we have funded $7,000 of these remaining commitments.
During the three months we used $4,761,428 to pay a common stock dividend which was funded with $2.0 million of available cash and $2.7 million from our credit line. We did not repurchase any shares of our common stock. Subsequent to quarter-end we have not purchased any shares. Through February 13th we have repurchased 379,472 shares, or 75.9% 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.
Since 2010, the Company's subsidiary, Multipress, has been named as a defendant in multiple lawsuits. During 2011 a third party assumed the defense of these cases, but it is possible for the defense to revert back to Multipress. However, based on the outcome of a similar claim involving Multipress, management expects the lawsuits to be fully dismissed and does not expect any liability to the Company to result from these matters.
Quality Products currently has 63 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) | ||||
ASSETS | ||||
CURRENT ASSETS: | ||||
Cash | $ | 966,658 | ||
Short-term Investments | 676,407 | |||
Accounts Receivable, net of allowance for doubtful accounts of $74,570 | 1,501,263 | |||
Inventories, net of reserve of $270,161 | 5,009,521 | |||
Deferred Income Taxes, current | 365,179 | |||
Prepaid Expenses and Other Current Assets | 175,130 | |||
Total Current Assets | 8,694,158 | |||
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $2,209,471 | 690,901 | |||
INVESTMENTS, non-current | 4,078,987 | |||
INTANGIBLE ASSETS, net of accumulated amortization of $1,678,825 | 679,614 | |||
GOODWILL, net of accumulated amortization of $19,174 | 2,723,247 | |||
TOTAL ASSETS | $ | 16,866,907 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
CURRENT LIABILITIES: | ||||
Accounts Payable | $ | 778,125 | ||
Accrued Payroll and Payroll Related Expenses | 400,144 | |||
Other Accrued Expenses and Current Liabilities | 479,738 | |||
Taxes payable | 375,892 | |||
Customer Deposits | 573,661 | |||
Total Current Liabilities | 2,607,560 | |||
PENSION OBLIGATION | 171,956 | |||
DEFERRED TAXES, non-current | 574,280 | |||
LONG-TERM DEBT: | ||||
Line of Credit | 7,934,374 | |||
TOTAL LIABILITIES | 11,288,170 | |||
STOCKHOLDERS' EQUITY: | ||||
Convertible preferred stock, Series A | - | |||
Convertible preferred stock, Series B | - | |||
Common stock | 16 | |||
Additional paid-in capital | 1,722,430 | |||
Accumulated other comprehensive (loss) | (114,688 | ) | ||
Retained earnings | 3,970,979 | |||
Total stockholders' equity | 5,578,737 | |||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 16,866,907 | ||
QUALITY PRODUCTS, INC. | ||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||
Three Months | ||||||||
(UNAUDITED) | ||||||||
2012 | 2011 | |||||||
NET SALES | $ | 4,761,168 | $ | 4,775,209 | ||||
COST OF GOODS SOLD | 2,662,672 | 2,400,158 | ||||||
GROSS PROFIT | 2,098,496 | 2,375,051 | ||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 877,804 | 874,078 | ||||||
INCOME FROM OPERATIONS | 1,220,692 | 1,500,973 | ||||||
OTHER INCOME: | ||||||||
Interest expense | (34,198 | ) | (8,290 | ) | ||||
Royalty and other income | 421,166 | 253,194 | ||||||
Other income, net | 386,991 | 244,904 | ||||||
INCOME BEFORE PROVISION FOR INCOME TAXES | 1,607,683 | 1,745,877 | ||||||
PROVISION FOR INCOME TAXES | 624,663 | 670,333 | ||||||
NET INCOME | $ | 983,020 | $ | 1,075,544 | ||||
UNREALIZED GAIN ON SHORT-TERM INVESTMENTS, NET OF TAX | 74,050 | 1,038 | ||||||
COMPREHENSIVE INCOME | $ | 1,057,070 | $ | 1,076,582 | ||||
BASIC INCOME PER SHARE: | $ | .41 | $ | .45 | ||||
DILUTED INCOME PER SHARE: | $ | .41 | $ | .45 | ||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES: | ||||||||
Basic | 2,380,714 | 2,414,142 | ||||||
Diluted | 2,380,714 | 2,414,142 | ||||||
QUALITY PRODUCTS, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||||
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 983,020 | $ | 1,075,544 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 71,863 | 79,197 | ||||||
Bad Debt Expense | -- | 26,737 | ||||||
(Gain) on sale of investments | (44,164 | ) | (53,810 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 60,210 | 815,974 | ||||||
Inventories | (57,205 | ) | (595,584 | ) | ||||
Other assets | 198,735 | 28,543 | ||||||
Accounts payable | (471,883 | ) | (112,424 | ) | ||||
Accrued payroll | (354,694 | ) | (223,405 | ) | ||||
Accrued expenses | (45,188 | ) | (198,663 | ) | ||||
Taxes payable | 375,892 | 544,333 | ||||||
Customer deposits | (18,331 | ) | 563,064 | |||||
Net cash provided by operating activities | 698,255 | 1,949,506 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of property and equipment | (39,830 | ) | (37,588 | ) | ||||
Cash received from sale of investments | 312,512 | 426,414 | ||||||
Purchase of investments | (139,323 | ) | (328,884 | ) | ||||
Net cash provided by investing activities | 133,359 | 59,942 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from (Payments on) Line of Credit | 2,203,025 | (1,928,353 | ) | |||||
Common Stock Repurchased | -- | (650 | ) | |||||
Dividends paid to common shareholders | (4,761,428 | ) | -- | |||||
Net cash (used) by financing activities | (2,558,403 | ) | (1,929,003 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (1,726,789 | ) | 80,445 | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 2,693,447 | 2,785,549 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 966,658 | $ | 2,865,994 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 34,198 | $ | 8,290 | ||||
Cash paid for income taxes | $ | 15,000 | $ | 126,000 | ||||
Quality Products, Inc.
Tac Kensler, 614-228-0185
KEYWORDS: United States North America Ohio
INDUSTRY KEYWORDS:
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