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 machine tools (“Multipress” & “PPT”), today reported fiscal 2013 first quarter operating results.
QUARTERLY RESULTS
Net income was $2,129,253 compared to $983,020 earned last year, an increase of $1,146,233 or 116.6%. Revenues were $11,303,308 compared to $4,761,168 last year, an increase of $6,542,140 or 137.4%. The gross margin decreased to 42.2% this year from 44.1% 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 hydraulic machine tools segment were $6,910,185 compared to $1,225,096, an increase of $5,685,089 or 464.1%, and gross profit was $2,641,471 or 38.2% compared to $479,520 or 39.1%, an increase of $2,161,951 or 450.9%. Incoming orders were $2,688,449 compared to $1,654,097 last year, an increase of $1,034,352 or 62.5%. The increase in shipments, gross profit, and incoming orders primarily resulted from the acquisition of PPT. 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 $4,393,123 compared to $3,536,072 last year, an increase of $857,051 or 24.2%. Gross profit was $2,111,316 or 48.1% compared to $1,618,976 or 45.8% last year, an increase of $492,340 or 30.4%. Incoming orders were $4,781,328 compared to $2,619,664 last year, an increase of $2,161,664 or 82.5%. A majority of this segment’s business is with the U.S. government. If defense spending is reduced, it is likely this segment will be unfavorably impacted.
S G & A expenses were $1,580,967 or 14.0% of sales in the current quarter compared to $877,804 or 18.4% last year, an increase of $703,163 or 80.1%, resulting from the addition of PPT.
Other income was $168,413 in the latest quarter compared to other income of $386,991 last year, a decrease of $(218,578) or (56.5)%. The latest quarter includes approximately $213,000 of distributions from our investments. Last year included approximately $355,000 of distributions and net realized gains from our investments.
Interest expense, which reduces total other income, increased from $34,198 last year to $50,541 this year, resulting from higher interest rates on the PPT acquisition debt and on our building mortgage compared to the rate on our lines of credit. These higher rate loans did not exist in the first quarter of fiscal year 2013. The mortgage was initiated in March 2013 and the PPT debt was initiated in April 2013.
Income tax expense was $1,230,204 in the latest quarter compared to $624,663 last year, an increase of $605,541 or 96.9%. This primarily resulted from higher taxable income in the latest period.
Basic and diluted EPS were $0.90, up from $0.41 and the weighted average shares outstanding decreased to 2,364,852 from 2,380,714.
Backlog
On February 14th the backlog for the hydraulic machine tools segment was approximately $2.8 million, down from the previous quarter’s reported level of $4.6 million, but up from last year’s level of $1.5 million. The increase over last year resulted from the acquisition of PPT.
The backlog for the ground support equipment segment was approximately $6.0 million, unchanged from the previous quarter’s reported level of $6.0 million, but up from last year’s level of $5.2 million.
We do not provide financial estimates for future periods.
Liquidity & Cash Uses for the Three Months Ended December 31, 2013
As shown in the December 31, 2013 balance sheet, cash, short-term investments, accounts receivable and inventories totaled $12.3 million compared to $13.0 million of total liabilities. The balance outstanding under our credit lines was $798,860, leaving us with borrowing capacity of $9,701,140 at December 31, 2013, up by $2,958,098 from the previous quarter’s availability.
We generated positive operating cash flow of $2,621,632, while capital expenditures were $257,823. We received net cash of $220,923 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, 2013, we had remaining commitments to these entities of approximately $885,000 which does not appear as a liability on our balance sheet. Subsequent to quarter-end, we have not funded any of these remaining commitments.
During the three months we did not repurchase any shares of our common stock and subsequent to quarter-end we have not purchased any shares. Through February 14th, we have repurchased 395,334 shares, or 79.1% of the 500,000 shares authorized by the Board on May 20, 2010.
Subsequent to quarter-end we have paid our line of credit in full, leaving borrowing capacity of $10.5 million and we paid $500,000 against the PPT acquisition note held by our bank.
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. One new claim has been received in 2014.
Quality Products currently has 119 employees, down from 129 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.pacific-press.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, 2013 | |||||
| ASSETS | |||||
| CURRENT ASSETS: | |||||
| Cash & Cash Equivalents | $ | 1,413 | |||
| Short-term Investments | 318,945 | ||||
|
Accounts Receivable, net of allowance for doubtful accounts of $88,505 |
3,107,822 |
||||
| Inventories, net of reserve of $369,727 | 8,876,073 | ||||
| Deferred Income Taxes, current | 481,166 | ||||
| Prepaid Expenses and Other Current Assets | 328,936 | ||||
| Total Current Assets | 13,114,355 | ||||
| PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $2,661,724 |
4,299,537 |
||||
| INVESTMENTS, non-current | 3,068,034 | ||||
|
INTANGIBLE ASSETS, net of accumulated amortization of $397,800 |
1,025,294 |
||||
| GOODWILL | 2,723,247 | ||||
| TOTAL ASSETS | $ | 24,230,467 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| CURRENT LIABILITIES: | |||||
| Accounts Payable | $ | 1,816,760 | |||
| Accrued Payroll and Payroll Related Expenses | 735,701 | ||||
| Taxes Payable | 853,679 | ||||
| Other Accrued Expenses and Current Liabilities | 543,454 | ||||
| Customer Deposits | 3,110,592 | ||||
| Notes Payable – Current Portion | 365,000 | ||||
| Total Current Liabilities | 7,425,186 | ||||
| PENSION & POSTRETIREMENT BENEFIT OBLIGATIONS | 536,775 | ||||
| DEFERRED TAXES, non-current | 1,018,061 | ||||
| LONG-TERM DEBT: | |||||
| Line of Credit | 798,860 | ||||
| Notes payable, net of current portion | 3,271,667 | ||||
| Total long-term debt | 4,070,527 | ||||
| TOTAL LIABILITIES | 13,050,549 | ||||
| STOCKHOLDERS' EQUITY: | |||||
| Convertible preferred stock, Series A | - | ||||
| Convertible preferred stock, Series B | - | ||||
| Common stock | 16 | ||||
| Additional paid-in capital | 9,338,385 | ||||
| Accumulated other comprehensive (loss) | (54,279 | ) | |||
| Retained earnings | 2,129,253 | ||||
| Less cost of treasury stock (15,862 shares of common stock) | (233,457 | ) | |||
| Total stockholders' equity | 11,179,918 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 24,230,467 | |||
| QUALITY PRODUCTS, INC. | |||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | |||||||||
|
|
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|
Three Months |
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|
(UNAUDITED) |
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|
2013 |
2012 |
||||||||
| NET SALES | $ | 11,303,308 | $ | 4,761,168 | |||||
| COST OF GOODS SOLD | 6,531,297 | 2,662,672 | |||||||
| GROSS PROFIT | 4,772,011 | 2,098,496 | |||||||
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
1,580,967 |
877,804 |
|||||||
| INCOME FROM OPERATIONS |
3,191,044 |
1,220,692 |
|||||||
| OTHER INCOME: | |||||||||
| Interest expense | (50,541 | ) | (34,198 | ) | |||||
| Royalty and other income |
218,954 |
421,166 |
|||||||
| Other income, net | 168,413 | 386,991 | |||||||
|
INCOME BEFORE PROVISION FOR INCOME TAXES |
3,359,457 |
1,607,683 |
|||||||
|
PROVISION FOR INCOME TAXES |
1,230,204 |
624,663 |
|||||||
| NET INCOME | $ | 2,129,253 | $ | 983,020 | |||||
|
UNREALIZED GAIN ON SHORT-TERM INVESTMENTS, NET OF TAX |
7,905 |
74,050 |
|||||||
| COMPREHENSIVE INCOME | $ | 2,137,158 | $ | 1,057,070 | |||||
| BASIC INCOME PER SHARE: |
$ |
.90 |
$ |
.41 |
|||||
| DILUTED INCOME PER SHARE: |
$ |
.90 |
$ |
.41 |
|||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES: | |||||||||
| Basic | 2,364,852 | 2,380,714 | |||||||
| Diluted | 2,364,852 | 2,380,714 | |||||||
| QUALITY PRODUCTS, INC. | |||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | |||||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2013 AND 2012 | |||||||||
|
|
|||||||||
| 2013 | 2012 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
| Net income | $ | 2,129,253 | $ | 983,020 | |||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||
| Depreciation and amortization | 156,222 | 71,863 | |||||||
| Bad Debt Expense | 4,589 | -- | |||||||
|
Changes in operating assets and liabilities: |
|||||||||
| Accounts receivable | (838,491 | ) | 60,210 | ||||||
| Inventories | 1,086,900 | (57,205 | ) | ||||||
| Other assets | 327,640 | 198,735 | |||||||
| Accounts payable | (583,581 | ) | (471,883 | ) | |||||
| Accrued payroll | (433,545 | ) | (354,694 | ) | |||||
| Accrued expenses | (69,303 | ) | (45,188 | ) | |||||
| Taxes payable | 869,774 | 375,892 | |||||||
| Customer deposits | (27,826 | ) | (18,331 | ) | |||||
| Net cash provided by operating activities | 2,621,632 | 698,255 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
| Purchases of property and equipment | (257,823 | ) | (39,830 | ) | |||||
| Cash received from sale of investments | 220,923 | 312,512 | |||||||
| Purchase of investments | -- | (139,323 | ) | ||||||
| Net cash provided (used) by investing activities | (36,900 | ) | 133,359 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
| Repayments on Notes Payable | (74,240 | ) | -- | ||||||
| Proceeds from (Payments on) Line of Credit | (2,958,098 | ) | 2,203,025 | ||||||
| Dividends paid to common shareholders | -- | (4,761,428 | ) | ||||||
| Net cash (used) by financing activities | (3,032,338 | ) | (2,558,403 | ) | |||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | (447,606 | ) | (1,726,789 | ) | |||||
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
449,019 |
2,693,447 |
|||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 1,413 | $ | 966,658 | |||||
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|||||||||
| Cash paid for interest | $ | 50,550 | $ | 34,198 | |||||
| Cash paid for income taxes | $ | 360,430 | $ | 15,000 | |||||
NON-CASH OPERATING AND FINANCING ACTIVITIES:
In the most recent period the Company reduced a note payable by $17,010 in exchange for providing product warranty materials and services on behalf of the noteholder.