UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal quarter ended November 30, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-21161
Q.E.P. CO., INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 13-2983807 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
1081 Holland Drive
Boca Raton, Florida 33487
(Address of Principal Executive Offices) (Zip Code)
(561) 994-5550
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
3,408,175 SHARES ($.001 PAR VALUE)
AS OF JANUARY 14, 2004
Q.E.P. CO., INC. AND SUBSIDIARIES
INDEX
| Page | ||
| PART I - FINANCIAL INFORMATION |
||
| 3 | ||
| November 30, 2003 (Unaudited) and February 28, 2003* |
3 | |
| Condensed Consolidated Statements of Operations (Loss) (Unaudited) |
||
| For the Nine and Three Months Ended November 30, 2003 and 2002 |
4 | |
| For the Nine Months Ended November 30, 2003 and 2002 |
5 | |
| 6 | ||
| Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
11 | |
| Item 3 - Qualitative and Quantitative Disclosures about Market Risk |
21 | |
| 21 | ||
| 21 | ||
| PART II - OTHER INFORMATION |
||
| 22 | ||
| 23 | ||
| 24 | ||
| Exhibits |
||
| * | Information derived from our audited financial statements on Form 10-K. |
2
| PART I. | FINANCIAL INFORMATION |
| ITEM I. | FINANCIAL STATEMENTS |
Q.E.P. CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2003 AND FEBRUARY 28, 2003
| November 30, 2003 |
February 28, 2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS |
||||||||
| Cash and cash equivalents |
$ | 682,868 | $ | 304,453 | ||||
| Accounts receivable, less allowance for doubtful accounts of $406,000 and $354,000 at November 30, 2003 and February 28, 2003, respectively |
23,364,337 | 20,548,282 | ||||||
| Inventories |
24,566,122 | 28,386,525 | ||||||
| Prepaid expenses |
1,906,903 | 1,861,999 | ||||||
| Deferred income taxes |
598,876 | 598,876 | ||||||
| Total current assets |
51,119,106 | 51,700,135 | ||||||
| Property and equipment, net |
7,262,041 | 6,443,379 | ||||||
| Deferred income taxes |
767,756 | 1,216,913 | ||||||
| Goodwill |
10,371,428 | 10,096,318 | ||||||
| Other intangible assets, net |
2,228,645 | 2,254,593 | ||||||
| Other assets |
731,289 | 814,020 | ||||||
| TOTAL ASSETS |
$ | 72,480,265 | $ | 72,525,358 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES |
||||||||
| Lines of credit |
$ | 14,846,486 | $ | 20,339,721 | ||||
| Acquisition notes payable |
1,002,629 | 839,326 | ||||||
| Current maturities of long term debt |
2,682,874 | 2,818,148 | ||||||
| Accounts payable |
11,628,771 | 12,499,204 | ||||||
| Accrued liabilities |
6,586,733 | 3,393,251 | ||||||
| Total current liabilities |
36,747,493 | 39,889,650 | ||||||
| Notes payable |
6,307,025 | 6,582,680 | ||||||
| Acquisition notes payable |
686,640 | 1,171,795 | ||||||
| Deferred income taxes |
590,638 | 590,638 | ||||||
| Warrant put liability |
1,860,637 | 1,175,300 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Preferred stock, 2,500,000 shares authorized, $1.00 par value; 336,660 shares issued and outstanding at November 30, 2003 and February 28, 2003, respectively |
336,660 | 336,660 | ||||||
| Common stock, 20,000,000 shares authorized, $.001 par value; 3,408,050 shares and 3,381,190 shares issued and outstanding at November 30, 2003 and February 28, 2003, respectively |
3,408 | 3,381 | ||||||
| Additional paid-in capital |
9,235,250 | 9,068,703 | ||||||
| Retained earnings |
18,271,729 | 15,838,522 | ||||||
| Cost of stock held in treasury |
(381,445 | ) | (436,170 | ) | ||||
| Accumulated other comprehensive income |
(1,177,770 | ) | (1,695,801 | ) | ||||
| $ | 26,287,832 | $ | 23,115,295 | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 72,480,265 | $ | 72,525,358 | ||||
The accompanying notes are an integral part of these statements
3
Q.E.P. CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002
(UNAUDITED)
| Nine Months Ended November 30, |
Three Months Ended November 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net Sales |
$ | 105,764,374 | $ | 96,950,655 | $ | 36,564,856 | $ | 32,351,502 | ||||||||
| Cost of goods sold |
69,308,092 | 63,679,614 | 24,029,723 | 21,193,040 | ||||||||||||
| Gross profit |
36,456,282 | 33,271,041 | 12,535,133 | 11,158,462 | ||||||||||||
| Costs and expenses |
||||||||||||||||
| Shipping |
9,783,297 | 8,838,459 | 3,479,878 | 2,895,241 | ||||||||||||
| General and administrative |
9,279,885 | 8,521,044 | 3,224,496 | 2,986,722 | ||||||||||||
| Selling and marketing |
10,731,637 | 10,378,003 | 3,471,299 | 3,571,482 | ||||||||||||
| Other expense, net |
1,166,018 | 304,640 | 260,223 | 63,081 | ||||||||||||
| 30,960,837 | 28,042,146 | 10,435,896 | 9,516,526 | |||||||||||||
| Operating income |
5,495,445 | 5,228,895 | 2,099,237 | 1,641,936 | ||||||||||||
| Interest income |
709 | 653 | 235 | 26 | ||||||||||||
| Interest expense |
(1,320,673 | ) | (1,470,142 | ) | (264,406 | ) | (513,643 | ) | ||||||||
| Income before provision for income taxes and cumulative effect of change in accounting principle |
4,175,481 | 3,759,406 | 1,835,066 | 1,128,319 | ||||||||||||
| Provision for income taxes |
(1,732,497 | ) | (1,585,377 | ) | (782,776 | ) | (464,363 | ) | ||||||||
| Net Income before cumulative effect of change in accounting principle |
2,442,984 | 2,174,029 | 1,052,290 | 663,956 | ||||||||||||
| Cumulative effect of change in accounting principle |
— | (3,047,788 | ) | — | — | |||||||||||
| Net income (loss) |
$ | 2,442,984 | $ | (873,759 | ) | $ | 1,052,290 | $ | 663,956 | |||||||
| Basic earnings (loss) per common share: |
||||||||||||||||
| Income before cumulative effect of change in accounting principle |
$ | 0.72 | $ | 0.64 | $ | 0.31 | $ | 0.20 | ||||||||
| Cumulative effect of change in accounting principle |
— | (0.89 | ) | — | — | |||||||||||
| Net income (loss) |
$ | 0.72 | $ | (0.25 | ) | $ | 0.31 | $ | 0.20 | |||||||
| Diluted earnings (loss) per common share: |
||||||||||||||||
| Income before cumulative effect of change in accounting principle |
$ | 0.70 | $ | 0.64 | $ | 0.30 | $ | 0.20 | ||||||||
| Cumulative effect of change in accounting principle |
— | (0.89 | ) | — | — | |||||||||||
| Net income (loss) |
$ | 0.70 | $ | (0.25 | ) | $ | 0.30 | $ | 0.20 | |||||||
The accompanying notes are an integral part of these statements.
4
Q.E.P. CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2003 AND 2002
(UNAUDITED)
| Nine Months Ended |
||||||||
| November 30, 2003 |
November 30, 2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 2,442,984 | $ | (873,759 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Cumulative effect of change in accounting principle |
— | 3,047,788 | ||||||
| Change in fair value of warrant put liability |
685,337 | 376,000 | ||||||
| Gain on sale of assets |
(148,230 | ) | — | |||||
| Depreciation and amortization |
2,270,960 | 1,373,661 | ||||||
| Bad debt expense |
255,240 | 247,248 | ||||||
| Deferred income taxes |
449,157 | 364,327 | ||||||
| Changes in assets and liabilities, net of acquisitions: |
||||||||
| Accounts receivable |
(2,657,616 | ) | (2,590,194 | ) | ||||
| Inventories |
4,273,326 | (1,863,802 | ) | |||||
| Prepaid expenses |
73,004 | 264,073 | ||||||
| Other assets |
(259,242 | ) | (461,762 | ) | ||||
| Accounts payable and accrued liabilities |
1,847,738 | 1,534,021 | ||||||
| Net cash provided by operating activities |
9,232,658 | 1,417,601 | ||||||