QEPC Q E P Company Inc (QX)

Q.E.P. CO., INC. (Nasdaq:QEPC), today announced financial results for its fiscal 2007 third quarter and nine months ended November 30, 2006. Lewis Gould, Q.E.P.�s Chairman and Chief Executive Officer, stated: �Because there will be no conference call highlighting some of the financial results, I have gone into more detail in discussing my comments for this release, which parallels our 10-Q filing. Business conditions continued to be challenging. However, sales stayed firm with the prior quarter and increased 3.1 percent, compared to the same period last year. I am greatly pleased that our sales for the nine-month period increased 4.8 percent to an all-time record of $163,063,000. �For the fiscal 2007 third quarter, the Company reported net income of $370,000, or $0.10 per diluted share, compared to net income of $345,000, or $0.09 per diluted share for the third quarter last year. After excluding the change in the put warrant liability and other non-recurring items, the Company reported net income of $971,000, or $0.26 per diluted share for the nine months as compared to $829,000, or $0.22 per diluted share during the same period last year. �I am especially pleased to report that for the third quarter of fiscal 2007, the Company generated $2.4 million of cash from operations, compared to $1.3 million in the third quarter of fiscal 2006. For the first nine months of fiscal 2007, the Company generated $2.5 million of cash from operations, compared to $1.7 million for the same period last year. �Although, the outlook for the current quarter remains uncertain, the Company is pursuing several new initiatives to offset current market weaknesses.� On January 10, 2007, the Company reported that as of November 30, 2006, it was in violation of a financial covenant that requires the Company to maintain a certain senior debt to trailing EBITDA ratio. On January 12, 2007, the Company was granted a waiver of the non-compliance with this covenant from the Company�s lenders. Certain statements in this press release, including statements relating to the success of the Company�s several new initiatives to offset current market weaknesses, are forward-looking statements, which are made pursuant to the safe-harbor provisions of the Securities Litigation Reform Act of 1995. The forward-looking statements are made only as of the date of this report and are subject to risks and uncertainties which could cause actual results to differ materially from those discussed in the forward-looking statements and from historical results of operations. Among the risks and uncertainties that could cause such a difference are our assumptions relating to the expected growth in sales of our products, the continued success of our manufacturing processes, continued increases in the cost of raw materials and finished goods, improvements in productivity and cost reductions, the continued success of initiatives with certain of our customers, the success of our price increases initiatives, and the success of our sales and marketing efforts. A more detailed discussion of risks attendant to the forward-looking statements included in this press release are set forth in the �Forward-Looking Statements� section of our Annual Report on Form 10-K for the year ended February�28,�2006, as amended, filed with the SEC, and in other reports already filed with the SEC. -Financial Information Follows- Q.E.P. CO., Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share data) � November 30, 2006 February 28, 2006 (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 1,111� $ 852� Accounts receivable, less allowance for doubtful accounts of approximately $276 and $361 as of November 30, 2006 and February 28, 2006, respectively � 31,605� 33,258� Inventories 30,347� 34,128� Prepaid expenses and other current assets 3,399� 3,717� Deferred income taxes 660� 617� Total current assets 67,122� 72,572� � Property and equipment, net 7,265� 8,296� Goodwill 9,578� 16,799� Other intangible assets, net 2,914� 3,109� Other assets 208� 310� � Total Assets $ 87,087� $ 101,086� � LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 17,996� $ 24,041� Accrued liabilities 7,795� 7,655� Lines of credit 28,463� 26,284� Current maturities of long-term debt 4,162� 4,431� Put warrant liability 978� 2,298� Total current liabilities 59,394� 64,709� � Notes payable 3,030� 4,950� Other long-term debt 2,601� 4,197� Deferred income taxes 214� 213� Total Liabilities 65,239� 74,069� � 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, 2006 and February 28, 2006, respectively � 337� 337� Common stock; 20,000,000 shares authorized, $.001 par value; 3,513,341 and 3,458,341 shares issued, and 3,430,401 and 3,387,401 shares outstanding at November 30, 2006 and February 28, 2006, respectively � � 3� 3� Additional paid-in capital 9,964� 9,539� Retained earnings 15,151� 21,205� Treasury stock; 82,940 and 70,940 shares held at cost outstanding at November 30, 2006 and February 28, 2006, respectively (639) (543) Accumulated other comprehensive income (2,968) (3,524) 21,848� 27,017� TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 87,087� $ 101,086� Q.E.P. CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) (Unaudited) � For the Three Months Ended November 30, For the Nine Months Ended November 30, 2006 2005 2006 2005 As Restated As Restated Net sales $ 54,455� $ 52,822� $ 163,063� $ 155,641� Cost of goods sold 39,760� 38,472� 118,238� 112,540� Gross profit 14,695� 14,350� 44,825� 43,101� � Operating costs and expenses: Shipping 5,560� 5,095� 16,665� 15,416� General and administrative 4,430� 4,721� 14,565� 13,944� Selling and marketing 3,551� 3,555� 10,842� 10,665� Impairment loss on goodwill and other intangibles (78) -� 7,520� -� Other expense (income), net (38) (111) (41) (1,275) Total operating costs and expenses 13,425� 13,260� 49,551� 38,750� � Operating income (loss) 1,270� 1,090� (4,726) 4,351� � Change in put warrant liability 3� 88� 1,319� 1,050� Interest expense, net (711) (681) (2,167) (1,811) � Income (loss) before provision for income taxes 562� 497� (5,574) 3,590� � Provision for income taxes 192� 152� 457� 1,003� � Net income (loss) $ 370� $ 345� $ (6,031) $ 2,587� � Net income (loss) per share: Basic $ 0.10� $ 0.10� $ (1.78) $ 0.76� Diluted $ 0.10� $ 0.09� $ (1.78) $ 0.69� � Weighted-average number of common shares outstanding � Basic 3,423� 3,387� 3,402� 3,387� Diluted 3,623� 3,741� 3,402� 3,756� Net Income (Loss) Compared to Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items (In thousands except per share data) � While Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items is not a measure of financial performance under generally accepted accounting principles, the Company believes that the measure provides meaningful comparisons of the Company�s current and projected operating performance with its historical results. The Company uses Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items as an internal measure of its business and believes it is utilized as an important measure of performance by the investment community. Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items is not meant to be considered a substitute or replacement for Net Income as prepared in accordance with generally accepted accounting principles. The reconciliation of Net Income to Net Income Adjusted for the Change in the Put Warrant Liability and Non-Recurring Items is as follows: � Net Income Adjusted for the Change in the Put Warrant Liability and Other Non-Recurring Items � For the Three Months Ended For the Nine Months Ended November 30, November 30, 2006 2005 2006 2005 (As Restated) (As Restated) � Net income (loss), as reported (a) $ 370� $ 345� $ (6,031) $ 2,587� � Add back (deduct): Impairment loss on goodwill and other intangible assets (78) -� 7,520� -� Realization of currency translation loss related to the disposition of certain assets and obligations of the Holland subsidiary -� -� 447� -� Loss related to the disposition of certain assets and obligations of the Holland subsidiary, net of tax benefit -� -� 354� -� Gain on sale of carpet seaming tape business, net of tax -� -� -� (708) Change in put warrant liability (3) (88) (1,319) (1,050) Net income adjusted for the change in the put warrant liability and non-recurring items (b) $ 289� $ 257� $ 971� $ 829� � Earnings (loss) per share, as reported: Basic ((a)/(c)) $ 0.10� $ 0.10� $ (1.78) $ 0.76� Diluted ((a)/(d)) $ 0.10� $ 0.09� $ (1.78) $ 0.69� � Weighted average number of shares outstanding, as reported: Basic (c) 3,423� 3,387� 3,402� 3,387� Diluted (d) 3,623� 3,741� 3,402� 3,756� � Earnings per share adjusted for the change in the put warrant liability and non-recurring items: Basic ((b)/(e)) $ 0.08� $ 0.08� $ 0.28� $ 0.24� Diluted ((b)/(f)) $ 0.08� $ 0.07� $ 0.26� $ 0.22� � Weighted average number of shares outstanding as adjusted for the change in the put warrant liability and non-recurring items: Basic (e) 3,423� 3,387� 3,402� 3,387� Diluted (f) 3,623� 3,741� 3,679� 3,756� Q.E.P. CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) � For the Nine Months Ended November 30, 2006 2005 - As Restated - Cash flows from operating activities: Net income (loss) $ (6,031) $ 2,587� � Adjustments to reconcile net income (loss) to net cash provided by operating activities: � Depreciation and amortization 1,895� 3,101� Impairment loss on goodwill and other intangibles 7,520� -� Change in fair value of put warrant liability (1,319) (1,050) Write-off of Holland accumulated foreign translation 447� -� Bad debt expense 171� 328� Gain on sale of business -� (1,120) Stock-based compensation expense 191� -� Deferred income taxes (42) (234) Changes in assets and liabilities, net of acquisitions: Accounts receivable 1,482� (4,552) Inventories 3,782� 303� Prepaid expenses and other current assets 318� 634� Other assets 4� (621) Trade accounts payable and accrued liabilities (5,930) 2,307� Net cash provided by operating activities 2,488� 1,683� � Cash flows from investing activities: Capital expenditures (485) (1,267) Acquisitions, net of cash acquired -� (2,512) Net cash used in investing activities (485) (3,779) � Cash flows from financing activities: Net borrowings under lines of credit 1,552� 900� Borrowings of long-term debt -� 3,224� Repayments of long-term debt (2,087) (1,677) Repayments of acquisition debt (1,834) (870) Payments related to the purchase of treasury stock (90) (90) Proceeds from exercise of stock options 257� 10� Dividends (22) (8) Net cash (used in) provided by financing activities (2,224) 1,489� � Effect of exchange rate changes on cash 480� (168) � Net decrease in cash 259� (775) � Cash and cash equivalents at beginning of period 852� 1,869� � Cash and cash equivalents at end of period $ 1,111� $ 1,094�