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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 quarter ended September 30, 2002.
-------------------
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 0-14870
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QUIPP, INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2306191
- -------------------------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4800 N.W. 157th Street, Miami, Florida 33014
--------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (305) 623-8700
--------------
Indicate by check mark whether the 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 X No
----- ------
The number of shares of the registrant's common stock, $.01 par value,
outstanding at October 25, 2002 was 1,417,775.
QUIPP, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1 - Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets - 3
September 30, 2002 and December 31, 2001
Unaudited Condensed Consolidated Statements of Operations - 4
Three and nine months ended September 30, 2002 and 2001
Unaudited Condensed Consolidated Statements of Cash Flows - 5
Nine months ended September 30, 2002 and 2001
Notes to unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 11
Item 4 - Controls and Procedures 11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
2
PART 1 - FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
QUIPP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31, 2001
- ------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,330,684 $ 1,627,937
Securities 6,908,343 6,123,240
Accounts receivable, net 2,844,080 3,382,105
Inventories 2,126,090 2,498,935
Deferred tax asset-current 837,448 837,448
Prepaid expenses and other receivables 411,742 320,475
Current portion of notes receivable 238,940 238,940
------------ ------------
Total current assets 14,697,327 15,029,080
Other assets:
Property, plant and equipment, net 1,811,967 1,959,258
Notes receivable 183,388 477,882
Goodwill 265,401 312,201
Other assets 55,580 60,620
------------ ------------
Total Assets $ 17,013,663 $ 17,839,041
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 100,000 $ 100,000
Accounts payable and accrued expenses 800,755 1,113,510
Accrued salaries & wages 560,337 433,359
Deferred revenues 2,037,147 2,275,351
Other accrued liabilities 1,151,536 1,073,314
Contract contingencies 561,695 857,976
------------ ------------
Total current liabilities 5,211,470 5,853,510
Long-term debt 650,000 650,000
------------ ------------
Total liabilities 5,861,470 6,503,510
Shareholders' equity:
Common stock - par value $.01 per share, authorized
8,000,000 shares, issued 1,426,025 in 2002 and 2001 14,260 14,260
Additional paid-in capital -- --
Treasury stock, at cost ( 9,250 shares in 2002 and 2001) (148,375) (148,375)
Retained earnings 11,243,042 11,414,178
Other comprehensive income 43,266 55,468
------------ ------------
Total shareholders' equity 11,152,193 11,335,531
------------ ------------
Total liabilities and shareholders' equity $ 17,013,663 $ 17,839,041
============ ============
See accompanying notes to the unaudited condensed consolidated financial
statements
3
QUIPP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net sales $ 3,702,487 $ 3,970,016 $ 11,877,855 $ 16,563,604
Cost of sales 2,899,663 3,606,503 9,016,272 11,997,160
---------------------------------------------------------------------------
Gross profit 802,824 363,513 2,861,583 4,566,444
Operating expenses:
Selling , general and
administrative expenses 841,258 1,395,234 3,095,620 4,249,388
Research and development 132,689 20,881 301,295 350,291
---------------------------------------------------------------------------
Operating loss (171,123) (1,052,602) (535,332) (33,235)
---------------------------------------------------------------------------
Other income (expense):
Miscellaneous income (expense) 27,393 -- 100,864 (33,417)
Interest income 48,384 68,827 157,427 419,311
Interest expense (2,808) (5,825) (8,730) (21,943)
---------------------------------------------------------------------------
72,969 63,002 249,561 363,951
---------------------------------------------------------------------------
(Loss) income before income taxes (98,154) (989,600) (285,771) 330,716
Income tax (benefit) expense (26,789) (346,360) (114,635) 130,476
---------------------------------------------------------------------------
Net (loss) income $ (71,365) $ (643,240) $ (171,136) $ 200,240
- -----------------------------------------------------------------------------------------------------------------------------
Per share amounts:
Basic income per common share (0.05) (0.45) (0.12) 0.12
Diluted income per common share (0.05) (0.45) (0.12) 0.12
Basic average number of common 1,417,775 1,416,782 1,417,650 1,697,560
shares outstanding
Diluted average number of common and
common equivalent shares outstanding 1,417,775 1,416,782 1,417,650 1,739,630
=============================================================================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements.
4
QUIPP INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30
2002 2001
- ------------------------------------------------------------------------------------------
Cash provided by operations:
Net (loss) income $ (171,136) $ 200,240
Reconciliation of net income to net cash
provided by operations:
Depreciation and amortization 205,509 222,536
Goodwill impairment 46,800 --
Issuance of shares to employees -- 214,474
Changes in operational assets and liabilities:
Accounts receivable, net 538,025 2,390,657
Inventories 372,845 123,127
Other assets, prepaid expenses and other receivables (86,227) 302,755
Notes receivable 294,494 (129,407)
Accounts payable and other accrued liabilities (107,554) (1,630,490)
Contract contingencies (296,281) 182,522
Deferred revenues (238,204) (660,233)
Income taxes payable -- (241,808)
------------------------------
Net cash provided by operations 558,271 974,373
------------------------------
Cash flow from investing activities:
Securities purchased (6,106,378) (10,157,595)
Securities sold 5,309,073 19,468,209
Capital expenditures (58,218) (132,609)
------------------------------
Net cash (used in) provided by investing activities (855,523) 9,178,005
------------------------------
Cash flow from financing activities:
Tender offer -- (11,461,136)
Purchase of shares for Treasury -- (110,250)
Conversion of stock options -- 1,027,813
------------------------------
Net cash used in financing activities -- (10,543,573)
------------------------------
Decrease in cash and cash equivalents (297,252) (391,195)
Cash and cash equivalents at the beginning of the year 1,627,937 1,086,101
- ------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the period $ 1,330,685 $ 694,906
==========================================================================================
Supplemental disclosure of noncash information:
Unrealized gain on securities available for sale $ 12,202 $ --
Supplemental disclosure of cash payments made for:
Interest $ 8,730 $ 21,943
Income Taxes $ 1,931 $ 407,313
==========================================================================================
See accompanying notes to the unaudited condensed consolidated financial
statements.
5
QUIPP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Quipp, Inc. and its wholly owned subsidiaries Quipp Systems,
Inc. and Quipp International Sales Corporation. All significant intercompany
transactions have been eliminated in consolidation. The accompanying unaudited
condensed consolidated financial statements have been prepared on a basis
consistent with that used as of and for the year ended December 31, 2001 and, in
the opinion of management, reflect all adjustments (principally consisting of
normal recurring accruals) considered necessary to present fairly the financial
position of Quipp, Inc. as of September 30, 2002 and the results of its
operations for the three and nine months ended September 30, 2002 and cash flows
for the nine months ended September 30, 2002. The results of operations for the
nine months ended September 30, 2002 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2002. These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated balance sheet at December 31, 2001 was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
NOTE 2 - INVENTORIES
Inventories at September 30, 2002 include material, labor and factory overhead
and are stated at the lower of cost or market. Inventory also includes equipment
requiring complex installation services that have shipped to customers but not
yet recognized as a sale. The Company will recognize the sales and cost of sales
for this equipment when installation services are complete and collection of the
resulting receivable is reasonably assured. Cost is determined using the
first-in, first-out (FIFO) method. The composition of inventories at September
30, 2002 and December 31, 2001 is as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Raw Materials $1,250,857 $1,553,020
Work in Process 360,217 497,214
Finished Goods 119,840 109,745
---------- ----------
Subtotal 1,730,914 2,159,979
Shipped to customers, not yet recognized as a sale 395,176 338,956
---------- ----------
Total 2,126,090 2,498,935
---------- ----------
NOTE 3 - REVENUE RECOGNITION
Revenue is generally recognized when all significant contractual obligations
have been satisfied and collection of the resulting accounts receivable is
reasonably assured. Revenue from equipment sales requiring basic installation
services is recognized at the time of delivery according to contractual terms
and is recorded net of discounts and allowances. Revenue from equipment sales
requiring complex installation services is recognized when the installation
services are complete according to contractual terms and is recorded net of
discounts and allowances.
6
NOTE 4 - (LOSS) INCOME PER SHARE
Basic (loss) income per share is based on the weighted average number of common
shares outstanding during the periods presented. Diluted (loss) income per share
is computed using the weighted average number of common and dilutive common
equivalent shares outstanding in the period presented. Dilutive common
equivalent shares assume the exercise of options, calculated under the treasury
stock method, using the average stock market prices during the periods. For the
three months ending September 30, 2002, the exercise of options was not assumed
since the effect is antidilutive.
NOTE 5 - RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial statements to
conform to the 2002 financial statement presentation.
NOTE 6 - RECENT PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141")
and Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 was effective July 1, 2001 except with
regard to business combinations initiated prior to July 1, 2001 and SFAS 142 is
effective January 1, 2002. Under SFAS 142, goodwill and intangible assets
determined to have indefinite lives will no longer be amortized but will be
subject to impairment by reviewing the discounted expected future cash flow. As
of September 30, 2002, the company determined that $46,800 ($.03 per share) of
goodwill was impaired. The impairment write-off was charged to selling, general
and administrative expenses.
In June 2001, the FASB issued Statement of Financial Accounting Standards 143,
"Accounting for Asset Retirement Obligations." This statement addresses the
diverse accounting practices for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
adoption of this standard had no effect on the unaudited condensed consolidated
financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). This statement is effective for fiscal years beginning after December 15,
2001. This statement supersedes SFAS 121, while retaining many of the
requirements of such statement. Under SFAS 144, assets held for sale will be
included in discontinued operations if the operations and cash flows will be or
have been eliminated from the ongoing operations of the Company. The adoption of
this standard had no effect on the unaudited condensed consolidated financial
statements.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment to FASB
Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS No. 145 rescinds
SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt, "SFAS No.
44, "Accounting for Intangible Assets of Motor Carriers" and SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements" and amends
SFAS No. 13, "Accounting for Leases." This statement updates, clarifies, and
simplifies existing accounting pronouncements. The adoption of this standard had
no effect on the unaudited condensed consolidated financial statements.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146 will be
effective for the Company for disposal activities initiated after December 31,
2002. The Company does not expect the adoption of SFAS No. 146 to have a
significant impact on its unaudited condensed consolidated financial statements.
In October 2002, the Emerging Issues Task Force issued tentative conclusions
regarding EITF Issue 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). EITF 0021 relates to accounting for multiple-
deliverable arrangements and specifies circumstances under which a revenue
arrangement should be separated into different revenue-generating deliverables
or "units of accounting" and how the revenue arrangement should be allocated to
the different deliverables or units of accounting. EITF 0021 is tentatively
scheduled to be effective for revenue arrangements entered into in fiscal years
beginning after December 15, 2002. We are closely monitoring developments in
this issue and will complete our assessment of any potential impact on our
results of operations prior to the issuance of our December 31, 2002 financial
statements.
7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS: The following table presents statements of income items
expressed as a percentage of net sales for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 21.7% 9.2% 24.1% 27.6%
Selling, general and administrative
expenses 22.7% 35.1% 26.1% 25.7%
Research and development 3.6% .5% 2.5% 2.1%
Interest income 1.3% 1.7% 1.3% 2.5%
Net (loss) income (1.9%) (16.2%) (1.4%) 1.2%
THREE MONTHS ENDING SEPTEMBER 30, 2002
- --------------------------------------
NET SALES for the three months ended September 30, 2002 were $3,702,487, a
decrease of $267,529 (6.7%) from net sales of $3,970,016 for the corresponding
period in 2001. We believe that the lower sales largely reflect continued
reduced spending for capital equipment by the newspaper industry.
GROSS PROFIT for the three months ended September 30, 2002 was $802,824, an
increase of $439,311 as compared to gross profit of $363,513 for the
corresponding period in 2001. Gross profit as a percentage of sales for the
three months ended September 30, 2002 was 21.7% compared to 9.2% for the
corresponding period in 2001. The increase in gross profit margin is mainly due
to lower custom design, production and installation costs primarily reflecting a
reduction in cost overruns. In addition, gross profit increased due to a
reduction in manufacturing overhead costs, primarily from a reduction in our
labor force.
SELLING, GENERAL AND ADMINISTRATIVE expenses for the three months ended
September 30, 2002 were $841,258, a decrease of $553,976 (39.7%) as compared to
$1,395,234 for the corresponding period in 2001. The decrease is due in part to
changes to our allowance for doubtful accounts reserve. During the three months
ended September 30, 2001, we increased our allowance for doubtful accounts by
$275,000 based on our assessment of the collectability of customer accounts and
the aging of our accounts receivable. During the three months ended September
30, 2002, we reduced our allowance for doubtful accounts by $113,000 as we
collected customer receivable balances that were previously reserved. The
remaining decrease in selling, general and administrative costs is primarily due
to workforce reductions and lower variable selling expenses.
RESEARCH AND DEVELOPMENT expenses for the three months ended September 30, 2002
were $132,689, an increase of $111,808 as compared to $20,881 for the same
period in 2001. For the three months ended September 30, 2002, we invested
greater resources in a new product development project. For the same period in
2001, we focused much of our engineering and technical efforts on the custom
design and production of customer orders. Costs related to these activities were
charged to cost of goods sold when incurred rather than to research and
development.
OTHER INCOME AND EXPENSE (NET) for the three months ended September 30, 2002 was
$72,969 as compared to $63,002 for the same period in 2001. The increase is due
to a gain realized on the sale of a security offset in part by lower interest
rates on our securities available for sale.
8
NINE MONTHS ENDING SEPTEMBER 30, 2002
- --------------------------------------
SALES for the nine months ended September 30, 2002 were $11,877,855, a decrease
of $4,685,749 (28.3%) from net sales of $16,563,604 for the same period in 2001.
We believe that the decrease reflects a slowdown in the U.S. economy and
specifically a reduction in capital spending by newspaper publishers. The
decline in advertising revenues for the newspaper industry has been widely
reported and we believe the sales of our products have been affected as a
result.
GROSS PROFIT for the nine months ended September 30, 2002 was $2,861,583, a
decrease of $1,704,861 (37.3%) as compared to $4,566,444 for the corresponding
period in 2001. Gross profit as a percentage of sales for the nine months ended
September 30, 2002 decreased to 24.1% compared to 27.6% for the corresponding
period in 2001. Our gross profit percentage decreased due to a higher percentage
of fixed manufacturing overhead costs related to lower shipment volumes and
higher than expected production and installation costs on some larger custom
orders for our palletizer, gripper conveyor and automatic cart loading systems.
SELLING, GENERAL AND ADMINISTRATIVE expenses for the nine months ended September
30, 2002 were $3,095,620, a decrease of $ 1,153,768 (27.2%) as compared to
$4,249,388 for the same period in 2001. The decrease reflects non-recurring
costs generated in 2001, changes to our allowance for doubtful accounts reserve
and reduction in variable expenses. During the nine months ended September 30,
2001, we recorded non-recurring charges of $402,000 with respect to efforts by
the Special Committee of our Board of Directors to evaluate strategic
alternatives for the Company and with respect to compensation charges relating
to our payment to several non-executive employees of an amount equal to the
excess of market value over the exercise price of options surrendered by the
employees. In addition, during the nine months ended September 30, 2001, we
recorded a net increase in our allowance for doubtful accounts of $225,000 based
on our assessment of the collectability of customer accounts and the aging of
our accounts receivable. On the other hand, we reduced our allowance for
doubtful accounts by $113,000 during the nine months ending September 30, 2002,
because we collected customer receivable balances that were previously reserved.
The remaining decrease in selling, general and administrative expenses is
primarily due to workforce reductions and lower variable expenses, including
bonuses and commissions.
RESEARCH AND DEVELOPMENT expenses for the nine months ended September 30, 2002
were $301,295, a decrease of $48,996 (14.0%) as compared to $350,291 for the
same period in 2001. During the first half of 2001, we devoted significant
research and development resources toward software improvements for the
palletizer and gripper conveyor product lines. For the nine months ended
September 30, 2002, we have focused much of our engineering and technical
efforts on the development of our 500 Stacker, high-resolution ink-jet printer
for our bottomwrapper product line and, more recently, a new product designed to
improve our competitive position.
OTHER INCOME AND EXPENSE (NET) for the nine months ended September 30, 2002 was
$249,561 as compared to $363,951 for the same period in 2001. The decrease
resulted from lower interest rates and lower average balances of cash and cash
equivalents and securities available for sale in 2002. The decrease was offset
in part by gains on the sale of securities and an increase in royalty income
relating to our automatic cart loading system.
GENERAL
Our backlog as of September 30, 2002 was approximately $4,504,000 compared to
approximately $6,611,000 at December 31, 2001 and $6,400,000 at September 30,
2001. We expect to ship all backlog items within the next twelve months. Orders
booked during the quarter were approximately $4,899,000 compared to orders of
approximately $4,713,000 during the same period in 2001.
LIQUIDITY
On September 30, 2002, cash and cash equivalents and securities available for
sale totaled $8,239,027 as compared to $7,751,177 at December 31, 2001, an
increase of $487,850 or 6.3%. This increase was primarily due to cash provided
by operations. Working capital on September 30, 2002 was $9,485,857, an increase
of $310,287 from $9,175,570 at December 31, 2001. We believe that our cash, cash
equivalents and securities available for sale together with cash generated from
operations is sufficient to fund operations at the current level.
9
CRITICAL ACCOUNTING POLICIES
In preparing our financial statements, management is required to make estimates
and assumptions that, among other things, affect the reported amounts of assets,
revenues and expenses. These estimates are most significant in connection with
our critical accounting policies, namely those of our accounting policies that
are most important to the representation of our financial condition and results
and require management's most difficult, subjective or complex judgments. These
judgments often result from the need to make estimates about the effects of
matters that are inherently uncertain.
We believe that our critical accounting policies relate to (1) revenue
recognition involving complex installation services, (2) allowance for doubtful
accounts, (3) contract contingencies and (4) warranty reserves.
Revenue recognition
- -------------------
Our revenue recognition policy with regard to equipment sales involving complex
installation services calls for recognition when installation is complete.
Because complex installations often require ongoing customer consultation even
after a product is installed and is running, management often must make a
judgment as to when an installation may be considered complete. We believe that
an installation generally is complete when our customers can use the equipment
in their daily operations and collection of the resulting accounts receivable is
reasonably assured. Nevertheless, there is a degree for subjectivity involved in
making this determination, which can affect the timing of recognition of
revenues and the related cost of sales.
Allowance for doubtful accounts
- -------------------------------
We continuously monitor collections and payments from our customers and maintain
an allowance for doubtful accounts based upon our historical experience and any
specific customer collection issues that we have identified. While such credit
losses have historically not exceeded our expectations and the provisions
established, there is a risk that credit losses in the future will exceed those
that have occurred in the past, in which case our operating results would be
adversely affected.
Contract contingencies
- ----------------------
Contract contingencies involve estimates of additional expenses that may be
incurred after installation is complete. These expenses occur when additional
efforts are required to assure customer satisfaction.
Warranty reserves
- -----------------
We record a warranty reserve based on our actual historical return rates and
repair costs at the time of sale. While our warranty costs have historically
been within our expectations and the provisions established, future warranty
return rates or repair costs could be in excess of our warranty reserves. We
could also be affected by competitive pressures that force us to extend the
warranty period for our products. Additionally, we do not have extensive
warranty claims experience with recently introduced products. A significant
increase in product return rates or a significant increase in the costs to
repair our products would adversely affect our operating results for the period
or periods in which such returns or additional costs materialize.
FORWARD LOOKING STATEMENTS
The statements contained in this quarterly report on Form 10-Q, including
shipment of backlog orders and adequacy of available resources, are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. A number of important factors could cause actual results to
differ materially from those in the forward looking statements including, but
not limited to, economic conditions generally and specifically in the newspaper
industry, demand and market acceptance for new and existing products, the impact
of competitive products and pricing, manufacturing capacity, delays in shipment,
cancellation of customer orders, unanticipated expenses and engineering and
production difficulties.
10
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK
We are exposed to various types of market risk, including changes in interest
rates. Market risk is the potential loss arising from adverse changes in market
rates and prices such as interest rates. We do not enter into derivatives or
other financial instruments for trading or speculative purposes. Because our
cash and investments exceed short and long-term debt, our exposure to interest
rate fluctuations relates primarily to our investment portfolio. Due to the
short-term maturities of our investments, we believe there is no significant
risk arising from interest rate fluctuations. We are actively managing our
investment portfolios to increase return on investments, but in order to ensure
safety and liquidity, will only invest in instruments with credit quality and
where a secondary market exists. The counter parties are major financial
institutions and government agencies. The market risk related to the Company's
investment portfolios did not materially change from December 31, 2001 to
September 30, 2002.
ITEM 4 CONTROLS AND PROCEDURES
Michael S. Kady, our Chief Executive Officer, and Eric Bello, our principal
financial officer, have evaluated the effectiveness of the design and operation
of our disclosure controls and procedures within 90 days prior to the filing
date of this report. Based on their evaluation, they have concluded that our
disclosure controls and procedures provide reasonable assurance that information
required to be disclosed by us in reports we file or submit under the Securities
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.
There were no significant changes in our internal controls or in other factors
that could affect these controls subsequent to the evaluation described above.
11
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this report:
99.1 Certificate of the Chief Executive Officer of Quipp,
Inc. pursuant to Title 18, section 1350 of the United
States Code.
99.2 Certificate of the Principal Financial Officer of
Quipp, Inc. pursuant to Title 18, Section 1350 of the
United States Code.
(b) No reports on form 8-K were filled during the quarter for
which this report is filed.
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUIPP, INC.
Date: November 12, 2002
By: /s/ Michael S. Kady
-----------------------
Michael S. Kady
President and Chief Executive Officer
By: /s/ Eric Bello
------------------
Eric Bello Treasurer (Principal financial and
accounting officer)
13
CERTIFICATIONS
I, Michael S. Kady certify that:
1. I have reviewed this quarterly report on Form 10-Q of Quipp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Michael S. Kady
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Michael S. Kady
Chief Executive Officer
Date: November 12, 2002
14
I, Eric Bello certify that:
1. I have reviewed this quarterly report on Form 10-Q of Quipp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Eric Bello
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Eric Bello
Treasurer (principal financial officer)
Date: November 12, 2002
15