John Bradley

Q.E.P. Company: Flooring the Future

P.S. Hopefully we both do well in our investments. We can disagree on this one, so I still wish you good luck. On this one, time will tell.

Q.E.P. Company: Flooring the Future

I appreciate the discussion. Again, my "sweeping assumptions" are not based on just reading the cash flow statement in isolation. Please review the quarterly and annual reports, not just the "cover sheets". You asked my WHY the AR and inventory will correct, and I already eluded to why in my prior response. This is from the latest 10-Q: "the Company used net cash of $13.0 million associated with the increase in receivables, inventory, trade payables and other accrued liabilities principally related to the initial rollout of the national specialty tile tools program, and for the upfront consideration paid related to that program." Also, "During the first six months of fiscal 2009 the Company borrowed an additional $10.2 million on its lines of credit primarily to finance the working capital requirements associated with the rollout of the national specialty tile tools program."

Like I had said, they are rolling out a new program. Most companies have to put money up to rollout new products. This is not an increase related to normal operating problems. Like you said "Where there's smoke there's fire unless you've read the fillings...". Well, I read the fillings and you admit you didn't.

Q.E.P. Company: Flooring the Future

If you only looked at one quarter in isolation, your concern would be my concern too. They certainly had a dramatic increase in AR and inventory. Based on my review, this appears primarily due to a new tool roll-out. You would have to believe Home Depot & Lowes couldn't pay their bills before thinking the AR wouldn't reverse.

You said "this one could be dead in a matter of months." They did clearly state in the 10-Q that they have sufficient working capital for the next 12 months. This does not mean they don't after 12 months, but is a standard comment to divulge if they were in an immediate danger of not being able to pay the bills.

I think your conclusion based on minimal analysis is partly why this buying opportunity has presented itself. I agree with you that on the face of it, the cash appears to be a problem. That is a very keen observation, but I have looked into the situation enough that, in my opinion, it will not be an issue.


On Nov 09 01:01 PM stealthmouse wrote:

> As of 8/31/08, they only had $990,000 of cash and were burning through
> much more than that in quarterly cash flow. It's pretty easy to
> see from that why it's trading at such a low level and for such low
> multiples. Without either turning cash flow positive or procuring
> additional debt or equity, this one could be dead in a matter of
> months.