UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





|                                                              |                                                                             
|------------------------------------------------------------- | ----------------------------------------------------------------------------
|ü                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
|                                                              | ACT OF 1934                                                                 
|For the quarter ended June 30, 2007                          
|                                                             
|OR                                                           
|                                                              |                                                                             
|                                                              | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|                                                              | ACT OF 1934                                                                 
|For the transition period from _____________ to _____________





QUIPP, INC.

(Exact name of registrant as specified in its charter)





|                             |              |                    
|---------------------------- | ------------ | -------------------
|Florida                      | 0-14870      | 59-2306191         
|(State or Other Jurisdiction | (Commission  | (I.R.S. Employer   
|of Incorporation)            | File Number) | Identification No.)

4800 N.W. 157th Street, Miami, Florida 33014

(Address of Principal Executive Office) (Zip Code)

(305) 623-8700

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)



|                                                                                                                                                                                                                                              |   |                   |   |                       |   |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------- | - | --------------------- | - |  |  | 
|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.                                                                                                                                    | ü | Yes               |   | No                   
|                                                                                                                                                                                                                                             
|Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.                                                                                                                
|                                                                                                                                                                                                                                              |  
|Large accelerated filer                                                                                                                                                                                                                       |   | Accelerated filer |   | Non-accelerated filer | ü | 
|                                                                                                                                                                                                                                              |  
|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).                                                                                                                                       |   | Yes               | ü | No                   
|                                                                                                                                                                                                                                              |  
|The number of shares of the registrant's common stock, $.01 par value, outstanding at August 5, 2007 was 1,477,746.                                                                                                                          
|                                                                                                                                                                                                                                             







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QUIPP, INC.

INDEX



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Page                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|PART I - FINANCIAL INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Item 1.     Unaudited Condensed Consolidated Financial Statements
3
Unaudited Condensed Consolidated Balance Sheets
June 30, 2007 and December 31, 2006
3
Unaudited Condensed Consolidated Statements of Operations
Three and six months ended June 30, 2007 and 2006
4
Consolidated Statements of Shareholders' Equity
Six months ended June 30, 2007 and 2006
5
Unaudited Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2007
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
Item 2.     Managements Discussion and Analysis of Financial Condition and Results of Operations
11
Item 3.     Quantitative and Qualitative Disclosure about Market Risk
13
Item 4.     Controls and Procedures
13
PART II - OTHER INFORMATION
Item 1A.  Risk Factors
14
Item 6.     Exhibits
14
SIGNATURE
15









2



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PART 1 - FINANCIAL INFORMATION

Item 1.

Unaudited Condensed Consolidated Financial Statements



QUIPP, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                            |                |            |                    |   |            | 
|------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ---------- | ------------------ | - | ---------- | 
|                                                                                                                                            | June 30, 
2007 |            | December 31, 
2006 |  
|ASSETS                                                                                                                                      |                |            |                    |   |            | 
|Current assets:                                                                                                                             |                |            |                    |   |            | 
|Cash and cash equivalents                                                                                                                   | $              | 2,231,094  |                    | $ | 864,879    | 
|Restricted securities                                                                                                                       |                | 1,000,000  |                    |   | 1,000,000  | 
|Securities available for sale                                                                                                               |                | 1,300,000  |                    |   | 2,060,000  | 
|Accounts receivable, net of allowances of $87,700 
and $112,625 in 2007 and 2006                                                            |                | 2,273,148  |                    |   | 2,930,873  | 
|Inventories                                                                                                                                 |                | 5,566,529  |                    |   | 3,498,655  | 
|Prepaid expenses and other receivables                                                                                                      |                | 472,449    |                    |   | 648,235    | 
|Total current assets                                                                                                                        | $              | 12,843,220 |                    | $ | 11,002,642 | 
|                                                                                                                                            |                |            |                    |   |            | 
|Property, plant and equipment, net of 
accumulated depreciation of $3,066,127 
and $2,830,166 in 2007 and 2006                              |                | 1,961,935  |                    |   | 2,161,131  | 
|Intangible assets, net of accumulated 
amortization of $1,551,539 and 
$1,235,959 in 2007 and 2006                                          |                | 2,548,558  |                    |   | 2,864,140  | 
|Other assets                                                                                                                                |                | 30,367     |                    |   | 33,727     | 
|Total assets                                                                                                                                | $              | 17,384,080 |                    | $ | 16,061,640 | 
|                                                                                                                                            |                |            |                    |   |            | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                        |                |            |                    |   |            | 
|Current liabilities:                                                                                                                        |                |            |                    |   |            | 
|Current portion of long-term debt                                                                                                           | $              | 109,093    |                    | $ | 109,654    | 
|Accounts payable                                                                                                                            |                | 1,136,909  |                    |   | 927,642    | 
|Accrued salaries and wages                                                                                                                  |                | 542,569    |                    |   | 557,046    | 
|Deferred revenues                                                                                                                           |                | 6,660,813  |                    |   | 4,068,758  | 
|Other accrued liabilities                                                                                                                   |                | 1,077,034  |                    |   | 1,116,946  | 
|Total current liabilities                                                                                                                   | $              | 9,526,418  |                    | $ | 6,780,046  | 
|                                                                                                                                            |                |            |                    |   |            | 
|Long-term debt                                                                                                                              |                | 150,000    |                    |   | 155,012    | 
|Total liabilities                                                                                                                           | $              | 9,676,418  |                    | $ | 6,935,058  | 
|                                                                                                                                            |                |            |                    |   |            | 
|Shareholders' equity:                                                                                                                       |                |            |                    |   |            | 
|Common stock - par value $.01 per share, 
authorized  8,000,000 shares, issued 
and outstanding 1,477,746 in 2007 and   
1,458,189 in 2006) |                | 14,778     |                    |   | 14,582     | 
|Additional paid-in capital                                                                                                                  |                | 495,236    |                    |   | 321,708    | 
|Common stock subscribed (19,557 shares in 2006)                                                                                             |                |           |                    |   | 150,000    | 
|Retained earnings                                                                                                                           |                | 7,197,648  |                    |   | 8,640,292  | 
|                                                                                                                                            |                | 7,707,662  |                    |   | 9,126,582  | 
|Total liabilities and shareholders' equity                                                                                                  | $              | 17,384,080 |                    | $ | 16,061,640 | 



See accompanying notes to the unaudited condensed consolidated financial statements



3



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QUIPP INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|------------------------------------------------------------------------------------ | -------------------------- | ---------- | ------------------------ | --------- | ------------- | - | ------------- | ---------- | - | --------- | ---------- | -
|                                                                                     | For the three months ended |            | For the six months ended |          
|                                                                                     | June 30, 2007              |            | June 30, 2006            |           | June 30, 2007 |   | June 30, 2006 |           
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Net sales                                                                            | $                          | 4,612,796  |                          | $         | 8,625,455     |   | $             | 8,934,433  |   | $         | 13,885,913 |  
|Cost of sales                                                                        |                            | (3,542,280 | )                        |           | (5,956,763    | ) |               | (7,012,542 | ) |           | (9,877,659 | )
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Gross profit                                                                         |                            | 1,070,516  |                          |           | 2,668,692     |   |               | 1,921,891  |   |           | 4,008,254  |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Operating expenses:                                                                  |                            |            |                          |           |               |   |               |            |   |           |            |  
|Selling, general and administrative expenses                                         |                            | (1,701,297 | )                        |           | (2,042,873    | ) |               | (3,169,939 | ) |           | (3,714,773 | )
|Research and development                                                             |                            | (61,482    | )                        |           | (104,070      | ) |               | (154,500   | ) |           | (246,949   | )
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Operating (loss) profit                                                              |                            | (692,263   | )                        |           | 521,749       |   |               | (1,402,548 | ) |           | 46,532     |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Other income (expense):                                                              |                            |            |                          |           |               |   |               |            |   |           |            |  
|Miscellaneous income                                                                 |                            |           |                          |           |              |   |               | 10,000     |   |           | 20,000     |  
|Interest income                                                                      |                            | 51,119     |                          |           | 41,288        |   |               | 102,778    |   |           | 86,987     |  
|Interest expense                                                                     |                            | (5,361     | )                        |           | (8,316        | ) |               | (7,055     | ) |           | (16,734    | )
|                                                                                     |                            | 45,758     |                          |           | 32,972        |   |               | 105,723    |   |           | 90,253     |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|(Loss) income before income taxes                                                    |                            | (646,505   | )                        |           | 554,721       |   |               | (1,296,825 | ) |           | 136,785    |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Income tax expense                                                                   |                            |           |                          |           | (232,331      | ) |               |           |   |           | (63,067    | )
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Net (loss) income                                                                    | $                          | (646,505   | )                        | $         | 322,390       |   | $             | (1,296,825 | ) | $         | 73,718     |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Per share amounts:                                                                   |                            |            |                          |           |               |   |               |            |   |           |            |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Basic and diluted (loss) income per 
common share                                    | $                          | (0.44      | )                        | $         | 0.22          |   | $             | (0.88      | ) | $         | 0.05       |  
|                                                                                     |                            |            |                          |           |               |   |               |            |   |           |            |  
|Basic and diluted average number of common 
and common equivalent shares outstanding |                            |            |                          |           |               |   |               |            |   |           |            |  
|                                                                                     | 1,477,746                  |            |                          | 1,455,771 |               |   | 1,477,746     |            |   | 1,452,001 |           



See accompanying notes to the unaudited condensed consolidated financial statements.



4



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QUIPP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY



|                                                   |  |              |           |                            |   |                   |  |                         |         |                          |   |            |   |   |          |   |   |            |  
|-------------------------------------------------- |  | ------------ | --------- | -------------------------- | - | ----------------- |  | ----------------------- | ------- | ------------------------ | - | ---------- | - | - | -------- | - | - | ---------- | -
|                                                   |  | Common Stock |           | Additional
Paid-In
Capital |   | Retained
Earnings |  | Common
Stock
Subscribed |         | Total
Shareholder
Equity |  
|Shares                                             |  | Amount      
|                                                   |  |              |           |                            |   |                   |  |                         |         |                          |   |            |   |   |          |   |   |            |  
|Balance on December 31, 2006                       |  |              | 1,458,189 |                            | $ | 14,582            |  | $                       | 321,708 |                          | $ | 8,640,292  |   | $ | 150,000  |   | $ | 9,126,582  |  
|                                                   |  |              |           |                            |   |                   |  |                         |         |                          |   |            |   |   |          |   |   |            |  
|Stock-based compensation                           |  |              |           |                            |   |                   |  |                         | 23,724  |                          |   |            |   |   |          |   |   | 23,724     |  
|Dividend declared on common stock ($.10 per share) |  |              |           |                            |   |                   |  |                         |         |                          |   | (145,819   | ) |   |          |   |   | (145,819   | )
|Issuance of common stock                           |  |              | 19,557    |                            |   | 196               |  |                         | 149,804 |                          |   |            |   |   | (150,000 | ) |   |           |  
|Net loss                                           |  |              |           |                            |   |                   |  |                         |         |                          |   | (1,296,825 | ) |   |          |   |   | (1,296,825 | )
|                                                   |  |              |           |                            |   |                   |  |                         |         |                          |   |            |   |   |          |   |   |            |  
|Balance on June 30, 2007                           |  |              | 1,477,746 |                            | $ | 14,778            |  | $                       | 495,236 |                          | $ | 7,197,648  |   |   |         |   | $ | 7,707,662  |  





See accompanying notes to the unaudited condensed consolidated financial statements.





5



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QUIPP INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                            |                          |            |   |               |   |            |  
|--------------------------------------------------------------------------- | ------------------------ | ---------- | - | ------------- | - | ---------- | -
|                                                                            | For the six months ended |           
|                                                                            | June 30, 2007            |            |   | June 30, 2006 |  
|                                                                            |                          |            |   |               |   |            |  
|Cash (used in) provided by operations:                                      |                          |            |   |               |   |            |  
|Net (loss) income                                                           | $                        | (1,296,825 | ) |               | $ | 73,718     |  
|                                                                            |                          |            |   |               |   |            |  
|Reconciliation of net income to net cash 
provided by (used in) operations: |                          |            |   |               |   |            |  
|                                                                            |                          |            |   |               |   |           
|Depreciation and amortization                                               |                          | 235,962    |   |               |   | 127,000    |  
|Intangible amortization                                                     |                          | 315,582    |   |               |   | 261,218    |  
|Stock-based compensation                                                    |                          | 23,724     |   |               |   | 19,263     |  
|                                                                            |                          |            |   |               |   |            |  
|Changes in operational assets and liabilities:                              |                          |            |   |               |   |            |  
|Accounts receivable                                                         |                          | 657,725    |   |               |   | 259,848    |  
|Inventories                                                                 |                          | (2,067,874 | ) |               |   | (1,308,046 | )
|Prepaid and other assets                                                    |                          | 179,146    |   |               |   | 247,121    |  
|Accounts payable and  accrued liabilities                                   |                          | 154,878    |   |               |   | 48,417     |  
|Deferred revenues                                                           |                          | 2,592,055  |   |               |   | (1,088,036 | )
|Net cash provided by (used in) operations                                   |                          | 794,373    |   |               |   | (1,359,497 | )
|                                                                            |                          |            |   |               |   |            |  
|Cash flow from investing activities:                                        |                          |            |   |               |   |            |  
|Securities purchased                                                        |                          | (1,300,000 | ) |               |   | (2,771,344 | )
|Securities sold or matured                                                  |                          | 2,060,000  |   |               |   | 2,507,534  |  
|Capital expenditures                                                        |                          | (36,766    | ) |               |   | (355,983   | )
|Net cash provided by (used in) investing activities                         |                          | 723,234    |   |               |   | (619,793   | )
|                                                                            |                          |            |   |               |   |            |  
|Cash flow from financing activities:                                        |                          |            |   |               |   |            |  
|Repayment of debt                                                           |                          | (5,573     | ) |               |   | (3,588     | )
|Dividends paid to shareholders                                              |                          | (145,819   | ) |               |   | (146,069   | )
|Net cash used in financing activities                                       |                          | (151,392   | ) |               |   | (149,657   | )
|                                                                            |                          |            |   |               |   |            |  
|Increase (decrease) in cash and cash equivalents                            |                          | 1,366,215  |   |               |   | (2,128,947 | )
|                                                                            |                          |            |   |               |   |            |  
|Cash and cash equivalents at beginning of year                              |                          | 864,879    |   |               |   | 2,829,246  |  
|                                                                            |                          |            |   |               |   |            |  
|Cash and cash equivalents at end of quarter                                 | $                        | 2,231,094  |   |               | $ | 700,299    |  





See accompanying notes to the unaudited condensed consolidated financial statements.





6



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QUIPP, INC. AND SUBSIDIARY

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 subsidiary, Quipp Systems, Inc. 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, 2006 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. and subsidiary as of June 30, 2007 and the results of its operations and cash flows for the three and six months ended June 30, 2007 and 2006. The results of operations for the six months ended June 30, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007. 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 in the United States of America for complete financial statements. The unaudited condensed consolidated balance sheet at December 31, 2006 was derived from audited financial statements, but, as permitted by Regulation S-X, is not accompanied by all disclosures required by generally accepted accounting principles.



NOTE 2 - INVENTORIES

Inventories at June 30, 2007 and December 31, 2006 include material, labor and factory overhead and are stated at the lower of cost or market. Inventory also includes equipment shipped to customers but not yet recognized as a sale because either risk of loss has not transferred to the customer or the equipment requires complex installation services. The Company will recognize the sale and corresponding cost of sales when risk of loss has transferred to the customer or 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 June 30, 2007 and December 31, 2006 is as follows:



|                        |               |           |  |                   |   |           | 
|----------------------- | ------------- | --------- |  | ----------------- | - | --------- | 
|                        | June 30, 2007 |           |  | December 31, 2006 |  
|Raw materials           | $             | 2,644,029 |  |                   | $ | 2,476,687 | 
|Work in process         |               | 1,913,654 |  |                   |   | 270,220   | 
|Finished goods          |               | 182,811   |  |                   |   | 56,360    | 
|Subtotal                |               | 4,740,494 |  |                   |   | 2,803,267 | 
|Shipped, not recognized |               | 826,035   |  |                   |   | 695,388   | 
|                        | $             | 5,566,529 |  |                   | $ | 3,498,655 | 



NOTE 3  REVENUE RECOGNITION

Revenue is recognized when all significant contractual obligations have been satisfied and collection of the resulting accounts receivable is reasonably assured. Revenue from the sale of standard stand-alone equipment without installation service is recognized upon delivery according to contractual terms and is recorded net of discounts. Revenue from multiple-element arrangements such as the sale of standard equipment and basic installation services is recognized in accordance with EITF 00-21, Revenue Arrangements with Multiple Deliverables. Revenue from the standard equipment is recognized upon delivery according to contractual terms and is recorded net of discounts. The fair value of the revenue related to the installation service is deferred until installation services are provided. Fair value is determined by the price charged to other customers when services are sold separately and is supported by competitive market data. Revenue from long-term complex equipment or installation arrangements is recognized using the unit of delivery method under SOP 81-1 in accordance with contractual terms and is recorded net of discounts. Cost and profitability estimates are revised periodically based on changes in circumstances. Estimated losses, if any, on such contracts are recognized immediately.



7



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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 periods 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 and six months ended June 30, 2007, the Company had 225 and 113 common stock equivalents not included in earnings per share because the affect is antidilutive.



NOTE 5  STOCK-BASED COMPENSATION

The Quipp, Inc. Equity Compensation Plan (Equity Compensation Plan) provides for grants of stock options and stock-based awards to employees, directors, consultants and advisors of the Company. Stock options issued in connection with the Equity Compensation Plan are granted with an exercise price per share equal to the fair market value of a share of Company common stock at the date of grant. All stock options have five to ten-year maximum terms and vest, either immediately, or within four years of grant date. The total number of shares of common stock that can be granted under the Equity Compensation Plan is 600,000. At June 30, 2007, there were 135,389 shares available for grant under the Equity Compensation Plan.



As of January 1, 2006, the Company adopted Statement of Accounting Standards (SFAS) No. 123R, Share Based Payments using the modified prospective transition method. Under the SFAS 123R modified prospective transition method, the Company is required to expense the grant date fair value of stock options and other stock compensation over the requisite service period for stock awards granted after January 1, 2007, awards that are modified, repurchased or canceled after January 1, 2007 and the portion of awards issued from December 15, 1994 to December 31, 2007 that have not yet vested. Financial statements for prior periods are not restated. The primary impact of the adoption of SFAS 123R was on the financial statement disclosures and certain calculations involving forfeitures. The Company previously recorded compensation expense for stock awards under SFAS 123. Since the Company estimated forfeitures on stock option grants issued in previous periods, the Company did not recognize a cumulative effect of a change in accounting principle upon the adoption of SFAS 123R.



The Company recognized stock-based compensation totaling $23,724 and $19,263 for the six months ended June 30, 2007 and 2006, respectively.  Components of stock-based compensation expense follow:



|                                                                                                |                          |        |      |   |        | 
|----------------------------------------------------------------------------------------------- | ------------------------ | ------ | ---- | - | ------ | 
|                                                                                                | Six months ended
June 30 |       
|                                                                                                | 2007                     |        | 2006 |  
|Stock Options                                                                                   |                          | 3,942  |      | $ | 3,963  | 
|Restricted Stock Awards                                                                         |                          | 19,782 |      |   | 15,300 | 
|Total stock based compensation costs 
included in selling, general and 
administrative expenses |                          | 23,724 |      |   | 19,263 | 



During the six month period ended June 30, 2007, no stock options were granted or exercised. The following stock option activity occurred during the six months ending June 30, 2007:



|                                           |        |        |                                 |  |                                                     |       |                           |  |      |  |  |   | 
|------------------------------------------ | ------ | ------ | ------------------------------- |  | --------------------------------------------------- | ----- | ------------------------- |  | ---- |  |  | - | 
|                                           | Shares |        | Weighted
Average
Exercise
Price |  | Weighted
Average
Remaining
Contractual
Term (years) |       | Aggregate
Intrinsic
Value | 
|                                           |        |        |                                 |  |                                                     |       |                           |  |      |  |  |  
|Options outstanding at December 31, 2006   |        | 56,000 |                                 |  | $                                                   | 13.16 |                           |  | 5.50 |  |  |  | 
|Forfeited or expired                       |        | (6,000 | )                               |  |                                                     | 14.60 |                           |  |     |  |  |  | 
|Options outstanding at June 30, 2007       |        | 50,000 |                                 |  | $                                                   | 12.98 |                           |  | 5.50 |  |  |  | 
|                                           |        |        |                                 |  |                                                     |       |                           |  |      |  |  |   | 
|Stock options exercisable at June 30, 2007 |        | 47,500 |                                 |  | $                                                   | 12.95 |                           |  | 5.60 |  |  |  | 





8



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As of June 30, 2007, approximately $5,035 of unrecognized compensation costs related to non-vested stock options is expected to be recognized over a weighted average period of approximately 1 year.



The following table summarizes restricted stock award activity for the six months ended June 30, 2007:



|                                                |  |                   |  |                                       
|----------------------------------------------- |  | ----------------- |  | --------------------------------------
|                                                |  | Restricted
Shares |  | Weighted
Average
Grant Date
Fair Price
|Non-vested stock awards as of December 31, 2006 |  | 10,000            |  | $11.84                                
|Granted                                         |  |                  |  |                                      
|Vested                                          |  |                  |  |                                      
|Forfeited                                       |  |                  |  |                                      
|Non-vested stock awards as of June 30, 2007     |  | 10,000            |  | $11.84                                



As of June 30, 2007, approximately $46,868 of unrecognized compensation costs related to non-vested restricted stock awards is expected to be recognized over a weighted average period of approximately 1 year.



NOTE 6  INCOME TAXES

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Recent trends in the newspaper publishing industry, including reduced advertising revenue growth and consolidation of newspaper publishers make it difficult for management to forecast future income with a high degree of certainty. As a result, management has concluded that it is necessary to provide a full valuation allowance against the Companys deferred tax assets. The Company will maintain the valuation allowance until an appropriate level of profitability is sustained, or there are tax planning strategies that would enable the Company to determine that additional deferred tax benefits will be realized.



The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48) on January 1, 2007. Previously, the Company provided for tax contingencies in accordance with Statement of Accounting Standards No. 5, Accounting for Contingencies.



The liability for uncertain tax positions as of December 31, 2006 was approximately $83,000. The Company had no change to its liability for uncertain tax positions as a result of adopting FIN 48 on January 1, 2007. During the six months ended June 30, 2007, the Company had no significant changes in its liability for uncertain tax positions.



The Company also accrues both penalties and interest related to the liability for uncertain tax positions. These amounts are charged to income tax expense. As of December 31, 2006, the Company had accrued approximately $75,000 for the payment of interest and penalties. During the six months ended June 30, 2007, the Company did not recognize any material changes to interest and penalties charges related to unrecognized tax benefits.



The liability for uncertain tax positions and related penalties and interest is included in other accrued liabilities.



The Company is subject to income taxes in the U.S. federal and various state jurisdictions, and is subject to ongoing examinations by certain tax authorities in these jurisdictions. Tax regulations within each jurisdiction are subject to interpretation of the related tax laws and regulations and require significant judgment to apply. Company management believes it is no longer subject to U.S. federal income tax examinations by tax authorities for the years before 2002. Also, in state and local jurisdictions in which the Company files income tax returns, Company management believes it is no longer subject to tax examinations by tax authorities for the years before 2002.



NOTE 7 - CHANGE IN ACCOUNTING ESTIMATE

During the second quarter of 2007, the Company determined that it was necessary to accelerate the amortization for the Newstec non-competition intangible asset reducing the life from seven to five years. This change in accounting estimate results in increased intangible amortization expense amounting to approximately $18,000 each month from April 2007 through August 2010.



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NOTE 8 - RECENT PRONOUNCEMENTS

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 159 ( SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 provides companies with an option to report selected financial assets and financial liabilities at fair value, which can be elected on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is evaluating the impact of this standard on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurement (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures related to the use of fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurement. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of FAS No. 157 on its consolidated financial statements.



NOTE 9 - RECENT EVENTS

On July 18, 2007, our Board of Directors approved a dividend of $0.05 per share payable on September 4, 2007 to shareholders of record on August 1, 2007.



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Item 2

Managements Discussion and Analysis of Financial Condition and Results of Operations



Results of Operations: The following table presents statements of operations expressed as a percentage of net sales for the periods indicated:



|                                             |                             |  |                           |  |             |  |            
|-------------------------------------------- | --------------------------- |  | ------------------------- |  | ----------- |  | -----------
|                                             | Three Months Ended
June 30, |  | Six Months Ended
June 30,
|                                             | 2007                        |  | 2006                      |  | 2007        |  | 2006       
|                                             | (Unaudited)                 |  | (Unaudited)               |  | (Unaudited) |  | (Unaudited)
|                                             |                             |  |                           |  |             |  |            
|Net sales                                    | 100.0%                      |  | 100.0%                    |  | 100.0%      |  | 100.0%     
|Gross profit                                 | 23.2%                       |  | 30.9%                     |  | 21.5%       |  | 28.9%      
|Selling, general and administrative expenses | 36.9%                       |  | 23.7%                     |  | 35.5%       |  | 26.8%      
|Research and development                     | 1.3%                        |  | 1.2%                      |  | 1.7%        |  | 1.8%       
|Other income, net                            | 1.0%                        |  | 0.4%                      |  | 1.2%        |  | 0.6%       
|Net loss                                     | (14.0)%                     |  | 3.7%                      |  | (14.5)%     |  | 0.5%       



THREE MONTHS ENDED JUNE 30, 2007



Net sales for the three months ended June 30, 2007 were $4,612,796, a decrease of $4,012,659 (46.5%) compared to net sales of $8,625,455 for the corresponding period in 2006. Published reports indicate that U.S. newspaper publishers and media groups continue to experience lower profits in their newspaper divisions due to declining circulation and reduced print advertising revenue. We believe these developments have caused inconsistent capital spending on post-press newspaper manufacturing equipment, which had an adverse affect on our net sales in the second quarter of 2007. In contrast, our net sales in the second quarter of 2006 benefited from the recognition of several large orders that were received at the end of 2005.



Gross profit for the three months ended June 30, 2007 was $1,070,516, a decrease of $1,598,176 (59.9%) as compared to $2,668,692 for the corresponding period in 2006. Gross profit as a percentage of sales for the second quarter of 2007 declined to 23.2% compared to 30.9% for the same period in 2006. The decreased profit margin percentage is mostly due to the allocation of fixed manufacturing overhead costs over a lower level of production and shipment volumes.  In addition, we have experienced increased raw material, transportation, insurance and electricity costs, as well as pricing pressure from our customers as we compete for available orders that we believe are at reduced levels due to lower capital spending on post-press equipment.



Selling, general and administrative expenses for the three months ended June 30, 2007 were $1,701,297, a decrease of $341,576 (16.7%) as compared to $2,042,873 for the corresponding period in 2006. Most of the decrease is due to reduced costs associated with our participation in the annual NEXPO exhibition sponsored by The Newspaper Association of America, decreased personnel costs and lower variable selling costs resulting from decreased sales, offset in part by higher intangible amortization costs related to a change in an accounting estimate which accelerated the amortization of certain intangible assets (see Note 7 to the Unaudited Condensed Consolidated Financial statements included in this report).



Research and development expenses for the three months ended June 30, 2007 were $61,482, a decrease of $42,588 (40.9%) as compared to $104,070 for the same period in 2006. During the three months ended June 30, 2007, we continued to devote most of our development resources on enhancements to our Quipp-Newstec inserter product line.



Other income and Expense (Net) for the three months ended June 30, 2007 were $45,758, compared to $32,972 for the corresponding period in 2006.  The increase was primarily due to higher interest income principally reflecting higher cash, cash equivalents and securities available for sale, as well as increased interest rates.









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SIX MONTHS ENDED JUNE 30, 2007



Net sales for the six months ended June 30, 2007 were $8,934,433, a decrease of $4,951,480 (35.7%) compared to net sales of $13,885,913 for the corresponding period in 2006.  Published reports indicate that U.S. newspaper publishers and media groups continue to experience lower profits in their newspaper divisions due to declining circulation and reduced print advertising revenue. We believe these developments have caused inconsistent capital spending on post-press newspaper equipment, which has had an adverse affect on our net sales in the for the first six months of 2007. In contrast, our net sales for the same period of 2006 benefited from the recognition of several large orders that were received at the end of 2005.



Gross profit for the six months ended June 30, 2007 was $1,921,891, a decrease of $2,086,363 (52.1%) as compared to $4,008,254 for the corresponding period in 2006. Gross profit as a percentage of sales for the first six months of 2007 declined to 21.5% compared to 28.9% for the same period in 2006. The decreased profit margin percentage is mostly due to the allocation of fixed manufacturing overhead costs over a lower level of production and shipment volumes.  In addition, we have experienced increased raw material, transportation, insurance and electricity costs, as well as pricing pressure from our customers as we compete for available orders that we believe are at reduced levels due to lower capital spending on post-press equipment.



Selling, general and administrative expenses for the six months ended June 30, 2007 were $3,169,939 a decrease of $544,834 (14.7%) as compared to $3,714,773 for the corresponding period in 2006. Most of the decrease is due to reduced costs associated with our participation in the annual NEXPO exhibition sponsored by The Newspaper Association of America and cost reductions resulting from the closing of the Newstec manufacturing facilities in Massachusetts and the relocation of Newstec operations to our Florida facility during the first quarter of 2006. We also incurred lower variable selling costs resulting from decreased sales.



Research and development expenses for the six months ended June 30, 2007 were $154,500, a decrease of $92,449 (37.4%) as compared to $246,949 for the same period in 2006. During the six months ended June 30, 2007, we focused most of research and development resources on enhancements to our Quipp-Newstec inserter product line.



Other income and Expense (Net) for the six months ended June 30, 2007 were $105,723 as compared to $90,253 for the corresponding period in 2006. Interest income increased by $15,791 due to higher cash, cash equivalents, and securities available for sale and increased interest rates. Interest expense was lower for the three months primarily due to lower balance of debt and amortization of loan costs. Royalty income relating to our patented automatic cart loading system technology used by another supplier of post-press material handling equipment was $10,000 during the first six months of 2007 compared to $20,000 for the same period in 2006.



GENERAL

Our backlog as of June 30, 2007 was $11,136,000 compared to $8,909,000 at December 31, 2006 and $8,840,000 at June 30, 2006. We expect to ship all items in our backlog during the next 15 months. Orders for the six months ended June 30, 2007 were $10,922,000 compared to orders of $8,958,000 during the same period in 2006.



LIQUIDITY

On June 30, 2007, cash and cash equivalents and securities available for sale totaled $4,531,094 as compared to $3,924,879 at December 31, 2006, an increase of $606,215. Our cash flow from operations was $794,373 despite our net loss during the period. This increase in cash flow from operations principally reflects a $2,592,055 increase in deferred revenue resulting from customer deposits for new orders. This increase was offset principally by a $2,067,874 increase in inventory. The largest component of the inventory increase ($1,643,434) was attributable to our work in process inventory, as we purchased materials and incurred labor and overhead costs to address orders in our backlog. Working capital on June 30, 2007 was $3,316,802, a decrease of $905,794 from $4,222,596 at December 31, 2006.



Our line of credit agreement was renewed in April 2007. We currently are not in compliance with the debt service coverage ratio of our line in our line of credit agreement. While we are working with the lender to waive or modify the covenant, there is no guarantee we will be successful.



The Company believes that its cash, cash equivalents and securities available for sale together with cash generated from operations will be sufficient to fund operations at the current level.



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Forward Looking Statements

This quarterly report on Form 10-Q contains forward looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements relating to shipment of backlog orders and adequacy of available resources. 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 and engineering and production difficulties.



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 prices and market rates 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 rates 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. To ensure safety and liquidity, we only invest in instruments with credit quality and which are traded in a secondary market. The counterparties are major financial institutions and government agencies.



Item 4

Controls and Procedures



(a)

Evaluation of Disclosure Controls and Procedures



Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Office and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective to provide reasonable assurance that the information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



(b)

Change in Internal Control over Financial Reporting



No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.







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PART II - OTHER INFORMATION



Item 1A

Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.



Item 6

Exhibits



The following exhibits are filed with this report:



3.1

Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).



3.2

Bylaws, as amended (incorporated by reference to Exhibit 99.1 to Registrants Current Report on Form 8-K filed on March 5, 2007).



31.1

Certificate of the Chief Executive Officer of the Registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934.



31.2

Certificate of the Chief Financial Officer of the Registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934.



32.1

Certificate of the Chief Executive Officer of the Registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934.



32.2

Certificate of the Chief Financial Officer of the Registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934.





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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.



Date: August 10, 2007



| |             |                                                    
| | ----------- | ---------------------------------------------------
| | QUIPP, INC.
| |             |                                                    
| |             |                                                    
| | By:         | /s/ MICHAELS. KADY                                 
| |             | Michael S. Kady                                    
| |             | President and Chief Executive Officer              
| |             |                                                    
| |             |                                                    
| | By:         | /s/ ERICBELLO                                      
| |             | Eric Bello, Treasurer and Chief Financial Officer )





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