-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UZCZHKrnbow9ewMc1TnuDtQHFLAJu6ZfKIZKr09H6Y4OdIrJSnh9CGdcQRVOOLyC c9zJwVV6oVLBcCAgOoxbfQ== 0001015402-02-000800.txt : 20020415 0001015402-02-000800.hdr.sgml : 20020415 ACCESSION NUMBER: 0001015402-02-000800 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOT PRODUCTS INC COM CENTRAL INDEX KEY: 0001000079 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 860737579 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27382 FILM NUMBER: 02574190 BUSINESS ADDRESS: STREET 1: 7625 EAST REDFIELD ROAD, SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 4803689490 MAIL ADDRESS: STREET 1: 7625 EAST REDFIELD ROAD, SUITE 200 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 FORMER COMPANY: FORMER CONFORMED NAME: SC&T INTERNATIONAL INC DATE OF NAME CHANGE: 19950918 10QSB 1 doc1.txt US SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2002 Commission File Number: 0-27382. HOT PRODUCTS, INC.COM ------------------------------------------------------- (Exact name of small business as specified in its charter) ARIZONA 86-0737579 ------- ---------- (State or other jurisdiction of (IRS Employer Identification) incorporation or organization) 7625 E. REDFIELD RD., SCOTTSDALE, ARIZONA 85260 ----------------------------------------------- (Address of principal executive offices) (480) 368-9490 -------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity as of March 11, 2002 latest practicable date: 10,215,623 shares of Common Stock, par value $0.01 per share. Transitional Small Business Disclosure Format (Check one): Yes No X --- --- HOT PRODUCTS, INC.COM ----------------------- AND SUBSIDIARY --------------- Page PART I FINANCIAL INFORMATION Item 1 Financial Information Consolidated Balance Sheet as of January 31, 2002 3 Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2002 and January 31, 2001 4 Consolidated Statements of Cash Flows for the Nine Months Ended January 31, 2002 and January 31, 2001 5 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis 8 PART II OTHER INFORMATION Item 1 Litigation 13 Item 2 Change in Securities 13 Item 3 Defaults Upon Senior Securities 13 Item 4 Submission of Matters to a Vote of Security-Holders 13 Item 5 Other Information 13 Item 6 Exhibits & Reports on Form 8-K 13 2
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOT PRODUCTS, INC.COM CONSOLIDATED BALANCE SHEET (Unaudited) JANUARY 31, 2002 ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 793 Accounts receivable (net of $22,145 allowance) 3,668 Inventories 403,230 Prepaid expenses 36,561 ------------- Total current assets 444,252 PROPERTY AND EQUIPMENT, net 23,368 OTHER ASSETS 30,609 ------------- TOTAL ASSETS $ 498,229 ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 466,961 Accrued liabilities 459,841 Notes Payable 86,960 ------------- Total current liabilities 1,013,762 Contingent Liabilities and Disputed Payables 215,199 ------------- TOTAL LIABILITIES 1,228,961 ------------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value, 33,332,747 shares authorized, 10,215,623 issued and outstanding 102,156 Paid in capital 17,796,238 Accumulated deficit (18,629,127) ------------- TOTAL STOCKHOLDERS' EQUITY (730,732) ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 498,229 ============= The accompanying notes are an integral part of these financial statements
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HOT PRODUCTS, INC.COM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED JANUARY 31, JANUARY 31, 2002 2001 2002 2001 ------------ ----------- ------------ ----------- NET SALES and ROYALTY REVENUES $ 159,317 $ 154,504 $ 446,591 $ 665,901 COST OF SALES 10,311 73,304 96,426 209,094 ------------ ----------- ------------ ----------- Gross profit 149,006 81,200 350,165 456,807 ------------ ----------- ------------ ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Salaries and benefits expense 79,283 106,357 263,384 348,131 Selling and promotion expense 1,150 60,991 10,264 108,763 Office and administrative 60,832 136,921 217,173 472,122 Research and development expense 60,878 912 98,934 ------------ ----------- ------------ ----------- Total selling, general and administrative expenses 141,264 365,147 491,733 1,027,950 ------------ ----------- ------------ ----------- INCOME/(LOSS) FROM OPERATIONS 7,742 (283,947) (141,568) (571,143) ------------ ----------- ------------ ----------- OTHER (INCOME) AND EXPENSES Gain on Disposal of Subsidiary (137,690) Loss on Proposed Merger 46,805 46,805 Gain on Settlement of Lawsuit (300,000) Interest Expense and Factoring Charges 268 11,584 12,788 18,175 Other income (51,797) (39) (142,679) (28,008) ------------ ----------- ------------ ----------- Total other (income)/expense (4,724) 11,545 (520,776) (9,833) ------------ ----------- ------------ ----------- Net Income/(Loss) Before Extraordinary Item 12,466 (295,492) 379,209 (561,310) ------------ ----------- ------------ ----------- Extraordinary Item-Debt Forgiveness 798,148 ------------ ----------- ------------ ----------- Net Income(Loss) $ 12,466 ($295,492) $ 1,177,357 ($561,310) ============ =========== ============ =========== Earnings(Loss) per share - Basic Before Extraordinary Item * ($0.04) $ 0.04 ($0.10) Extraordinary Item $ 0.08 ------------ ----------- ------------ ----------- Total * ($0.04) $ 0.12 ($0.10) ============ =========== ============ =========== Earnings per share - Diluted Before Extraordinary Item * $ 0.04 Extraordinary item $ 0.08 ------------ ----------- ------------ ----------- Total * $ 0.12 ============ =========== ============ =========== Weighted average shares outstanding - Basic 10,215,623 6,856,535 10,144,662 6,027,873 ============ =========== ============ =========== Weighted average shares - Diluted 10,215,623 6,856,535 10,144,662 6,027,873 ============ =========== ============ =========== * Less than $0.01 The accompanying notes are an integral part of these financial statements
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HOT PRODUCTS, INC.COM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) NINE MONTHS ENDED JANUARY 31, 2002 2001 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income/(Loss) $1,177,357 ($561,310) Adjustments to reconcile net income/(loss) to net cash provided by operating activities: Depreciation and amortization 15,368 107,870 Extraordinary Item (798,148) Noncash expenses 46,875 Noncash gain on disposal of subsidiary (137,850) Changes in assets and liabilities: Accounts receivable 36,328 (71,127) Inventories 63,594 (356,932) Prepaid expenses and other current assets (30,867) (15,135) Other assets (21,405) (36,090) Accounts payable & disputed loabilities (455,113) 324,217 Accrued liabilities and Customer Deposits 185,521 (28,898) ----------- ----------- Net cash (used in) provided by operating activities 34,785 (590,530) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (16,848) ----------- ----------- Net cash (used in) provided by investing activities 0 (16,848) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Notes Payable 55,787 604,985 Repayment on Notes Payable (85,044) Payment of capital lease obligations (6,836) (10,343) ----------- ----------- Net cash (used in) provided by financing activities (36,093) 594,642 ----------- ----------- INCREASE (DECREASE) IN CASH AND EQUIVALENTS (1,308) (12,736) CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,101 14,751 ----------- ----------- CASH AND EQUIVALENTS, END OF PERIOD $ 793 $ 2,015 =========== =========== NONCASH OPERATING ACTIVITIES: Issuance of common stock to reduce contingent liability $ 59,500 =========== The accompanying notes are an integral part of these financial statements
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS I. INTERIM REPORTING The accompanying unaudited Consolidated Financial Statements for Hot Products inc.com have been prepared in accordance with the generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the periods presented have been made. The results of operations for the nine month period ended January 31,2002 is not necessarily indicative of the operating results that may be expected for the entire fiscal year ending April 30, 2002. Common Stock - ------------- Our shares of common stock are traded under the symbol HPIC on the Nasdaq bulletin board market. We have completed and filed its 10K report for the year ended April 30, 2002 II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Loss on Proposed Merger- These costs reflect legal and other professional costs - ----------------------- directly charged to the Company as a result of the proposed merger with IGP, Inc. The Company experienced significant down time which resulted in lost sales and opportunities as a result of the significant time Senior Management spent on the proposed merger. Consolidation - The consolidated financial statements include the accounts and - ------------- activities of Hot Products, Inc.com and its wholly owned subsidiary, SC&T Asia, Limited (Hong Kong). All significant inter-company transactions and balances have been eliminated in consolidation. SC &T Europe was dissolved in July 2001. The resulting gain on this dissolution is reported in these financial statements. Cash and Cash Equivalents includes all short-term highly liquid investments that - ------------------------- are readily convertible to known amounts of cash and have original maturities of three months or less. Inventories are stated at the lower of cost (first-in, first-out) or market. - ----------- Property and Equipment are recorded at cost and depreciated on a straight-line - ---------------------- basis over the estimated useful lives of the assets ranging from 3 to 10 years. Depreciation expense is not recorded for tooling acquired and not yet been placed in service. Revenue Recognition - We recognize revenue when the product is shipped, and or - ------------------- paid for by the customer. We provide an allowance to reflect estimated uncollectible accounts receivable from customers. We receive royalty revenues on a regular quarterly basis and recognize this revenue when received. The revenue for the period ended January 31, 2002 includes a nonrefundable royalty payment received of $99,450. Under this royalty agreement the customer has the right to sell up to 52,000 units of the product under license for a two year period. There is no further obligation of the Company and the entire royalty payment was recognized as revenue in the three months ended January 31, 2001. Research and Development - The costs for new product development are expensed as - ------------------------ incurred. 6 Related Party Transactions - Notes payable in the amount of $36,960 is - -------------------------- recorded from a related party of the Company. Use of Estimates- The preparation of financial statements in conformity with - ------------------ generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Earnings Per Share - Earnings per share is calculated using the weighted average - ------------------ number of shares of common stock outstanding during the year. The Company has adopted SFAS No. 128 Earnings Per Share.
Net Income Shares Per Share ---------------------- --------------------- -------------- 2002 2001 2002 2001 2002 2001 ---------- ---------- ---------- --------- ----- ------- Net Income $1,177,357 ($561,310) 10,144,662 6,027,873 $0.12 ($0.10) BASIC EARNINGS PER SHARE: Income available to Common Shareholders $1,177,357 ($561,310) 10,144,662 6,027,873 $0.12 ($0.10) EFFECT OF DILUTED SECURITIES N/A N/A N/A N/A N/A N/A DILUTED EARNINGS PER SHARE $1,177,357 N/A 10,144,662 6,027,873 $0.12 ($0.10)
Common equivalent shares of 2,688,918 and 2,747,251 related to stock options and warrants outstanding at January 31, 2002 and 2001 respectively are excluded from the computation because the effect of inclusion would be anti-dilutive. Segment and Geographic Information - The Company's revenue was generated from - ------------------------------------- one primary geographic region, The United States. There were no material operations in the Company's Asian subsidiary. At January 31, 2002, the Company considers its products to fall within two segments, Peripheral Products and Emergency-Survival products. The following table outlines the breakdown of sales to unaffiliated customers. Net Revenues - ------------ 2002 2001 ---------- ------------ Emergency-Survival $ 196,377 $ 87,334 Peripheral Products $ 250,574 $ 578,567 $ 446,951 $ 665,901 ========== ============ Net Income/(Loss) - ----------------- Emergency-Survival $ 100,639 $ 62,142 Peripheral Products $ 225,005 $ 394,665 Other $ 851,713 $(1,018,117) ---------- ------------ $1,177,357 $ ( 561,310) ========== ============ The measurement of net income by segment is reconciled to the total net income resulting primarily from general and administrative expenses and other income that cannot be allocated directly to either segment. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The statements contained in this report on form 10-QSB that are not purely historical are forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934, including statements regarding our "expectations", "anticipation", "intentions," "beliefs", or "strategies", regarding the future. Forward-looking statements include statements regarding revenue, margins, expenses and earnings analysis for the remainder of the fiscal year 2002 and thereafter; future products or product development strategy; and liquidity and anticipated cash needs and availability. All forward-looking statements included in this document are based on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statement. It is important to note our actual results could differ materially from those in such forward-looking statements. OVERVIEW Hot Products, Inc., (HPIC) specializes in designing dynamic new products that serve real life applications. We accomplish this through innovative, high quality offerings with value added features and benefits for today's consumers. Our primary market focus addresses the Road Emergency, RV, Automotive Survival, Power Sports and Outdoor Survival categories with an expanding line of products that currently consists of some 30 plus offerings. A major part of our business focuses on the Private Label arena, where we create specific products for major corporations that either bear that companies name or brand logo. These products are typically merchandised through that company's national dealer infrastructure. There is no doubt that since the events of last September that the entire country has focused a much higher awareness on the need to be Better Prepared for the unforeseen emergency and survival situations we all encounter. We are proud of the company we keep, which includes the likes of, Plow & Hearth, Jiffy Lube International Inc., Polaris Industries Inc., Lexus Corp., Harley-Davidson, International Auto Sport, etc. We believe that the current industry categories targeted by the Company offer increased marketing opportunities that promise higher growth potential, greater profit capabilities and carry less competitive risk, as the size and scope of these market categories offer significant long term growth potential. Over the past year we have continued to reduce operational costs and expenses wherever possible. Operational improvements have increased productivity and allowed a significant reduction in operating expenses. Our new products and marketing direction have resulted in improved gross margins. Our management believes the past year's results are a clear indicator to shareholders and investors that our operational efficiencies combined with new marketing ideas are leading us on the path towards profitability. Management feels strongly that we will continue to improve our performance as our products gain greater industry awareness and market share, while our gross margins improve through product cost reductions and improved terms with our vendors. Our new line of products is being well received in the marketplace and we continue to explore new revenue channels, such as the Private Label arena, where we continue to gain strength through custom design programs with major Fortune 500 companies. 8 Our NUON products group has gone through difficult times as a result of the financial difficulties experienced by VM Labs Inc., the developer of the NUON technology. We have been successful in creating a European distribution alliance for our NUON products, which have resulted in initial shipments being made into Switzerland. However, until we have clearer understanding of the future of VM Labs Inc., the company will focus its energies on growing its non-Nuon business. FAILED MERGER OPPORTUNITY On October 15, 2001 we filed an 8K statement with the SEC announcing a planned merger with International Global Positioning (IGP). On November 2, 2001 before the definitive agreement had been signed, IGP abruptly informed us that the merger had been terminated. We believe IGP wrongfully terminated the agreement. We also allege that IGP breached this agreement, did not negotiate in good faith and was unethical in their business dealings with us. For nearly two months, our efforts and energies focused entirely on the planned merger. Among other accomplishments, we spent significant time researching the GPS arena, developing new marketing & distribution programs and materials, searching for new facilities, and we also allocated an inordinate amount of time in planning and working towards the integration of both companies into the "new entity." The refocus during this two month period has had a detrimental impact on our sales for the quarter, and in lost time that would otherwise been spent on building our business. OPERATING RESULTS FOR THE THREE MONTHS ENDED JANUARY 31, 2002 AND 2001. NET SALES AND ROYALTY REVENUES Net sales and royalty revenues for the three months ended January 31, 2002 were $159,317 compared to $154,504 for the three months ended January 31, 2001. $99,450 of the $159,317 is a prepaid royalty agreement received in the three month period ended January 31, 2002. Increased sales of our Road-Emergency and Auto-Survival product lines also contributed. Sales for the nine months ended January 31, 2002 were $446,591 compared to $665,901 for the same period ended January 31, 2001. This decrease is due to reduced sales of NUON related products. This reduction of NUON sales is a direct result of slower than anticipated deliveries of DVD players incorporating the NUON technology, and delayed shipments by Motorola's of their Streamaster Set-Top (converter box) which we believe were due to various shifts in VM Labs business plan, which are out of our control. GROSS PROFIT Our gross profit for the three months ended January 31, 2002 was $149,006 in contrast to a gross profit of $81,200 for the three months ended January 31, 2001. Our gross profit for the nine months ended January 31, 2002 was $350,165 compared to $456,807 for the same period ended January 31, 2001. Our gross profit margin is affected by royalty revenues received. These revenues do not have any cost of sales associated with them, and increase our gross profit margin. Had these royalty payments not been received our gross profit margin would have been lower. Gross profit margins can be affected by several factors, including the mix between products, the anticipation that newer products will initially yield higher margins, however, there can be no assurance higher margins will be maintained over the life of any product. 9 SALARIES AND BENEFIT EXPENSES Our payroll and benefits expense decreased to $79,283 for the three months ended January 31, 2002 compared to $106,357 for the three months ended January 31, 2001. Payroll and benefits expense was $263,384 for the nine months ended January 31, 2002 compared to $348,131 for the same period ended January 31, 2002. This decrease in salaries and related expenses for the nine months ended January 31, 2001 can be attributed to lower salaries, staff reductions and reduced benefit costs. We are required to employ a base staff of qualified personnel to maintain our operations. As we attain increased profitable quarters our employee base will have to increase. We are carefully planning for expansion, and when our sales volume increases, we will institute gradual growth that will not burden our margins or threaten our profitability. SELLING AND PROMOTION Our selling and promotion expenses decreased to $1,150 for the three months ended January 31, 2002 from $60,991 for the same period ended January 31, 2001. Selling and promotion expenses were $10,264 for the nine months ended January 31, 2002 compared to $108,763 for the same period ended January 31, 2001. The decrease is a direct result of many things, but a significant reason is our focus on our Private Label business, where the need for extensive advertising and marketing is not required. Due to cost controls, we have not been able to utilize all promotional avenues necessary to properly promote our products. Our management has been careful in the amounts of promotional efforts for the current quarter, which has included curtailing unnecessary travel and trade show costs. OFFICE AND ADMINISTRATION Office and administrative expenses for the three months ended January 31, 2002 were $60,832 compared to $136,921 for the three months ended January 31, 2001. Office and administrative expenses were $217,173 for the nine months ended January 31, 2002 compared to $472,122 for the nine months ended January 31, 2001. The decrease is attributed directly to extraordinary legal costs associated to the three-year litigation against our former accounting firm. This will no longer be a factor as the parties reached "an out of court settlement" during July of this year. Efficiencies and cost reductions in equipment rental, printing, postage and related costs also contributed to the reduction in office and administrative costs for the current quarter. RESEARCH AND DEVELOPMENT There were no expenses related to research and development for the three months ended January 31, 2002 compared to $60,878 for the three month period ended January 31, 2001. Research and development expenses were $912 for the nine months ended January 31, 2002 compared to $98,934 for the same period ended January 31, 2001. The decrease is due to the realization that we have already borne significant costs for the development of existing and future products. Costs associated with the need to develop new products are not as substantial as previously incurred by the Company, as most new products are spin-offs of previously designed products. The Road Emergency, Automotive and Outdoor Survival categories are not as labor or cost intensive as was the electronic design arena. Management has always made a commitment to research and development and will continue to do so as deemed necessary. 10 OTHER INCOME/EXPENSE Other income increased to $4,724 for the three months ended January 31, 2002 from other expense of $11,545 for the same period ended January 31, 2001. This increase, $16,269, is due primarily to the settlement of old payable liabilities. Other income includes $46,805 of legal and other direct costs which were incurred as a result of our failed merger attempt. Other income was $520,776 for the nine months ended January 31, 2002 compared to $9,833 for the nine months ended January 31, 2001. Included in this increase is a gain, $137,850, on the closure of our UK subsidiary. The gain on disposal was a result of recorded obligations that were relieved through closure. Also included in other income is $300,000 from the settlement of a lawsuit. Interest and factoring costs decreased to $12,788 for the nine months ended January 31, 2002 compared to $18,175 for the same period ended January 31, 2001. EXTRAORDINARY ITEM Income from the settlement of an old disputed liability from a foreign supplier resulted in a gain of $798,148 for the nine months ended January 31, 2002. Under the agreement we agreed with our foreign supplier to drop all claims against each other. We are required to pay the foreign supplier approximately $6,000 under the agreement. As cash flow improves the Company will offset this obligation. NET INCOME Net income for the three months ended January 31, 2002 was $12,466 compared to a net loss of $295,492 for the three months ended January 31, 2001. Net income was $1,177,357 for the nine months ended January 31, 2002 compared to a net loss of $561,310 for the same period ended January 31, 2001. Total operating expenses for the three and nine months ended January 31, 2002 were $141,264 and $491,733 compared to $365,147 and $1,027,950 for the nine and three months ended January 31, 2001. LIQUIDITY AND CAPITAL RESOURCES Our working capital deficit was $569,510 at January 31, 2002 compared to a deficit of $404,673 at January 31, 2001. We require working capital and continue to operate without the appropriate funds to effectively promote our new product lines, and continue to have difficulty in properly funding operations. Our accounts payable obligation has increased and income from operations has not been sufficient to adequately fund our operations. We have settled many old payable obligations and will continue to work on better terms from our suppliers and current obligations. We are currently in negotiations with many of our old creditors in an attempt to reduce our obligations to them. We are required to pay the costs of stocking, assembling and warehousing inventory prior to receiving payments from our customers. Typically our customers do not pay us for our products until approximately 30 to 60 days following delivery and billing, unless they are Private Label orders, for which we receive partial or entire payments at time of order. For non-private label business, the receipt of cash from operations typically lags substantially behind the payment of the costs for purchase and delivery of our products. We have been able to secure short-term notes payable to help relieve the cash-flow burden experienced. At present we utilize factoring for some of our accounts receivable, however this form of financing does increase costs and reduces working capital and profits. To fully implement our new business plan, we will require additional working capital. We are currently in the process of finalizing a funding plan which will provide working capital until such time as cash flow from operations is increased. We are currently making efforts to sell current inventory to supplement our cash flow needs. 11 BUSINESS OUTLOOK AND RISK FACTORS - HPIC OUTLOOK We are seeing positive earnings results from our corporate efforts to reduce costs while improving performance. In addition to our cost reduction efforts we have taken several steps to improve sales and name recognition for our products. We have reached an agreement with a new Director of Sales. He brings extensive knowledge and experience along with a nationwide Independent Sales force of over 100 experienced individuals. In addition to this we have identified a new market which we believe has significant sales potential over the next six to twelve months. The Power Sports arena, which includes personal motor craft and outdoor recreational vehicles, is a niche area which we have identified as an important area for future growth. In addition we have designed new emergency and survival products to better expand our line and offer a wider variation of retail price points. We believe these changes will assist us in reaching new customers and channels, and will generate new sales revenues in the over the next year. Our Private Label line continues to grow and we expect significant revenue and interest in the market. We have already been successful in designing and shipping kits to major companies in the automotive, motorcycle and personal motor craft market. We are optimistic about future revenue growth, new customer orders and in our ability to find a suitable merger partner or strategic marketing alliance partnership. The Private Label arena is opening new doors and new customers. We continue to pursue other major companies for Private Label opportunities and feel strongly that this area will provide significant revenue opportunities for us over the 6-12 months. When finances permit, we plan to secure the services of a national PR-IR firm to aggressively promote the merits of our Company, and we will continue to inform the market with ongoing press releases as new milestones or alliances are created. Management is confident we can continue to improve the shareholder value through better efficiencies, new alliances and sales growth, increased revenues, which can be achieved in conjunction with the necessary operational funding we require to achieve our goals and profitability objective during FY 2002. RISK FACTORS VM Labs has recently filed a reorganization plan under Chapter 11 of the U.S. Bankruptcy Code. VM Labs has represented it has reached agreements with its significant creditors. As previously stated, until such time as we know the long term potential for NUON, our future emphasis will be on our non-Nuon products group. Our best defense against competitive actions on our Road Emergency, Auto and Outdoor Survival categories remains in our ability to maintain our lead position, breadth and depth of high quality product assortment, continued R & D, coupled with our ability to ship orders in a timely manner. No competitive products currently exist that come close to the caliber of products we provide. In the Automotive and Outdoor Survival retail arena's "Pre-Kitted and Pre-Configured " products of the quality and diversity we offer, do not exist at retail. Each product is backed by a one-year warranty. We understand competitors could make an attempt to imitate our lines, but we have a significant head start and the logistics to "knock us off" has numerous barriers for all new comers. 12 We believe our primary risk factors focus on our ability to receive product deliveries in a timely manner and in our efforts to securing additional operational capital. Based on the size of the U.S. Automotive After Market channel, with annual sales exceeding $150 billion, coupled with the emerging NUON market worldwide, we feel HPIC has the ability to establish itself as a global brand provider of unique and highly innovative Road Emergency, 12 V Battery, Auto-Survival, Outdoor Survival and NUON peripheral products. PART II - OTHER INFORMATION ITEM I. LITIGATION None to be reported ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K On November 21, 2001 we filed with the Securities and Exchange Commission on Form 8-k the resignation of Gregory Struthers, Vice President-NUON Division and Director. SIGNATURES In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. SIGNATURE CAPACITY DATE --------- -------- ---- HOT PRODUCTS, INC.COM /s/ James Copland Chairman of the Board March 11, 2002 - ------------------------------ and Chief Executive Officer James Copland 13 -----END PRIVACY-ENHANCED MESSAGE-----