-----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, POp2Bb5SWNqJZCz3yn4CWjNntxEmflsXs5F/7Y0AVp1GaXXukdblPdgBUEdt87Iz dmmhRn/HWjlASwxkFmzTGQ== 0000891554-97-000706.txt : 19970814 0000891554-97-000706.hdr.sgml : 19970814 ACCESSION NUMBER: 0000891554-97-000706 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUALITY PRODUCTS INC CENTRAL INDEX KEY: 0000843462 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-METALS SERVICE CENTERS & OFFICES [5051] IRS NUMBER: 752273221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18145 FILM NUMBER: 97657893 BUSINESS ADDRESS: STREET 1: 560 DUBLIN AVE CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142288120 MAIL ADDRESS: STREET 1: C/O MULTIPRESS INC STREET 2: 560 DUBLIN AVE CITY: COLUMBUS STATE: OH ZIP: 43215 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED AMERICAN INDUSTRIES INC /DE DATE OF NAME CHANGE: 19920322 FORMER COMPANY: FORMER CONFORMED NAME: VIRTUALISTICS INC /DE/ DATE OF NAME CHANGE: 19890523 FORMER COMPANY: FORMER CONFORMED NAME: ANALYTICS INC /DE/ DATE OF NAME CHANGE: 19890212 10QSB 1 QUARTERLY REPORT U.S. Securities and Exchange Commission Washington, DC 20549 Form 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended June 30, 1997 0-18145 Commission file number QUALITY PRODUCTS, INC. (Exact name of registrant as specified in its charter) Delaware 75-2273221 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 560 Dublin Avenue, Columbus, OH 43215 (Address of principal executive offices) (614) 228-8120 (Issuer's telephone number) 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. (1) Yes__X__ No_____ As of June 30, 1997 there were 2,395,680 shares of the Company's common stock outstanding. QUALITY PRODUCTS, INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET ASSETS June 30, 1997 ----------- (Unaudited) Current Assets Cash $ 500,782 Certificate of Deposit (Note B) 40,739 Accounts receivable 817,162 Inventories 641,038 Other current assets 19,532 ----------- Total Current Assets 2,019,253 Property, plant and equipment 838,807 Less accumulated depreciation (806,133) ----------- Net property, plant and equipment 32,654 ----------- TOTAL ASSETS $ 2,051,907 =========== See accompanying notes 2 QUALITY PRODUCTS, INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIENCY) June 30, 1997 ----------- (Unaudited) Current Liabilities Bank indebtedness 1,275,000 Accounts payable 1,197,479 Accrued expenses 118,387 Due to related party 28,000 ------------ Total Current Liabilities 2,618,866 Long-term unsecured note payable 502,500 ------------ Total Long-term Liabilities 502,500 ------------ TOTAL LIABILITIES 3,121,366 Commitments and Contingencies (Note C) STOCKHOLDERS' EQUITY Preferredstock, convertible, voting, par value $.00001, authorized 10,000,000 shares, issued and outstanding 25 Common stock, $.00001 par value, authorized 20,000,000 shares, issued and outstanding, 2,395,680 shares 24 Additional paid-in capital 29,918,597 Retained earnings (deficit) (25,962,108) ------------ 3,956,513 Less: Treasury stock, 255,708 shares (5,025,972) ------------ Total Stockholders Equity (deficiency) (1,069,459) TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 2,051,907 ============ See accompanying notes 3 QUALITY PRODUCTS, INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended For the three months ended June 30 June 30 -------------------------- -------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net Sales $ 4,864,011 $ 3,624,545 $ 1,730,069 $ 1,216,460 Cost of Goods Sold 3,036,733 2,471,915 1,082,336 820,777 ----------- ----------- ----------- ----------- Gross Profit 1,827,278 1,152,630 647,733 395,683 Selling, General, & Administrative Expenses 919,860 1,261,036 308,036 339,015 ----------- ----------- ----------- ----------- Operating Income (loss) 907,418 (108,406) 339,697 56,668 Other Income or (Expense) Interest Expense (117,776) (401,102) (37,930) (57,056) Litigation Settlements -- (667,029) -- (14,100) Accrued Contingent Expense -- (42,012) -- -- Other (11,064) (15,175) (2,283) (4,960) ----------- ----------- ----------- ----------- Total Other Income (128,840) (1,125,318) (40,213) (76,116) (Expense) Income (Loss) Before 778,578 (1,233,724) 299,484 (18,448) Extraordinary Item Extraordinary Item 80,934 -- -- -- Net Income (loss) $ 859,512 ($1,233,724) $ 299,484 ($ 18,448) =========== =========== =========== =========== Per Common Share Data: Net income (Loss) Before Extraordinary Item $ 0.33 ($ 0.58) $ 0.13 ($ 0.01) ----------- ----------- ----------- ----------- Net Income (loss) - primary $ 0.36 ($ 0.58) $ 0.13 ($ 0.01) - fully diluted $ 0.24 -- $ 0.08 -- =========== =========== =========== =========== Weighted average used in per share calculations - primary 2,395,680 2,116,514 2,395,680 2,395,680 - fully diluted 3,587,346 -- 3,587,746 -- =========== =========== =========== ===========
See accompanying notes 4 QUALITY PRODUCTS, INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the nine months ended June 30, -------------------------- 1997 1996 ---- ---- (Unaudited) (Unaudited) Cash Flows From Operating Activities: Net Income (Loss) $ 859,512 ($1,233,724) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 11,064 14,006 Stock compensation -- 20,937 Restricted cash 101,154 1,505 Accounts receivable (164,932) (63,091) Inventories (47,531) (70,137) Other assets (4,916) (6,636) Accounts payable 156,588 (86,201) Accrued expenses (163,873) 39,387 Due to related party (47,000) 81,979 Accounts receivable from liquidation -- 5,430,174 ----------- ----------- Cash provided by (used in)operating activities 700,066 4,268,473 Cash Flows From Investing Activities: Capital expenditures (16,845) (17,574) ----------- ----------- Net Cash provided by (used in) investing activities (16,845) (17,574) Cash Flows From Financing Activities: Repayments to Officer -- (333,202) Repayments - Notes payable (193,033) (4,506,807) Unsecured note payable issued 2,500 500,000 ----------- ----------- Cash provided by (used in) financing activities (190,533) (4,340,009) Net increase (decrease) in cash 492,688 (89,110) Cash at Beginning of Period 8,094 93,350 ----------- ----------- Cash at End of Period $ 500,782 $ 4,240 =========== =========== See accompanying notes 5
QUALITY PRODUCTS, INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) For the Nine Months Ended June 30, 1996 Additional Total Common Stock Treasury Paid-In Accumulated Stockholders' Shares Amount Stock Capital Deficit Equity ------------ ------------ ------------ ------------ ------------ ------------ As of Sept. 30, 1995 1,976,931 $ 20 ($ 5,025,972) $ 29,897,664 ($24,975,829) ($ 104,117) Stock Issuance: Bonus 279,166 3 13,955 13,958 Severance 139,583 1 6,978 6,979 Net Loss (1,233,724) (1,233,724) ------------ ------------ ------------ ------------ ------------ ------------ As of June 30,1996 2,395,680 $ 24 ($ 5,025,972) $ 29,918,597 ($26,209,553) ($ 1,316,904) ============ ============ ============ ============ ============ ============
See accompanying notes 6
QUALITY PRODUCTS, INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) For the Nine Months Ended June 30, 1996 Additional Total Common Stock Treasury Paid-In Accumulated Stockholders' Shares Amount Stock Capital Deficit Equity ------------ ------------ ------------ ------------ ------------ ------------ As of Sept. 30, 1996 2,395,680 $ 24 ($ 5,025,972) $ 29,918,597 ($26,821,620) ($ 1,928,971) Net Income (Loss) 859,512 859,512 ------------ ------------ ------------ ------------ ------------ ------------ As of June 30, 1997 2,395,680 $ 24 ($ 5,025,972) $ 29,918,597 ($25,962,108) ($ 1,069,459) ============ ============ ============ ============ ============ ============
See accompanying notes 7 QUALITY PRODUCTS, INC. & SUBSIDIARIES NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note A -- Basis of Presentation The accompanying unaudited condensed consolidated financial statements are presented in accordance with the requirements for Form 10-QSB and consequently do not include all the disclosures normally required by generally accepted accounting principles. Reference should be made to the Quality Products, Inc. (the "Company") Form 10-KSB for the year ended September 30, 1996, for additional disclosures including a summary of the Company's accounting policies, which have not significantly changed. The information furnished reflects all adjustments (all of which were of a normal recurring nature) which are, in the opinion of management, necessary to fairly present the financial position, results of operations, and cash flows on a consistent basis. Operating results for the three and nine months ended June 30, 1997, are not necessarily indicative of the results that may be expected for the year ending September 30, 1997. Note B - Certificate of Deposit A Certificate of Deposit is held at the Company's bank as collateral for the Letter of Credit securing the Company's potential obligations for its Worker's Compensation policy. The policy expires November 30, 1997. During the quarter ended June 30, 1997, $59,287 was drawn on the Letter of Credit to pay past due obligations, $39,843 was used to reduce bank indebtedness and $42,000 was renewed until November 30, 1997. Note C - Commitments and Contingencies For further information on commitments and contingencies, please refer to Part II, Item 1 entitled Legal Proceedings. Note D - Cash Flow Information The Company's non-cash investing and financing activities and cash payments for interest and income taxes were as follows: Nine Months Ended Three Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Cash paid for interest $117,776 $401,102 $ 37,930 $ 57,056 Common Stock issued for Officer /Employee bonuses $ 13,958 -- -- Officer Severance $ 6,979 -- -- 8 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three and Nine Months Ended June 30, 1997 compared to Three and Nine Months Ended June 30, 1996 Consolidated net sales for the three and nine months ended June 30, 1997 were $1,730,069 and $4,864,001, respectively, as compared to $1,216,460 and $3,624,545 for the corresponding periods in the prior year. The increase in sales of 42% and 30%, in the current three and nine month periods, is due to the hiring of an additional sales person, the hiring of a new marketing executive and the addition of new, more active manufacturing representatives in certain territories in the United States. As the Company's financial condition has improved slightly, it has also been able to commence a modest marketing program. Gross profit was $647,733, or 37% of sales for the three months ended June 30, 1997 and $1,827,278, or 37% of sales for the nine months ended June 30, 1997 as compared to $395,683, or 32% of sales for the three months ended June 30, 1996 and $1,152,630, or 32% of sales for the nine months ended June 30, 1996. Gross profit increased on an absolute basis and as a percentage of sales because of the increase in sales, reductions in costs of materials and plant efficiencies. Selling, general and administrative expenses ("SG&A") were $308,036 and $919,860 for the three and nine months ended June 30, 1997 compared with $339,015 and $1,261,036 for the corresponding periods in the prior year. SG&A was 17.8% and 18.9% of sales during the three and nine months ended June 30, 1997 compared to 27.9% and 34.8% during the corresponding periods in the prior year. These costs decreased on an absolute and percentage basis during the current three and nine month periods due to the increase in sales and overhead reductions including the closing of Company offices, terminating leases, and reducing personnel. Furthermore, legal and accounting expenses declined substantially from the corresponding periods in the prior year as the Company resolved a significant number of the legal proceedings in which it was involved. Selling, general and administrative expenses increased slightly in the third quarter over the second quarter as the Company's lender charged the Company in the third quarter approximately $49,448 in legal fees that had accrued over the period of the loan. Interest expense was $37,930 and $117,766 for the three and nine months ended June 30, 1997, respectively, compared with $57,056 and $401,102 for the corresponding periods in the prior year. The decrease is due to the substantial reduction in bank indebtedness and the reduction in the interest rate charged on the bank indebtedness. Offsetting this decrease was the interest of $22,500 paid during the nine months ended June 30, 1997 to PI, Inc. resulting from the issuance of a five year $500,000 6% convertible promissory note during the last half of fiscal 1996. No such interest was paid during the corresponding periods in the prior year. The Company did not incur any litigation settlement expense during the three and nine months ended June 30, 1997 compared to $14,100 and $667,029 of such expenses incurred during the corresponding three and nine month periods in the prior year. The significant decline is due to the fact that substantially all of the litigation brought against the Company had been settled or otherwise recorded on the financial statements of the Company during the corresponding periods in the prior year. The Company has outstanding judgments against it, including two judgments 9 aggregating approximately $375,000. The Company's inability to reduce or settle these judgments will have a materially adverse effect on the Company's financial condition. Net income for the nine months ended June 30, 1997 was $859,512, including an $80,934 extraordinary gain on the sale of shares previously written off. Income (loss) before extraordinary item during the three and nine months ended June 30, 1997 was $299,484 and $778,578, respectively compared with losses of $18,448 and $1,233,724, respectively, during the corresponding periods in the prior year. This increase in income is due to the increase in sales during these periods, and the significant reduction in all major expenses. Liquidity and Capital Resources As of June 30, 1997, the Company had a working capital deficiency of $599,013 as compared to working capital deficiencies of $889,720, $1,187,758 and $1,455,044 at March 31, 1997, December 31, 1996 and September 30, 1996, respectively. Cash generated from operations during the nine months ended June 30, 1997 was $700,066 resulting primarily from net income generated during the period of $859,512 offset by the net reduction in accrued expenses during the period. Cash is used by the Company, first, to reduce its indebtedness to its secured lender and second, to reduce via settlement or otherwise non-trade unsecured accounts payable and other obligations which were not incurred in connection with the Company's current operating activities. Secured debt was reduced by approximately $193,000 (exclusive of approximately $49,000 in lender legal fees also paid during the period) and accounts payable and accrued expenses, other than Multipress accounts payable, were reduced substantially during the period. Management continues to focus on the steps needed to continue to operate the Company as a going concern. The Company is attempting to increase the sales and net income of Multipress, reduce secured bank indebtedness, settle and eliminate other obligations and resolve the remaining legal proceedings. Although the Company's financial condition has improved, no assurance can be given that improvements will continue. In August 1997, the Company entered into a letter of intent with a broker-dealer to sell in a private placement $1,500,000 of secured debt, to be secured by all of the Company's assets, with the proceeds being used primarily to replace the Company's existing secured debt. The noteholders and placement agent would also receive warrants to purchase up to 660,000 shares of the Company's common stock. The Company would also grant a security interest in all of its assets to the broker-dealer for a previously unsecured $500,000 note which the broker-dealer purchased in August 1997 from the noteholder. The letter of intent is non-binding, and no assurance can be given that the financing contemplated thereby will be consummated. 10 PART II Item 1. Legal Proceedings In March 1995, Howard S. Klein sued the Company in the United States District Court, Eastern District of Pennsylvania for alleged lost profits of approximately $500,000 on Company stock he purchased from 1989-1993, plus actual losses incurred of approximately $50,000. On October 3, 1996, the Court granted the Company summary judgment and dismissed the case against the Company. The plaintiff appealed to the United States Court of Appeals for the Third Circuit, and in June 1997, the Court of Appeals affirmed the judgment in the Company's favor. The SEC notified the Company of an investigation in 1994. In November 1996, the SEC filed an administrative action against the Company (SEC Case No. 3-9186), charging that the Company (1) issued misleading press releases in March 1994 concerning a proposed agreement between Disney and QPI Consumer Products Corporation; (2) overstated the value of engineering drawings of QPI Multipress in financial statements contained in periodic SEC reports; and (3) failed to file periodic reports since the quarter ended June 30, 1995. The SEC and the Company settled all charges against the Company, without payment of any money by the Company, by a consent decree whereby the Company neither admitted nor denied the charges and agreed not to violate federal securities laws in the future. A supplier for QPI Consumer, the Brookwood Companies sued the Company in December 1995 in Hillsborough County Court in Tampa, Florida, for approximately $150,000 for goods sold for use by QPI Consumer. The trial took place in May, 1997, and in June 1997, the Court awarded Brookwood judgment against the Company for approximately $146,000 plus statutory interest from December 1995. In August 1997, the Company reached an agreement to settle the judgment. Various legal actions and proceedings are pending or are threatened against the Company and its subsidiaries. These actions and proceedings arise in the ordinary course of the Company's business. None of the litigation matters currently pending against the Company, aside from the matters specifically discussed above, is deemed material by management of the Company. Item 3. Defaults Upon Senior Securities. As of June 30, 1997, the Company was in default with respect to, among other things, the financial covenants with respect to its bank indebtedness. The aggregate amount of such indebtedness, all of which matured upon default, was approximately $1.275 million. 11 Item 6 - Exhibits and Reports of Form 8-k a). Exhibits 27.1 - Financial Data Schedule b). Reports on Form 8-K Not Applicable 12 Signatures In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Quality Products, Inc. Registrant Date: August 11, 1997 By: /s/Bruce C. Weaver ----------------------- Bruce C. Weaver President (Principal Executive Officer and Principal Financial And Accounting Officer) 13 EX-27 2
5 9-MOS Sep-30-1997 Oct-01-1996 Jun-30-1997 541,521 0 828,694 (11,532) 641,038 2,019,253 838,807 (806,133) 2,051,907 2,618,866 502,500 0 0 24 (1,069,483) 2,051,907 4,864,011 4,864,011 3,036,733 3,036,733 930,924 0 117,776 778,578 0 778,578 0 80,934 0 859,512 0.36 0.24
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