-----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, OyXM6n7tvwsKzJord9zr1n+871Sws0qjYVmdvBj7SQb+/lWTAQ5L+PjoHQIsSzr3 BvkJUP3sdZZJC/kgHghF4w== 0000912057-00-005116.txt : 20000211 0000912057-00-005116.hdr.sgml : 20000211 ACCESSION NUMBER: 0000912057-00-005116 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000210 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: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18145 FILM NUMBER: 531355 BUSINESS ADDRESS: STREET 1: 560 DUBLIN AVE STREET 2: STE 201 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 10QSB 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 December 31, 1999 Commission file number 0-18145 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) 228-0185 (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. (I) Yes __X__ No _____ State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: February 10, 2000, 2,554,056 shares of common stock outstanding. Transitional Small Business Disclosure Format (check one): Yes _____ No __X__ QUALITY PRODUCTS, INC. CONSOLIDATED BALANCE SHEET December 31, 1999 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 688,824 Trade accounts receivable, less allowance for doubtful accounts of $ 11,867 858,657 Inventories 807,651 Other Current Assets 92,891 ----------- Total Current Assets 2,448,023 Property and Equipment 850,933 Less Accumulated Depreciation (696,421) ----------- Property and Equipment, net 154,512 Other Assets 3,658 TOTAL ASSETS $ 2,606,193 ===========
See notes to Consolidated Financial Statements 2 QUALITY PRODUCTS, INC. CONSOLIDATED BALANCE SHEET - CONTINUED December 31, 1999 (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 522,133 Accrued expenses 237,006 Customer deposits 186,737 Income taxes payable 3,231 Note payable, current 678,464 Note payable, related parties, current 420,000 ------------ Total Current Liabilities $ 2,047,571 ------------ NON-CURRENT LIABILITIES: Notes payable, non-current $ 40,069 Notes payable, related parties, non-current 400,000 ------------ Total non-current liabilities $ 440,069 ------------ TOTAL LIABILITIES $ 2,487,640 ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, convertible, voting, par Value $.00001; 10,000,000 shares authorized; No shares issued and outstanding Common stock, $.00001 par value; 20,000,000 $ 25 shares authorized; 2,554,056 shares issued and outstanding; 1,733,333 shares reserved Additional paid in capital 25,027,312 Accumulated deficit (24,908,784) ------------ Total stockholders' equity $ 118,553 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,606,193 ============
See notes to Consolidated Financial Statements 3 QUALITY PRODUCTS, INC. CONSOLIDATED STATEMENT OF INCOME
For the three months ended December 31, 1999 1998 (Unaudited) (Unaudited) Net Sales $ 1,703,279 $ 1,624,041 Cost of Goods Sold $ 1,016,474 $ 1,071,273 ----------- ----------- Gross Profit $ 686,805 $ 552,768 Selling, General, & Administrative Expenses $ 460,181 $ 355,735 ----------- ----------- Operating Income $ 226,624 $ 197,033 Other Income(Expense) Interest Expense ($ 27,851) ($ 25,655) Interest Income $ 9,061 $ 6,376 Other Income $ 2,643 $ 239 ----------- ----------- Total Other (Expense) ($ 16,147) ($ 19,040) Income Before Income Taxes $ 210,477 $ 177,993 Income Taxes $ 3,281 $ 4,550 ----------- ----------- Net Income $ 207,196 $ 173,443 Earnings per share: Basic and diluted earnings per common share (Note 3) $ 0.08 $ 0.07 ----------- -----------
See notes to Consolidated Financial Statements 4 QUALITY PRODUCTS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended December 31, 1999 1998 (Unaudited) (Unaudited) Cash Flows From Operating Activities: Net Income $ 207,196 $ 173,443 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 11,767 7,842 Cash used for current assets and liabilities: Restricted Cash -- 15,662 Accounts receivable 151,081 (361,801) Inventories (225,742) (37,574) Other assets (636) 2,638 Accounts payable 99,184 59,498 Accrued expenses (33,806) (15,418) Customer Deposits (123,631) (30,621) Income Taxes Payable 3,231 4,500 ---------- ---------- Cash provided(used) by operating activities $ 88,644 ($ 181,831) Cash Flows Used by Investing Activities: Purchase of machinery & equipment (1,110) (29,645) Cash Flows From Financing Activities: Borrowings-Bank Note -- 39,805 Principal Repayments-Bank Note (16,133) (7,418) Principal Repayment - Debentures (50,000) (50,000) ---------- ---------- Cash used for financing activities (66,133) (17,613) Net Increase (Decrease) in Cash 21,401 (229,089) Cash at Beginning of Period 667,423 669,525 ---------- ---------- Cash at End of Period $ 688,824 $ 440,436 ========== ==========
See notes to Consolidated Financial Statements 5 Cash Flow Information - continued The Company's cash payments for interest and income taxes were as follows:
Three Months Ended December 31, 1999 1998 ---- ---- Cash paid for interest 21,851 25,654 Cash paid for taxes 50 50
6 QUALITY PRODUCTS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-QSB and Article 10 of Regulation S-X and Regulation S-B. Accordingly, they 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, 1999, 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, in the opinion of management, are necessary to fairly present the financial position, results of operations, and cash flows on a consistent basis. Operating results for the three months ended December 31, 1999, are not necessarily indicative of the results that may be expected for the year ended September 30, 2000. 2. Inventories Inventories at December 31, 1999 consist of: Raw materials and supplies $ 442,495 Work-in-process 342,914 Finished goods 22,242 ----------- Total $ 807,651 ===========
7 3. Earnings Per Share On December 31, 1997, the Company adopted Financial Accounting Statement No. 128 issued by the Financial Accounting Standards Board. Under Statement 128, the Company was required to change the method previously used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options are excluded. The impact of Statement 128 on the calculation of earnings per share is as follows:
3 Months Ended December 31: 1999 1998 ---- ---- BASIC: Average Shares Outstanding 2,554,056 2,554,056 Net Income $207,196 $173,443 Basic Earnings Per Share $0.08 $0.07
8 Note 3 - continued
3 Months Ended December 31: 1999 1998 ---------- ---------- DILUTED: Average Shares Outstanding 2,554,056 2,554,056 Net Effect of Dilutive Stock options and warrants based on the treasury stock method using average market price 0 0 Total Shares 2,554,056 2,554,056 Net Income $ 207,196 $ 173,443 Diluted Earnings Per Share $ 0.08 $ 0.07 Average Market Price of Common Stock $ 0.42 $ 0.39 Ending Market Price of Common Stock $ 0.35 $ 0.35
The following securities were excluded from the calculation of diluted earnings per share at December 31, 1999 because they are considered anti-dilutive under FAS 128: 1) Options granted to a Company officer and director to purchase 50,000 shares of the Company's common stock at $2.00 per share and 175,000 shares at $1.00 per share. 2) Warrants issued pursuant to the Company's debentures to purchase 495,000 shares of common stock @ $2.00 per share and 330,000 shares at $1.00 per share. 3) Options granted to Company employees to purchase 150,000 shares of the Company's common stock at $1.00 per share. 4) Notes convertible into 533,333 shares of common stock at $0.75 per share. 9 4. Notes Payable Maturities of notes payable for the 5 years succeeding December 31, 1999 are: 2000 $1,098,464 2001 440,069 ---------- Total $1,538,533 ==========
5. Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 1999 and 1998 are substantially composed of the Company's net operating loss carryforwards, for which the Company has made a full valuation allowance. The valuation allowance decreased approximately $(91,000) in the period ended December 31, 1999 and decreased approximately $(77,000) in the period ended December 31, 1998. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At December 31, 1999, the Company had net operating loss carryforwards for Federal and State income tax purposes of approximately $28,328,000 and $29,181,000, respectively, which is available to offset future taxable income, if any, through 2010. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended December 31, 1999 as Compared to December 31, 1998 Net Sales for the three months ended December 31, 1999 were $1,703,279 as compared to $1,624,041 for the three months ended December 31, 1998, an increase of $79,238 or 4.9%. Gross profit was $686,805 or 40.3% of sales as compared to $552,768 or 34.0% of sales for the same period a year earlier. Sales increased due to a more standardized product mix, which decreases delivery times. The Company shipped 60 units in the current period compared to 54 units in the same period last year. The Company maintains a strong backlog of approximately $1.1 million. Gross profit increased as a percentage of sales due to the unusually high standardized product mix discussed above. The Company expects gross profit percentages to decrease in the next quarter. The Company expects sales for the three months ending March 31, 2000 to reach approximately $1.6 million. Selling, general and administrative expenses increased from $355,735 during the three months ended December 31, 1998 to $460,181 for the three months ended December 31, 1999. Selling general and administrative expenses as a percentage of sales were 27.0% during the three months ended December 31, 1999 as compared to 21.9% for the three months ended December 31, 1998. Of the approximately $104,000 increase in selling, general and administrative expenses, approximately $66,000 is due to non-recurring expenses for the investigation of new business opportunities. The remaining increase of approximately $38,000 reflects rising labor and benefits expenses as the Company attempts to remain competitive in a tight labor market, and additional commissions due to outside sales representatives. The percentage is expected to remain constant in the next period. Net interest expense for the three months ended December 31, 1999 was $18,790 as compared to $19,279 for the comparable period a year earlier. The decrease is due primarily to the reduction of the principal on the Company's outstanding indebtedness. The Company currently has $1,450,000 of 6% debt represented by $1,050,000 first secured debt issued in November 1997 and $400,000 second secured convertible debt. In August 1998, QPI Multipress, Inc. entered into a loan agreement with a local bank to finance computer equipment. The agreement allowed Multipress to borrow up to $150,000 at 8.04% interest and to repay the loan over 39 months. Currently, there is $88,533 outstanding on this loan. Net income for the period was $207,196 as compared to $173,443 for the same three month period a year earlier, an increase of $33,753 or 19.5%. The income tax provision in the three months ended December 31, 1999 and 1998 includes a benefit related to utilization of NOL carry forwards of approximately $89,000 and $74,600 respectively. The 1999 and 1998 provision relates to the Company's city income taxes. 11 Liquidity and Capital Resources As of December 31, 1999, the Company had a working capital surplus of $400,452 as compared to a working capital surplus of $977,732 at December 31, 1998 and a working capital surplus of $1,102,770 at September 30, 1999. The decrease is due to the transfer of a majority of the Company's long-term debt into current liabilities as the debt is now due within one year. However, the surplus should continue to increase as the Company anticipates profitable operations in the future. The Company's major source of liquidity continues to be from internal operations. Year 2000 Compliance To date, the Company has experienced no problems relating to the year 2000 computer issue either internally or from any of its suppliers or customers. 12 PART II Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27.1 Financial Data Schedule b. Reports on Form 8-K Not applicable Statements in this Form 10-QSB that are not historical facts, including statements about the Company's prospects, and the possible conversion of notes to stock, are forward-looking statements that involve risks and uncertainties. These risks and uncertainties could cause actual results to differ materially from the statements made, including the impact of the litigation against the Company. Please see the information appearing in the Company's 1999 Form 10-KSB under "Risk Factors." 13 Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized: QUALITY PRODUCTS, INC. Registrant Date: February 10, 2000 By /s/ Bruce C. Weaver ------------------------------------- Bruce C. Weaver President (Principal Executive Officer) By /s/ Tac D. Kensler -------------------------------------- Tac D. Kensler Chief Financial Officer 14 EX-27 2 EXHIBIT 27
5 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 688,824 0 870,524 (11,867) 807,651 2,448,023 850,933 (696,421) 2,606,193 2,047,571 440,069 0 0 25 118,528 2,606,193 1,703,279 1,703,279 1,016,474 1,476,655 0 0 (27,851) 210,477 3,281 207,196 0 0 0 207,196 0.08 0.08
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