<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
-----------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------------
Commission file number 0-18145
QUALITY PRODUCTS, INC.
(Name of small business issuer in its charter)
DELAWARE 75-2273221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
560 Dublin Avenue
Columbus, OH 43215
(Address of principal executive offices) (Zip Code)
(614) 228-0185
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.00001 PAR VALUE
--------------------------------
(Title of Class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was $6,483,450.
The aggregate market value of the voting stock held by nonaffiliates of
the registrant as of December 23, 1998, was $843,427 based on the average of
the bid and asked price of $0.385 as reported by the OTC electronic bulletin
board on such date.
As of September 30, 1998, there were 2,554,056 shares of Common Stock, $.00001
Par Value issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There is no annual report, proxy statement, or prospectus to incorporate by
reference.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
QUALITY PRODUCTS, INC.
FORM 10-KSB
PART I
ITEM 1. BUSINESS
GENERAL
Quality Products, Inc. (the "Company") is a Delaware corporation, originally
organized in 1988 under the name "Analytics Inc." The Company is a holding
company and has only one subsidiary. The Company's sole operating subsidiary is
QPI Multipress, Inc., an Ohio corporation ("Multipress"), a manufacturer of
hydraulic presses and accessories. Multipress previously was a division of the
Company and on October 1, 1996, the assets and liabilities relating to the
Multipress division were transferred to QPI Multipress, Inc.
The Company previously had four other subsidiaries, all in varying businesses.
In Fiscal 1995, these money losing subsidiaries were sold or liquidated and
proceeds were used to repay the Company's secured lender and provide working
capital to fund the elimination of the Company's remaining debts and its return
to profitability.
QPI MULTIPRESS, INC.
Multipress manufactures industrial hydraulic bench presses, floor presses
(together, referred to as "Multipresses" herein) and accessories used with
Multipresses. The Company is one of the leading producers of industrial
hydraulic "C" frame presses in the United States. Multipresses are used in a
variety of industries, including automotive, appliance, abrasive materials,
electrical and food compaction industries.
The current Multipress-Registered Trademark- line, which consists of 27
different standard models, is adaptable to CIM (Computer Integrated
Manufacturing), a combination of hydraulic presses with robotics. Multipress
has provided turnkey operations to a number of Fortune 500 companies. Turnkey
systems include a combination of any number of peripheral automation devices
supplied by third party companies used in conjunction with a Multipress.
At least half the machines Multipress ships are special or modified in some way
to suit customer requirements. In addition to standard C-Frame or Gap Frame
presses, 4 Post or 4 Column designs either with or without a moving plate can be
furnished up to 1000 ton capacity. Many special designs and configurations
have been furnished in the 58 years Multipresses have been produced. These
include ultra high speed, special frames, variations in daylight, throat, bed
size, dual or triple units, and several units located around a large dial table.
Multipress requires several different raw material components for its presses.
Multipress is not dependent on any one supplier for any of its key parts and
believes that its relationship with its suppliers is satisfactory.
Historically, the automotive, appliance, and electrical industries have provided
approximately 75% of sales revenues. Additionally, Multipresses have been
integrated with automated robot systems developed by unrelated companies and
used in assembly line systems. Multipress competes in its market with about a
half dozen other companies, none of which is dominant. Multipress competes
primarily based on its ability to customize its presses, the excellent quality
and longevity of its product and its excellent service.
Multipress markets its presses through an in house force consisting of three
sales agents and through more than 25 exclusive outside machine tool
distributors. Historically, Multipress' primary markets have been in the
Midwestern United States, principally Ohio, Michigan, Indiana and Illinois.
Multipress does not market directly abroad; however, it has sold presses through
sales representatives to customers outside of the United States.
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No one customer accounted for more than 10% of sales in fiscal 1998.
Multipress' order backlog has no discernable pattern as customer purchasing is
not seasonal. Multipress backlog at September 30, 1998 was approximately
$1,500,000, which is higher than Multipress' historical average backlog of
$800,000 to $1,000,000. The backlog is usually shipped within a few months from
order and rarely later than six months from the date ordered.
The Company and Multipress employed a total of 35 employees as of September 30,
1998, none of whom belonged to any union.
The Company has a trademark on the tradename "Multipress".
The Company is not aware of any existing or probable governmental regulations
which will have a material effect on the business.
The Company had no research and development expenses in fiscal years 1998 or
1997.
The Company incurred no material costs or effects due to compliance with
environmental laws.
ITEM 2. PROPERTY OF THE COMPANY
<TABLE>
<CAPTION>
Location Description
-------- -----------
<S> <C>
560 Dublin Avenue A lease for approximately 50,000
Columbus, Ohio 43215-2388 square feet of manufacturing and
office space currently expiring
July, 2000, used by QPI Multipress
Inc., and since August 1996 also used
as the executive office of the Company.
The rental rate is $8,050.00 per month.
The property is in good condition.
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The following table shows the high and low bid prices for the Company's
Common Stock as reported by the NASD electronic bulletin board (BULLETIN BOARD
SYMBOL - "QPDC"), for the period commencing October 1, 1996 to September 30,
1998. Such prices reflect inter-dealer prices, may not represent actual
transactions and do not include retail markup, markdown or commissions.
<TABLE>
<CAPTION>
1998 High Low
---- ---- ---
<S> <C> <C>
First Quarter - December 31, 1997 $ 1 3/4 $ 11/16
Second Quarter - March 31, 1998 1 3/8 1 1/32
Third Quarter - June 30, 1998 1 3/8 53/64
Fourth Quarter - September 30, 1998 1 1/32 1/2
1997 High Low
---- ---- ---
First Quarter - December 31, 1996 $ 5/16 $ 3/16
Second Quarter - March 31, 1997 5/16 5/32
Third Quarter - June 30, 1997 5/32 1/8
Fourth Quarter - September 30, 1997 1 1/16 5/32
</TABLE>
(b) Approximate number of equity securities holders:
<TABLE>
<CAPTION>
Approximate Number of
Record Holders (as of
Title of Class September 30, 1998)
-------------- ---------------------
<S> <C>
Common Stock, $.00001 Par Value 323
</TABLE>
(c) Dividends:
The Company paid no dividends in the years ending September 30, 1997 or 1998.
The Company does not anticipate paying dividends in the foreseeable future.
The Company is restricted from paying dividends under the terms of a Credit
Agreement dated November 25, 1997 with Eastlake Securities, Inc.
RECENT SALE OF UNREGISTERED SECURITIES
On November 25, 1997, the Company completed a $1,530,000 financing with Eastlake
Securities, Inc. ("Eastlake"), a New York investment banking firm. The
financing consisted of 30 units, each unit consisting of a $50,000 beneficial
interest in $1,500,000 principal amount 6% secured note, a Series A Warrant to
purchase 10,000 common shares at $1.00 per share and a Series B Warrant to
purchase 15,000 common shares at $2.00 per share. The Note is due December 29,
2000 and is issued jointly by the Company and QPI Multipress, Inc. to Eastlake
as agent for the unit holders pursuant to a Credit Agreement between the Company
and Eastlake. The Series A Warrants may be exercised at any time until
September 30, 1999, and the Series B Warrants may be exercised during the period
October 1, 1999 to September 30, 2001.
The Note is to be repaid quarterly, starting December 31, 1997, by principal
payments in the amount of $50,000 each December, March, June and September
together with any accrued interest. The entire unpaid
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principal balance and accrued interest are due December 29, 2000. The Company
may prepay the loan at any time without penalty as long as accrued interest up
to the point of prepayment is paid also.
The Company paid Eastlake a placement agent fee of $75,000 and issued to
Eastlake Series A Warrants to purchase 30,000 shares of common stock and Series
B Warrants to purchase 45,000 shares of common stock. The placement agent also
has a three year right of first refusal on future financing of the Company.
The Company sold these securities without registering them with either federal
or state authorities in reliance on Rules 505 and 506 of Regulation D under the
Securities Act of 1933 and related state law exemptions from registration.
In the year ended September 30, 1998, the Company issued 44 common shares to
acquire and cancel 22 Class B Preferred shares. Such issuance was deemed by
management to be exempt from registration in reliance upon Section 4 (2) of the
Securities Act of 1993.
In the year ended September 30, 1997, the Company issued 25,000 shares of common
stock to a former employee as severance. Such issuance was deemed by management
to be exempt from registration in reliance upon Section 4(2) of the Securities
Act of 1933.
In August 1997, two affiliates of the Company, a former company officer and a
current member of the board of directors, acquired a $500,000 note from a third
party and converted $100,000 principal into 133,332 shares. The issuance of the
note and shares of common stock upon its partial conversion were not registered
under the Securities Act of 1933 in reliance upon Section 4(2).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Net sales for the year ended September 30, 1998 were $6,483,450 as compared to
$6,340,142 for the year ended September 30, 1997, an increase of $143,308 or 2%.
Sales remained steady after a tremendous increase in fiscal year 1997,
confirming that the changes made in the areas of marketing and advertising in
fiscal 1997 were effective.
Cost of sales were $4,447,498 or 69% of sales for the year ended September 30,
1998 as compared to $3,968,208 or 63% of sales for the year ended September 30,
1997. Resulting gross profit for the periods were $2,035,952 or 31% of sales
for the period ended September 30, 1998 and $2,371,934 or 37% of sales for the
corresponding period a year earlier. The decrease in gross profit was due to a
changing product mix, as customers are requiring more specialized machinery
which, up to this point have been more labor intensive from designing and
manufacturing perspectives. However, as experience increases, the Company
expects margins to improve. Additionally, material costs increased with no
corresponding price increase on the Company's products due to competition.
However, in October 1998 the Company will increase prices which, along with a
recent cost reduction analysis of certain products, should improve profit
margins.
Selling, general and administrative expenses ("SG&A") were $1,676,082 or 26% of
sales for the year ended September 30, 1998 as compared to $1,347,482 or 21% of
sales for the period ended September 30, 1997.
The increase is due to several one time payments during the year totaling
$151,000, composed of $65,000 paid to the Company's President and former Chief
Financial Officer as part of an agreement to reprice their 350,000 stock options
from $0.10 to $1.00, a subsequent buyout of the former CFO's stock options
totaling $26,250 and accelerated payments on his employment contract of $60,000.
Also contributing to the increase were commissions of approximately $90,000 paid
to outside manufacturers' representatives compared to the same period last year
as more sales were made by outside commissioned reps than by salaried
salespersons. Additionally, continuing legal fees of $137,000, computer
consulting fees of $20,000, increased wages and benefits for additional staff of
approximately $115,000 and annual meeting expenses of approximately $40,000
raised the selling, general and administrative expenses.
Interest expense for the year ended September 30, 1998 was $111,390 as compared
to $155,221 for the year ended September 30, 1997. The decrease is due
primarily to the reduction of the interest rate on the Company's debt. In
November 1997, the Company sold $1,500,000 of 6% debt plus warrants in a private
placement through Eastlake Securities, Inc. The proceeds of such placement were
used to pay in full the Company's bank debt and all other interest bearing debt
except the remaining $400,000 of the Company's 6% note due in 2001.
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<PAGE>
The Company currently has $1,500,000 of 6% debt represented by $1,300,000 first
secured debt issued in November 1997 and $200,000 second secured convertible
debt which also bears interest at 6%. An additional $200,000 of the second
secured convertible note is interest free as of March 1, 1998. In August 1998,
QPI Multipress, Inc. entered into a loan agreement with a local bank to finance
computer equipment. The loan is for a maximum of $150,000 at 8.04% interest and
will be repaid over 39 months. Currently, there is $88,285 outstanding on this
loan and it is expected to increase to the $150,000 loan maximum.
Liquidity and Capital Resources
As of September 30, 1998, the Company had a working capital surplus of $895,155
as compared to a working capital deficiency of $459,977 at September 30, 1997.
The change from a working capital deficit to a working capital surplus is due to
the profitable operations of the Company and more importantly, the refinancing
of the Company's outstanding bank indebtedness. At September 30, 1997, the
Company's bank indebtedness had been due on demand and accordingly shown in
current liabilities, thereby increasing the Company's working capital
deficiency. On November 25, 1997, the Company completed a $1,530,000 financing
consisting primarily of a $1,500,000 three year loan. This loan, except for the
current portion of $200,000, is disclosed in long-term liabilities and
accordingly results in a better working capital balance.
This surplus should continue to increase as the Company anticipates profitable
operations through the foreseeable future. The Company's major source of
liquidity continues to be from available cash on hand which is generated from
profitable cash flow from operations.
Year 2000 Compliance
The Company utilizes a number of computer programs in its operations. Any of
the Company's programs that recognize a date using "00" as the year 1900 rather
than the year 2000 could result in errors or system failures. The Company has
selected and approved an accounting and inventory computer system which will
lead to a one time material expenditure not to exceed $175,000. Financing for
the system is provided under a three year term loan from a local bank. The
software is certified year 2000 compliant and is expected to be installed,
implemented, and active by December 31, 1998. The Company believes that this
purchase will materially reduce the exposure of the Company to future year 2000
compliance expenses. In the event the Company is unable to fully implement the
software before January 1, 2000 the Company's accounting and information systems
will fail resulting in a material financial risk to the Company.
FINANCING
On November 25, 1997, the Company completed a $1,530,000 financing with Eastlake
Securities, Inc. ("Eastlake"), a New York investment banking firm. The
financing consisted of 30 units, each unit consisting of a $50,000 beneficial
interest in $1,500,000 principal amount 6% secured note, a Series A Warrant to
purchase 10,000 common shares at $1.00 per share and a Series B Warrant to
purchase 15,000 common shares at $2.00 per share. The Note is due December 29,
2000 and is issued jointly by the Company and QPI Multipress, Inc. to Eastlake
as agent for the unit holders pursuant to a Credit Agreement between the Company
and Eastlake. The Series A Warrants may be exercised at any time until
September 30, 1999, and the Series B Warrants may be exercised during the period
October 1, 1999 to September 30, 2001.
The Note is to be repaid quarterly, starting December 31, 1997, by principal
payments in the amount $50,000 each December, March, June and September together
with any accrued interest. The entire unpaid principal balance and accrued
interest are due December 29, 2000. The Company may prepay the loan at any time
without penalty as long as accrued interest up to the point of prepayment is
paid also.
The Company paid Eastlake a placement agent fee of $75,000 and issued to
Eastlake Series A Warrants to purchase 30,000 shares of common stock and Series
B Warrants to purchase 45,000 shares of common stock. The placement agent also
has a three year right of first refusal on future financings of the Company.
In August 1998, QPI Multipress, Inc. entered into a loan agreement with a local
bank to provide financing for new computer equipment. The loan allows
Multipress to draw up to $150,000 at 8.04% interest, over a three-month period
during which interest must be paid monthly on the outstanding principal. At the
end of three
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<PAGE>
months, Multipress must begin paying both principal and interest on a monthly
basis for thirty-six months. Multipress will incur a penalty for any prepayment
of principal under the terms of the loan.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements annexed hereto and Item 6 above.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the years ended September 30, 1998 and September 30, 1997, there were no
disagreements with the Company's accountants on accounting and financial
disclosure practices.
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<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors and Executive Officers
The names, principal occupation, and age of all Directors and officers of the
Company at September 30, 1998 are listed below:
<TABLE>
<CAPTION>
Name Age Position Director Since
---- --- -------- --------------
<S> <C> <C> <C>
Bruce Weaver 38 President and Director February 1996
Ed Varon 53 Director May 1998
Murray Koppelman 67 Director May 1998
William Harrison, Jr. 65 Director May 1998
Tac Kensler 31 Chief Financial Officer ---
</TABLE>
Mr. Weaver became a consultant to the Company in November 1995, and in February
1996, he became president and a director. For more than the past five years,
Mr. Weaver has been self-employed as an accountant in Canada and a consultant
to financially troubled companies in the United States and Canada.
Mr. Varon has been self employed as an investor since September 1996. For more
than five years prior to September 1996, he was a founding partner of E.D.
Michaels, Inc., a women's apparel manufacturer and distributor. In November
1997, he invested $50,000 in the Company's $1,500,000 note.
Mr. Koppelman is presently President and owner of Eastlake Securities, Inc. in
New York. Eastlake Securities arranged the Company's recent refinancing of its
bank debt and acts as collateral agent for the participants in that financing.
For more than the past 5 years, Mr. Koppelman has been President and owner of
Eastlake Securities, Inc. In November 1997, he invested $300,000 in the
Company's $1,500,000 note.
Mr. Harrison is Vice President of Operations of QPI Multipress, Inc., the
Company's sole operating subsidiary and has been for the past five years.
Mr. Kensler was promoted to Chief Financial Officer of the Company in May 1998.
Prior to that position, he was the Controller for QPI Multipress, Inc., the
Company's sole operating subsidiary since December 1994. Prior to joining the
Company in January 1994, he was employed in the accounting department of the
Worthington Steel Company, a steel processing manufacturer.
<TABLE>
<CAPTION>
Significant Employees Age Position
- --------------------- --- --------
<S> <C> <C>
Theodore P. Schwartz 60 President of QPI Multipress, Inc.
</TABLE>
Mr. Schwartz became President of QPI Multipress, Inc. on December 15, 1997
pursuant to a five-year contract. Mr. Schwartz has been involved in the
hydraulic press business for the past 37 years. Mr. Schwartz was an officer of
Multipress, Inc. until 1990. For more than the past five years, Mr. Schwartz
was an officer and director of PH Group, Inc., a manufacturer and marketer of
hydraulic presses.
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ITEM 10. EXECUTIVE COMPENSATION
The following table shows the compensation of each executive officer and
significant employee during the fiscal years ended September 30, 1996, 1997 and
1998.
<TABLE>
<CAPTION>
Summary Compensation Table
- ----------------------------------------------------------------------------------------------------------------------------------
Name and Year Salary Bonus Restricted Securities All Other Other
Principal Position Stock Underlying Compensation Annual
Award(s) Options/ ($) Compensation
($) SARs (#)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce Weaver - 1998 $ 84,000 - - 50,000 $37,500(5) -
President (since 1997 $ 72,000 $75,935(1) - 100,000 14,038(2)
February 1996) 1996 $ 50,250 $4,000 $6,979(3) 175,000 -
- ----------------------------------------------------------------------------------------------------------------------------------
Jonathon Reuben - 1998 $ 30,000 - - 50,000 $47,424(5) 86,250(6)
Secretary/Treasurer 1997 $ 30,000 $27,576(1) - - -
Chief Financial Officer 1996 $ 21,923 $1,000 $6,979(3) 175,000 -
Until May 1998
- ----------------------------------------------------------------------------------------------------------------------------------
William Harrison, Jr. - 1998 $123,564(7) $24,500 - -
Vice President of 1997 $103,176(7) $39,967 35,000 -
Multipress 1996 $ 80,696(7) $20,000 -
- ----------------------------------------------------------------------------------------------------------------------------------
Thomas P. Raabe - 1998 - -
Chairman and CEO from 1997 - - 53,680(4) $50,000(4)
March 1995 until 1996 $65,571(4) - $6,979(3) 175,000
February 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Theodore Schwartz 1998 $95,228(7) $10,500
President of Multipress 1997 - -
1996 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Tac Kensler 1998 $45,596 $9,500
Chief Financial Officer 1997 $38,625 $14,145 15,000
Since May 1998 1996 $32,080 $1,500
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In fiscal 1997, the directors were paid these amounts as cash bonuses
pursuant to a Multipress employee bonus plan and discretionary director
bonuses.
(2) Represents base salary compensation foregone by Mr. Weaver in fiscal
1996.
(3) Represents stock bonuses of 139,583 shares of common stock to each of
Mr. Weaver, Mr. Reuben and Mr. Raabe in February 1996.
(4) Mr. Raabe, who lives in Colorado, was provided with use of a
Company-leased apartment in Tampa, Florida costing $7,800 in fiscal 1995
and $6,000 in fiscal 1996 and the use of a Company-leased vehicle in Tampa
until his termination as an officer in February 1996. The cost of these
items is not included in the above table. In October 1996, Mr. Raabe
became a consultant to the Company for a three year term. However, in
August 1997, the Company satisfied all of its obligations to Mr. Raabe by
paying Mr. Raabe a lump sum of $50,000 in consideration for Mr. Raabe's
release of all of the Company's future consulting fee obligations and
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Mr. Raabe's surrender for cancellation of options to purchase 175,000 shares of
common stock for $.10 per share. Also includes $3,680 of insurance premium
reimbursement paid to Mr. Raabe in fiscal 1997.
(5) Represents cash paid to Mr. Weaver and Mr. Reuben in fiscal 1997 as part of
an agreement to reprice their 350,000 stock options from $0.10 to $1.00.
(6) Represents cash paid to Mr. Reuben in the amount of $26,250 for the buyback
of his 225,000 stock options and $60,000 for the accelerated payout of his
employment contract.
(7) Mr. Schwartz and Mr. Harrison were each provided with the use of a
Company-leased vehicle and premium reimbursement for life insurance. The cost
of these items is not included in the above table.
Mr. Weaver has an employment contract with the Company to serve as President for
the period October 1, 1997 through September 30, 2000. Mr. Weaver's salary is
$84,000 annually, plus a bonus equal to 5% of the Company's annual audited net
income to the extent it exceeds $750,000 in any fiscal year. Mr. Weaver, a
Canadian citizen, is not required to reside or work in or near Columbus, Ohio
where the Company's operations are located.
Mr. Reuben had a three-year employment contract with the Company to serve as
Chief Financial Officer for the period October 1, 1997 through September 30,
2000 at a rate of $30,000 annually. Due to the demands of Mr. Reuben's full
time accounting practice in Los Angeles, Mr. Reuben did not stand for reelection
as a Director or Officer. As a severance, the Company repurchased his stock
options for $26,250 and paid the remainder of his contract by September 30,
1998.
Theodore P. Schwartz has an employment contract with Multipress to serve as its
President for the period December 15, 1997 through December 31, 2002. Mr.
Schwartz receives a base salary of $120,000 plus benefits and an annual bonus
based upon Multipress' gross margins to the extent they exceed $2,000,000 in any
fiscal year.
The following table shows the stock options granted to each executive officer
during the fiscal year ended September 30, 1998.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
% of Total Options/ Granted to Exercise or
Name # Options Granted Employees in Fiscal Year Base Price ($/sh) Expiration
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bruce Weaver 50,000 50.0% $2.00 2000
- --------------------------------------------------------------------------------------------------------
Jonathan Reuben 50,000(1) 50.0% $2.00 2000
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) These options were repurchased by the Company in April 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 30, 1998
regarding the ownership of each class of the Company's equity securities,
beneficially owned by each director, each executive officer, all executive
officers and directors of the Company as a group and beneficial owners of more
than 5% of any class of securities.
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
AMOUNT AND
NATURE OF BENEFICIAL
TITLE OF CLASS NAME AND ADDRESS OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Bruce Weaver (2) 170,783(1) 6.7%
- ------------------------------------------------------------------------------------------
Common Richard W. Cohen 333,332(3) 11.8%
Lowey Dannenberg
One N. Lexington
White Plains, NY 10601
- ------------------------------------------------------------------------------------------
Common Murray Koppelman 483,332(3) 17.0%
575 Lexington Avenue
New York, N.Y. 10022
- ------------------------------------------------------------------------------------------
Common Theodore P. Schwartz(2) 5,000(4) *
- ------------------------------------------------------------------------------------------
Common William Harrison, Jr.(2) 35,387(5) 1.3%
- ------------------------------------------------------------------------------------------
Common Tac Kensler(2) 15,500(5) *
- ------------------------------------------------------------------------------------------
Common Ed Varon 10,000(6) *
575 Lexington Avenue
New York, N.Y. 10022
- ------------------------------------------------------------------------------------------
Common Directors and Officers 715,002 27.9%
as a group (5 people )
- ------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
(1) Does not include options to purchase 325,000 shares of common stock,
because such options are not exercisable until 1999 and 2000.
(2) The business address for each of such persons is c/o QPI Multipress, Inc.,
560 Dublin Avenue, Columbus, Ohio 43215-2388.
(3) For each of Mr. Cohen and Mr. Koppelman, such number of shares represents
66,666 owned by each and 266,666 shares issuable to each upon conversion of
their respective 2001 Notes, each in the principal amount of $200,000 with
a conversion price of $.75 per share. Additionally, Mr. Koppelman has
warrants to purchase 30,000 shares at $1.00 per share which are included in
this table and 45,000 shares at $2.00 per share which are not included in
this table because they are not exercisable until 1999.
(4) Includes 4,375 shares of common stock which Mr. Schwartz owns as a joint
tenant with an unrelated person and as to which he disclaims a pecuniary
ownership interest in 50% of such shares. Does not include options to
purchase 50,000 shares of common stock, because such options are not
exercisable until 1999.
(5) Includes options to purchase 35,000 shares by Mr. Harrison and options to
purchase 15,000 shares for Mr. Kensler at $1.00 per share.
(6) Mr. Varon has warrants to purchase 10,000 shares at $1.00 per share which
are included in this table and 15,000 shares at $2.00 per share which are
not included in this table because they are not exercisable until 1999.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1996, the Company terminated the employment of Thomas Raabe, the
former Chairman and CEO, but he remained a director. Mr. Raabe resigned as a
director in October 1996 and rendered consulting services to the Company on a
limited as-requested basis through August 1997. During such period, Mr. Raabe
received compensation of $50,000 plus reimbursement of $3,680 for health
insurance benefits. In August 1997, the Company paid Mr. Raabe $50,000 in
consideration for the termination of the Company's obligations under his
consultancy and the termination of options to purchase up to 175,000 shares of
common stock at $.10 per share exercisable April 15, 1999 - December 31, 1999.
In April 1998, Mr. Reuben agreed not to remain as an officer or director of the
Company. As a severance package, the Company agreed to pay Mr. Reuben $26,250
in exchange for cancelling 225,000 options to purchase the Company's common
shares. In addition, the Company agreed to pay the remainder of Mr. Reuben's
three-year contract by September 30, 1998.
Effective October 1, 1997, Mr. Weaver and Mr. Reuben each agreed to increase the
exercise price of their respective options to purchase 175,000 shares, granted
in February 1996, from $.10 per share to $1.00 per share. In consideration the
Company agreed to pay Mr. Weaver and Mr. Reuben $75,000 each in 1998 and issued
to them new options to purchase 50,000 shares each at $2.00 per share during the
period September 15, 1999 through June 30, 2000.
In August 1996, the Company issued a note payable in the amount of $500,000 (the
"note") in connection with the settlement of certain litigation. The Note is
convertible, upon demand, into 500,000 to 666,666 shares of common stock of the
Company at a price of $0.75 to $1.00 per share. The Company is required to make
quarterly interest only payments at 6% per annum. The agreement contains
certain acceleration clauses. The principal amount of the note and unpaid
interest are payable in full in August 2001.
In August, 1997, Richard Cohen purchased $250,000 of the Company's $500,000 Note
and Murray Koppelman purchased the remaining $250,000. Mr. Cohen and Mr.
Koppelman immediately exercised the conversion option in the note to convert
$50,000 each into 66,666 shares each of the Company's common stock. The
remaining notes totaling $400,000, convertible at $0.75 per share and bearing
interest at 6%, remain outstanding.
At the time of purchase of the Note, the Company was not in financial position
to participate in the purchase and the Company was aware of the purchase. Mr.
Cohen has waived all interest after March 1, 1998, on his share of the Note.
Mr. Cohen was a partner in a law firm that provided legal services to the
Company and received payments of $98,242 and $116,429 for the years ended
September 30, 1998 and 1997, respectively.
Section 16(a) Beneficial Ownership Reporting Compliance
Mr. Cohen and Mr. Koppelman each failed on one occasion to timely file reports
relating to one transaction required by Section 16(a) ("Section 16(a)") of the
Securities Exchange Acts of 1934, as amended.
Statements in this Form 10-KSB that are not historical facts, including
statements about the Company's prospects, about the future impact of litigation,
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.
-12-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 - Restated Certificate of Incorporation of the Company
incorporated by reference from 10-KSB for the period ending
September 30, 1997.
3.2 - Amended and Restated By-Laws of the Company incorporated by
reference from 10-KSB for the period ending September 30,
1997.
4.2 - Promissory Note dated August 29, 1997 issued to Murray
Koppelman incorporated by reference from 10-KSB for the
period ending September 30, 1997.
4.3 - Promissory Note dated August 29, 1997 issued to Richard W.
Cohen incorporated by reference from 10-KSB for the period
ending September 30, 1997.
4.4 - Promissory Note dated November 25, 1997 issued to Eastlake
Securities, Inc. incorporated by reference from 10-KSB for
the period ending September 30, 1997.
4.5 - Form of Series A Warrant incorporated by reference from
10-KSB for the period ending September 30, 1997.
4.6 - Form of Series B Warrant incorporated by reference from
10-KSB for the period ending September 30, 1997.
10.3 - Employment Agreement between the Company and Bruce Weaver
incorporated by reference from 10-KSB for the period ending
September 30, 1997.
10.4 - Employment Agreement between the Company and Jonathon Reuben
effective October 1, 1997 incorporated by reference from
10-KSB for the period ending September 30, 1997.
10.5 - Employment Agreement between Multipress and Theodore P.
Schwartz effective December 15, 1997 incorporated by
reference from 10-KSB for the period ending September 30,
1997.
10.6 - 1997 Stock Option Plan incorporated by reference from 10-KSB
for the period ending September 30, 1997.
10.7 - Credit Agreement dated November 25, 1997 among the Company,
Multipress and Eastlake Securities, Inc. incorporated by
reference from 10-KSB for the period ending September 30,
1997.
10.8 - Security Agreement dated November 25, 1997 among the
Company, Multipress and Eastlake Securities, Inc.
incorporated by reference from 10-KSB for the period ending
September 30, 1997.
10.9 - National City Bank Loan Agreement
10.10 - Building Lease Agreement
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
Not applicable
-13-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized:
Quality Products, Inc.
By: /s/Bruce Weaver Date: December 28, 1998
---------------------------------------------
Bruce Weaver, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated:
/s/Bruce Weaver Date: December 28, 1998
------------------------------------------------
Bruce Weaver
Director and Principal Executive Officer
/s/Tac D. Kensler Date: December 28, 1998
------------------------------------------------
Tac D. Kensler
Chief Financial Officer
-14-
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998 AND
FOR THE YEARS ENDED
SEPTEMBER 30, 1998 AND 1997
AND INDEPENDENT AUDITORS' REPORT
<PAGE>
QUALITY PRODUCTS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet,
September 30, 1998 2-3
Consolidated Statements of Income
for the Years Ended September 30, 1998 and 1997 4
Consolidated Statements of Stockholders' Deficit
for the Years Ended September 30, 1998 and 1997 5
Consolidated Statements of Cash Flows
for the Years Ended September 30, 1998 and 1997 6-7
Notes to Consolidated Financial Statements 8-17
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Quality Products, Inc.:
We have audited the accompanying consolidated balance sheet of Quality Products,
Inc. (the "Company") as of September 30, 1998 and the related consolidated
statements of income, stockholders' deficit and cash flows for the years ended
September 30, 1998 and 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Company at
September 30, 1998 and the results of its operations and its cash flows for the
years ended September 30, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/Farber and Hass LLP
- ----------------------
November 20, 1998
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 669,525
Restricted cash 15,662
Trade accounts receivable, less allowance
for doubtful accounts of $11,867 626,631
Inventories 726,040
Other current assets 133,420
------------
Total current assets 2,171,278
------------
PROPERTY AND EQUIPMENT 973,773
Less accumulated depreciation (822,775)
------------
Property and equipment, net 150,998
------------
OTHER ASSETS 7,280
------------
TOTAL ASSETS $ 2,329,556
------------
------------
</TABLE>
(Continued
2
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 443,150
Accrued expenses 231,373
Customer deposits 359,507
Notes payable 140,093
Notes payable, related parties 100,000
Income taxes payable 2,000
------------
Total current liabilities 1,276,123
------------
NON-CURRENT LIABILITIES
Notes payable, non-current 798,193
Notes payable, related parties, non-current 750,000
------------
Total non-current liabilities 1,548,193
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
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
shares authorized; 2,554,056 shares
issued and outstanding; 1,733,333 shares
reserved 25
Additional paid-in capital 30,053,284
Accumulated deficit (25,522,097)
Less: Treasury stock, 176,775 shares at cost (5,025,972)
------------
Total stockholders' deficit (494,760)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,329,556
------------
------------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
3
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
NET SALES $6,483,450 $6,340,142
COST OF GOODS SOLD 4,447,498 3,968,208
---------- ----------
GROSS PROFIT 2,035,952 2,371,934
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,676,082 1,347,482
---------- ----------
INCOME FROM OPERATIONS 359,870 1,024,452
---------- ----------
OTHER INCOME (EXPENSE):
Gain on sale of assets held for sale 92,934
Interest expense (111,390) (155,221)
Interest income 28,175 1,420
Gain on settlement of litigation 116,044
Miscellaneous other income (expense) 39,079 (36,066)
---------- ----------
Total other income (expense) (44,136) 19,111
---------- ----------
INCOME BEFORE INCOME TAXES 315,734 1,043,563
INCOME TAXES 25,887 33,887
---------- ----------
NET INCOME $ 289,847 $1,009,676
---------- ----------
---------- ----------
EARNINGS PER SHARE:
Basic $ .11 $ .41
---------- ----------
---------- ----------
Diluted $ .10 $ .38
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
4
<PAGE>
<TABLE>
<CAPTION>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES B
PREFERRED COMMON STOCK ADDITIONAL TOTAL
------------------ ------------------ PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK DEFICIT
------ ------ ------ ------ ------- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
SEPTEMBER 30, 1996 25 $ -0- 2,395,680 $24 $29,918,597 $(26,821,620) $(5,025,972) $(1,928,971)
STOCK ISSUANCE:
Preferred stock adjustment (3)
Employee severance
agreement 25,000 4,688 4,688
Convertible note conversion 133,332 1 99,999 100,000
NET INCOME 1,009,676 1,009,676
--- ---- --------- --- ----------- ------------ ----------- -----------
BALANCES,
SEPTEMBER 30, 1997 22 -0- 2,554,012 25 30,023,284 (25,811,944) (5,025,972) (814,607)
STOCK ISSUANCE:
Convertible debentures
issuance 30,000 30,000
Preferred shares conversion (22) 44
NET INCOME 289,847 289,847
--- ---- --------- --- ----------- ------------ ----------- -----------
BALANCES,
SEPTEMBER 30, 1998 -0- $-0- 2,554,056 $25 $30,053,284 $(25,522,097) $(5,025,972) $ (494,760)
--- ---- --------- --- ----------- ------------ ----------- -----------
--- ---- --------- --- ----------- ------------ ----------- -----------
See notes to consolidated financial statements.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 289,847 $1,009,676
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 13,898 15,449
Stock compensation 4,688
Changes in operating assets and
liabilities:
Restricted cash 26,574 99,657
Accounts receivable 75,964 (50,365)
Inventories 82,277 (214,810)
Other assets (113,153) (12,930)
Accounts payable and accrued expenses (158,337) (490,292)
Customer deposits 97,466 262,041
Income taxes (26,000) 28,000
----------- ----------
Net cash provided by operating
activities 288,536 651,114
----------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Capital expenditures (40,635) (24,551)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank line of credit (1,180,000) (288,033)
Debenture issuance 1,530,000 135,000
Payments on short-term debt (335,000) (75,000)
----------- ----------
Net cash provided by (used in)
financing activities 15,000 (228,033)
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 262,901 398,530
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 406,624 8,094
----------- ----------
CASH AND EQUIVALENTS, END OF YEAR $ 669,525 $ 406,624
----------- ----------
----------- ----------
</TABLE>
(Continued)
6
<PAGE>
QUALITY PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 113,297 $ 155,221
Cash paid for taxes $ 77,084 $ 5,887
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
In the year ended September 30, 1997, the Company issued 133,332 shares of
common stock to related parties in connection with the conversion of a $100,000
note payable.
In the year ended September 30, 1997, the Company issued 25,000 shares of common
stock to a former employee in connection with a severance agreement.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY:
In the year ended September 30, 1998, the Company acquired computer hardware and
software in exchange for a note payable in the amount of $88,286.
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
7
<PAGE>
QUALITY PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION - Quality Products, Inc. (the "Company") is a holding
company. The Company's only operating subsidiary is QPI Multipress Inc., a
manufacturer of industrial hydraulic presses. The Company also owns a
non-operating subsidiary, American Liberty Mining Corporation, which holds
certain zinc mining claims.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that 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.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certain
investments with original maturities of three months or less.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash and trade receivables. The Company places its temporary cash
investments in reputable financial institutions. At September 30, 1998,
the Company had $635,315 on deposit with one financial institution.
The Company routinely assesses the financial strength of its customers.
The Company normally requires prepayments to support large customer orders.
At September 30, 1998, two customers accounted for 20% and 16%,
respectively, of total receivables.
OPERATING SEGMENT INFORMATION - The Company predominantly operates in one
industry segment, industrial hydraulic presses. Substantially all of the
Company's assets and employees are located at the Company's headquarters in
Columbus, Ohio.
8
<PAGE>
ACCOUNTING FOR STOCK BASED COMPENSATION
Stock option grants are set at the closing price of the Company's common
stock on the day prior to the date of grant. Therefore, under the
principles of APB Opinion No. 25, the Company does not recognize
compensation expense associated with the grant of stock options. SFAS No.
123, "Accounting for Stock-Based Compensation," requires the use of option
valuation models to provide supplemental information regarding options
granted after 1994. Pro forma information regarding net income and
earnings per share shown below was determined as if the Company had
accounted for its employee stock options under the fair value method of
that statement.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 6.0%; dividend yields of 0% for
1998 and 1997; volatility factors of the expected market price of the
Company's common stock of 50% for 1998 and 1997; and expected life of the
options of two years. These assumptions resulted in weighted average fair
values of $0.01 per share for stock options granted in 1998 and 1997.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and extremely limited transferability.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the option vesting periods. The pro forma effect
on net income for 1998 and 1997 is not representative of the pro forma
effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior
to 1995. Pro forma information in future years will reflect the
amortization of a larger number of stock options granted in several
succeeding years. The Company's pro forma information is as follows (in
thousands except share data) for the years ended September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Pro forma net income $ 289 $1,005
Pro forma earnings per share:
Basic $0.11 $ 0.41
Diluted $0.10 $ 0.38
</TABLE>
9
<PAGE>
Information regarding stock options outstanding as of September 30, 1998 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------
Weighted Weighted Average
Average Remaining
Price Range Shares Exercise Price Contractual Life
---------------------------------------------------------------------------
<S> <C> <C> <C>
$1.00 - $2.00 375,000 $1.13 2.0 years
<CAPTION>
Options Exercisable
----------------------------------
Weighted
Average
Price Range Shares Exercise Price
-------------------------------------------------------
<S> <C> <C>
$1.00 - $2.00 -0- N/A
</TABLE>
INVENTORIES - Inventories are stated at the lower of cost (using the first-in,
first-out method) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Property
and equipment under capital leases are stated at the present value of minimum
future lease payments at the inception of the lease. Depreciation on property
and equipment is calculated on the straight-line method over the estimated
useful lives of the assets. Property and equipment held under capital leases
and leasehold improvements are amortized on a straight-line basis over the
shorter of the lease term or estimated useful life of the asset.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 109"), which is an
asset and liability method of accounting that requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between tax bases and financial reporting bases of
accounting.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Based on borrowing rates currently
available to the Company for bank loans with similar terms and maturities,
the fair value of the Company's long-term debt approximates the carrying
value. Furthermore, the carrying value of all other financial instruments
potentially subject to valuation risk (principally consisting of cash and
cash equivalents, accounts receivable and accounts payable) also approximates
fair value.
10
<PAGE>
2. RESTRICTED CASH
A Certificate of Deposit in the amount of $15,662 provides collateral for a
letter of credit issued to an insurance carrier to secure the Company's
potential obligations under its Workman's Compensation Plan. In November
1998, the letter of credit and Certificate of Deposit matured. The funds
became available for general corporate purposes.
3. INVENTORIES
Inventories at September 30, 1998 consist of:
<TABLE>
<S> <C>
Raw materials and supplies $ 502,338
Work-in-process 183,350
Finished goods 40,352
---------
Total $ 726,040
---------
---------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1998 consist of:
<TABLE>
<S> <C>
Leasehold improvements $ 18,259
Machinery and equipment 600,540
Furniture and fixtures 256,841
Software 98,133
---------
Total property and equipment 973,773
Less accumulated depreciation (822,775)
---------
Property and equipment, net $ 150,998
---------
---------
</TABLE>
The estimated useful lives used to depreciate property and equipment are as
follows:
<TABLE>
<S> <C>
Leasehold improvements Lease term
Machinery and equipment 5 years
Furniture and fixtures 5 years
Software 5 years
</TABLE>
5. LEASES
At September 30, 1998, the Company was obligated under several
noncancellable operating leases, primarily for facilities and equipment,
that expire over the next two years. These leases generally contain
renewal options for periods ranging from one to five years and require the
Company to pay all executory costs such as maintenance and insurance.
Rental expense for all operating leases was $124,553 in 1998 and $108,318
in 1997.
11
<PAGE>
Future minimum lease payments under noncancellable operating leases (with
initial or remaining lease terms in excess of one year) as of September 30,
1998, are:
YEAR ENDING SEPTEMBER 30:
<TABLE>
<S> <C>
1999 $122,036
2000 79,069
2001 4,643
--------
TOTAL $205,748
--------
--------
</TABLE>
6. NOTES PAYABLE
In August 1996, the Company entered into a note payable in the amount of
$500,000 with a former shareholder in connection with the settlement of
certain litigation. The note was convertible, upon demand, into 500,000 to
666,666 shares of common stock of the Company at a price of $0.75 to $1.00
per share. The Company was required to make quarterly interest only
payments at 6% per annum. The agreement contains certain acceleration
clauses. The principal amount of the note and unpaid interest are payable
in full in August 2001.
In August 1997, the note was purchased by two individuals (including a
current member of the Board of Directors of the Company and a former
Company officer) who immediately converted $100,000 ($50,000 each) into
133,332 common shares (66,666 each). The remaining notes totaling
$400,000, convertible at $0.75 per share and bearing interest at 6%, remain
outstanding at September 30, 1998.
In April 1998, one of the note holders entered into an agreement with the
Company to forebear and forgive all remaining interest payments for the
remaining life of the note.
In November 1997, the Company initiated and consummated a private placement
offering of 30 units of Company debentures in the amount of $1,530,000.
$1,300,000 remains outstanding at September 30, 1998. Each unit
represents: a) a $50,000 interest in a 6%, $1,500,000 note payable, b) a
warrant to purchase 10,000 shares of the Company's common stock at $1 per
share during the period November 1, 1997 through September 30, 1999, and c)
a warrant to purchase 15,000 shares of the Company's common stock at $2 per
share during the period October 1, 1999 through September 30, 2001. The
Company incurred expenses of approximately $150,000 in connection with this
offering. The Company utilized the proceeds of the offering to repay the
bank line of credit, a $135,000 note payable and expenses associated with
the offering.
12
<PAGE>
In August 1998, the Company entered into an agreement with a local bank to
borrow up to $150,000 to replace the Company's computer information
systems. $88,286 was outstanding under this agreement at September 30,
1998.
Maturities of notes payable for the 5 years succeeding September 30, 1998
are:
<TABLE>
<S> <C>
1999 $ 240,093
2000 247,239
2001 1,300,954
----------
Total $1,788,286
----------
----------
</TABLE>
7. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at September 30, 1998 and 1997 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 $(284,000) and $(987,000)
in the years ended September 30, 1998 and 1997, respectively, representing
primarily net taxable income in those years. 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 September 30, 1998, the Company had net operating loss carryforwards for
Federal and State income tax purposes of approximately $28,746,000 and
$29,512,000, respectively, which is available to offset future taxable
income, if any, through 2010.
The tax provisions for the years ended September 30, 1998 and 1997 are
composed of Federal alternative minimum tax and city income taxes.
13
<PAGE>
8. STOCK OPTIONS
NON-QUALIFIED STOCK OPTION PLAN
In March 1993, the Shareholders approved a non-qualified stock option
plan under which options were granted to employees at not less than the
fair market value on the date of grant. Options granted under the plan are
generally exercisable at any time within three years of the date of grant.
Options are granted at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Option Price
Shares per Share
------ ---------
<S> <C> <C>
Outstanding at
September 30, 1996 525,000 $0.10
Cancelled (175,000) $0.10
Granted during the year -0-
---------
Outstanding at
September 30, 1997 350,000 $0.10
Cancelled (225,000) $0.10 - $2.00
Granted during the year 100,000 $2.00
---------
Outstanding at
September 30, 1998 225,000 $1.00 - $2.00
---------
---------
</TABLE>
In October 1997, the Company entered into an agreement with two officers of
the Company to reprice options for 350,000 shares of common stock to $1.00
per share in exchange for the payment of $75,000 to each of the option
holders and the grant of an additional option to purchase 50,000 shares of
common stock at $2.00 per share.
14
<PAGE>
INCENTIVE STOCK OPTION PLAN
In May 1998, the Board of Directors approved an incentive stock option
plan under which options were granted to employees at not less than the
fair market value on the date of grant. Options granted under the plan
are generally exercisable two to three years after the date of grant and
expire in September 2000. Options are granted at the discretion of the
Board of Directors.
<TABLE>
<CAPTION>
Option Price
Shares per Share
------ ---------
<S> <C> <C>
Outstanding at
September 30, 1996 -0-
Cancelled -0-
Granted during the year 150,000 $1.00
---------
Outstanding at
September 30, 1997 150,000 $1.00
Cancelled -0-
Granted during the year -0- $1.00
---------
Outstanding at
September 30, 1998 150,000 $1.00
---------
---------
</TABLE>
9. EARNINGS PER SHARE
In December 1997, the Company adopted Financial Accounting Statement No.
128 issued by the Financial Accounting Standards Board. Under Statement
128, the Company is 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.
15
<PAGE>
The impact of Statement 128 on the calculation of earnings per share is as
follows:
<TABLE>
<CAPTION>
12 Months Ended September 30
----------------------------
1998 1997
---- ----
<S> <C> <C>
BASIC:
Net Income Available To Common
Shareholders $ 289,847 $1,009,676
Weighted Average Shares Outstanding 2,554,034 2,438,735
Basic Earnings Per Share (FAS 128) $ 0.11 $ 0.41
Primary Earnings Per Share, As
Previously Reported (APB 15) N.A. $ 0.38
DILUTED:
Net Income Available to Common
Shareholders $ 289,847 $1,009,676
Weighted Average Shares Outstanding 2,554,034 2,438,735
Net Effect of Dilutive Stock
Options and Warrants Based on
the Treasury Stock Method
Using Average Market Price 229,242 236,437
Total Shares 2,783,276 2,675,172
Diluted Earnings Per Share (FAS 128) $ 0.10 $ 0.38
Fully Diluted Earnings Per Share, As
Previously Reported (APB 15) N.A $ 0.38
Average Market Price of Common Stock $ 1.10 $ 0.31
Ending Market Price of Common Stock $ 0.75 $ 0.78
</TABLE>
The following securities were excluded from the calculation of diluted
earnings per share at September 30, 1998 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.
2. Warrants issued pursuant to the Company's debentures to purchase
495,000 shares of common stock @ $2.00 per share.
16
<PAGE>
10. TREASURY STOCK
During 1994, the Board of Directors authorized the acquisition of up to
250,000 shares of the Company's common stock. Through September 30, 1994,
a total of 176,775 shares of common stock were acquired. No shares have
been reacquired since September 1994.
11. EMPLOYEE RETIREMENT PLAN
The Company maintains a 401(K) Plan for the benefit of all full-time
employees. Employees may make voluntary contributions to the Plan. Plan
expenses incurred by the Company totalled approximately $6,600 during 1998
and $7,100 during 1997. The Company elected to make a voluntary employer
match of $6,900 in 1998.
12. RELATED PARTY TRANSACTIONS
In the year ended September 30, 1997, a shareholder and a member of the
Board of Directors each purchased $250,000 of the $500,000 note payable
(see Note 7). Each note holder immediately exercised a conversion option
in the note to convert $50,000 of the note into 66,666 shares of the
Company's common stock. The shareholder is a partner in a law firm that
served as the Company's outside general counsel through March 1998. The law
firm received payments of $98,242 and $116,429 for the years ended
September 30, 1998 and 1997, respectively, for legal services rendered to
the Company.
A former Company director provided business and taxation consulting
services to the Company in fiscal 1997 for an annual compensation of
$30,000.
13. COMMITMENTS AND CONTINGENCIES
In November 1993, the Company and its QPI Multipress subsidiary were sued
in Indiana Superior Court by an employee of a company that had purchased
one of the Company's presses from a 3rd party. The plaintiff seeks
unspecified monetary damages for a personal injury that occurred in her
employer's facility. Although the Company's subsidiary carries full
product liability insurance, the Company's former management did not notify
the insurance carrier within the prescribed time period. Accordingly, this
claim is not covered by insurance. Based upon consultation with the
Company's counsel, the Company does not believe that the litigation will
have a material adverse affect on the consolidated financial position,
results of operations or cash flows of the Company. The Company has
recorded a provision for this matter that is immaterial to the consolidated
financial statements.
- --------------------------------------------------------------------------------
17
<PAGE>
COMMERCIAL INSTALLMENT NOTE
(DRAW)
$150,000.00 Executed at Columbus, Ohio
August 4, 1998
FOR VALUE RECEIVED, the undersigned ("Debtor") promises to pay to the order of
NATIONAL CITY BANK, a national banking association ("Bank"), which has a place
of business in Columbus, Ohio, at any office of Bank, ONE HUNDRED FIFTY THOUSAND
and 00/100 DOLLARS (or, if less, the unpaid principal balance shown on an
attachment to this note or on Bank's loan account records) in lawful money of
the United States together with interest, in Thirty Nine (39) consecutive
monthly installments, commencing on August 4, 1998, the first Three (3) of which
installments shall be the unpaid interest accrued on this note. Thereafter,
each installment shall consist of principal and the unpaid interest accrued on
this note in the aggregate amount of Four Thousand Seven Hundred Three and
48/100 Dollars ($4,703.48), provided that in no event shall any installment be
less than the unpaid interest accrued on this note, except that the final
installment shall be in such amount as will pay all of the unpaid principal of
and unpaid interest accrued on this note in full.
This note represents an arrangement that allows Debtor to obtain advances
without giving Bank a separate note for each advance. Bank will record the date
and amount of each advance on an attachment to this note or on Bank's loan
account records. Debtor agrees that each advance so recorded shall be prima
facie evidence that an advance was made on the date and in the amount indicated.
The number of advances and the amount of each advance are not limited; provided,
however, that the aggregate total of all advances shall not exceed the face
amount of this note.
Prior to maturity, principal and any overdue interest shall bear interest
computed daily (on the basis of a 360-day year and actual days elapsed) at the
rate of Eight and Four One Hundredths percent (8.04%) per annum. Debtor may
prepay the principal of this note in whole or in part at any time upon one (1)
Business Day's prior written notice to Bank if, concurrently with the
prepayment, Debtor pays to Bank a premium based upon the principal amount
prepaid and computed (on the basis of a 360-day year and actual days elapsed) at
a rate per annum equal to the excess, if any, of the interest rate stated in
this paragraph over the Reinvestment Rate, for the period from the date of
prepayment to the date on which the final installment is payable.
Concurrently with any prepayment of the principal of this note, Debtor shall pay
the unpaid interest accrued on the principal being prepaid, and each prepayment
shall be applied to the outstanding installments of this note in the inverse
order of their respective due dates.
If Debtor fails to pay an installment in full within ten (10) days after its due
date, Debtor, in each case, will incur and shall pay a late charge equal to the
greater of Twenty and 00/100 Dollars ($20.00) or five percent (5.0%) of the
unpaid amount. The payment of a late charge will not cure or constitute a
waiver of any Event of Default under this note.
Except as otherwise provided in writing, payments will be applied first to
installments in the order of their respective due dates and then to late charges
in the order of their respective due dates; provided, however, that if a payment
so applied would pay the principal of this note in full, but leave late charges
outstanding, such payment will instead be applied to late charges prior to being
applied to the principal portion of the final installment. Each payment of an
installment shall be applied first to accrued but unpaid interest and then to
principal.
In its discretion, Bank may, from time to time, unilaterally change any
provision for the application of payments and installments by mailing a written
notice to Debtor of the change.
-1-
<PAGE>
The notice shall be mailed to the address indicated herein or such other address
that Debtor may furnish in writing to an appropriate officer of Bank and shall
be mailed not less than fifteen (15) days prior to the effective date of such
change.
If this note is not paid in full at maturity (whether by lapse of time,
acceleration of maturity or otherwise), the interest rate otherwise in effect
hereunder shall be increased by three percent (3.0%) per annum, provided that in
no event shall principal of and interest on this note bear interest after
maturity at a rate less than the interest rate actually in effect hereunder
immediately after maturity.
The occurrence of any of the following shall constitute an EVENT OF DEFAULT
hereunder:
(a) Debtor's Bank Debt or any part thereof shall not be paid in full
promptly when due (whether by lapse of time, acceleration of maturity or
otherwise);
(b) any Obligor shall die or be dissolved;
(c) any representation or warranty made by any Obligor in this note or any
Related Writing shall be false or erroneous in any material respect;
(d) any Obligor shall fail or omit to perform or observe any agreement made
by that Obligor in this note or in any Related Writing;
(e) a judgment shall be entered against any Obligor in any court of record;
(f) any deposit account of any Obligor is attached or levied upon;
(g) any voluntary petition by or involuntary petition against any Obligor
shall be filed pursuant to any chapter of any bankruptcy code or any
Obligor shall make an assignment for the benefit of creditors, or there
shall be any other marshalling of the assets and liabilities of any Obligor
for the benefit of the Obligor's creditors;
(h) any Obligor enters into any merger or consolidation or sells, leases,
or otherwise disposes of all or substantially all of such Obligor's assets
in any manner other than in the ordinary course of business; or
(i) any Obligor's Bank Debt or any part thereof shall not be paid in full
immediately when due (whether by lapse of time, acceleration of maturity or
otherwise).
Upon the occurrence of an Event of Default, the holder of this note may, in its
sole discretion, declare this note to be due and payable, and the principal of
and interest on this note shall thereupon become immediately payable in full,
without any presentment, demand or notice of any kind, which Debtor hereby
waives. Debtor will pay to Bank all costs and expenses of collection of this
note, including, without limitation, attorneys' fees.
-2-
<PAGE>
In this note, the following terms have the following meanings:
(a) BANK DEBT means Debt payable to Bank, whether initially payable to Bank
or acquired by Bank by purchase, pledge or otherwise and whether assigned
or participated to or from Bank in whole or in part;
(b) BUSINESS DAY means a day on which Bank's main office is open to the
public for carrying on substantially all of its banking functions, but
shall not include Saturdays, Sundays or legal holidays;
(c) DEBT means, collectively, all monetary liabilities, and any charges or
expenses incurred in connection therewith, now or hereafter owing by the
Person or Persons in question, including, without limitation, every such
liability whether owing by such Person or one (1) of such Persons alone
or jointly, severally or jointly and severally, whether owing absolutely
or contingently, or directly or indirectly, and whether created by loan,
overdraft, guaranty or other contract or by quasi-contract, tort, statute
or other operation of law;
(d) OBLIGOR means any Person who is or shall become obligated or whose
property is or shall serve as collateral for the payment of Debtor's Bank
Debt or any part thereof in any manner and, in addition to Debtor,
includes, without limitation, any maker, endorser, guarantor, subordinating
creditor, assignor, pledgor, mortgagor or hypothecator of property;
(e) PERSON means a natural person or entity of any kind, including, without
limitation, any corporation, partnership, trust, governmental body, or any
other form or kind of entity;
(f) PRIME RATE means the fluctuating rate of interest which is publicly
announced from time to time by Bank at its principal place of business as
being its "prime rate" or "base rate" thereafter in effect, with each
change in the Prime Rate automatically, immediately and without notice
changing the fluctuating interest rate thereafter applicable hereunder, it
being agreed that the Prime Rate is not necessarily the lowest rate of
interest then available from Bank on fluctuating rate loans;
(g) REINVESTMENT RATE means a rate of interest equal to the "bond
equivalent yield" for the most actively traded issues of U.S. Treasury
Bills. U.S. Treasury Notes or U.S. -Treasury Bonds for a term similar to
the period from the date of prepayment to the due date of the final
installment of this note and in a principal amount comparable to the
principal amount being prepaid, all as reasonably determined by Bank; and
(h) RELATED WRITING means a writing of any form or substance signed by any
Obligor (whether as principal or agent) or by any attorney, accountant or
other representative of any Obligor and received by Bank in respect of
Debtor's Bank Debt or any part thereof, including, without limitation, any
credit application, credit agreement, reimbursement agreement, financial
statement, promissory note, guaranty, indenture, mortgage, security
agreement, authorization, subordination agreement, certificate, opinion or
any similar writing.
Debtor certifies to Bank that all funds disbursed under this note will be used
for business or commercial purposes.
Debtor and the undersigned guarantors, if any, hereby authorize Bank to share
all credit and financial information relating to Debtor and the undersigned
guarantors, if any, with Bank's
-3-
<PAGE>
parent company, and with any subsidiary or affiliate company of Bank or of
Bank's parent company.
In no event shall the interest rate in effect on this note exceed the maximum
rate permissible under the law governing this note.
If Debtor consists of more than one Person, Debtor shall be jointly and
severally liable on this note.
Any holder's delay or omission in the exercise of any right under this note
shall not operate as a waiver of that right or of any other right under this
note.
If any provision of this note is determined by a court of competent jurisdiction
to be invalid, illegal or unenforceable, that determination shall not affect any
other provision of this note, and each such other provision shall be construed
and enforced as if the invalid, illegal or unenforceable provision were not
contained herein.
This note and the Related Writings set forth the entire agreement between the
parties regarding the transactions contemplated hereby, and supersede all
prior agreements, commitments, discussions, representations and
understandings, whether written or oral, and any and all contemporaneous oral
agreements, commitments, discussions, representations and understandings
between the parties relating to the subject matter hereof.
No amendment, modification or supplement to this note or any Related Writings
shall be binding unless executed in writing by all parties thereto, and this
provision shall not be subject to waiver by any party and shall be strictly
enforced.
This note shall be governed by the law of the state in which Bank has its
principal place of business.
Debtor and the undersigned guarantors, if any, jointly and severally authorize
any attorney-at-law to appear in any state or federal court of record in the
United States after this note matures (whether by lapse of time, acceleration of
maturity or otherwise); to waive the issuance and service of process; to confess
judgment against Debtor and/or any undersigned guarantor in favor of the holder
of this note for the amount then appearing due, together with interest and costs
of suit; and to release all errors and waive all rights of appeal and stay of
execution. If any judgment against Debtor and/or any undersigned guarantor is
vacated for any reason, this warrant of attorney may be used to obtain
additional judgments.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
560 Dublin Avenue QPI MULTIPRESS, INC., AN OHIO
Columbus, Ohio 43215 CORPORATION
( )
--- -------------- By: /s/ William Harrison, Jr.
----------------------------
William Harrison, Jr.
Its: Vice President
-4-
<PAGE>
LEASE MODIFICATION AGREEMENT NO. 4
THIS LEASE EXTENSION AGREEMENT ("Agreement") is made this __ day of January,
1998 by and between QUALITY PRODUCTS, INC., MULTIPRESS DIVISION, a Delaware
Corp., with a mailing address at P.O. Box 154, Columbus, OH 43216 ("Lessee") and
JAEGER COMMERCE PARK LIMITED PARTNERSHIP: with a mailing address at 3016
Maryland Avenue, Columbus, OH 43209 ("Lessor").
BACKGROUND INFORMATION
A. On or about August 25, 1992, Lessor, as lessor, and Lessee, as lessee,
entered into a lease agreement with respect to approximately 50,839 square
feet of commercial space located at 560 Dublin Avenue, Suite 200, Columbus,
Ohio 43215 ("Lease").
B. Pursuant to Article XXVI of the Lease, the parties previously extended
the term of the Lease through June 30, 1998.
C. The parties desire to further extend the term of the Lease in
accordance with the terms of this agreement.
STATEMENT OF AGREEMENT
For and in consideration of the mutual promises and conditions contained
herein, the parties acknowledge the accuracy of the foregoing Background
Information and agree as follows:
1. The term of the Lease, as previously extended, is further extended for
an additional two (2) year term commencing on July 1, 1998 and ending
on June 30, 2000.
2. The rental rate shall be $ 8,050.00 monthly and $ 193,200.00 for the
Term.
3. Lessor shall furnish and install, if structurally feasible and cost
does not exceed $10,000.00, an over-head crane with a capacity of 10
tons. All Lessee's use of such cranes will be in accordance with
Paragraph 12 of the Lease dated August 25, 1992.
5. The Lessor may terminate this Lease for demolition purposes only, by
the Lessor giving the Lessee written notice no less than one-hundred
and eighty days (180) prior to such termination. Said written notice
shall be as provided in Article XXVI of the Lease. After such notice,
the Lessee shall have one-hundred-eighty days (180) free of any rental
payments in order to vacate the demised premises.
6. Except as modified by this Agreement, all terms, provisions and
conditions of the Lease shall remain in full force and effect,
including any increases for real estate taxes.
The parties have executed the Agreement as of the day and year indicated above.
WITNESSES: LESSOR:
/s/ [Illegible] JAEGER COMMERCE PARK LIMITED PARTNERSHIP
- --------------------------
/s/ Jane F. Nebel By: /s/ [Illegible] Title Partner
- -------------------------- --------------------- ------------
LESSEE:
/s/ [Illegible] QUALITY PRODUCTS, INC.,
- -------------------------- MULTIPRESS DIVISION.
/s/ Rebecca C. Melton By: /s/ [Illegible] Title VP OPERATIONS
- -------------------------- ------------------- --------------
ACKNOWLEDGMENTS ON NEXT PAGE
January 25, 1998 Page 1 of 2 -QPI/4
<PAGE>
ACKNOWLEDGMENTS
STATE OF OHIO)
)SS:
COUNTY OF FRANKLIN)
BEFORE ME, a Notary Public, in and for said County, personally appeared Jaeger
Commerce Park, an Ohio Limited Partnership, Lessor, by a partner, Marvin Katz,
who acknowledged that he did sign the foregoing instrument and that the same is
his free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Columbus,
Ohio this 29 day of January, 1998.
/s/ Jane F. Nebel
------------------------------
STATE OF OHIO) JANE F. NEBEL
)SS: [SEAL] NOTARY PUBLIC, STATE OF OHIO
COUNTY OF FRANKLIN) MY COMMISSION EXPIRES SEPT. 15, 2002
BEFORE ME, a Notary Public, in and for said County, personally appeared
Quality Products, Inc., Multipress Division, Lessee, by its Vice President,
William Harrison, Jr., who acknowledged that he did sign the foregoing
instrument and that the same is his free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Columbus, Ohio this 29 day of January, 1998.
/s/ Jane F. Nebel
------------------------------
JANE F. NEBEL
[SEAL] NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES SEPT. 15, 2002
January 25, 1998 Page 2 of 2 -QPI/4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 685187
<SECURITIES> 0
<RECEIVABLES> 638498
<ALLOWANCES> (11867)
<INVENTORY> 726040
<CURRENT-ASSETS> 2171278
<PP&E> 973773
<DEPRECIATION> (822775)
<TOTAL-ASSETS> 2329556
<CURRENT-LIABILITIES> 1276123
<BONDS> 1548193
0
0
<COMMON> 25
<OTHER-SE> (494785)
<TOTAL-LIABILITY-AND-EQUITY> 2329556
<SALES> 6483450
<TOTAL-REVENUES> 6483450
<CGS> 4447498
<TOTAL-COSTS> 6123580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111390
<INCOME-PRETAX> 315734
<INCOME-TAX> 25887
<INCOME-CONTINUING> 289847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289847
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
