SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1997
Central Index Key # 856572
Commission File Number: 33-31566
ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
(formerly Aerial Acquisitions Inc.)
Exact Name of Registrant as Specified in its Charter
Delaware 77-0219055
State or Other Jurisdiction of IRS Employer Iden-
Incorporation or Organization tification Number
10096 Sixth Street, Units M-P
Rancho Cucamonga, California 91730
Address of Principal Executive Offices Zip Code
(909) 466-0081
Registrant's Telephone Number,
Including Area Code
N/A
Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.Yes No X
As of March 31, 1997, 14,046,420 shares of Common Stock; 12,530,979 Class A
and 12,530,979 Class B common stock purchase warrants were outstanding.
Transitional Small Business Disclosure Format: Yes No X
Item 1. Financial Statements.
See attached.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Since inception in 1989, the Registrant has relied principally on the
proceeds from one public and several private offerings of its securities to
fund operations. The Registrant has used the proceeds from these offerings
and the limited revenues it has received from sales of the Registrant's
products to fund research and development activities and to cover its
recurring operating deficits. From inception in March, 1989 to June 30, 1997,
a total of $10,500,779 (net) has been received from these financing
activities. At June 30, 1995, the Registrant had cash and cash equivalents
totaling $57,980 available to cover recurring operating deficits and research
and development expenses.
The Registrant incurs considerable expense in demonstrating and testing
its products. Government approvals for each of the products and adaptations
thereto must be obtained before its products may be marketed. The Registrant
is also incurring substantial expenses in demonstrating its products to
prospective customers, both civilian and governmental. During 1995, the
Registrant's Board of Directors determined that the results of its marketing
efforts in conjunction with its recently developed blend center warranted
concentrating marketing efforts on the distribution of blend centers with
particular concentration on regional and national restaurant chain
franchisees. As a result, it changed its marketing strategy to one whereby it
is currently attempting to establish relationships with owners of regional and
national restaurant chain franchises, while also pursuing relationships with
other potential high volume consumers in both the civilian and governmental
sectors in an effort to broaden its distribution and gain market acceptance.
A significant number of such relationships have been established to date.
Management believes that this approach will result in substantially higher
revenues from product sales and thereby significantly improve the Registrant's
liquidity.
The Registrant's long term viability is dependent upon improving
liquidity through increased product sales. In the interim, Management
believes that the current cash in its account and cash from ongoing operations
should be adequate to meet its research and development, marketing,
administrative expenses and cash commitments through fiscal 1996 or until the
Registrant reaches consistent profitability from ongoing internal operations
if that is later. The Registrant may continue to offer its securities on a
public or private basis as a means of supplementing it liquidity from ongoing
operations.
Other than continuing development expenses related to new products,
estimated to be 3% of the Registrant's net revenues on an annual basis,
commitments under facilities' leases totaling $185,200 through August, 1999,
the Registrant has no other known commitments for its capital resources as of
June 30, 1996. Management believes that cash available from ongoing
operations and, if necessary, from additional financing, will cover these
commitments.
The Registrant's total assets increased from $520,604 at June 30, 1996
and decreased from $1,913,750 at December 31, 1996 to $1,578,387 at June 30,
1997. The increase of $1,057,783 (203.2%) was primarily due to an increase in
notes and bonds purchased with cash from equity offerings. The decrease of
$335,363 (-17.52%) was primarily due to liquidation of notes and bonds.
The Registrant's total liabilities increased from $1,846,430 at June 30,
1996 and $2,171,377 at December 31, 1996 and decreased to $1,894,394.20 at
June 30, 1997. The increase of $47,964 (2.6%) was primarily due to an
increase in notes payable to stockholders. The decrease of $276,983 (-12.8%)
was primarily due to a decrease in notes payable to stockholders. These
respective increases were due primarily to (I) increased accrued expenses net
of decreased accounts payable, and, increased notes payable to securities
holders; and, (ii) increased accrued expenses, accounts payable, and notes
payable.
The Registrant's accrued expenses decreased from $522,594 at June 30,
1996 and $39,289 at December 31, 1996 to $7,111 at June 30, 1997, total
decreases of $515,483 (-98.6%) and $32,178 (-81.9%), respectively. These
respective increases were due primarily to (I) the accrual of certain services
provided to the Registrant during the period which were converted to common
stock or common stock subscribed as of December 31, 1997; and, (ii) the
accrual of services that were converted to stock as noted above.
The Registrant's notes payable increased from $1,157,818 at June 30, 1996
and $1,872,185 at December 31, 1996 and decreased to $1,249,359 at June 30,
1997, total increase of $91,541 (7.91%) and decrease of $622,826 (-33.27%),
respectively. The increase was attributable to net amounts of convertible
promissory notes issued versus the conversion of outstanding promissory notes
to common stock or common stock subscribed. The decrease was primarily due
to the conversion of the convertible notes to shares of common stock.
The Registrant's accounts payable increased from $34,480 at June 30, 1996
and increased from $74,869 at December 31, 1996 to $277,849 at June 30, 1997,
a total
decrease and increase, respectively, of $243,369 (705.8%) and $202,980
(271.11%). The increase was primarily due to the accrual of operating
expenses for the current period, increased inventory purchases and the accrual
of payment of several convertible promissory notes.
The Registrant's accumulated deficit increased from $7,966,225 at June
30, 1996 and $8,506,454 at December 31, 1996 to $9,563,445 at June 30, 1997,
(20.1%) and (12.4%), respectively, as a result of increased net losses from
operations.
Since inception, the Registrant has experienced significant losses from
operations in each successive period. For the six months ended June 30, 1997,
as compared to the six months ended June 30, 1996, net loss from operations
increased $180,137 (31.1%) to $759,916 from $579,779; gross sales of products
increased $647,026 (935.6%) to $716,186 from $69,160; cost of product sales
increased $272,913 (573%) to $320,539 from $47,626; selling, general and
administrative expenses increased $518,914 (93.2%) to $1,075,750 from
$556,836; and, interest expense increased $43,400 (97.6%) to $87,877 from
$44,477. The Registrant achieved a gross profit percentage of approximately
55.2% for the six month period ended June 30, 1997 as compared to 31.1% for
the six month period ended June 30, 1996 and 23.5% for the year ended December
31, 1996.
Management expects to be able to maintain or improve gross profit margins
into the future. Currently, the Registrant sells most of its products by the
gallon in various sized containers and prices its products based on container
size. The Registrant has experienced no price pressure and structures its
prices to be competitive with other products sold in similar markets.
Since inception, the Registrant has primarily used equity financing
transactions and borrowings convertible to equity securities to improve its
liquidity while operations have been unable, until at least early 1996, to
generate adequate working capital. Net cash used in operating activities for
the six months ended June 30,
1997 was 1,933,169.
As a result of what Management perceives to be an ever-increasing
societal emphasis on the utilization of environmentally responsible products
in a responsible and efficient manner, Management believes that the
Registrant's products, which are principally aqueous based, non-toxic and
biodegradable, have significant future market potential, especially when
considered in conjunction with the Registrant's blend center method of product
distribution, although the extent of that potential can not be determined at
this time.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
During the period covered by this Report, the three months ended March
31, 1997, the Registrant was involved in the following legal proceedings.
In March, 1997, the Registrant filed a legal action against George A.
Money, a former officer and director, seeking to cancel the 659,931 shares of
Registrant's common stock currently held by Mr. Money. The Registrant
contends in its complaint that Mr. Money did not give the promised
consideration underlying the issuance of such shares. That consideration was
to consist of certain real property, fixtures and equipment located in Iowa as
well as certain chemical formulae. As of the date this Report was filed, Mr.
Money had not filed an answer to the Registrant's complaint and a default
judgment has been entered against Mr. Money.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Registrant was formed on March 21, 1989, to evaluate, structure and
complete a merger with, or acquisition of, other entities. The Registrant
initially conducted organizational matters followed by the sale of 32,000,000
shares of common stock, to insiders, for a total of $3,200; and, the sale of
37,275,000 Units in a public offering, completed August 6, 1990, which raised
$372,750 in gross proceeds. Each Unit consisted of one share of the
Registrant's no par value common stock, one (1) Class A common stock purchase
warrant and one (1) Class B common stock purchase warrant. Originally, each A
Warrant entitled the holder to purchase, at a price of $.04, one share of the
Registrant's common stock during the two year period commencing February 6,
1990; and, each B Warrant entitled the holder to purchase one share of the
Registrant's common stock, at a price of $.07 per share, during the three year
period commencing February 6, 1990. The Class A and Class B Warrants have
been extended to February 6, 1998 and 1999, respectively; and, due to a one
for one hundred (1:100) reverse split of the Registrant's outstanding
securities effected March 25, 1994, the exercise prices of the Class A and
Class B Warrants have been adjusted to $4.00 and $7.00, respectively. The
Registrant has the right to redeem the A and B Warrants upon 30 days written
notice at a price of $.01 per Warrant.
On August 24, 1990, the Registrant entered into an agreement to acquire
an approximately ninety-five percent (94.9%) ownership interest in Ultra
Shield Products International, Inc., a California corporation, of Rancho
Cucamonga, California ("USPIC"). The acquisition was effected through an
exchange of 132,397,000 (65.2%) of the Registrant's authorized, but unissued,
shares of common stock for 47,453,256 (94.9)% shares of the common stock of
USPIC, which shares were then owned by the individuals serving as the officers
and directors of USPIC at that time. In accordance with the Registrant's
acquisition of USPIC, the Registrant subsequently changed its name to Ultra
Shield Products International, Inc., a Delaware corporation.
Following the exchange of shares described above, it was the Registrant's
intent that it prepare a Form S-4 Registration Statement under the Securities
Act of 1933, as amended, for the purpose of attempting to complete the
Registrant's acquisition of all of the outstanding shares (100%) of USPIC in
exchange for an overall total of approximately 81% percent of the Registrant's
equity securities.
Item 6. Exhibits and Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1997 ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
By /s/ J.W. Rutherford
J.W. Rutherford, President
ULTRA SHIELD PRODUCT INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1997 and 1996
1997 1996
Revenues
Net Sales $ 716,186 $ 69,160
_____________ ______________
Costs and expenses
Cost of product sales 320,539 47,626
Selling, general and administrative 1,075,750 556,836
_____________ ______________
Total costs and expenses 1,396,288 604,462
Other Income/Expense
Interest income 8,063 -
Interest expense 87,877 44,477
_____________ ______________
Loss before provision for income taxes (759,916) (579,779)
Provision for income taxes 1,600
_____________
Net loss $ (761,516) $ (579,779)
_____________ ______________
_____________ ______________
ULTRA SHIELD PRODUCT INTERNATIONAL, INC.
BALANCE SHEETS
June 30, 1997 June 30, 1996
ASSETS
Current Assets
Cash $ 57,980 $ 216,765
Accounts Receivable (Net) 389,657 39,394
Inventories 362,972 209,481
Prepaid expenses and other current
assets 369,070 -
_____________ _________________
Total Current Assets 1,179,678 465,640
Property and Equipment
Property and equipment, at cost 382,516 237,004
Less accumulated depreciation 240,236 182,890
_____________ _________________
Total Property and Equipment 142,280 54,114
Other Assets
Capital Lease - Equipment 67,923
Refundable Deposits 2,850
Investment-Real Estate 185,656 850
_____________ _________________
Total Other Assets 256,429
______________________________________________________________________________
Total Assets $ 1,578,387 $ 520,604
______________________________________________________________________________
______________________________________________________________________________
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 277,849 $ 34,480
Notes payable to stockholders (Note 1) 1,249,359 1,157,818
Note payable - -
Accrued interest 65,197 103,583
Accrued payroll taxes 32,363 27,955
Accrued expenses 7,111 522,594
_____________ _________________
Total Current Liabilities 1,631,879 1,846,430
Long Term Liabilities
Capital Lease Payable 56,265.35 -
Other Long Term Liabilities 206,250.00 -
_____________ _________________
Total Long Term Liabilities 262,515.35 -
______________________________________________________________________________
Total Liabilities 1,894,394.20 1,846,430.00
______________________________________________________________________________
ULTRA SHIELD PRODUCT INTERNATIONAL, INC.
BALANCE SHEETS
June 30, 1997 June 30, 1996
Stockholders' Deficit
Preferred stock, $.0001 par value,
10,000,000 shares authorized, no
shares issued and outstanding - -
Common stock, $.0001 par value,
500,000,000 shares authorized,
13,348,764 and 9,354,091 shares
issued and outstanding at
June 30, 1997 and June 30, 1996,
respectively 1,324 935
Common stock subscribed, $.0001 par
value, 5000 shares to be issued at
June 30, 1997 1
Additional paid in capital 9,250,096 6,639,464
Unrealized holding (Gain)/Loss on
investments (3,983)
Accumulated deficit (8,801,929)
Net Income (Loss) (761,516) (7,966,225)
_____________ _________________
Total Stockholders' deficit (316,007) (1,325,826)
______________________________________________________________________________
Total Liabilities and Capital $ 1,578,387 $ 520,604
______________________________________________________________________________
______________________________________________________________________________
Note 1 - Notes payable to stockholders
Notes payable to stockholders at June 30, 1997 of $1,249,359 are
convertible to units of common stock at the option of the note holders
over various dates through a six month period ending December 31, 1997.
History shows 95% of all note holders convert to shares of company stock.
Unaudited - For Management Purposes Only
ULTRA SHIELD PRODUCT INTERNATIONAL, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
For the Six Months Ended June 30, 1997
Common
Common Stock Stock Subscribed
Shares Amount Shares Amount
Balance at
January 1, 1997 11,023,891 1,102 - $ -
Shares issued or
subscribed for cash 768,200 77 -
Shares issued for payment
on notes payable 1,115,800 112 - -
Shares issued or subscribed
in lieu of interest 53,155 5 - -
Shares issued for services 285,718 29 - -
Net loss
____________________________________________________
Balance at
March 31, 1997 13,246,764 $ 1,325 - $ -
__________ _________ _________ _________
__________ _________ _________ _________
Unrealized
Holding Gain Total
Paid - in (Loss) on Accumulated Stockholders'
Capital Investments (Deficit) (Deficit)
Balance at
January 1, 1997 $ 8,184,987 $ (3,983) $(8,801,929) (619,823)
Shares issued or
subscribed for cash 367,793 367,870
Shares issued for payment
on notes payable 528,281 - - 528,393
Shares issued or subscribed
in lieu of interest 26,200 - - 26,205
Shares issued for services 142,835 - - 142,864
Net loss (761,516) (761,516)
____________________________________________________
Balance at
March 31, 1997 $ 9,250,096 $ (3,983) $(9,563,445) $ (316,007)
___________ ___________ ____________ ____________
___________ ___________ ____________ ____________
Ultra Shield Products International, Inc.
Statement of Cash Flows
For The Six Months Ended June 30, 1997
Cash Flows from operating activities
Net Loss (761,516.45)
Adjustments to reconcile net income to net cash provided
by operating activities:
Accumulated Depreciation 27,800.00
Allowance for Bad Debts 5,325.00
Accounts Receivable (499,002.84)
Notes Receivable-Officers 38,614.03
Employee Advances (3,599.65)
Notes Receivable-Others (198,617.00)
Officers Advances (517.00)
Commission Advances (500.00)
Inventories (60,778.05)
Prepaid Expenses 7,616.34
Accounts Payable 202,979.49
Accrued Interest 14,470.45
Accrued payroll and payroll taxes (61,762.93)
Accrued Expenses (23,364.30)
Sales Tax Payable 4,387.12
Notes Payable-Jamgotchian (125,000.00)
Officers Credit Line (1,878.83)
Notes Payable-Conv. to Stock (497,825.00)
______________
Total Adjustments (1,171,653.17)
__________________________________________________________________
Net Cash provided by Operations (1,933,169.62)
__________________________________________________________________
Cash Flows from investing activities used for
Furniture and Fixtures (4,504.15)
Machinery and Equipment (23,310.02)
Computer Equipment (5,420.77)
Trade Show Equipment (3,369.35)
Leasehold Improvements (4,124.89)
Capital Lease Equipment (14,707.50)
Property and Equipment (Net) (9,435.00)
__________________________________________________________________
Net cash used in investing (64,871.68)
__________________________________________________________________
Cash Flows from financing activities, Proceeds From:
Capital Lease Payable 17,607.75
Total Long Term Liabilities 206,250.00
Common Stock 221.83
Ultra Shield Products International, Inc.
Statement of Cash Flows
For The Six Months Ended June 30, 1997
Stock Subscribed 10.15
Additional Paid In Capital 1,065,246.12
Unrealized Holding (Gain)/Loss, Used For 2,203.50
Capital Lease Payable (12,845.15)
Stock Subscribed (10.00)
Additional Paid In Capital (136.78)
Unrealized Holding (Gain)/Loss (2,203.50)
__________________________________________________________________
Net cash used in financing 1,276,343.92
__________________________________________________________________
______________________________________________________________________________
Net increase (decrease) in cash (721,697.38)
______________________________________________________________________________
______________________________________________________________________________
Summary
Cash Balance at End of Period 57,979.63
Cash Balance at Beginning of Period (776,426.57)
Net Increase-Decrease in Cash (718,446.94)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 57,980
<SECURITIES> 0
<RECEIVABLES> 529,606
<ALLOWANCES> (139,949)
<INVENTORY> 362,972
<CURRENT-ASSETS> 1,179,678
<PP&E> 382,516
<DEPRECIATION> 240,236
<TOTAL-ASSETS> 1,578,387
<CURRENT-LIABILITIES> 1,631,879<F1>
<BONDS> 0
0
0
<COMMON> 1,324
<OTHER-SE> (316,007)
<TOTAL-LIABILITY-AND-EQUITY> 1,578,387
<SALES> 716,186
<TOTAL-REVENUES> 716,186
<CGS> 320,539
<TOTAL-COSTS> 1,396,288
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,877
<INCOME-PRETAX> (759,916)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (761,516)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
<FN>
<F1>Notes payable to stockholders of 1,249,359 are convertible to units of
common stock at the option of the noteholders over various dates through
December 31, 1997. On average 95% convert to stock.
</FN>
</TABLE>
