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 March 31, 1998
Central Index Key #856572
Commission File Number: 33-31566
ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
Exact Name of Registrant as Specified in its Charter
Delaware 77-0219055
State or Other Jurisdiction of IRS Employer Identification
Incorporation or Organization 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, 1998 22,798,831 shares of common stock; 21,283,390 Class A
and 21,283,390 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 March 1998 a
total of 12,584,344 (net) has been received from these financing activities.
At March 31, 1997, the Registrant had cash and cash equivalents totaling
$30,946 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 1998 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 its 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 know 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 decreased from $792,408 at December 31,
1997 to $768,315 at March 31, 1998. The decrease of $24,093 (.03%) was
primarily due to decreased accounts receivable and notes receivable.
The Registrant's total liabilities increased from $1,858,088 at December
31, 1997, to $1,931,657 at March 31, 1998. The increase of $73,569 (3.81%)
was primarily due to notes payable to stockholders.
The Registrant's accrued expenses increased from $360,627 at December
31, 1997, to $440,131 (4.19%) at March 31, 1998. The increase of $79,504 was
due to an increase in accrued payroll and related expenses.
The Registrant's accrued expenses increased from $98,492 at March 31,
1997 to $360,627 at December 31, 1998, to $440,131 at March 31, 1998. Total
increase of $262,135 (72.69%) and $79,504 (18.86%), respectively. These
increases were due primarily to accrued interest on notes, payroll and related
taxes, and anticipated legal expenses.
The Registrant's notes payable decreased from $1,484,209 at March 31,
1997 to $1,033,242 at December 31, 1997, increased to $1,131,792 at March 31,
1998. Total decrease of $450,967 (30.38%) and increase of $98,550 (8.7%),
respectively. These respective decreases were due to (i) notes converted to
common stock or common stock subscribed as of March 31, 1997; and, (ii) the
accrual of certain services provided to the Registrant during the period.
The Registrant's accounts payable increased from $143,449 at March 31,
1997 to $247,119 at December 31, 1998, to $308,450 at March 31, 1998. Total
increase of $103,670 (41.95%) and increase of $61,311 (19.88%), respectively.
The increase was due to the accrual of operating expenses for the periods,
increased inventory purchases and the accrual of payment of several
convertible promissory notes.
The Registrant's accumulated deficit increased from $9,571,675 at March
31, 1997 to $12,449,206 at December 31, 1998, to $12,749,927 at March 31,
1998. Total increase of $2,877,531 (23.11%) and increase of $300,721 (2.36%),
respectively, as a result of increased net losses from operations.
Since inception, the Registrant has experienced significant losses from
operations in each successive period. In the three months ending March 31,
1998, as compared to the three months ended March 31, 1997, net loss from
operations decreased $217,653 (41.99%) from $518,374 March 31, 1997 to
$300,721 March 31, 1998; gross sales of products increased $72,910 (61.22%)
from $46,177 to $119,096; cost of product sales increased $58,796 (57.16%)
from $44,065 to $102,861; selling, general and administrative expenses
decreased $204,373 (39.33%) from $519,595 to 315,222; and other income and
expense increased $834 (48.35%) from $891 to $1725.
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 to generate adequate working
capital. Net cash used in operating activities for the three months ended
March 31, 1998 was $1625.29.
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.
Through legal counsel, Management is currently involved in discussions
and negotiations with J.W. Rutherford relative to certain issues which have
arisen from the circumstances surrounding, and activities underlying, Mr.
Rutherford's termination as President of the Registrant. Other than as
described below, neither party has commenced litigation over these issues,
though the possibility remains that the Registrant could become involved in
litigation regarding the resolution of these issues.
On December 4, 1998, the Registrant was served with a lawsuit commenced
by J.W. Rutherford as Plaintiff on November 23, 1998 in the Montana Sixth
Judicial District Court, Park County, Montana. In the complaint, the
Plaintiff claims to be the sole and rightful owner of certain Montana cabin
properties which were, at one point, owned by the Registrant, and claims that
such properties were purchased with Mr. Rutherford's money for his sole and
exclusive use.
The complaint alleges, among other things, (i) that the properties were
purchased by Mr. Rutherford because his wife, Carol Rutherford, is from
Montana and her mother lives near the properties; (ii) that the Registrant
owes Mr. Rutherford in excess of $500,000 from unpaid wages and personal loans
he made to the Registrant; (iii) that it had been agreed between Mr.
Rutherford and the Registrant that the properties were being purchased for Mr.
Rutherford's exclusive and perpetual ownership, possession, control and quiet
enjoyment in consideration for his performance, unpaid wages and unpaid loans
to the Registrant.
The complaint also seeks compensatory and special damages and attorneys'
fees. The Registrant has filed its answer, denying these claims as part of
its ongoing, vigorous efforts to resolve all of the Registrant's issues with
Mr. Rutherford.
The Registrant is also involved in certain legal proceedings and claims
that arise in the normal course of business. Management does not believe that
the outcome of these matters will have a material adverse effect on the
Registrant's financial position or results of operations.
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.
On September 25, 1998, the Registrant's Board of Directors suspended J.W.
Rutherford, without pay, from all of his Officer positions pending the outcome
of an investigation into his performance and conduct while in those roles. At
a duly called and noticed meeting of the Board of Directors held in the
offices of the Registrant's legal counsel on October 22, 1998, the Board of
Directors terminated Mr. Rutherford, for cause, effective September 25, 1998,
based upon the results of its investigation into his conduct and performance.
Mr. Rutherford is no longer employed in any capacity by the Registrant and his
position as a member of the Company's Board of Directors will end on the date
of the upcoming shareholders' meeting. In a related matter, Management is
pursuing the return of the 2,000,000 Units of Registrant's securities issued
to Mr. Rutherford as a $1,000,000 bonus, which securities were forfeited back
to the Registrant according to an applicable forfeiture provision upon Mr.
Rutherford's termination.
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: January 5, 1999 ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
By: /s/ Brent J. Humphrey
Brent J. Humphrey, President, Chief
Executive Officer and Chief Financial and
Accounting Officer
Ultra Shield Products Int'l, Inc.
Balance Sheet
March 31, 1998
ASSETS
Current Assets
Cash In Banks
$ 30,946.29
Accounts Receivable
51,632.01
Notes Receivable
30,627.64
Inventory
253,098.28
Prepaid Expenses
<1,512.74>
_________________
Current Assets
364,791.48
Property and Equipment
123,014.37
Other Assets
280,509.49
_________________
Total Assets $ 768,315.34
==================
LIABILITIES AND CAPITAL
Current Liabilities
$ 1,895,299.03
Long-Term Liabilities
36,358.19
_________________
Total Liabilities 1,931,657.22
Capital
Common Stock 2,241.56
Notes Reciv-Subscribers <1,000,000.00>
Additional Paid In
Capital 12,584,344.04
Retained Earnings
(Deficit) <12,449,206.37>
Net Income <300,721.11>
_________________
Total Capital <1,163,341.88>
__________________
Total Liabilities & Capital $ 768,315.34
==================
Ultra Shield Products Int'l, Inc.
Income Statement
For the Three Months Ending March 31, 1998
Current Quarter Year to Date
Net Revenues $ 119,095.69 $ 119,095.69
Cost of Sales 102,861.23 102,861.23
Gross Profit 16,234.46 16,234.46
__________________ __________________
Total Expenses 316,955.57 316,955.57
__________________ __________________
Net Income $ <300,721.11> $ <300,721.11>
================== ==================
Ultra Shield Products Int'l, Inc.
Statement of Cash Flow
For the three Months Ended March 31, 1998
Current Month Year to Date
Cash used in operating activities
Net Income $ <300,721.11> $ <300,721.11>
Adjustments to reconcile net
income to net cash provided by
operating activities
Depreciation 14,880.00 14,880.00
Current assets 11,834.85 11,834.85
Current Liabilities 77,946.83 77,946.83
_________________ _________________
Total Adjustments 104,661.68 104,661.68
_________________ _________________
Net Cash provided by Operations <196,059.43> <196,059.43>
_________________ _________________
Cash Flows from investing activities
<922.35> <922.35>
_________________ _________________
Net cash used in investing <922.35> <922.35>
_________________ _________________
Cash Flows from financing activities
202,978.43 202,978.43
<4,371.36> <4,371.36>
_________________ _________________
Net cash used in financing 198,607.07 198,607.07
_________________ _________________
Net increase <decrease> in cash $ 1,625.29 $ 1,625.29
================= =================
Summary
Cash Balance at End of Period $ 30,946.29 $ 30,946.29
Cash Balance at Beginning of P <5,521.24> <29,321.00>
_________________ _________________
Net Increase <Decrease> in Cash $ 25,425.05 $ 1,625.29
================= =================
Ultra Shield Products Int'l, Inc.
Statement of Changes in Financial Position
For the three months ended March 31, 1998
Current Month Year To Date
Sources of Working Capital
Net Income $ <300,721.11> $ <300,721.11>
Add back items not requiring
working capital
Depreciation 14,880.00 14,880.00
_________________ _________________
Working capital from operations <285,841.11> <285,841.11>
Other sources
Sale of old equipment 202,978.43 202,978.43
_________________ _________________
Total sources <82,862.68> <82,862.68>
_________________ _________________
Uses of working capital
Equipment purchase <5,293.71> <5,293.71>
_________________ _________________
Total uses <5,293.71> <5,293.71>
_________________ _________________
Net change $ <88,156.39> $ <88,156.39>
================= =================
Analysis of componants of changes
Increase <Decrease> in Current
Assets
Stock repurchases $ <10,209.56> $ <10,209.56>
<Increase> Decrease in Current
Liabilities
Stock repurchases <77,946.83> <77,946.83>
_________________ _________________
Net change $ <88,156.39> $ <88,156.39>
================= =================
ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR QUARTER ENDING MARCH 31, 1998
Common Stock Additional
Common Stock Subscribed Paid-in
Shares Amount Shares Amount Capital
Balance, December 31, 1997 20,644,090 2,064 12,381,544
Shares issued for
common stock subscribed 390,000 39
cash 482,911 48 167,925
services rendered 761,568 76
notes payable 294,985 29 34,875
in lieu of interest 4,685 0
Shares canceled
Shares reacquired (158,340) (16)
Unrealized loss on
investments
Net loss
Balance, March 31, 1998 22,419,899 2,242 0 0 12,584,344
ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
FOR QUARTER ENDING MARCH 31, 1998
Unrealized Note
Holding Receivable
Loss on from
Investments Stockholder
Balance, December 31, 1997 (1,000,000)
Shares issued for
common stock subscribed
cash
services rendered
notes payable
in lieu of interest
Shares canceled
Shares reacquired
Unrealized loss on
investments
Net loss
Balance, March 31, 1998 0 (1,000,000)
ULTRA SHIELD PRODUCTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Continued)
FOR QUARTER ENDING MARCH 31, 1998
Accumulated
Deficit Total
Balance, December 31, 1997 (12,450,307) (1,066,699)
Shares issued for 0
common stock subscribed 39
cash 167,973
services rendered 76
notes payable 34,904
in lieu of interest 0
Shares canceled 0
Shares reacquired (16)
Unrealized loss on
investments 0
Net loss (300,721) (300,721)
Balance, March 31, 1998 (12,751,028) (1,164,442)
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<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
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