US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2001
Commission File Number: 0-27382.
HOT PRODUCTS, INC.COM
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(Exact name of small business as specified in its charter)
ARIZONA 86-0737579
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(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
7625 E. REDFIELD RD., SCOTTSDALE, ARIZONA 85260
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(Address of principal executive offices)
(480) 368-9490
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of November 20, 2001 latest practicable date: 10,215,623 shares
of Common Stock, par value $0.01 per share.
Transitional Small Business Disclosure Format (Check one): Yes No X
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HOT PRODUCTS, INC.COM
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AND SUBSIDIARY
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Page
PART I FINANCIAL INFORMATION
Item 1 Financial Information
Consolidated Balance Sheet as of October 31, 2001 3
Consolidated Statements of Operations for the Three and Six Months
Ended October 31, 2001 and October 31, 2000 4
Consolidated Statements of Cash Flows for the Six Months
Ended October 31, 2001 and October 31, 2000 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis 8
PART II OTHER INFORMATION
Item 1 Litigation 13
Item 2 Change in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security-Holders 13
Item 5 Other Information 13
Item 6 Exhibits & Reports on Form 8-K 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOT PRODUCTS, INC.COM
CONSOLIDATED BALANCE SHEET
(Unaudited)
OCTOBER 31,
2001
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,338
Accounts receivable (net of $11,045 allowance) 19,092
Inventories 404,031
Prepaid expenses and other assets 31,903
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Total current assets 456,364
PROPERTY AND EQUIPMENT, net 29,068
OTHER ASSETS 30,759
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TOTAL ASSETS $ 516,190
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 423,032
Accrued liabilities and Customer Deposits 562,979
Notes Payable 114,290
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Total current liabilities 1,100,301
Contingent Liabilities and Disputed Payables 201,586
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TOTAL LIABILITIES 1,301,887
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 33,332,747
shares authorized, 10,215,623 issued and outstanding 102,156
Paid in capital 17,753,738
Accumulated deficit (18,641,591)
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TOTAL STOCKHOLDERS' EQUITY (785,697)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 516,190
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The accompanying notes are an integral part of these financial statements
3
HOT PRODUCTS, INC.COM
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, 2001 OCTOBER 31,
2001 2000 2001 2000
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NET SALES and ROYALTY REVENUES $ 180,316 $ 93,830 $ 287,273 $ 511,397
COST OF SALES 68,228 30,423 86,114 135,791
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Gross profit 112,088 63,407 201,159 375,606
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and benefits expense 82,264 73,876 184,102 191,774
Selling and promotion expense 3,061 88,140 9,114 97,772
Office and administrative 70,137 154,738 156,341 335,211
Research and development expense 516 23,982 912 38,046
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Total selling, general and administrative expenses 155,977 340,736 350,468 662,803
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LOSS FROM OPERATIONS (43,889) (277,329) (149,309) (287,197)
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OTHER (INCOME) AND EXPENSES
Gain on Disposal of Subsidiary (137,850)
Gain on Settlement of Lawsuit (300,000)
Interest expense and factoring charges 8,367 5,662 12,518 6,591
Other income (58,352) (733) (90,722) (27,969)
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Total other (income)/expense (49,985) 4,929 (516,054) (21,378)
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Net Income/(Loss) Before Extraordinary Item 6,095 (282,258) 366,745 (265,819)
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Extraordinary Item-Gain on Discontinued Product Line 798,148 798,148
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Net Income(Loss) $ 804,243 ($282,258) $ 1,164,893 ($265,819)
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Basic income/(loss) per common share $ 0.07 ($0.05) $ 0.11 ($0.04)
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Diluted income per common share $ 0.07 ($0.05) $ 0.11 ($0.04)
============ =========== ============ ===========
Basic earnings per share before extraordinary item * ($0.05) $ 0.03 ($0.04)
============ =========== ============ ===========
Diluted earnings per share before extraordinary item * ($0.05) $ 0.03 ($0.04)
============ =========== ============ ===========
Weighted average shares outstanding - Basic 10,215,623 5,613,539 10,194,550 5,613,539
============ =========== ============ ===========
Weighted average shares - Diluted 10,215,623 5,613,539 10,208,290 5,613,539
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* Less than $0.01
The accompanying notes are an integral part of these financial statements
4
HOT PRODUCTS, INC.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED
OCTOBER 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) $ 1,164,893 ($265,819)
Adjustments to reconcile net income/(loss)
to net cash provided by operating activities:
Depreciation and amortization 2,623 71,910
Noncash gain on disposal of subsidiary (137,850)
Changes in assets and liabilities:
Accounts receivable (20,904) (51,539)
Inventories 62,793 (200,253)
Prepaid expenses and other current assets (2,962) (13,890)
Other assets 150 (19,190)
Accounts payable (158,894) 177,884
Contingent and disputed liabilities (1,060,077)
Accrued liabilities and Customer Deposits 131,651 (152,810)
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Net cash (used in) provided by operating activities (18,577) (453,707)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,243)
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Net cash (used in) provided by investing activities 0 (5,243)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 36,500 464,000
Repayment on Notes Payable (11,850)
Payment of capital lease obligations (6,836) (7,162)
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Net cash (used in) provided by financing activities 17,814 456,838
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS (763) (2,112)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 2,101 14,751
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CASH AND EQUIVALENTS, END OF PERIOD $ 1,338 $ 12,639
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NONCASH OPERATING ACTIVITIES:
Issuance of common stock to reduce contingent liability $ 59,500
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The accompanying notes are an integral part of these financial statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. INTERIM REPORTING
The accompanying unaudited Consolidated Financial Statements for Hot
Products inc.com have been prepared in accordance with the generally accepted
accounting principles for interim financial information and the instructions to
Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, and cash flows for the periods
presented have been made. The results of operations for the six month period
ended October 31,2001 is not necessarily indicative of the operating results
that may be expected for the entire fiscal year ending April 30, 2002.
Common Stock
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Our shares of common stock are traded under the symbol HPIC on the Nasdaq
bulletin board market. We have completed and filed its 10K report for the year
ended April 30, 2001.
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the accounts and
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activities of Hot Products, Inc.com and its wholly owned subsidiaries, SC&T
Europe, Limited (United Kingdom), and SC&T Asia, Limited (Hong Kong). All
significant inter-company transactions and balances have been eliminated in
consolidation. SC &T Europe was dissolved in July 2001. The resulting gain on
this dissolution is reported in these financial statements.
Cash and Cash Equivalents includes all short-term highly liquid investments that
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are readily convertible to known amounts of cash and have original maturities of
three months or less.
Inventories are stated at the lower of cost (first-in, first-out) or market.
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Allowances are made for returned inventory to reflect estimated net realizable
value of those items.
Property and Equipment are recorded at cost and depreciated on a straight-line
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basis over the estimated useful lives of the assets ranging from 3 to 10 years.
Depreciation expense is not recorded for tooling acquired and not yet been
placed in service.
Revenue Recognition - We recognize revenue when the product is shipped, and or
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paid for by the customer. We provide an allowance to reflect estimated returns
of product from customers and warranty costs. We receive royalty revenues on a
regular quarterly basis and recognize this revenue when received.
Research and Development - The costs for new product development are expensed as
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incurred.
Use of Estimates- The preparation of financial statements in conformity with
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generally accepted accounting principles requires management to make estimates
and assumptions which 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.
6
Earnings Per Share - Earnings per share is calculated using the weighted average
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number of shares of common stock outstanding during the year. The Company has
adopted SFAS No. 128 Earnings Per Share.
Net Income Shares Per Share
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2001 2000 2001 2000 2001 2000
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Net Income $1,164,893 ($282,258)
BASIC EARNINGS PER SHARE:
Income available to
Common Shareholders $1,164,893 ($282,258) 10,194,550 5,613,539 $ 0.11 ($0.04)
EFFECT OF DILUTED SECURITIES N/A N/A 13,740 N/A Less than $0.01 N/A
DILUTED EARNINGS PER SHARE $1,164,893 N/A 10,208,290 5,613,539 $ 0.11 ($0.04)
Common equivalent shares of 2,688,918 and 2,747,251 related to stock options and
warrants outstanding at October 31, 2001 and 2000 respectively are excluded from
the computation because the effect of inclusion would be anti-dilutive.
Segment and Geographic Information - The Company's revenue was generated from
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one primary geographic region, The United States. There were no material
operations in the Company's Asian subsidiary. At October 31, 2001, the Company
considers its products to fall within two segments, Peripheral Products and
Emergency-Survival products.
The following table outlines the breakdown of sales to unaffiliated customers.
Net Revenues
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2001 2000
Emergency-Survival $ 166,364 $ 5,059
Peripheral Products $ 120,909 $ 506,338
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$ 287,273 $ 511,397
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Net Income/(Loss)
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Emergency-Survival $ 83,809 $ 3,272
Peripheral Products $ 117,350 $ 134,003
Other $ 963,734 $(419,533)
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$1,164,893 $(282,258)
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The measurement of net income by segment is reconciled to the total net income
resulting primarily from general and administrative expenses and other income
that cannot be allocated directly to either segment.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements contained in this report on form 10-QSB that are not purely
historical are forward-looking statements within the meaning of the Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Act of 1934,
including statements regarding our "expectations", "anticipation", "intentions,"
"beliefs", or "strategies", regarding the future. Forward-looking statements
include statements regarding revenue, margins, expenses and earnings analysis
for the remainder of the fiscal year 2002 and thereafter; future products or
product development strategy; and liquidity and anticipated cash needs and
availability. All forward-looking statements included in this document are based
on information available to us on the date of this report, and we assume no
obligation to update any such forward-looking statement. It is important to note
our actual results could differ materially from those in such forward-looking
statements.
OVERVIEW
In mid 1999 management made the critical decision to exit the retail PC and
Video gaming arenas we had been involved in for the previous five years. To
better reflect our new marketing and product direction, we also changed our
corporate name to Hot Products Inc.com to emphasize new products we felt were
unique, innovative and HOT. We believed that this new name would have greater
industry appeal and benefit our decision to enter the Internet E-Commerce arena.
We identified new marketing opportunities that promised higher growth potential,
greater profit capabilities which we also felt, carried less competitive risk.
We developed an entire new line of products and aligned ourselves with a new
emerging technology platform for DVD Players and Set-Top Box Converters (cable
TV) called NUON. We identified four major new product categories we felt had
significant global market potential. The first three involved the Road
Emergency, (inclusive of a unique 12 Volt DC battery charging product)
Automotive Survival and Outdoor Survival categories. We believed these products
had strong long-term sales potential, and were suited for the expansive U.S.
automotive aftermarket channels that generates in excess of $150 billion in
annual revenues. We still believe this to be true.
The fourth area focused on NUON, a dynamic new NUON technology platform
developed by VM Labs Inc. We felt that it possessed a "home run" potential in
the global OEM and retail markets. we created a marketing division to support
the dynamics of this new proprietary technology. NUON is designed to enhance the
entertainment value for both DVD players and Set-Top Box Converters (cable TV).
The DVD player and Set-Top Converter arena is fast becoming a market of equal
proportions to the automotive after-market. HPIC believes over the next 3-5
years the NUON technology will be found in over thirty five percent (DVD will
ultimately replace all VHS players systems) of all DVD players sold, and over
60% of all Set-Top Converter Boxes shipped worldwide, and we are on the
forefront of this potential global explosion. We have significant future
expectations for NUON, and continue to aggressively support the development of
numerous NUON peripheral and accessory products.
Over the past year we have continued to reduce operational costs and expenses
wherever possible. Operational improvements coupled with new products, a total
marketing redirection and improved gross margins have succeeded in our ability
to report a respectable first and second quarter results. Results, that further
acknowledges we are on the right track and are gaining ground towards our sole
objective of reaching profitability. Management feels strongly that we will
continue to improve our performance.
8
Our new line of products is being well received in the marketplace and we
continue to explore new revenue channels, such as the Private Label arena, where
we have designed new products for some major Fortune 500 companies. Our NUON
products group had a tougher than expected year, as developer VM Labs Inc.,
restructured its overall business plan, which resulted in reduced quantities of
NUON DVD players entering the market. As Korean electronics giant,Samsung
Electronics readies itself for a Fall European launch of its NUON DVD players,
we have been successful in creating a European distribution alliance for our
NUON products, which have already resulted in initial shipments being made into
Switzerland. We are working on creating a similar distribution alliance for the
Canadian market, and hope to reach an agreement by years end. We do admit,
however, that these changes severely reduced our NUON revenue generation for
both the retail and OEM channels this year. We remain confident that we can pick
up some of these revenues during our 3rd and 4th quarters. Industry demand for
NUON remains strong, and new product development has been maintained. Currently
we represent the largest, global supplier of NUON peripheral and accessory
products.
FAILED MERGER OPPORTUNITY
On October 15, 2001 we filed an 8K statement with the SEC announcing a planned
merger with International Global Positioning (IGP). On November 2, 2001 before
the definitive agreement had been signed, IGP abruptly informed us that the
merger had been terminated. On November 8, 2001, we filed another 8K statement
with the SEC informing them that the planned merger had been terminated, and it
is our belief that IGP wrongfully terminated the agreement. We also allege that
IGP breached this agreement, did not negotiate in good faith and was unethical
in their business dealings with us.
For nearly two months, our efforts and energies focused entirely on the planned
merger. Among other accomplishments, we spent significant time researching the
GPS arena, developing new marketing & distribution programs and materials,
searching for new facilities, and we also allocated an inordinate amount of time
in planning and working towards the integration of both companies into the "new
entity." In hindsight, this refocus during this two month period has had a
detrimental impact on our sales for the quarter, and in lost time and
opportunity. Time, that would otherwise been spent on building our business. We
are exploring every avenue available to us in an effort to receive compensation
for the work, effort, overall contributions made by us, to IGP, coupled with the
damages we believe have been caused by their decision to abruptly, and for
blatantly false reasons, terminate the planned merger.
OPERATING RESULTS FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000.
NET SALES AND ROYALTY REVENUES
Net sales and royalty revenues for the three months ended October 31, 2001 were
$180,316 compared to $93,830 for the three months ended October 31, 2000. This
increase is due to increased sales of our Road Emergency and Power Product
lines. Sales for the six months ended October 31, 2001 were $287,273 compared
to $511,397 for the same period ended October 31, 2000. This decrease is due to
reduced sales of NUON related products. The decrease in sales for our NUON
related product is a direct result of our initial sale to Samsung Electronics
for our NUON SNS 2000 controller in the first quarter of last year, and slower
than anticipated deliveries of DVD players incorporating the NUON technology,
and delayed shipments by Motorola's of their Streamaster Set-Top (converter box)
which we believe were due to various shifts in VM Labs business plan, which are
out of our control. We remain firmly committed to the NUON platform, VM Labs,
and Motorola. We are expecting improved NUON revenue results through our
year-end. OUR FAILED MERGER AGREEMENT ALSO IMPACTED THIS QUARTER'S PERFORMANCE.
9
GROSS PROFIT
Our gross profit for the three months ended October 31, 2001 was $112,088 in
contrast to a gross profit of $63,407 for the three months ended October 31,
2000. Our gross profit for the six months ended October 31, 2001 was $201,159
compared to $375,606 for the same period ended October 31, 2000. Gross profit
margins can be affected by several factors, including the mix between products,
the anticipation that newer products will initially yield higher margins,
however, there can be no assurance that higher margins will be maintained over
the life of any product.
SALARIES AND BENEFIT EXPENSES
Our payroll and benefits expense increased to $82,264 for the three months ended
October 31, 2001 compared to $73,876 for the three months ended October 31,
2000. Payroll and benefits expense was $184,102 for the six months ended October
31, 2001 compared to $191,774 for the same period ended October 31, 2000. This
decrease in salaries and related expenses for the six months ended October 31,
2001 can be attributed to lower salaries and reduced benefit costs. We are
required to employ a base staff of qualified personnel to maintain our
operations. As we attain increased profitable quarters our employee base will
have to increase. We are carefully planning for expansion, and when our sales
volume increases, we will institute gradual growth that will not burden our
margins or threaten our profitability. Our current employee base is made up of a
group of dedicated, hard working individuals.
SELLING AND PROMOTION
Our selling and promotion expenses decreased to $3,061 for the three months
ended October 31, 2001 from $88,140 for the same period ended October 31, 2000.
Selling and promotion expenses were $9,114 for the six months ended October 31,
2001 compared to $97,772 for the same period ended October 31, 2000. The
decrease is a direct result of many things, but a significant reason is our
focus on our Private Label business, where the need for extensive advertising
and marketing is not required. Other elements target the change in our business
model and improved cost controls. Due to cost controls, we have not been able
to utilize all promotional avenues necessary to properly promote our products.
Our management has been careful in the amounts of promotional efforts for the
current quarter, which has included curtailing unnecessary travel and trade show
costs.
OFFICE AND ADMINISTRATION
Office and administrative expenses for the three months ended October 31, 2001
were $70,137 compared to $154,738 for the three months ended October 31, 2000.
Office and administrative expenses were $156,341 for the six months ended
October 31, 2001 compared to $335,211 for the six months ended October 31, 2000.
The decrease is attributed directly to extraordinary legal costs associated to
the three-year litigation against our former accounting firm. This will no
longer be a factor as the parties reached "an out of court settlement" during
July of this year. Efficiencies and cost reductions in equipment rental,
printing, postage and related costs also contributed to the reduction in office
and administrative costs for the current quarter.
RESEARCH AND DEVELOPMENT
Expenses related to research and development were $516 for the three months
ended October 31, 2001 compared to $23,982 for the three-month period ended
October 31, 2000. Research and development
10
expenses were $912 for the six months ended October 31, 2001 compared to $38,046
for the same period ended October 31, 2000. The decrease is due entirely
because we have already borne significant costs for the development of existing
and future products. Costs associated to the need to develop new products will
increase in the future as new products are refined or created. Our management
has always made a commitment to research and development and will continue to do
so as deemed necessary.
OTHER INCOME/EXPENSE
Other income increased to $49,985 for the three months ended October 31, 2001
from other expense of $4,929 for the same period ended October 31, 2000. This
increase, $54,914, is due primarily to the settlement of old payable
liabilities. Other income was $516,054 for the six months ended October 31,
2001 compared to $21,378 for the six months ended October 31, 2000. Included in
this increase is a gain, $137,850, on the closure of our UK subsidiary. The
gain on disposal was a result of recorded obligations that were relieved through
closure. Also included in other income is $300,000 from the settlement of a
lawsuit. Interest and factoring costs increased to $12,518 for the six months
ended October 31, 2001 compared to $6,592 for the same period ended October 31,
2000.
EXTRAORDINARY ITEM
Income from the settlement of an old disputed liability from a foreign supplier
resulted in a gain of $798,148 for the three months and six months ended October
31, 2001.
NET INCOME
Net income for the three months ended October 31, 2001 was $804,243 compared to
a net loss of $282,258 for the three months ended October 31, 2000. Net income
was $1,164,893 for the six months ended October 31, 2001 compared to a net loss
of $265,819 for the same period ended October 31, 2000. Total operating
expenses for the three and six months ended October 31, 2001 were $155,977 and
$350,468 compared to $340,736 and $662,803 for the six and three months ended
October 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital deficit was $643,937 at October 31, 2001 compared to a
deficit of $353,265 at October 31, 2000. We require working capital and continue
to operate without the appropriate funds to effectively promote our new product
lines, and continue to have difficulty in properly funding operations. Our
accounts payable obligation has increased and income from operations has not
been sufficient to adequately fund our operations. We have settled many old
payable obligations and will continue to work on better terms from our suppliers
and current obligations. We are required to pay the costs of stocking,
assembling and warehousing inventory prior to receiving payments from our
customers. Typically our customers do not pay us for our products until
approximately 30 to 60 days following delivery and billing, unless they are
Private Label orders, for which we receive partial or entire payments at time of
order. For non-private label business, the receipt of cash from operations
typically lags substantially behind the payment of the costs for purchase and
delivery of our products. We have been able to secure short-term notes payable
to help relieve the cash-flow burden experienced. The effects of our 1997
de-listing by the NASDAQ has hampered our progress over the past few years,
however, we continue to focus on the bottom line and we believe that our year to
date earnings represent significant improvement. At present we utilize factoring
for some of our accounts receivable,
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however this form of financing does increase costs and reduces working capital
and profits. To fully implement our new business plan, we will require
additional working capital. We plan on utilizing factoring arrangements to
finance accounts receivable along with capital from operations to finance
inventory acquisition as sales increase from both the NUON and Road-Emergency,
Auto-Survival and Outdoor Survival divisions combined with other financing
opportunities as they become available to us.
BUSINESS OUTLOOK AND RISK FACTORS - HPIC OUTLOOK
We are seeing positive earnings results from our corporate efforts to reduce
costs while improving performance. We are optimistic about future revenue
growth, new customer orders and for our ability to find a suitable merger
partner or strategic marketing alliance partnership. The Private Label arena is
opening new doors and new customers. We continue to pursue other major companies
for Private Label opportunities and feel strongly that this area will provide
significant revenue opportunities for us over the 6-12 months. When finances
permit, we plan to secure the services of a national PR-IR firm, and will
continue to inform the market with ongoing press releases as new milestones or
alliances are created.
By continuing to post earnings improvements, we are excited about the future
outlook. Despite slower than expected technology developments by VM Labs, the
NUON division is progressing in a positive direction. We continue to develop our
NUON OEM channel business and we expect new and additional orders to be received
over the next 90-120 day period. We have five peripheral products in the
market, with further models planned for introduction during the next two
quarters. WE FEEL A SIGNIFICANT IMPACT TO REVENUES NOT ACHIEVED, FOR THIS
QUARTER IS DUE TO THE DAMAGE CAUSED BY OUR FAILED MERGER WITH IGP.
Management is confident we can continue to improve the shareholder value through
better efficiencies, new sales growth and increased revenues, which can be
achieved in conjunction with the necessary operational funding required, we
require in our goals to reach profitability during FY 2002.
RISK FACTORS
Through our restructuring, product marketing redirection, coupled with our
numerous OEM strategic alliances, we feel we are better protected against the
traditional risks and competitive factors. We openly admit risks do exist,
however, not to the same degree that we confronted during our days in the retail
PC and Video gaming arena.
With respect to our NUON division and our alliance with developer, VM Labs Inc.,
we have a "strategic license agreement" to develop and market products which
incorporate a "proprietary" technology. Unlike the PC and Video gaming arena,
where virtually every manufacturer, for a fee, can market PC, Sony, Nintendo or
Sega peripherals, only approved licensed partners of VM Labs, have access to the
NUON ASIC chip technology. The NUON ASIC chip technology is required to
manufacture NUON DVD, Set-Top Converters and peripheral products, which offer us
significant protection from traditional rogue competitors. VM Labs has recently
restructured and changed management. We feel this will be an asset to us and
will benefit our current NUON customers.
Our best defense against competitive actions on our Road Emergency, Auto and
Outdoor Survival categories remains in our ability to maintain our lead
position, breadth and depth of high quality product assortment, continued R & D,
coupled with our ability to ship orders in a timely manner. No competitive
12
products currently exist that come close to the caliber of products provided by
us. In the Automotive and Outdoor Survival retail arena's "Pre-Kitted and
Pre-Configured " products of the quality and diversity as offered by us do not
exist at retail. Each product is backed by a one-year warranty. We understand
competitors could make an attempt to imitate our lines, but we have a
significant head start and the logistics to "knock us off" has numerous barriers
for all new comers.
We believe our primary risk factors focus on our ability to receive product
deliveries in a timely manner and in our efforts to securing additional
operational capital. Based on the size of the U.S. Automotive After Market
channel, with annual sales exceeding $150 billion, coupled with the emerging
NUON market worldwide, we feel HPIC has the ability to establish itself as a
global brand provider of unique and highly innovative Road Emergency, 12 V
Battery, Auto-Survival, Outdoor Survival and NUON peripheral products.
PART II - OTHER INFORMATION
ITEM I. LITIGATION
None to be reported
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On October 15, 2001 we filed with the Securities and Exchange Commission on
Form 8-K which reported a preliminary merger agreement with International
Global Positioning, Inc.
On October 29, 2001 we filed with the Securities and Exchange Commission on
Form 8-K the resolution of a longstanding liability with a foreign
supplier.
On November 8, 2001 we filed with the Securities and Exchange Commission on
Form 8-K the termination of the planned merger with International Global
Positioning, Inc.
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On November 21, 2001 we filed with the Securities and Exchange Commission on
Form 8-k the resignation of Gregory Struthers, Executive Vice President and
Director.
SIGNATURES
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
HOT PRODUCTS, INC.COM
/s/ Chairman of the Board November 20, 2001
- ----------------------- and Chief Executive Officer
James Copland
14