Quality Industrial Corp 10-Q for FY2023 Q3
Quality Industrial Corp. (QIND)
About this 10-Q
Quality Industrial Corp filed this 10-Q on November 20, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $22.13M
- up 15.7% from $19.13M a year earlier
- Net income
- $1.86M
- down 23.5% from net income of $2.43M a year earlier
- Diluted EPS
- $0.02
- unchanged from $0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
For the transition period from __________ to__________
Commission File Number:
(Exact name of registrant as specified in its charter)
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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. ☒
Indicate by check mark whether the registrant has submitted electronically
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during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act.
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defined in Rule 12b-2 of the Exchange Act). ☐ Yes
Securities registered pursuant to Section 12(b) of the Act: None
State the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date:
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1: | Financial Statements | 1 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 6 |
| Item 4: | Controls and Procedures | 6 |
| PART II – OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 7 |
| Item 1A: | Risk Factors | 7 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 3: | Defaults Upon Senior Securities | 8 |
| Item 4: | Mine Safety Disclosures | 8 |
| Item 5: | Other Information | 8 |
| Item 6: | Exhibits | 9 |
i
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our financial statements included in this Form 10-Q are as follows:
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2023, are not necessarily indicative of the results that can be expected for the full year.
1
QUALITY INDUSTRIAL CORP.
CONSOLIDATED BALANCE SHEETS
September 30, (unaudited) | June 30, (audited) | |||||||||
| ASSETS | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | 4 | |||||||||
| Inventories | 5 | |||||||||
| Work in Progress | 5 | |||||||||
| Accounts Receivables | 5 | |||||||||
| Advances to Sub - Contractors | 5 | |||||||||
| Deposits | 5 | |||||||||
| Other current assets | 5 | |||||||||
| Total current assets | ||||||||||
| Non-Current assets | ||||||||||
| Property Plant & Equipment | 6 | |||||||||
| Capital WIP | ||||||||||
| Furniture, Fixtures & Office Equipment | 6 | |||||||||
| Lease Hold Improvements & Building | 6 | |||||||||
| Right of Use assets | 7 | |||||||||
| Goodwill | 8 | |||||||||
| Total non-current assets | ||||||||||
| Total Assets | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||
| Current liabilities | 9 | |||||||||
| Accounts payable and accrued liabilities | ||||||||||
| Other Current Liabilities | ||||||||||
| Short term bank borrowings | ||||||||||
| Total current liabilities | ||||||||||
| Long Term liabilities | ||||||||||
| Convertible Notes | 10 | |||||||||
| Bank borrowings | 11 | |||||||||
| Lease liabilities | 2 | |||||||||
| Other long-term liabilities | 11 | |||||||||
| Total Long-Term Liabilities | ||||||||||
| Total Liabilities | ||||||||||
| Stockholders’ Equity | 12 | |||||||||
| Preferred stock; $ | ||||||||||
| Common stock; $ | ||||||||||
| Additional paid-in capital | ||||||||||
| Retained Earnings/accumulated Deficit | ( | ) | ( | ) | ||||||
| Minority Interest | 13 | |||||||||
| Total stockholders’ Equity | ||||||||||
| Total liabilities and stockholders’ Equity | ||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-1
QUALITY INDUSTRIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended | ||||||||||
| September 30, 2023 | September 30, 2022 | |||||||||
| Revenue | $ | $ | ||||||||
| Cost of revenues | ||||||||||
| Gross profit | ||||||||||
| Operating expenses | ||||||||||
| Selling & Distribution | ||||||||||
| General & Administrative | 14 | |||||||||
| Depreciation | 6 | |||||||||
| Total operating expenses | ||||||||||
| Profit/Loss from operations | ||||||||||
| Non-operating expenses | ||||||||||
| Finance cost | ||||||||||
| Interest on convertible notes | ||||||||||
| Other Non-Operating expenses | ||||||||||
| Total other expense | ||||||||||
| Other Income | ||||||||||
| Total Other Income | 15 | |||||||||
| Net Income (Loss) | ||||||||||
| Net Income Minority Interest | ||||||||||
| Net Income Parent | ||||||||||
| Weighted average common shares outstanding | ||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2
QUALITY INDUSTRIAL CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
For the Three Months Ended September 30, 2023
| Preferred Stock | Common Stock | Additional Paid-in | Minority | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Equity | |||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for cash | — | |||||||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||||||
| Common stock issued as staff compensation | — | |||||||||||||||||||||||||||||||
| Imputed Interest | — | — | ||||||||||||||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2022
| Preferred Stock | Common Stock | Additional Paid-in | Minority | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Equity | |||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Goodwill adjustment | — | — | ||||||||||||||||||||||||||||||
| Common stock issued | — | $ | ||||||||||||||||||||||||||||||
| Net Income | — | — | ||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
QUALITY INDUSTRIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Three Months Ended | ||||||||
| September 30, 2023 | September 30, 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income (loss) | $ | $ | ||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Stock based compensation | ||||||||
| Stock issued for services | ||||||||
| Depreciation on Property, Plant and Equipment | ||||||||
| Depreciation on right of use assets | ||||||||
| Non-cash expenses | ||||||||
| Finance cost including interest on leases | ||||||||
| Changes in assets and liabilities | ||||||||
| Inventories | ||||||||
| Work-in-progress | ||||||||
| Accounts receivables | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Contract and other payables | ||||||||
| Other Current liabilities | ||||||||
| Cash generated from operations | ||||||||
| Finance costs paid | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ||||||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds/repayment of bank borrowings | ( | ) | ||||||
| Payment of lease liabilities | ( | ) | ( | ) | ||||
| Proceeds from Issuance of Shares | ||||||||
| Buy Back commitment | ( | ) | ||||||
| Proceeds from Note | ||||||||
| Net cash from financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in Cash | ( | ) | ||||||
| Beginning cash balance | ||||||||
| Ending cash balance | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4
QUALITY INDUSTRIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. ORGANIZATION, HISTORY AND NATURE OF BUSINESS
Quality Industrial Corp. (“we”, “our”, the “Company”) was incorporated in the state of Nevada in May 1998 as Sensor Technologies Inc. We aim to be a global leader in the manufacture and assembly of industrial equipment and precision engineered technology for the industrial, oil & gas, and utility sectors.
In March 2006 the Company changed its name to Bixby Energy Systems Inc. The Company changed its name to Power Play Development Corporation in September 2006. In April 2007 the Company changed its name to National League of Poker, Inc. In October 2011 the Company changed its name back to Power Play Development Corporation. In March 2018 the Company changed its name to Bluestar Technologies, Inc. In March 2018, the Company then changed its name to Wikisoft Corp.
In May 2016, the Company’s Board of Directors terminated the services of all prior officers and directors and the board appointed Robert Stevens as the Board Appointed Receiver for the Company. This was a private receivership where the receiver was appointed by the board to act on behalf of the Company and no court filings were ever made in connection with the receivership. On April 16, 2019, in connection with the Merger described below, Robert Stevens resigned from all his positions with the Company and the board appointed receivership was concluded. At that time Rasmus Refer was appointed as the Company’s CEO and Director, and he resigned from such positions in August and November 2020, respectively. Rasmus Refer was previously the CEO of the Company until August 31, 2020, and Director of the Company until November 30, 2020, where Carsten Kjems Falk was appointed as CEO and Paul C. Quintal sole director were appointed thereafter as described in detail below.
On May 28, 2022, we changed
ownership, when Ilustrato Pictures International, Inc. (“ILUS”) at the time acquired
In line with the change in control and business direction, our Company changed its name to Quality Industrial Corp. with the ticker QIND, with a market effective date of August 4, 2022. As a result of these transactions, Quality Industrial Corp. is now a public company focused on the Industrial, Oil & Gas and Utility Sectors and is the Industrial and Manufacturing subsidiary of ILUS.
NOTE 2. SUMMARY OF SIGNIFICANT POLICIES
Basis of Presentation and Principles of consolidation
The accompanying consolidated financial statements represent the results of operations, financial position, and cash flows of QIND and all of its majority – owned or controlled subsidiary are prepared in conformity with generally accepted accounting principles in the United States of America (U.S. GAAP). All significant inter-company accounts and transactions have been eliminated.
Use of estimates
A critical accounting estimate is an estimate that: (i) is made in accordance with generally accepted accounting principles, (ii) involves a significant level of estimation uncertainty and (iii) has had or is reasonably likely to have a material impact on the Company’s financial condition or results of operations.
F-5
The Company’s Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts and related disclosures. On an ongoing basis, management evaluates and updates its estimates. Management employs judgment in making its estimates but they are based on historical experience and currently available information and various other assumptions that the Company believes to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results could differ from those estimates. Management believes that its judgment is applied consistently and produces financial information that fairly depicts the results of operations for all periods presented.
Significant estimates include estimates used to review the Company’s, impairments and estimations of long-lived assets, revenue recognition of Contract based revenue, allowances for uncollectible accounts, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Fair value of financial instruments
The carrying value of cash, accounts payable, warrants, accrued expenses, and debt, short term as well as long term, is recorded at fair value. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.
| ● | Level 1. Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. |
| ● | Level 2. Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily available pricing sources for comparable instruments. |
| ● | Level 3. Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. |
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606).
The principal activity of the Company is to engage in general trading, manufacturing and fabrication or steel and steel products and mainly manufacturing of pressure vessels, tanks, heat exchangers and construction of storage tanks and piping. Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods or services before transferring them to the customer.
F-6
Construction contracts
Construction contract revenue and contract costs are recognized as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period, when the outcome of a construction contract can be estimated reliably. The percentage of completion method of accounting requires the reporting of revenues and expenses on a yearly basis, as determined by the percentage of the contract that has been fulfilled. The stage of completion is measured by reference to the proportion of the costs incurred to date.
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred that are likely to be recoverable and contracts costs are recognized as expense in the period in which they are incurred. An expected loss on the construction contract is recognized as an expense immediately when it is probable that total contract costs will exceed total contract revenue.
The Company principally operates fixed price contracts. If the outcome of such a contract can be reliably measured, revenue associated with the construction contract is recognized by reference to the stage of completion of the contract activity at year end (the percentage of completion method).
The outcome of a construction contract can be estimated reliably when:
| ● | the total contract revenue can be measured reliably; |
| ● | it is probable that the economic benefits associated with the contract will flow to the entity; |
| ● | the costs to complete the contract and the stage of completion can be measured reliably; and |
| ● | the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. When the outcome of a construction cannot be estimated reliably (principally during early stages of a contract), contract revenue is recognized only to the extent of costs incurred that are expected to be recoverable. |
In applying the percentage of completion method, revenue recognized corresponds to the total contract revenue (as defined below) multiplied by the actual completion rate based on the proportion of total contract costs (as defined below) incurred to date over the total estimated contract costs.
Contract revenue corresponds to the initial amount of revenue agreed in the contract and any variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue, and they are capable of being reliably measured.
Contract costs include costs that relate directly to the specific contract and costs that are attributable to contract activity in general and can be allocated to the contract.
The Company’s contracts are typically negotiated for the construction of a single asset or a group of assets which are closely interrelated or interdependent in terms of their design, technology and function. In certain circumstances, the percentage of completion method is applied to the separately identifiable components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.
Variations
Variations are recognized in contract revenue when the outcome can be determined with reasonable certainty and are capable of being reliably measured.
Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved.
Cash and cash equivalents
For purposes of
the statements of cash flows, in accordance with ASC 230-10-20, the Company considers all highly liquid investments and short-term debt
instruments with original maturities of three months or less to be cash equivalents. There was $
F-7
Stock-based compensation
The Company recognizes all stock-based compensation using the fair value provisions prescribed by ASC Topic 718, Compensation — Stock Compensation. Accordingly, compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of grant and are recognized as expense over the vesting period of the share-based instrument, net of estimated forfeitures.
In accordance with ASC 718, the Company will generally apply the same guidance to both employee and non-employee share-based awards. However, the Company will also follow specific guidance for share-based awards to non-employees related to the attribution of compensation cost and the inputs to the option-pricing model for expected term. Non-employee share-based payment equity awards are measured at the grant-date fair value of the equity instruments, similar to employee share-based payment equity awards.
The Company calculates the fair value of option grants and warrant issuances utilizing the Binomial pricing model. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. ASC 718 requires forfeitures to be estimated at the time stock options are granted and warrants are issued to employees and non-employees, and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeiture” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered stock option or warrant. The Company estimates forfeiture rates for all unvested awards when calculating the expenses for the period. In estimating the forfeiture rate, the Company monitors both stock option and warrant exercises as well as employee termination patterns. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
Earnings (loss) per share
The Company reports earnings
(loss) per share in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification
(“ASC”) 260-10 “Earnings Per Share,” which provides for calculation of “basic” and “diluted”
earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders
by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity.
| Particulars | September 30, 2023 | September 30, 2022 | ||||||
| Basic and diluted EPS* | ||||||||
| Numerator | ||||||||
| Net income / (loss) | ||||||||
| Net Income attributable to common stockholders | ||||||||
| Denominator | ||||||||
| Weighted average shares outstanding | ||||||||
| Number of shares used for basic EPS computation | ||||||||
| Basic EPS* | ||||||||
| Number of shares used for diluted EPS computation | ||||||||
| Diluted EPS* | ||||||||
| * | The company has only issued common stock |
F-8
Long-lived Assets
In accordance with the Financial Accounting Standards Board (“FASB”) Accounts Standard Codification (ASC) ASC 360-10, “Property, Plant and Equipment,” the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Income taxes
Inventories
In accordance with ASC 330, the Company states inventories at the lower of cost or net realizable value. Cost, which includes material, labor and overhead, is determined on a first in, first out basis. The Company makes adjustments to reduce the cost of inventory to its net realizable value, if required, for estimated excess, obsolete, zero usage or impaired balances. Factors influencing these adjustments include changes in market demand, product life cycle and engineering changes.
Leases
The Company accounts for leases with escalation clauses in accordance with Accounting Standards Codification (ASC) 842, “Lease”.
In accordance with the principles of ASC 842, the Company recognizes both the assets and the liabilities arising from their leases. The lease liability is measured as the present value of lease payments while the lease assets is equal to the lease liability adjusted for certain items like prepaid rent and lease incentives.
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
Lease liabilities
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include, if any, the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate.
F-9
The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
The Company’s subsidiary, Quality International, has entered into commercial leases of land for offices, manufacturing yards and storage facilities. These leases generally have a lease term of 25 years. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets. There are no restrictions placed upon the Company by entering into these leases. The Company also has leases with terms of 12 months or less and leases with low value.
The Company has a Lease arrangement for which the liability has been recorded separately. The Company determines whether an arrangement contains a lease at inception. A lease liability and corresponding right of use (ROU) asset are recognized for qualifying leased assets based on the present value of fixed and certain index-based lease payments at lease commencement.
The Company’s obligations under its leases are secured by the lessor’s title to the leased assets. There are no restrictions placed upon the Company by entering into these leases. The Company determines if an arrangement is or contains a lease at contract inception and recognizes a ROU asset and a lease liability based on the present value of fixed, and certain index-based lease payments at the lease commencement date. Variable payments are excluded from the present value of lease payments and are recognized in the period in which the payment is made.
The Company generally uses its incremental borrowing rate as the discount rate for measuring its lease liabilities, as the Company cannot determine the interest rate implicit in the lease because it does not have access to certain lessor specific information. Lease expense is recognized on a straight-line basis over the lease term. The Company does not have significant finance leases. The Company has elected not to separate payments for lease components from payments for non-lease components for all classes of leases. Additionally, the Company has elected the short-term lease recognition exemption for all leases that qualify, which means ROU assets and lease liabilities will not be recognized for leases with an initial term of twelve months or less.
When accounting for finance leases in accordance with ASC 842, entity recognizes interest on the lease liability and amortization of the ROU asset in the income statement and classify payments of the principal portion of the lease liability as financing activities and payments of interest on the lease liability as operating activities.
| Current portion of lease liabilities: | $ | |||
| Non-Current portion of lease liabilities: | $ |
| Current portion of lease liabilities: | $ | |||
| Non-Current portion of lease liabilities: | $ |
F-10
Short-term leases and leases of low-value assets
The Company accounts for leases with escalation clauses in accordance with Accounting Standards Codification (ASC) 842, “Lease”.
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Low value asset consideration is those less than USD 5,000. Lease payments on short-term leases and leases of low value assets are recognized as expense on a straight-line basis over the lease term.
Recently issued accounting pronouncements
The Company has evaluated all other recent accounting pronouncements and believes that none of them are expected to have a material effect on the Company’s financial position, results of operations or cash flows.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
NOTE 3. GOING CONCERN
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined. The Company’s ability to continue as a going concern is dependent on the Company’s ability to continue to generate sufficient revenues and raise capital within one year from the date of filing.
Over the next twelve months management plans to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available.
NOTE 4. CASH AND CASH EQUIVALENTS
For
purposes of the statements of cash flows, in accordance with ASC 230-10-20 the Company considers all highly liquid investments and short-term
debt instruments with original maturities of six months or less to be cash equivalents. There was $
NOTE 5. CURRENT ASSETS
| Year | September
30, 2023 | June
30, 2023 | ||||||
| Retention Receivables | ||||||||
| Amount Due from a Related Party | ||||||||
| Accrued Discount on Convertible notes | ||||||||
| Buy Back Commitment | ||||||||
| Other misc. current assets | ||||||||
| Total other current assets | $ | $ | ||||||
F-11
Related party advances
As
of September 30, 2023, and September 30, 2022, the Company had amounts due from Ilustrato Pictures International, Inc. (“ILUS”),
a majority shareholder of the Company, of $
As
of September 30, 2023, and September 30, 2022, the Company had amounts due from Gerab National Enterprises LLC (“Gerab”),
a shareholder of Quality International, the operating subsidiary of the Company, of $
On
September 15, 2023, the Company issued to Nicolas Link
On
September 15, 2023, the Company issued to John-Paul Backwell
On
September 15, 2023, the Company issued to Carsten Kjems Falk
On
September 15, 2023, the Company issued to Louise Bennett
Accounts Receivables
Accounts receivables are recorded at face amount less an allowance for credit losses. The allowance is an estimate based on historical collection experience, current and future economic and market conditions, and a review of the current status of each customer’s trade accounts receivable. Management evaluates the aging of the accounts receivable balances and the financial condition of its customers and all other forward-looking information that is reasonably available to estimate the amount of accounts receivable that may not be collected in the future and records the appropriate provision.
F-12
| Accounts Receivables Ageing | September 30, 2023 |
June 30, 2023 |
||||||
| 1-30 days | ||||||||
| 31-60 days | ||||||||
| 61-90 days | ||||||||
| 91-120 days | ||||||||
| 121-365 days | ||||||||
| 366 days and above | ||||||||
| Total | $ | $ | ||||||
The
accounts receivable that extends beyond 12 months, amounting to $
Work In Progress
Work In Progress only reflects the value of products in intermediate production stages and excludes the value of finished products being as inventory in anticipation of future sales and raw materials not yet incorporated into an item for sale.
Advances to Sub – Contractors/suppliers
Advances have been paid to the suppliers and subcontractors in the ordinary course of business for procurement of specialized material and equipment required in the process of manufacturing of pressure vessels, tanks, heat exchangers and construction of storage tanks and pipes. The company is engaged in the production of process equipment, pressure vessels, and substantial offshore structures. To undertake these projects, the company is required to make substantial upfront investments in materials and machinery. These projects involve many processes and take substantial time to complete.
Retention Receivables
Retention receivable relates to a percentage of the contract price being retained by the customers for a period of 12 to 18 months (as per contract agreements), for the purpose of repair of damages (if any), that arise as a result of work done on the projects by the Company. These amounts are received at the expiration of the retention period.
Other misc. Current Assets
Other Current Assets as mentioned in the above table includes advances paid in connection with operations of the Company.
NOTE 6. NON-CURRENT ASSETS
Property Plant & Equipment
Property, Plant and Equipment are recorded at cost, except when acquired in a business combination where property, plant and equipment are recorded at fair value. Depreciation of property, plant and equipment is recognized over the estimated useful lifespan of the respective assets using the straight-line method.
F-13
| Years | ||
| Buildings, related improvements & land improvements | ||
| Machinery & Equipment | ||
| Computer hardware & software | ||
| Furniture & Fixtures |
Expenditure that extends the useful lifespan of existing property, plant and equipment are capitalized and depreciated over the remaining useful lifespan of the related asset. Expenditure for repairs and maintenance are expensed as incurred. When property, plant and equipment are retired or sold, the cost and related accumulated depreciation is removed from the Company’s balance sheet, with any gain or loss reflected in operations.
Depreciation
Cost of assets
| Plant
& Machinery | Leasehold Improvements & Building | Furniture, Fixtures & Office Equipment | Capital
work in Progress | Total | ||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Additions during the year | ||||||||||||||||||||
| Additions on account of acquisition of Subsidiary as of June 30, 2022 | ||||||||||||||||||||
| Additions during H2 2022 | ||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Additions during the Quarter | ||||||||||||||||||||
| March 31, 2023 | ||||||||||||||||||||
| Additions/Disposal during the Quarter | ( | ) | ( | ) | ||||||||||||||||
| June 30, 2023 | ||||||||||||||||||||
| Additions/Disposal during the Quarter | ||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
Accumulated depreciation & Carrying value
| Plant
& Machinery | Leasehold Improvements & Building | Furniture, Fixtures & Office Equipment | Capital
work in Progress | Total | ||||||||||||||||
| Accumulated depreciation as of June 30, 2022 | ||||||||||||||||||||
| Carrying value as of June 30, 2022 | ||||||||||||||||||||
| Charge H2 2022 | ||||||||||||||||||||
| Accumulated Depreciation December 31, 2022 | ||||||||||||||||||||
| Carrying value December 31, 2022 | ||||||||||||||||||||
| Charge for the first Quarter | ||||||||||||||||||||
| Accumulated Depreciation till March 31, 2023 | ||||||||||||||||||||
| Carrying value March 31, 2023 | ||||||||||||||||||||
| Charge for the second Quarter | ||||||||||||||||||||
| Accumulated Depreciation till June 30, 2023 | ||||||||||||||||||||
| Carrying value June 30, 2023 | ||||||||||||||||||||
| Charge for the third Quarter | ||||||||||||||||||||
| Accumulated Depreciation till September 30, 2023 | ||||||||||||||||||||
| Carrying value September 30, 2023 | ||||||||||||||||||||
F-14
NOTE 7. RIGHT OF USE ASSETS
The Company’s subsidiary has entered into commercial leases of land for offices, manufacturing yards and storage facilities. These leases generally have lease term of 25 years. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets. There are no restrictions placed upon the Company by entering into these leases. The Company also has leases with lease terms of 12 months or less and leases with low value.
The Company has Lease arrangements for which the liability has been recorded separately. The Company determines whether an arrangement contains a lease at inception. A lease liability and corresponding right of use (ROU) asset are recognized for qualifying leased assets based on the present value of fixed and certain index-based lease payments at lease commencement.
The Company determines whether an arrangement contains a lease at inception. A lease liability and corresponding right of use (ROU) asset are recognized for qualifying leased assets based on the present value of fixed and certain index-based lease payments at lease commencement. To determine the present value of lease payments, the Company uses the stated interest rate in the lease, when available, or more commonly a secured incremental borrowing rate that reflects risk, term, and economic environment in which the lease is denominated. The Company has elected not to recognize ROU assets or lease liabilities for leases with a term of twelve months or less. Expense is recognized on a straight-line basis over the lease term for operating leases.
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received and estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term as follows:
Land: 25 years
| Right of use Assets | Leasehold Land | |||
| Cost as of December 31, 2021 | ||||
| Accumulated depreciation as of June 30, 2022 | ||||
| Carrying value as of June 30, 2022 | ||||
| Depreciation for second half of 2022 | ||||
| Accumulated depreciation as of December 31, 2022 | ||||
| Carrying Value as of December 31, 2022 | ||||
| Depreciation for first half of 2023 | ||||
| Carrying value as of June 30, 2023 | ||||
| Depreciation for Q3 2023 | ||||
| Carrying value as of September 30, 2023 | ||||
NOTE 8. GOODWILL
Goodwill represents the cost of acquired companies in excess of the fair value of the net assets at the acquisition date and is subject to annual impairment. Goodwill is the excess of the purchase price paid for an acquired entity and the amount of the price not assigned to acquired assets and liabilities. It arises when an acquirer pays a high price to acquire a business. This asset only arises from an acquisition, and it cannot be generated internally. Goodwill is an intangible asset, and so is listed within the long-term assets section of the acquirers’ balance sheet.
The Company accounts for business combinations by estimating the fair value of consideration paid for acquired businesses and assigning that amount to the fair values of assets acquired and liabilities assumed, with the remainder assigned to goodwill. If the fair value of assets acquired and liabilities assumed exceeds the fair value of consideration paid, a gain on bargain purchase is recognized. The estimates of fair values are determined utilizing customary valuation procedures and techniques, which require us, among other things, to estimate future cash flows and discount rates. Such analyses involve significant judgments and estimations.
The Company follows the guidance prescribed in Accounting Standards Codification (“ASC”) 350, Goodwill and Other Intangible Assets, to test goodwill and intangible assets for impairment annually if an event occurs or circumstances change which indicates that its carrying amount may not exceed its fair value.
Goodwill was initially recognized as of December 31, 2022, in accordance with the provisions outlined in the Share Purchase Agreement signed on January 18, 2023. This recognition was also based on the Purchase Price Allocation Report (PPA Report) dated January 25, 2023. It is important to note that control over the entity was established on June 28, 2022.
F-15
However, there was a subsequent change in the company’s financial reporting period, shifting it from December 31 to June 30. Consequently, the first audited balance sheet as of June 30, 2022, was prepared on September 15, 2023. Therefore, it is not possible to calculate goodwill based on the June 30, 2022, valuation, since goodwill had already been reported in the financial statements for December 31, 2022. In this context, goodwill cannot be revalued upwards.
To account for this difference in valuation, adjustments were made to the retained earnings for the June 30, 2022, period. These adjustments were subsequently reversed in the financial statements for December 31, 2022.
The
Company acquired
NOTE 9. OTHER CURRENT LIABILITIES
Other Current Liabilities
| Other Current Liabilities | September
30, 2023 | June
30, 2023 | ||||||
| Lease Liabilities | ||||||||
| Accrued Interest on Convertible note | ||||||||
| Payable to the shareholders of the Subsidiary Quality International | ||||||||
| Short term borrowings | ||||||||
| Misc. Liabilities* | ||||||||
| Total | $ | $ | ||||||
Loan
Payable amounting to $
On
July 27, 2023, our Company borrowed from Mahavir Investments Limited, the principal amount of $
On
August 25, 2023, the Company issued to Artelliq Software Trading
Short
term Bank Borrowings amounting to $
The Company intends to fund the obligations for acquisitions such as Quality International Co Ltd FZC, through an upcoming registration statement. Following the uplist to NYSE American, QIND plans to file an S-1 Registration Statement to fund the remaining cash obligations for its current acquisition.
F-16
Accounts Payable and Accrued Liabilities
| Accounts Payable and Accrued Liabilities | September
30, 2023 | June
30, 2023 | ||||||
| Accounts Payable | ||||||||
| Accrued Liabilities | ||||||||
| Total | $ | $ | ||||||
NOTE 10. CONVERTIBLE NOTES
| ● | On August 3, 2022, the Company issued a |
| ● | On March 17, 2023, the Company issued a |
| ● | On May 23, 2023, the Company issued to Jefferson Street Capital LLC a |
| ● | On June 16, 2023, the Company issued to Sky Holdings Ltd. a |
| ● | On July 31, 2023, the Company issued to |
| ● | On August 15, 2023, the Company issued to |
NOTE 11. LONG-TERM LIABILITIES
The Company has an outstanding loan liability on account of consolidation of the subsidiary. Such Loans include Bank Borrowings and Term Loans obtained from the Banks/Financial Institutions to meet the asset financing and working capital requirements of the company.
As
of September 30, 2023, and June 30, 2023, the Company had total Long-Term Liabilities of $
F-17
Long-term Bank Borrowings
from Financial Institutions amounting to $
These Borrowings are secured by the corporate guarantee of Gerab National Enterprises LLC of Quality International, along with registered mortgage over plant and machineries belonging to the company Quality International, located in Hamriyah Free Zone phase-II, UAE.
Contingent consideration
Contingent consideration amounting to $
| Contingent Consideration | Amount | |||
| 25% | $ | |||
| 50% | $ | |||
| 75% | $ | |||
| 100% | $ | |||
| Particulars | September 30, 2023 | June 30, 2023 | ||||||
| End of service benefits | ||||||||
| Total | $ | $ | ||||||
Options and Warrants
In accordance with ASC 470, warrants have been classified as a liability and recorded at their fair value.
On April 19, 2023, the Company
issued a common share purchase warrant to Exchange Listings LLC (the “Exchange Common Share Purchase Warrant”). The holder
is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after
the date of issuance hereof, to purchase from the Company,
On May 23, 2023, the Company
issued a common share purchase warrant to Jefferson Street Capital LLC (the “Jefferson Common Share Purchase Warrant”). The
holder is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on
or after the date of issuance hereof, to purchase from the Company,
F-18
NOTE 12. STOCKHOLDERS’ EQUITY
The Company’s authorized
capital stock consists of
As of September 30, 2023,
and June 30, 2023, there were
As of September 30, 2023,
and June 30, 2023, there were
Net assets of the Quality
International as per December 31, 2022, was $
Common Stock issuances during the three months ending September 30, 2023.
On July 17, 2023, the Company
issued to Sky Holdings Ltd.
On August 25, 2023, the Company issued to Artelliq
Software Trading
On September 15, 2023, the Company issued to Nicolas
Link
On September 15, 2023, the Company issued to John-Paul
Backwell
On September 15, 2023, the Company issued to Carsten
Kjems Falk
On September 15, 2023, the Company issued to Louise
Bennett
NOTE 13. MINORITY INTEREST
The Company acquired
The remaining $
F-19
NOTE 14. OPERATING EXPENSES
| General & Administrative Expenses | June 30, 2023 | June 30, 2022 | ||||||
| Salaries and compensation to employees* | ||||||||
| Travelling and conveyance | ||||||||
| Legal and audit fee | ||||||||
| Repairs and maintenance | ||||||||
| Printing and Stationary | ||||||||
| Legal and professional fees | ||||||||
| Insurance | ||||||||
| IT Support & software | ||||||||
| Utilities | ||||||||
| Misc. general business expenses | ||||||||
| Total | $ | $ | ||||||
See Note 6 to Financial Statements for Depreciation on Property, Plant and Equipment and Note 7 for Depreciation on Right of Use Asset.
| * |
NOTE 15. OTHER NON-OPERATING INCOME
| Non-Operating income | September 30, 2023 | September 30, 2022 | ||||||
| Sale of scrap | ||||||||
| Total | $ | $ | ||||||
NOTE 16. SUBSEQUENT EVENTS
In accordance with ASC 855-10-50, the company lists events which are deemed to have a determinable significant effect on the balance sheet at the time of occurrence or on the future operations, and without disclosure of it, the financial statements could be misleading.
On November 14, 2023, the Company signed an employment contract with Nicolas Link effective as of July 1, 2023. The employment contract has been filed as an exhibit to this registration statement.
On November 14, 2023, the Company signed an employment contract with John-Paul Backwell effective as of July 1, 2023. The employment contract has been filed as an exhibit to this registration statement.
On November 14, 2023, the Company signed an employment contract with Carsten Kjems Falk effective as of July 1, 2023. The employment contract has been filed as an exhibit to this registration statement.
On November 14, 2023, the Company signed an employment contract with Louise Bennett effective as of July 1, 2023. The employment contract has been filed as an exhibit to this registration statement.
F-20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to changes in economic conditions, incorporating acquisitions, changes in the supply chain for raw materials, effects of Covid and wars, including the Ukraine war, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
General
The following is a discussion by management of its view of the Company’s business, financial condition, and corporate performance for the past year. The purpose of this information is to give management’s recap of the past year, and to give an understanding of management’s current outlook for the near future. This section is meant to be read in conjunction with the Financial Statements of this Quarterly Report on Form 10-Q.
Overview
QIND is a Nevada Corporation which is majority owned by ILUS. ILUS functions as QIND’s parent company, and as such it concentrates on providing strategic management oversight that includes financial, administration, marketing, and human resources support to its operating companies. QIND functions as the Industrial & Manufacturing subsidiary of ILUS.
QIND’s operating company, Quality International, specializes in the manufacturing and assembling of process equipment, piping, and modules for the Oil & Gas, Off-shore, Refineries & Petrochemical, Wastewater, Chemical, Fertilizer, Metals and Mineral Processing sectors.
We changed ownership on the 28th of May 2022, when Ilustrato Pictures International, Inc. (“ILUS”) acquired 77.4 % of the outstanding shares in our Company. Consequently, ILUS is now able to unilaterally control the election of our board of directors, all matters upon which shareholder approval is required and, ultimately, the direction of our Company. Also, during the year, Mr. Nicolas Link, beneficial owner of ILUS, was appointed as our chairman of the board of directors, Mr. John-Paul Backwell was appointed as our Chief Executive Officer and Mr. Carsten Kjems Falk was appointed as our Chief Commercial Officer.
In line with the change in control and business direction, our Company changed its name to Quality Industrial Corp. with the ticker QIND and plans to continue to make strategic acquisitions in the industrial, manufacturing, oil & gas and utility Sectors. Our first acquisition occurred on January 18, 2023, with a 52% interest in Quality International Co Ltd FCZ (“Quality International”), a United Arab Emirates headquartered company which specializes in the manufacturing and assembling of process equipment, piping, and modules for the Oil & Gas, Off-shore, Refineries & Petrochemical, Wastewater, Chemical, Fertilizer, Metals and Mineral Processing sectors.
Quality International is a turnkey provider of total integrated solutions to the global energy and infrastructure market with over twenty years of operating experience. Quality International is ISO Certified with international accreditations, specializing in design, engineering, procurement, fabrication, testing, construction, manufacturing and site installation of heavy engineering equipment, process skids and modules, pipe spools and piping systems, offshore structures, and tank farms. With a wide spectrum of services, Quality International meets stringent customer demands through a broad range of competent, ultra-reliable engineering solutions and services.
2
Based in the United Arab Emirates (UAE), Quality International has manufacturing facilities in Sharjah with a total manufacturing area of over 220,000 square meters including its own waterfront facility for final assembly and loading of very large equipment/modules directly onto barges and ships.
Quality International designs projects and equipment as per customer-specific requirements in stainless steel, duplex, super duplex, carbon steel, alloy steel and clad construction. In addition to this, Quality International also manufactures equipment as per the ASME, PD 5500, TEMA, API 650, 620 and other international standards.
Quality International’s customers are Engineering, Procurement, and Construction (“EPC”) Contractors, technology providers and multinational companies who are leaders in their respective industries. Some of Quality International’s past and present customers include EPC Contractors such as McDermott, Technip Energies, Worley, Doosan, Tecnimont, UTICO and Air Products, having required infrastructure and equipment to be manufactured for end users such as ADNOC, BP, Chevron, Shell, Sasol, Sonatrach and Total.
We aim to become the global leader in the manufacture and assembly of equipment and technology for the wider Energy sector as it aims to reduce carbon in its operations and transition to greener forms of energy production. Quality International currently manufactures infrastructure and equipment for the hydrogen industry and we aim to further expand its manufacturing of the vital infrastructure and equipment required for the offshore wind industry as well as for the production of low carbon energies, decarbonization solutions such as green hydrogen, and sustainable fuels.
Factors Affecting Our Performance
The primary factors affecting our results of operations include:
General Macro Economic Conditions
Our business is impacted by the global economic environment, employment levels, consumer confidence, government, and municipal spending. Global instability in securities markets and geopolitical instability created by wars and military conflicts, such as the war in Ukraine, are among other factors that can impact our financial performance. In particular, changes in the U.S. economic climate and global macroeconomic factors, can impact the demand for our products and solutions. The Industrial and Manufacturing sectors are impacted by the overall economic environment. This could lead to tenders or orders being cancelled or postponed and lead times for manufacturing can be affected which could result in cancellation of orders if not delivered on time.
Impact of Acquisitions
A significant component of our growth is through the acquisition and consolidation of operating companies in our targeted sectors. We typically incur upfront costs as we incorporate and integrate acquired businesses into our company. This includes the consolidation of operating procedures, supplies and raw materials, logistics and production processes as well as sales synergies within the operating businesses with the aim to expand globally. The benefits of these integration efforts may not positively impact our financial results within the short-term but is expected to do so in the medium to long-term future.
Recent Developments
On January 18, 2023, QIND signed a definitive share purchase agreement the “QI Share Purchase Agreement”) acquiring 52% of Quality International Co Ltd FZC. All closing documents were executed for the transaction on March 6, 2023. The QI Share Purchase Agreement was later amended on July 31, 2023, and is filed as an exhibit to this registration statement. Quality International Co Ltd FZC currently has signed purchase orders exceeding $150M in various stages of the manufacturing process. The Company will allocate resources to our subsidiary with the aim to increase efficiency, drive increased sales and positively impact their financial results.
3
On March 9, 2023, we changed our SIC code of the Company to SIC 3590 – Misc. Industrial & Commercial Machinery and Equipment to reflect the new business direction.
On April 19, 2023, QIND engaged with Exchange Listings LLC as strategic advisors to pursue the company’s goal of completing a successful uplisting to a major stock exchange in conjunction with a simultaneous debt financing and/or registration statement.
On August 4, 2023, the Board of Directors of Quality Industrial Corp, approved a change in fiscal year end of the Company from December 31 to June 30. The Board’s decision to change the fiscal year end was related to the Company’s intent to uplist to NYSE American and to allow investors to accurately measure revenue and earnings year-over-year.
Results of Operation for Three Months Ended September 30, 2023, and 2022
Revenues
We earned $22,129,973 in revenue for the three months ended September 30, 2023, compared with $19,126,000 in revenue for the three months ended September 30, 2022, amounting to a 15.7% increase in revenue quarter over quarter.
Operating Expenses
Operating expenses increased from $3,793,888 for the three months ended September 30, 2022, to $5,008,094 for the three months ended September 30, 2023.
Stock-based compensation to management for the three months ended September 30, 2023, and 2022, was $1,1512,000 and $0, respectively. A detailed break-down of the operating expenses for the three months ended September 30, 2022, and 2023, respectively, can be found in note 14 “operating expenses”.
We anticipate that our operating expenses will increase as we undertake the expansion plan associated with our acquisition and uplist to the NYSE American. The increase will be attributable to administrative and operating costs associated with our business activities and the professional fees associated with our reporting obligations and new employment contracts to our management and new independent directors.
Other Expenses
We had other expenses of $1,350,242 for the three months ended September 30, 2023, as compared to $420,800 in other expenses for the three months ended September 30, 2022. The increase in other expenses in Q3 2023 were mainly the result of finance cost due to stock issued for services, interest on long term borrowings and interest on convertible notes.
Net Income/Net Loss
We incurred net income of $1,859,103 for the three months ended September 30, 2023, compared to a net income of $2,431,115 for the three months ended September 30, 2022. The decrease in net income was mainly a result of for the quarter resulted in a net income per common share (Earnings Per Share – EPS) for the three months ended September 30, 2023, of $0.01, and September 30, 2022, of $0.02.
Liquidity and Capital Resources
As of September 30, 2023, we had total current assets of $127,626,061 and total current liabilities of $150,295,503 which include the payable amount of $75,500,000 and a $55,000,000 contingent consideration as part of the purchase consideration for the acquisition of our operating company, Quality International. We had a working capital deficit of $22,669,443 as of September 30, 2023. This compares with a working capital deficit of $26,960,616 as of June 30, 2023.
4
Operating activities provided $2,105,790 in cash for the three months ended September 30, 2023, as compared with $793,158 provided in cash for the three months ended September 30, 2022. Our positive cashflow from operating activities was a result of the growth in the operating activities.
Investing activities used $798,725 in cash for the three months ended September 30, 2023, as compared with $255,000 used in cash for the three months ended September 30, 2022. Our investing activities were in Q3 2023, was the result of purchase of property plant and equipment for the company’s expansion and growth in the upcoming periods.
Financing activities used $1,760,268 in cash for the three months ended September 30, 2023, as compared with $487,307 used in cash provided for the same period ended 2022. Our financing cash flow for Q3 2023 was mainly the result of Finance costs for repayment of our lease obligations and proceeds from convertible notes.
Going Concern
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined. The Company’s ability to continue as a going concern is dependent on the Company’s ability to continue to generate sufficient revenues and raise capital within one year from the date of filing.
Over the next twelve months, management plans to use borrowings and security sales to mitigate the effects of cash flow deficits; however, no assurance can be given that debt or equity financing, if and when required, will be available.
Impact of Acquisitions
Historically a significant component of our growth has been through the acquisition of businesses in our targeted sectors. We typically incur upfront costs as we incorporate and integrate acquired businesses into our operating philosophy and operational excellence. This includes consolidation of supplies and raw materials, optimized logistics and production processes, and other restructuring and improvements initiatives. The benefits of these integration efforts and upcoming planned acquisitions may not positively impact our financial results in the short term but has historically been the case in the medium to long term.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are disclosed in the Notes of our unaudited financial statements included in this Quarterly Report on Form 10-Q.
Goodwill
The Company continues to review its goodwill for possible impairment or loss of value at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. On December 31, 2022, we performed a goodwill impairment evaluation. We performed a qualitative assessment of factors to determine whether it was necessary to perform the goodwill impairment test. Based on the results of the work performed, the Company has concluded that no impairment loss was warranted on December 31, 2022. Factors including non-renewal of a major contract or other substantial changes in business conditions could have a material adverse effect on the valuation of goodwill in future periods and the resulting charge could be material to the future periods’ results of operations.
5
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As required by SEC Rule 15d-15, our management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
6
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any material disputes and do not have any material litigation matters pending; however, from time to time, we may become involved in various legal actions that arise in the normal course of business. We intend to defend vigorously against any future claims and litigation, but litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Item 1A: Risk Factors
Not applicable as we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933.
From January 1, 2023, to present, we made the following issuances:
On March 17, 2023, the Company issued to RB Capital Partners Inc. a two-year convertible promissory note in the principal amount of $200,000. The Note bears interest at 7% per annum. The Company has the right to prepay the Note at any time. All principal on the Note is convertible into shares of our common stock after six months from issuance at the election of the holder at a conversion price equal $1.00 per share.
On May 4, 2023, the Company issued to Nicolas Link 2,750,000 shares of our common stock with a grant-date and fair value of the award as of June 1, 2022, at $0.0721 pursuant to his employee contract.
On May 4, 2023, the Company issued to John-Paul Backwell Link 2,250,000 shares of our common stock with a grant-date and fair value of the award as of June 1, 2022, at $0.0721 pursuant to his employee contract.
On May 4, 2023, the Company issued to Carsten Kjems Falk 2,250,000 shares of our common stock with a grant-date and fair value of the award as of June 1, 2022, at $0.0721 pursuant to his employee contract.
On May 4, 2023, the Company issued to Krishnan Krishnamoorthy 2,250,000 shares of our common stock with a grant-date and fair value of the award as of June 1, 2022, at $0.0721 pursuant to his employee contract.
On May 4, 2023, the Company issued to Louise Bennett 1,000,000 shares of our common stock with a grant-date and fair value of the award as of June 1, 2022, at $0.0721 pursuant to her employee contract.
On May 5, 2023, the Company issued to Exchange Listings LLC 1,543,256 shares of our common stock valued at $0.41 per share for consultancy services.
On June 1, 2023, the Company issued to Jefferson Street Capital LLC 150,000 shares of our common stock with a grant-date and fair market value of the award as of May 23, 2023, at $0.60 pursuant to a share purchase agreement signed on May 23, 2023.
On July 26, 2023, the Company issued to Sky Holdings Ltd. 300,000 shares of our common stock with a grant-date and fair market value of the award as of June 16, 2023, at $0.42 pursuant to a share purchase agreement signed on June 16, 2023
On July 27, 2023, our Company borrowed from Mahavir Investments Limited, the principal amount of $3,000,000 (the “Mahavir Loan”). The Mahavir Loan bears interest at 20% per annum and is payable in nine tranches. We have the right to prepay the Mahavir Loan at any time. The loan matures on April 30, 2024.
7
On July 31, 2023, the Company issued to 1800 Diagonal Lending Ltd. a promissory note in the principal amount of $174,867 (the “Diagonal Lending Note”). The Diagonal Lending Note had a one-time interest amount of $22,732. The Company will prepay the Diagonal Lending Note in nine monthly payments each in the amount of $21,955.45. The promissory note matures on February 28, 2024, with a total payback to the Holder of $197,599. All principal on the Diagonal Lending Note is convertible into shares of our common stock in the event of default with a conversion price of 65% multiplied by the lowest Trading Price for the Common Stock during the ten (10) Trading Days prior to the Conversion Date.
On August 15, 2023, the Company issued to 1800 Diagonal Lending Ltd. a promissory note in the principal amount of $118,367 (the “Diagonal Lending Note”). The Diagonal Lending Note had a one-time interest amount of $15,387.71. The Company will prepay the Diagonal Lending Note in nine monthly payments each in the amount of $14,861.64. The promissory note matures on May 30, 2024, with a total payback to the Holder of $133,754.71 All principal on the Diagonal Lending Note is convertible into shares of our common stock in the event of default with a conversion price of 65% multiplied by the lowest Trading Price for the Common Stock during the ten (10) Trading Days prior to the Conversion Date.
On August 25, 2023, the Company issued to Artelliq Software Trading 6,410,971 shares of our common stock for $2,000,000 pursuant to a share purchase and buy back agreement signed on August 21, 2023. The $2,000,000 was paid to Quality International as tranche payment 2.2 of the amended purchase agreement filed as an exhibit with this S-1.
The sales and issuances of the securities described above were made pursuant to the exemptions from registration contained in Section 4(a)(2) of the Securities Act and Regulation D under the Securities Act. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Description of Exhibit | |
| 10.1** | Amended Share Purchase Agreement, dated July 31, 2023, with shareholders of Quality International Co Ltd FZC. (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on August 4, 2023) | |
| 10.2** | Cancellation of Share Purchase Agreement, dated August 3, 2023, with shareholders of Petro Line FZ-LLC. (Incorporated by reference to the Current Report on Form 8-K filed with the SEC on August 4, 2023) | |
| 10.3* | Mahavir Loan Agreement, dated July 27, 2023 | |
| 10.4** | Convertible Promissory Note, dated July 31, 2023, with 1800 Diagonal Lending LLC | |
| 10.5** | Convertible Promissory Note, dated August 15, 2023, with 1800 Diagonal Lending LLC | |
| 10.6** | Subscription Buy-Back Agreement, dated as of August 21, 2023, by and between Quality Industrial Corp., Ilustrato Pictures International Inc., Quality International Co Ltd FZC, Mr. Saseendran Kodapully Ramakrishnan and Artelliq Software Trading. | |
| 10.7** | Guarantee & Indemnity Agreement dated as of August 21, 2023, by and between Quality Industrial Corp., Ilustrato Pictures International Inc., Quality International Co Ltd FZC, Mr. Saseendran Kodapully Ramakrishnan and Artelliq Software Trading. | |
| 31.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1* | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104* | Cover Page Interactive Data File formatted as Inline XBRL and contained in Exhibit 101 |
| * | Filed herewith. |
| ** | Previously filed |
9
SIGNATURES
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.
| Quality Industrial Corp. | ||
| Date: | November 20, 2023 | |
| By: | /s/ John-Paul Backwell | |
| John-Paul Backwell | ||
| Title: | Chief Executive Officer (principal executive) | |
| By: | /s/ Krishnan Krishnamoorthy | |
| Krishnan Krishnamoorthy | ||
| Title: | Chief Financial Officer (principal accounting, and financial officer) |
|
10
EXHIBIT 31.1
CERTIFICATIONS
I, John-Paul Backwell, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023, of Quality Industrial Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: | |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions); | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
| |
| Quality Industrial Corp. | ||
| Dated: November 20th, 2023 | By: | /s/ John-Paul Backwell |
| John-Paul Backwell | ||
| Chief Executive Officer (principal executive) | ||
EXHIBIT 31.2
CERTIFICATIONS
I, Krishnan Krishnamoorthy, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023, of Quality Industrial Corp.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: | |
| a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and; | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions); | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.
| |
| Dated: November 20th, 2023 | Quality Industrial Corp. | |
| By: | /s/ Krishnan Krishnamoorthy | |
| Krishnan Krishnamoorthy | ||
| Chief Financial Officer (principal accounting, and financial officer) | ||
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Quality Industrial Corp. (the “Company”) for the fiscal quarter ended September 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, John-Paul Backwell, and I Krishnan Krishnamoorthy certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Quality Industrial Corp. | ||
| Dated: November 20th, 2023 | By: | /s/ John-Paul Backwell |
| John-Paul Backwell | ||
| Chief Executive Officer (principal executive) | ||
| Quality Industrial Corp. | ||
| By: | /s/ Krishnan Krishnamoorthy | |
| Krishnan Krishnamoorthy | ||
| Chief Financial Officer (principal accounting, and financial officer) | ||
This certification accompanies this Quarterly Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.