STEEL CITY PRODUCTS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2003
--------------

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 0-2572

STEEL CITY PRODUCTS, INC.
-------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 55-0437067
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)

2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE
19808
-------------------------------------------------------
(Address of principal executive offices)
(Zip Code)

(817) 416-0717
(Registrant's telephone number, including area code)

- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year,
if changed from last report)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark whether the registrant is an accelerated filer
(as described in Rule 12b-2 of the Exchange Act). Yes No X
--- ---

As of May 1, 2003, 3,238,061 shares of the Registrant's Common Stock,
$0.01 par value per share were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

STEEL CITY PRODUCTS, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets at March 31, 2003
and December 31, 2002............................................................ 3

Condensed Consolidated Statements of Operations for the three month
periods ended March 31, 2003 and March 31, 2002.................................. 4

Condensed Consolidated Statements of Cash Flows for the three month
periods ended March 31, 2003 and March 31, 2002.................................. 5

Notes to Condensed Consolidated Financial Statements............................. 6

2

STEEL CITY PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The accompanying notes are an integral part of these condensed
consolidated financial statements

3

STEEL CITY PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

The accompanying notes are an integral part of these condensed
consolidated financial statements

4

STEEL CITY PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)

The accompanying notes are an integral part of these condensed
consolidated financial statements

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STEEL CITY PRODUCTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2003

1. INTERIM FINANCIAL STATEMENTS

Business Activities

Steel City Products, Inc. ("SCPI" or "the Company") is a wholesale
distributor of automotive accessories, non-food pet supplies and lawn and garden
products, operating under the trade name "Steel City Products"), selling mainly
to supermarket retailers, drug stores, discount retail chains and hardware and
automotive specialty stores, based principally in the Northeastern United
States. SCPI is a majority-owned subsidiary of Sterling Construction Company,
Inc. ("Sterling").

Interim Financial Statements

In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the 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. Significant estimates
included in the Company's financial statements include the allowance for
doubtful accounts and estimates for the use of the Company's net operating loss
carryforwards. In the opinion of management, all adjustments necessary to
present fairly the financial position, results of operations and cash flows for
the interim periods presented have been included. All adjustments made are of a
normal recurring nature.

While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is suggested that these
unaudited condensed consolidated financial statements be read in conjunction
with the audited financial statements for the fiscal year ended December 31,
2002 ("Fiscal 2002") as filed in the Company's Annual Report on Form 10-K.

Certain prior year's balances have been reclassified to conform to
current year presentation. Specifically, warehouse expenses are included as a
component of costs of goods sold rather than as selling and administrative
expense.

2. NEW ACCOUNTING PRONOUNCEMENTS

During June 2001, the Financial Accounting Standards Board issued two
new accounting standards, Statement of Financial Accounting Standards ("SFAS")
No. 141 "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangibles".

SFAS No. 141 eliminates the pooling of interests method of accounting
for business combinations initiated prior to July 2001. SFAS No. 142, which
became effective January 1, 2002, discontinued the requirement for amortization
of goodwill and indefinite-lived intangible assets, and instead requires an
annual review of the impairment of those assets. Impairment is to be examined
more frequently if certain indicators appear. Intangible assets with a
determinable life will continue to be amortized. The Company has determined that
the adoption of these statements did not have a material effect on its financial
statements.

In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations", which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The standard is effective for fiscal years beginning
after June 15, 2002. The Company has determined adoption of these statements did
not have a material effect on its consolidated financial statements.

6

In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses implementation
issues related to SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". This standard is effective
for fiscal years beginning after December 31, 2001. The Company has determined
adoption of this statement did not have a material effect on its consolidated
financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FAS Statement No. 13, and Technical
Corrections ("SFAS 145"). This statement rescinds the requirement in SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, that material gains and
losses on the extinguishment of debt be treated as extraordinary items. The
statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the accounting for sale-leaseback transactions and the
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. Finally the standard makes a number of
technical corrections to other standards. The provisions of the statement
relating to the rescission of SFAS 4 are effective for fiscal years beginning
after May 15, 2002. Provisions of the statement relating to the amendment of
SFAS 13 are effective for transactions occurring after May 15, 2002 and the
other provisions of the statement are effective for financial statements issued
on or after May 15, 2002. The Company has determined that its adoption did not
have a material effect on its consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or
Disposal Activities ("SFAS 146"). SFAS 146 applies to costs associated with an
exit activity (including restructuring) or with a disposal of long-lived assets.
Those activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. SFAS 146
will require a Company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. SFAS 146
supersedes Emerging Issues Task Force Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring), and requires liabilities
associated with exit and disposal activities to be expensed as incurred and can
be measured at fair value. SFAS 146 is effective for exit or disposal activities
of the Company that are initiated after December 31, 2002. The Company has
reviewed SFAS 146 and concluded that its adoption will not have a material
effect on the Company's consolidated financial statements.

In December, 2002, the FASB issued FASB Statement No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure", which amends FASB
Statement No. 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
transition guidance and annual disclosure provisions for SFAS No. 148 are
effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reporting containing financial
statements for interim periods beginning after December 15, 2002. The Company
adopted Statement No. 148 in January 2003, and will transition utilizing the
prospective method for options granted after January 1, 2003. The Company does
not believe the effect of adoption SFAS No. 148 will have a material effect on
its financial position or results of operations.

3. PREFERRED STOCK DIVIDENDS

Through March 31, 2003, the Company had not declared or paid Series A
Preferred Stock dividends totaling approximately $8.8 million, for the period
from August 1994. Any such dividends would be payable to Sterling. Dividends
declared and paid in earlier years were used by Sterling in reduction of
intercompany debt owed by Sterling to the Company. Accordingly, if such
dividends were

7

declared and paid by the Company, the effect would be a decrease in the
intercompany loans owed by Sterling to the Company to approximately $1.2
million.

4. GOODWILL AND OTHER ASSETS

Other assets include goodwill associated with the acquisition of Steel
City Products in 1969, which had been amortized over 40 years until the complete
adoption of SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and
other Intangibles". The unamortized carrying value at March 31, 2003 and
December 31, 2002 is approximately $127,000. Accumulated amortization at March
31, 2003 and December 31, 2002 is approximately $128,000. In accordance with the
provisions of SFAS No. 142, goodwill is no longer being amortized. In accordance
with SFAS No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets",
the Company performed impairment testing in the second and fourth quarter of
fiscal 2002. There were no impairment losses related to goodwill due to the
application of SFAS No. 142 in fiscal 2002, nor were there any indications of
impairment in the first quarter of fiscal 2003.

5. STOCK BASED COMPENSATION:

Until January 1, 2003, the Company accounted for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations.

In recent years, stock-based compensation in the form of options
granted to employees of SCPI were options to purchase stock of SCPI's parent,
Sterling. No stock-based employee compensation cost is reflected in net income,
as all options granted under the Sterling stock option plans had an exercise
price equal to the market value of the underlying common stock on the date of
grant.

The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation (dollars in thousands, except per share data).

Effective January 1, 2003, the Company adopted FASB No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure" which amends FASB
Statement No. 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. The Company will transition utilizing the prospective method for
options granted after January 1, 2003. The Company does not believe the adoption
of SFAS No. 148 will have a material effect on its financial position or results
of operations.

No options have been granted to date in 2003.

6. SEGMENT INFORMATION

The Company's historical business has been the distribution of
automotive related accessories. The distribution of pet supplies was added in
fiscal 1996, and in fiscal 2000, the Company began to distribute lawn and garden
accessories. The Company therefore operates in three segments, automotive

8

products, ("Auto"), non-food pet products, ("Pet") and lawn and garden products
("Lawn"). Maarten Hemsley, the Company's Chief Financial Officer and Terry
Allan, its Chief Executive Officer and President, review the operating
profitability of each segment and its working capital needs to allocate
financial resources. The Pet segment assets and the Lawn segment assets consist
solely of their respective inventories, since other assets utilized in those
segments cannot be accurately determined. Therefore, the reported assets for the
Auto segment include accounts receivable and other assets applicable to Pet and
Lawn.

7. BORROWING ARRANGEMENT

In July 2001, the Company replaced its existing line of credit with
financing from an institutional lender (the "Revolver"). The Revolver was for a
term of two years in the amount of $4.5 million, subject to a borrowing base.
The Revolver initially carried an interest rate equal to prime plus 1%. Due to
concerns stemming from the bankruptcy filing of Ames in August 2001, the
Revolver was amended to shorten the term of the line and increase the interest
rate to the prime rate plus 1.5%. Upon satisfaction to the lender of SCPI's
ability to obtain new customers and maintain sales and profitability levels, the
Revolver was again amended in December 2001 to provide for a line of $5.0
million, subject to a borrowing base, and to extend the term to May 31, 2003. In
fiscal 2002, further amendments to the Revolver were made to extend the maturity
date to May 31, 2004 and to remove a restriction on the calculation of the
borrowing base. At March 31, 2003, the outstanding balance on the Revolver was
$4.4 million. The rate of interest on the Revolver at March 31, 2003 was the
prime rate plus 1.5% (effective rate of 5.75%). The Revolver is secured by the
assets of SCPI and is subject to the maintenance of certain financial covenants.
At March 31, 2003, the Company was in compliance with its financial covenants.

At March 31, 2003, the borrowing base under the Revolver was
approximately $5.0 million.

In December 2001, in conjunction with the December 2001 amendment to
the Revolver and to improve the Company's working capital position through the
purchase of additional inventory, SCPI's parent Sterling Construction Company,
Inc. ("Sterling") advanced $500,000 under a subordinated promissory note (the
"Subordinated Sterling Note"). The Subordinated Sterling Note matures in a
single installment in December 2004, and bears interest at 12% per annum,
payable monthly.

In January 2003 in order to further improve the Company's working
capital position, certain members of SCPI's management and others loaned the
Company an aggregate of $250,000 under short-term promissory notes that mature
in July 2003. The notes bear interest at 10% per annum, payable monthly. The
notes may be repaid after March 31, 2003 but prior to maturity as long as the
Company is in compliance with the Revolver's financial covenants and excess
availability of at least $100,000 remains under the line of credit after
repayment of the notes.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Steel City Products, Inc. ("SCPI", or the "Company") is a special,
limited purpose, majority-owned subsidiary of Sterling Construction Company,
Inc. ("Sterling"). Through Sterling's ownership of SCPI, primarily in the form
of preferred stock, Sterling retains substantially all the value of SCPI, and
receives substantially all of the benefit of operations through its entitlement
to dividends on the preferred stock. Sterling's ownership of SCPI is designed to
facilitate the preservation and utilization of SCPI's and Sterling's net
operating tax loss carry-forwards that amounted to approximately $110 million at
December 31, 2002.

LIQUIDITY AND CAPITAL RESOURCES

In addition to cash derived from operations, SCPI's liquidity and
financing requirements are determined principally by the working capital needed
to support its level of business, together with the need for capital
expenditures and the cash required to repay its debt. SCPI's working capital
needs fluctuate primarily due to the amounts of inventory it carries which can
change seasonally, the size and timeliness of payment of receivables from its
customers and the amount of credit extended to SCPI by its suppliers.

Beginning in March 2002, cash is transferred to Sterling as needed to
pay corporate invoices. Cash transferred is reflected as an addition to advances
made to Sterling. Such advances bear interest at a rate sufficient to reimburse
the Company for interest paid on its revolving line of credit.

At March 31, 2003, SCPI's debt consisted primarily of revolving debt
(the "Revolver") of approximately $4.4 million, with unused availability under
the borrowing base of approximately $600,000. The Revolver has a maximum
availability of $5.0 million and carries an interest rate of prime plus 1.5%
(effective rate of 5.75%). The Revolver is secured by the assets of SCPI and is
subject to the maintenance of certain financial covenants. The term of the
Revolver expires in May 2004.

In December 2001, in conjunction with a December 2001 amendment to the
Revolver and in order to strengthen SCPI's working capital position through the
purchase of additional inventory, Sterling funded SCPI $500,000 through a
subordinated promissory note (the "Subordinated Sterling Loan'). The
Subordinated Sterling Loan, which is repayable in a single installment in
December 2004, bears interest at 12% per annum, payable monthly.

In January 2003 in order to further improve the Company's working
capital position, certain members of SCPI's management and others loaned the
Company an aggregate of $250,000 under short-term promissory notes that mature
in July 2003. The notes bear interest at 10% per annum, payable monthly. The
notes may be repaid after March 31, 2003 but prior to maturity as long as the
Company is in compliance with the Revolver's financial covenants and excess
availability of at least $100,000 remains under the line of credit after
repayment of the notes.

Management believes that in addition to expected cash flow from
operations, the Revolver and the Subordinated Sterling Loan will provide
adequate funding for SCPI's working capital, debt service and capital
expenditure requirements, including seasonal fluctuations, for at least the next
twelve months, assuming no material deterioration in current sales levels or
gross profit margin.

STOCKHOLDERS' DEFICIENCY

Through March 31, 2003, the Company had not declared or paid Series A
Preferred Stock dividends totaling approximately $8.8 million, for the period
from August 1994. Any such dividends would be payable to Sterling. Dividends
declared and paid in earlier years were used by Sterling in reduction of
intercompany debt owed by Sterling to the Company. Accordingly, if such
dividends were

10

declared and paid by the Company, the effect would be a decrease in the
intercompany loans owed by Sterling to the Company to approximately $1.2
million.

As a result of the Sterling Transaction completed in July 2001,
Sterling has significant positive net worth arising from its investment in
Sterling Houston Holdings ("SHH"), but covenants under SHH's bank facility
currently limit upstreaming of operating cash flow by SHH to Sterling, so that
Sterling is not currently able to fund any repayment of loans owed by it to the
Company. Accordingly, Sterling and the Company have not agreed repayment terms
for such loans, and generally accepted accounting principles require the Company
to record advances to Sterling as a component of stockholders' equity (thereby
creating a deficiency) until such time as formal repayment terms are agreed.

If outstanding Series A Preferred dividends at March 31, 2003 had been
declared and paid to Sterling and applied in reduction of the intercompany loan,
and payment terms on the balance of such loan had been agreed, the effect would
have been to reclassify the remaining loan amount of approximately $1.2 million
as an asset, rather than a reduction in stockholders' equity, with the result
that the Company's stockholders' equity would have been reported at a positive
level of approximately $258,000.

CASH FLOWS

Net cash used by operations increased by $1.0 million in the three
months ended March 31, 2003 compared with the three months ended March 31, 2002.
The increase was due to higher receivables offset only in part by lower
inventory levels and increases in vendor payables.

Cash provided by financing activities increased in the current year
period by $1.4 million, mostly as a result of higher borrowing on the revolving
line of credit in the current year and to borrowings from a short-term note to
fund the increased levels of receivables and inventory.

FORWARD LOOKING STATEMENTS

From time to time the information provided by the Company or statements
made by its employees may contain so-called "forward-looking" information that
involves risks and uncertainties. In particular, statements contained in this
Item 2 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are not historical facts (including, but not
limited to statements concerning anticipated sales, profit levels, customers and
cash flows) are forward-looking statements. The Company's actual future results
may differ significantly from those stated in any forward-looking statements.
Factors that may cause such differences include, but are not limited to the
factors discussed above as well as the accuracy of the Company's internal
estimates of revenue and operating expense levels. Each of these factors and
others are discussed from time to time in the Company's Securities and Exchange
Commission filings.

CERTIFICATION

This Form 10-Q has been certified by Terrance W. Allan, Chief Executive
Officer of the Company, and by Maarten D. Hemsley, Chief Financial Officer of
the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of section 1350, chapter 63 of title 18, United States
Code); such certification is attached as Exhibit 99.1.

MATERIAL CHANGES IN FINANCIAL CONDITION

As of March 31, 2003, there had been no material changes in the
Company's financial condition from December 31, 2002, other than those caused by
seasonal fluctuations as discussed in Item 7 of the Company's Annual Report on
Form 10-K for fiscal 2002.

11

MATERIAL CHANGES IN RESULTS OF OPERATIONS

Operations include the results of SCPI's operating division, Steel City
Products, a distributor of automotive accessories, non-food pet supplies, and
lawn and garden products, headquartered in McKeesport, Pennsylvania.

THREE MONTHS ENDED MARCH 31, 2003 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2002

Automotive segment

Sales of automotive accessories decreased by $448,000 in the first
quarter of the current year compared with sales in the same period last year.
Much of the decrease was attributable to the liquidation of Ames Department
Stores, a significant customer in July 2002; sales to Ames in the first quarter
of fiscal 2002 totaled $315,000. In addition, certain customers have changed
purchasing practices and are now buying more product directly from the
manufacturer.

Gross profit in the first quarter of fiscal 2003 was $520,000, or 14.3%
of sales, compared with $619,000, or 15.1% of sales in the prior year. The
decrease of $99,000 was due principally to the reduced sales volumes, offset by
reduced buying, occupancy and warehouse expenses, including fewer overtime
hours, of $22,000.

Operating profit for the automotive segment decreased from the prior
year by approximately $81,000, due primarily to lower sales and margins.

Pet segment

Sales of non-food pet supplies in the first quarter were $770,000, a
decrease of $866,000 compared with the first quarter of the prior year, due
principally to the liquidation in July 2002 of Ames Department Stores.

Gross profit was $210,000, or 27.3% of sales, compared with $382,000,
or 23.3% of sales in the prior year. Some of the decrease in sales volume was
offset by better margins earned on certain product lines and to lower operating
expenses related to the loss of the Ames business in July 2002.

The pet segment reported operating profit in the first quarter of
$169,000, a decrease of $123,000 compared with last year, principally due to the
loss of the Ames business.

Lawn segment

Sales of lawn and garden products increased from the prior year by
$785,000, due to increased sales to existing customers of $365,000 and sales to
new customers of $420,000. The Lawn segment began operations in November 2000.

Gross profit was $129,000, or 8% of sales compared with $45,000 or 5.5%
of sales last year. The lawn segment reported an operating profit of $109,000 in
the first quarter, compared with $73,000 last year.

Corporate

Corporate expenses decreased by approximately $51,000 compared with the
first quarter of the prior year, due to higher accounting and legal fees in the
prior year, and by lower management fees to the parent in the current year.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

SCPI is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading or, speculation in, derivative

12

financial instruments. The Company's primary market risk exposure relates to
interest rate risk. SCPI manages its interest rate risk by attempting to balance
its exposure between fixed and variable rates while attempting to minimize its
interest costs.

A change in interest rates of 1% would have changed interest expense by
approximately $16,000 for the three months ended March 31, 2003.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company
carried out an evaluation under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as amended. Based on that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are adequate and effective
in timely alerting them to material information relating to the Company required
to be included in the Company's periodic filings with the SEC.

There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.

13

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material legal proceedings outstanding against the
Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the
quarter for which this report is filed.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

*10.1 Sixth Amendment to the Revolving Credit Agreement
between National City Bank of Pennsylvania and Steel City
Products, Inc. dated January 15, 2003.

*99.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.

- ----------
* filed herewith

14

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

Date: May 10, 2003 By: /s/ Terrance W. Allan
------------------------
Terrance W. Allan
Chief Executive Officer

Date: May 10, 2003 By: /s/ Maarten D. Hemsley
-------------------------
Maarten D. Hemsley
Chief Financial Officer

15

Section 302 Certifications for the Signatures

CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-Q

I, Terrance W. Allan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Steel City
Products, Inc.

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a. Designed such disclosure controls and procedures 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 quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"), and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's Board of Directors (or persons
performing the equivalent function);

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; 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; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 10, 2003

By: /s/ Terrance W. Allan
----------------------------------------------
Chief Executive Officer

16

CERTIFICATION FOR QUARTERLY REPORTS ON FORM 10-Q

I, Maarten D. Hemsley, certify that

1. I have reviewed this quarterly report on Form 10-Q of Steel City
Products, Inc.

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a. Designed such disclosure controls and procedures 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 quarterly report is being prepared;

b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"), and

c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's Board of Directors (or persons
performing the equivalent function);

a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; 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; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 10, 2003

By: /s/ Maarten D. Hemsley
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Chief Financial Officer

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INDEX TO EXHIBITS

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