1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended September 30, 1995
/ / 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 0-16052
QUADRAX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 05-0420158
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
300 HIGH POINT AVENUE 02871
PORTSMOUTH, RHODE ISLAND (Zip Code)
(Address of Principal Executive Offices)
(401) 683-6600
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 31, 1995
----------------- -------------------------------
Common Stock, par value 16,462,084 shares
$.000009 per share
2
QUADRAX CORPORATION
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE
Item 1 -- Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 1995
and at December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1995,
and September 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1995, and September 30, 1994 . . . . . . . . . . . 6-7
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . 8-11
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 12-14
PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6 -- Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3
QUADRAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ---------------
Current assets:
Cash and cash equivalents $ 1,146,248 $ 382,721
Accounts receivable 1,048,786 224,180
Inventories:
Raw materials 316,344 1,059,213
Work in process 732,281 212,573
------------- -------------
1,048,625 1,271,786
Other current assets 211,870 81,756
------------- -------------
TOTAL CURRENT ASSETS 3,455,529 1,960,443
------------- -------------
Property and equipment, at cost:
Machinery and equipment 4,117,905 3,875,955
Office equipment 820,401 689,944
Leasehold improvements 1,038,075 1,035,513
------------- -------------
5,976,381 5,601,412
Less accumulated depreciation and
amortization 2,808,529 2,984,104
------------- -------------
NET PROPERTY AND EQUIPMENT 3,167,852 2,617,308
------------- -------------
Receivables from officers and employees (Note 6) 0 54,728
Non-competition agreement (Note 6) 0 641,250
Goodwill (Note 6) 0 709,142
Other assets 367,855 507,855
Wimbledon license agreement, net of amortization 566,667 600,000
Patents, net of amortization 163,543 169,437
------------- -------------
TOTAL ASSETS $7,721,446 $7,260,163
=============== ===============
See accompanying notes.
4
QUADRAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------------------- ---------------------
Current liabilities:
Accounts payable $ 1,075,955 $ 1,166,178
Accrued expenses (Note 6) 1,589,738 1,547,986
Current maturities of capital lease obligations 26,382 0
Notes payable to related party 150,000 135,000
Notes payable 250,000 310,000
--------------- ----------------
TOTAL CURRENT LIABILITIES 3,092,075 3,159,164
Long-term capital lease obligations 64,952 0
Note payable to related party 0 540,000
--------------- ----------------
TOTAL LIABILITIES 3,157,027 3,699,164
Stockholders' equity:
Original convertible preferred stock 7 7
Class A convertible preferred stock 0 0
Common stock 167 92
Additional paid-in capital 57,046,598 48,356,319
Deficit accumulated during development stage (51,126,451) (44,090,478)
--------------- ----------------
5,920,321 4,265,940
Less:
Treasury stock, at cost: (993,009) (243,009)
Unearned compensation and deferred expenses (362,893) (123,932)
Note receivable for options (Note 6) 0 (338,000)
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 4,564,419 3,560,999
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 7,721,446 $7,260,163
=============== ================
See accompanying notes.
5
QUADRAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1995 September 30, 1994 September 30, 1995 September 30, 1994
---------------------- ----------------------- ------------------------- ---------------------
Revenue:
Product sales $ 1,160,994 0 $ 3,470,059 $ 73,300
Evaluation and
testing 0 291,000 0 424,036
Interest income 9,941 101 19,301 2,316
Other income 0 21,230 0 21,230
------------------ ----------------- ----------------- -----------------
TOTAL REVENUE 1,170,935 312,331 3,489,360 520,882
------------------ ----------------- ----------------- -----------------
Expenses:
Cost of goods sold 768,596 0 2,526,224 41,258
Research and development 215,640 471,279 426,881 1,159,720
Selling, general and
administrative 1,517,521 1,478,036 4,351,460 2,921,683
Depreciation and
amortization 183,956 371,956 607,873 708,531
Interest expense 3,482 171,701 12,895 204,551
Financing related expenses 0 (5,491) 0 1,444,360
Reserve for restructuring
costs 2,600,000 0 2,600,000 0
------------------ ------------------ ---------------- -----------------
TOTAL EXPENSES 5,289,195 2,487,481 10,525,333 6,480,103
------------------ ----------------- ---------------- -----------------
NET LOSS $ (4,118,260) $(2,175,150) $ (7,035,973) $ (5,959,221)
================== ================= ================ ================
NET LOSS PER
COMMON SHARE (1) $ (0.29) $ (0.40) $ (0.53) $ (1.40)
================== ================= ================ ===============
WEIGHTED
AVERAGE COMMON
SHARES
OUTSTANDING (1) 14,189,979 5,399,588 13,392,893 4,241,171
================== ================= ================ ================
(1) Gives effect for all periods to a 1-for-10 reverse split effective
July 20, 1994. See Note 6.
See accompanying notes.
6
QUADRAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September 30, 1995 September 30, 1994
------------------ ------------------
Cash flows from operating activities:
Net loss $(7,035,973) $(5,959,221)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation & amortization of fixed assets 537,660 708,531
Amortization of intangibles 62,865 0
Amortization of unearned compensation 61,070 0
Amortization of deferred expense 191,430 189,152
Common stock issued for expenses 529,864 812,447
Write-off of goodwill 685,504 0
Cancellation of indebtedness 0 107,342
Effect on cash flows of changes in assets and liabilities:
Accounts receivable (824,606) 29,623
Inventories 223,161 (20,746)
Prepaid expenses and other assets (130,114) (38,260)
Receivables/payables from related parties (300,000) (1,420,000)
Accounts payable (90,223) 67,448
Accrued expenses 68,134 494,446
Non-current liabilities 0 348,995
-------------- ----------------
Net cash used in operating activities (6,021,228) (4,680,243)
-------------- ----------------
Cash flows from investing activities:
Notes receivable - officers and employees 54,728 0
Capital expenditures, net (374,969) (366,781)
Other intangible assets 0 (9,570)
Payments for businesses acquired
net of cash acquired 140,000 0
-------------- ----------------
Net cash provided by (used in) investing activities (180,241) (376,351)
-------------- ----------------
Cash flows from financing activities:
Proceeds from exercise of common stock options 25,300 0
Buy back of original preferred stock 0 (3)
Sales of common stock 5,569,162 4,806,998
Issuance of preferred stock 1,339,200 0
Issuance of debt 91,334 1,777,001
Repayment of debt (60,000) (1,250,000)
-------------- ---------------
7
Net cash provided by financing activities 6,964,996 5,333,996
-------------- ---------------
Net increase in cash and cash equivalents 763,527 277,402
Cash and cash equivalents at beginning of period 382,721 668,781
-------------- ---------------
Cash and cash equivalents at end of period $ 1,146,248 $ 946,183
============== ===============
See accompanying notes
8
QUADRAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
(UNAUDITED)
SUPPLEMENTAL SCHEDULE OF SIGNIFICANT NON-CASH TRANSACTIONS: 1995:
The Company assumed $750,000 of debt due its former Chairman from
Conagher & Co., Inc. (See Note 4), for Conagher's purchase of the original
preferred stock in 1994.
1994:
The Company issued common stock to Applied Laser Systems, Inc. to
reduce principal indebtedness and accrued interest totaling $958,094.
9
QUADRAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited Condensed Consolidated Financial Statements presented
herein have been prepared in accordance with the instructions to Form
10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. In the opinion
of management, such condensed consolidated financial statements
include all adjustments necessary to present fairly the Company's
financial position as of September 30, 1995 and the results of
operations for the nine and three months ended September 30, 1995 and
September 30, 1994. The results of operations for the nine and three
month periods ended September 30, 1995 may not be indicative of the
results that may be expected for the year ending December 31, 1995. It
is suggested that these Condensed Consolidated Financial Statements be
read in conjunction with the Consolidated Financial Statements and the
notes thereto included in the Company's latest annual report to the
Securities and Exchange Commission on Form 10-KSB, as amended, for the
year ended December 31, 1994.
The Company converted its fiscal year, effective December 31, 1994,
from a 52-53 week period ending on the Sunday closest to December 31
to a calendar year ending December 31. By accounting for its
activities on a 52-53 week period in prior years, its fiscal year end
and the fiscal quarters did not necessarily fall on the respective
month-ends for each fiscal quarter. All references to years in these
notes to Condensed Consolidated Financial Statements represent fiscal
years unless otherwise noted.
2. Notes Payable
The Company's note payable is a non-interest bearing note for $250,000
due regarding the acquisition of certain assets and liabilities of
Time Sports, Inc., dba the Wimbledon division.
10
3. Shareholders Equity
The Company's capital shares are as follows:
Original Convertible Preferred Stock, $.01 par value, 1,172 shares
authorized at September 30, 1995 and December 31, 1994, 318 and 516
shares issued and outstanding at September 30, 1995 and December 31,
1994, respectively. During the nine months ended September 30, 1995,
198 shares of the Original Convertible Preferred Stock were converted
to 75,268 shares of Common Stock.
Class A Convertible Preferred Stock, First Series, $10.00 par value,
300,000 shares and -0- shares authorized at September 30, 1995 and
December 31, 1994, respectively, and -0- shares issued and outstanding
at September 30, 1995 and December 31, 1994. During the three month
period ending September 30, 1995, 150,000 shares of Class A
Convertible Preferred Stock were converted into 1,489,946 shares of
Common Stock.
Common Stock, $.000009 par value, 90,000,000 shares authorized
at September 30, 1995 and December 31, 1994, 16,876,048 and
10,249,066 shares issued at September 30, 1995 and December 31, 1994,
respectively and 16,362,084 and 9,928,261 shares outstanding at
September 30, 1995 and December 31, 1994, respectively.
On July 20, 1994, the Company amended its Certificate of Incorporation
to provide for a 1-for-10 reverse stock split, effective July 20,
1994. All data regarding numbers of shares of Common Stock and
related per share amounts in the accompanying and notes thereto have
been adjusted to reflect this reverse split.
4. Changes in Control
On February 13, 1995, the Company entered into an agreement with
Pattinson Hayton, III, the Company's former Chairman, and two of his
affiliated companies, Conagher & Co., Inc., a California corporation,
Allied-Asian Consolidated Limited, a Hong Kong corporation, Richard A.
Fisher, who preceded Mr. Hayton as the Company's Chairman of the
Board, and who was also the Company's former Chief Executive Office
and General Counsel, and James J. Palermo, the Company's current
Chairman of the Board and Chief Executive Officer. The details of
this transaction have been described in the Company's Form 10-KSB for
the fiscal year 1994 (See Changes in Control and Related Transactions
and Note 10 to the Consolidated Financial Statements -- Changes in
Control).
5. Related Party Transactions
During the nine months ended September 30, 1995, the Company's former
Chief Executive Officer, Richard A. Fisher, exercised options covering
216,326 shares of the Company's common stock by delivering notes
therefore aggregating $336,441. These notes are payable with interest
in five equal annual installments.
In connection with the sale of certain securities transferring control
of the Company from Pattinson Hayton, III and his affiliated corporate
entities (See Note 4 above), the Company assumed the obligation of
Conagher & Co. under a promissory note to pay Mr. Fisher $750,000 for
convertible preferred stock which he had previously sold to Conagher &
Co. The convertible preferred stock was transferred in trust for the
benefit of the common stockholders. The note is payable in monthly
installments of $75,000 plus interest, over a 10 month period
commencing
11
April 1995, provided that payments are not due if the Company does not
have working capital of at least $500,000, and provided further that
additional payments are due if the Company receives certain levels of
additional equity financing. For the period ending September 30,
1995, the Company had paid $300,000 under this agreement. In July,
1995 the Company agreed to amend this agreement as follows:
1) The Company would issue 275,000 shares of new common stock to
Mr. Fisher upon the effective date of a registration statement
which was filed with the Securities and Exchange Commission in
July 1995. These shares would be covered by the registration
statement.
2) Mr. Fisher agreed that the Company could suspend further
payments on its note payable of $450,000 until such time as
the registration statement becomes effective and the common
shares described in (1), above, can be sold. In addition, the
lien placed on the original preferred stock was released, and
Mr. Fisher surrendered his right to retake control of the
board of directors in the event of the Company's delinquency
in repaying the note. Subsequent to September 30, 1995, and
in recognition of delays in the effective date of the
registration statement, the Company paid an additional
$150,000 plus all interest in arrears on this agreement for a
total of $182,000 to Mr. Fisher.
3) All of the common shares described in (1) are to be sold
within a period of 150 days after the registration statement
becomes effective. If the net proceeds realized on the sale
of the common stock to be issued to Mr. Fisher are less in
total than $300,000, the Company agreed to pay any deficiency
in cash. Conversely, if the net proceeds realized exceed
$300,000, the excess will be rebated to the Company.
Also during the nine months ended September 30, 1995, Mr.
Fisher's consulting agreement with the Company dated September
30, 1994 was amended to reflect an increase in consulting fees
to $12,500 per month and on agreement to issue him an
additional 100,000 shares of common stock.
6. Reserve for Restructuring Costs
After amending the preferred stock repurchase agreement in the period
ending September 30, 1995, the Company determined that its long-term
objectives did not require the services of its former chairman and
chief executive officer, Richard A. Fisher, and other executives.
Additionally, it was determined that certain intangibles acquired in
the McManis Sports acquisition in 1994 should be revalued as of
September 30, 1995. Therefore in connection with this determination,
all such liabilities to Mr. Fisher and other executives reflected in
the books and records of the Company as of September 30, 1995 were
reserved for. The total amount reserved for at September 30, 1995 was
$2,600,000 and consists of the following:
1) A consulting agreement for Mr. Fisher's services from July 1, $ 482,000
1995 to December 31, 1996 along with the related employee
benefits, the issuance of 100,000 shares of common stock, and
interest paid in arrears to Mr. Fisher pursuant to acquisition
of the Company's original preferred stock (See Note 5 above).
12
2) Write-off of unamortized portion of Mr. Fisher's 575,000
non-competition agreement from July 1, 1995 to September 30,
1999.
3) Expenses and other costs incurred or to be incurred in 608,000
terminating company executives and the Company's relationship
with its investor relations consultant.
4) Write-off of unamortized costs and related expenses for CMI 250,000
machinery and equipment initially capitalized in 1989.
5) Write-off of unamortized portion of goodwill associated with 685,000
acquisition of McManis Sports Associates. -------
Total Restructuring Costs $2,600,000
=========
Additionally, the Company for financial statement purposes offset the
notes receivable for exercise of stock options due from its former
Chairman and Chief Executive Officer, Richard A. Fisher, in the
approximate amount of $675,000 against the notes payable due him for a
covenant not to compete in the same approximate amount of $675,000.
The details of the original transaction have been described in the
Company's Form 10-KSB as amended for fiscal year 1994.
7. Earnings Per Share
For the fiscal periods ending September 30, 1995 and 1994, the net
loss per share was computed using the weighted number of average
shares outstanding during the respective periods. Common Stock
equivalents were not taken into account in this computation because
the impact would have been anti-dilutive.
13
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for Quarter Ended September 30, 1995 as compared
to Quarter Ended September 30, 1994
The Company's net loss from operations for the quarter ended September
30, 1995 ("1995 Third Quarter") of approximately $4,115,000 was $1,940,000 more
than its net loss from operations of $2,175,000 for the quarter ended September
30, 1994 ("1994 Third Quarter"). This increase is the result of the Company
setting up a reserve for restructuring costs for expenses that were incurred in
the 1995 Third Quarter and will be incurred in future periods (see Note 6 to
the September 30, 1995 Condensed Consolidated Financial Statements).
Total revenue recognized during the 1995 Third Quarter was $1,171,000
compared to $312,000 in the 1994 Third Quarter. This increase of $859,000 or
275 percent from the 1994 Third Quarter results from the Company shipping
additional product to its defense related customers in the approximate amount
of $600,000. Additionally, $364,000 of tennis and golf products were sold in
the 1995 Third Quarter. The Company does not now expect to earn significant
revenues from sales to defense related customers in periods subsequent to
fiscal 1995.
Costs of goods sold for the Third Quarter of 1995 of $769,000 reflect
costs associated with the defense and consumer products which the Company
shipped in the 1995 Third Quarter. The cost of goods sold for the 1994 Third
Quarter was negligible because the Company had no product revenues.
Research and development costs decreased approximately $256,000 in the
1995 Third Quarter from the comparable period in 1994. The reason for this
decrease is that the Company is no longer a development stage company and as
such is amortizing its product development costs, primarily molds, over a three
year period rather than expensing these costs as incurred.
Selling general and administrative costs increased $39,000, from
$1,478,000 in the 1994 Third Quarter to $1,517,000 in the 1995 Third Quarter.
Depreciation and amortization expense decreased approximately $188,000
in the 1995 Third Quarter from $372,000 to $184,000. The primary reason for
this decrease is that the Company wrote off approximately $188,000 worth of
fixed assets in the 1994 Third Quarter which were determined to be no longer
usable.
Interest expense in the 1995 Third Quarter decreased $168,000 to
approximately $3,000. The reason for this decrease was twofold; one, the
indebtedness the Company incurred in unwinding the proposed Applied Laser
Systems transaction in 1994, and two the interest incurred when the Company
issued subordinated debentures pursuant to Regulation D during the 1994 Third
Quarter.
The fluctuation of $5,000 between the 1995 and 1994 Third Quarters for
financing related expenses is negligible.
Expenses related to restructuring costs increased $2,600,000, from
$-0- in the 1994 Third Quarter to $2,600,000 in the 1995 Third Quarter. The
Company established this reserve after evaluating the carrying value of its
assets and determining that certain of its intangibles, in particular goodwill
14
associated with the acquisition of McManis Sports Associates, were overvalued.
The Company further decided that it would not use the services of its former
Chairman and Chief Executive Officer, Richard Fisher, in future periods. Thus,
in order not to penalize future financial results for past decisions, the
Company has expensed in the 1995 Third Quarter, all future costs it is
potentially obligated to pay to Mr. Fisher.
Results of Operations for the Nine Months Ended September 30, 1995 as
compared to the Nine Months Ended September 30, 1994
The Company's net loss from operations for the nine months ended
September 30, 1995 ("1995 Nine Month Period") of approximately $7,036,000 was
approximately $1,077,000 greater than its net loss from operations of
approximately $5,959,000 for the nine months ended September 30, 1994 ("1994
Nine Month Period"). This increase is the result of the Company setting up a
reserve for expenses that were incurred in the 1995 Third Quarter and will be
incurred in future periods (see Note 6, Reserve for Restructuring Costs, to
the Condensed Consolidated Financial Statements).
Total revenue recognized during the 1995 Nine Month Period was
$3,489,000 compared to $521,000 in the 1994 Nine Month Period. This increase
of $2,968,000 or 570 percent from the 1994 Nine Month Period results from the
Company shipping product to its defense related customers in the amount of
$1,947,000. An additional $814,000 of Wimbledon and McManis products were sold
in the 1995 Nine Month Period.
Costs of goods sold for the 1995 Nine Month Period of $2,526,000
reflect costs associated with the defense and consumer products which the
Company shipped in the 1995 Period. The cost of goods sold for the 1994 Period
was negligible.
Research and development costs decreased $733,000, from $1,160,000 in
the 1994 Nine Month Period to approximately $427,000 in the 1995 Nine Month
period. The reason for this decrease is that the Company is no longer a
development stage company and as such is amortizing its product development
costs, primarily molds, over a three year period rather than expensing these
costs as incurred.
During the 1995 Nine Month Period, the Company's selling general and
administrative costs were $4,351,000, an increase of approximately $1,430,000
from $2,922,000 in the 1994 Nine Month Period. The principal reason for this
increase is the monies the Company expended for its McManis Sports Associates
division, $583,000 and its Wimbledon division, $770,000, which were acquired in
November, 1994.
Depreciation and amortization expense decreased $101,000 from
$709,000 in the 1994 Nine Month Period to $608,000 in the 1995 Nine Month
Period. The principal reason for this is that the Company wrote off
approximately $190,000 worth of fixed assets in the 1994 Nine Month period.
This decrease was offset by increased amortization of intangibles in 1995 of
the Wimbledon trademark license, $34,000, and the Richard Fisher covenant not
to compete, $68,000 (see Note 6 to the Condensed Consolidated Financial
Statements).
Interest expense decreased $192,000 in the 1995 Nine Month Period to
$13,000 from $205,000 in the 1994 Nine Month Period. The reason for this
decrease was the interest paid by the Company in 1994 relating to the Applied
Laser Systems indebtedness and interest paid to Holders of subordinated
debentures issued by the Company in 1994 pursuant to Regulation D.
15
Financing related expenses decreased approximately $1,444,000, in the
1995 Nine Month Period to negligible amounts from $1,444,000 in the 1994 Nine
Month Period. The reason for this fluctuation is the termination of the
Applied Laser Systems agreement whereby the Company was to be acquired by
Applied Laser Systems in the Spring of 1994. The costs associated with this
termination are professional consultant fees such as legal services and stock
issued by the Company to its investor relations consultant in lieu of fees.
Financial Position, Liquidity and Capital Resources
The Company's working capital at September 30, 1995, was $363,000, an
increase of approximately $1,562,000 from December 31, 1994 where working
capital was a deficit of $1,199,000. This increase was due to the Company's
successful efforts to raise money from outside third party sources and the
additional sales the Company has generated during the first nine months of
fiscal 1995. The Company is continuing to pursue the goal of changing its
strategic objective to becoming a vertically integrated supplier to OEM's and
end users of consumer products and components manufactured from its proprietary
materials systems.
Cash provided by financing activities during the first nine months of
1995 totaled approximately $6,965,000 compared to $5,334,000 during the same
period of 1994. The primary source of these funds in 1995 was $6,908,000 from
sales of common stock and convertible preferred stock to outside third parties.
The 1994 financing monies raised were attributable to monies advanced by
Applied Laser Systems. This indebtedness was subsequently discharged by
Conagher & Co., Inc. for the benefit of the Company.
The Company received a going concern qualification from its outside
independent auditors on its 1994 audited financial statements. While the
Company believes it has made and will continue to make substantial progress
towards achieving profitability, the results to date have not yet been
sufficient to negate the auditors' qualifications. The Company's management is
of the opinion that it will be able to continue to raise money from outside
third party sources in sufficient amounts to support its operations until the
time that the forecasted revenues for future periods materialize from programs
in which the Company is involved and are sufficient to support the Company's
operations. There is no assurance that the Company's efforts to raise money
will be successful or that the forecasts will be achieved. There will usually
be differences between the forecast and actual results because events and
circumstances frequently do not occur as expected and those differences may be
material. It is difficult for the Company to predict accurately the amount of
revenues that will be generated, the amount of expenses that will be required
by its operations or its ability to raise additional capital.
It is difficult for the Company to predict with accuracy the point at
which the Company will no longer require a going concern qualification due to
the difficulty of predicting accurately the amount of revenues that the Company
will generate, the amount of expenses that will be required by its operations,
and the Company's ability to raise additional capital. The Company believes,
however, that under its current business plan, its revenues and earnings will
be sufficient to make the going concern qualification unnecessary by December
31, 1996.
16
QUADRAX CORPORATION
PART II - OTHER INFORMATION
Item 1 -- Legal Proceedings
As of the date of this Amendment No. 1 to this Form 10-QSB, the
Securities and Exchange Commission is conducting two informal investigations of
the Company for activities occurring in 1994 and 1995. The following
discussion is based on information learned by the Company as a result of its
involvement in the Commission's activities. There may be other significant
information regarding these matters of which the Company is, at the time, not
aware.
One inquiry, being conducted by the Commission's Denver officer, is
believed to have as its principal focus, insofar as it relates to the Company,
activities by the Company's former Chairman of the Board involving certain
transactions in the Company's stock and certain expenditures of the Company
funds, during his term as Chairman, from July 1994 through February 1995. A
second inquiry, being conducted under the supervision of the Commission's
Boston office, is believed to focus, insofar as it relates to the Company, on
certain activities involving the Company's public relations consultant
beginning January 1994. While the Company's contract with its public relations
consultant nominally extends until January 1996, the Company is no longer using
the services of the consultant to any significant degree and does not expect to
extend the contract for his services beyond the date of the current contract.
The Company has cooperated with the inquiries described above,
providing documents and other information in response to the Staff's requests.
At this time, the Company does not know what conclusions the Staff will reach
or what action, if any, the Staff will recommend to the Commission upon the
termination of the two inquiries.
Item 6 -- Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K filed since August 14, 1995, the date
of the Company's Form 10-Q for its second quarter.
None
17
QUADRAX CORPORATION
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.
QUADRAX CORPORATION
(Registrant)
By: /s/ James J. Palermo Date: January 17, 1996
-----------------------------------------------
James J. Palermo, Chairman and
Chief Executive Officer
By: /s/ Edward A. Stoltenberg Date: January 17, 1996
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Edward A. Stoltenberg,
Acting Chief Financial Officer (Principal
Accounting Officer)