<PAGE> 1
Commission File No. 000-26856
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10KSB
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __ to __
QUADRATECH, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 95-4396848
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
126 West Maple Avenue
Monrovia, California 91016 89706
(Address of principal executive offices) (Zip code)
Issuer's telephone number: (626) 358-5995
Securities to be registered pursuant to Section 12(b) of the Act:
none
Securities to be registered pursuant to Section 12(g) of the Act:
$.001 Common Stock
(Title of Class)
Check 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 shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes / / No /X/
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendments to this
Form 10-K. /X/
As of December 31, 1997, there were 14,472,699 shares of the Registrant's
Common Stock, $.0001 par value, outstanding.
<PAGE> 2
The aggregate market value of shares of Common Stock held by
non-affiliates of the Registrant is $2,424,355.
State the Registrant's revenues for the December 31, 1997
fiscal year: $107,864.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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Page
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Item 1. Description of Business. . . . . . . . . . . . . . _
Item 2. Description of Property. . . . . . . . . . . . . . _
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . _
Item 4. Submission of Matter to Vote of
Security Holders . . . . . . . . . . . . . . . . . _
Item 5. Market for Common Registrant Equity and
Related Stockholder Matter . . . . . . . . . . . . _
Item 6. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . _
Item 7. Financial Statements . . . . . . . . . . . . . . . _
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . _
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(a) of the Exchange Act. . . . . . . . . _
Item 10. Executive Compensation . . . . . . . . . . . . . . _
Item 11. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . _
Item 12. Certain Relationships and
Related Transactions . . . . . . . . . . . . . . . _
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . _
</TABLE>
<PAGE> 4
Item 1. Description of Business.
Introduction.
Quadratech, Inc. (the "Company") was incorporated on February 4, 1984
under the laws of the State of Utah. On March 19, 1990, the Company changed its
domicile from the State of Utah to the State of Nevada. Until August 1993, the
Company had no operations. In 1993, the Company entered into an agreement and
plan of reorganization with the shareholders of (OSA) Oil Scavenger Absorbent,
a California corporation ("OSA, Inc."). The shareholders of OSA, Inc. received
5,500,000 shares of the Company's stock, representing 60% of the then
outstanding shares in exchange for all of their issued and outstanding shares of
stock in OSA, Inc.
OSA, Inc. was incorporated in 1992 to act as a distribution company for
oil absorbent products. Its shareholders were Maria Comfort, Ed V.
Lunenschloss, William Snyder, Michael Montgomery and John Sullivan. With
dissatisfaction of products then on the market, the Company developed its oil
absorbent product.
Business of the Company.
The Company is a developer and manufacturer of waste-to-energy and other
environmental products. The development of a product consists of identifying and
evaluating potential products, and if the evaluation is favorable, obtaining all
of the requisite components required to complete the product, including
financing and governmental approvals.
The Company's current business strategy is to develop and expand its
product lines in the existing hazardous material and environmental markets. The
Company is also focusing on distribution of its products in various
environmental markets and to continue to do new research and development.
The Industry.
Waste-to-energy is a large segment of the hazardous material and
environmental markets. The manufacture of a product used for the clean-up of
hazardous spills of oil and oil-based petrochemicals was the initial market
sought by the Company. An oil absorbent material is used to absorb the spilled
oil. The oil is squeezed out of the absorbent material and returned to the
refinery. The used oil absorbent material can then be pressed (recycled) into a
fire log or briquettes or bricks which creates more heat, less ash and a cleaner
burn than natural gas or other fire logs currently being marketed. The savings
in landfill costs begin with the acquisition and use of the recycled paper and
continues when the product is used again as a burning agent rather than be land
filled with the used oil.
The rapidly-growing hazardous material industry is relatively new. The
Company's products are currently being introduced into the industrial and
manufacturing markets.
5.
<PAGE> 5
As of the date hereof, the Company has four primary product lines: oil
absorbent material and floor sweeps; pet litter and animal bedding absorbent;
acid absorbents; and composting material. Each product line has its own market.
The oil absorbent material is sold in the hazardous material waste-to-energy
market; the pet litter is a grocery store and catalog item, (unique in its
ability to be flushed down toilets, cleaning the drains). The acid absorbent
enables users of caustic acids to discard a non-hazardous product. The compost
material saves water while seeds germinate within.
Research and Development.
The Company first developed its oil absorbent material using a
proprietary formula for detoxifying toxic waste paper. Because of this formula,
the other products were developed in a similar way, beginning with the floor
sweep and then the pet litter. A need for the oil absorbent material to be fire
proof led to the development of a fire-proof material which retards fire beyond
3000(degrees fahrenheit). This, in turn, is used in the Company's floor sweep
product as an absorbent for 1.5ph sulphuric acid and as the basis for the acid
absorbent.
Products.
A. Oil Absorbent Materials and Alternative-Energy Products. The Company obtained
by assignment from Ed V. Lunenschloss U. S. Patent No. 5,248,391 issued on
September 28, 1993 for its oil absorbent material and currently has the
rights/an unrestricted license as an oil-spill cleanup agent, in accordance with
Title 23, Division 3, Chapter 10, of the California Code of Regulations. The
Company believes that there are other licensed competitors whose products may be
used on a restricted basis, i.e., their products, unlike the Company's cannot be
deployed or used in free form in open waterways. Further, such absorbent
products are classified as a renewable energy source.
The Company's fire log, a "by product" of the oil absorbent material, is
being developed as an alternate energy source, to satisfies the Environmental
Protection Agencies' need for oil-spill recycling component. After oil has been
retrieved by the Company's oil absorbent material, most of the oil is thereafter
squeezed out. The remaining slightly oily (about 15%) absorbent material is then
compressed into a fire log by a special compression process. With the remaining
oil, the fire log burns extremely hot, long, and clean, and leaves less than 1%
ash. The Company believes that the fire log will be an excellent alternative
energy source.
B. Floor Sweeps. The Company's floor sweep products absorb and retrieve spilled
oil and waste water from airplanes (jet fuel), gasoline stations (gas and
diesel), machine shops, barge floors, repair shops and caustic acids, such as
battery electrolytes, chromium acid and sulfuric acid.
6.
<PAGE> 6
C. Pet Litter. Flush-It(TM) Pet Litter, made from recycled paper, primarily for
the feline market, is more absorbent than clay, silica, and diatomaceous earth.
It can be flushed down the toilet, and it helps in cleaning sludge build-up,
with its oil and grease absorbency. It is deemed by the Company to be
environmentally friendly, biodegradable, with excellent odor control and minimum
tracking. Stable Mate, made from recycled paper, is a biodegradable, odor
controllable absorbent utilized primarily for horse bedding or other animal
uses. The Company's initial testing of the product indicates that it has no
adverse health impact on animals. The Company has commenced marketing this
product directly to horse owners and to entities who board, either permanently
or temporarily (horse racing tracks) and/or transfer animals and to
distributors.
D. B4tk Disinfecting Sanitizer. B4tk is a bacteria and virus killing product,
applicable to agricultural animals, that is sprayed in animal stalls, pens and
on animal bedding.
E. Compost. The Company's compost additive, manufactured from the Company's
basic recycled paper absorbent material, has the ability to retain moisture.
When mixed and added with a compost base, it can increase water retention some
70%. A major use for the additive will be seeded soil.
F. Acid Absorbent. A battery acid floor sweep-absorbent also made from recycled
paper, is capable of neutralizing caustic acids such as battery electrolytes,
chromium acid, and sulphuric acid. Upon absorption the sweep may be discarded as
a non-hazardous product.
Marketing and Sales.
In 1997, the Company marketed its products principally through sales
representatives in the United States and is establishing a foreign sales
representative network. The Company was directly marketing its oil absorbent
material in Asia. As of the date of this report, the Company markets its
products principally through direct sales in the state of California and through
independent dealers, i.e. representatives in the other parts of the United
States.
The Company is currently planning to advertise in the catalogs of
companies selling environmental products. Further, the Company intends to form a
separate marketing divisions for Flush-It(TM) Pet Litter and B4tk sanitizer
spray. Flush-It(TM) is currently in selected national pet superstores and the
Company anticipates a nationwide distribution of this product, both in pet
stores and selected grocery chains.
The Competition, Other Products.
The Company competes on a national basis with a large number of
environmental service firms. These range in size from small local companies to
large national firms, many of which have considerably greater resources than the
Company. While the service capabilities of these competitors overlap with
several of the
7.
<PAGE> 7
service areas provided by the Company, few compete in all areas of the Company's
markets. Factors influencing the Company's competitiveness are price,
reputation for quality, the availability and skills of engineering and
construction personnel, financial strength, knowledge or markets, site
conditions and estimating abilities. Although the environmental business is
highly competitive, particularly for competitively bid projects, the Company
believes its experience and skill make it well positioned to compete
effectively.
The Company encounters substantial competition from companies in the
polypropylene absorbent materials field. Major polypropylene competitors
include large chemical equipment manufacturers substantially larger than the
Company, with substantially greater financial capabilities. The natural
non-toxic absorbent materials field is relatively new and rapidly growing, and
the nature of the competition is not yet defined.
Proprietary Information.
The Company holds one patent for the Oil Absorbent Material, and has
applied for patents, patents pending for the B4tk, floor sweep, pet litter and
acid absorbent products.
Employees.
As at December 31, 1997 the Company had six (6) full-time employees and
no part-time employees. As at December 31, 1997, Perry Cope had acted as a
consultant. (See Item 9 below). The Company also uses part-time help as needed
in manufacturing, packing, warehousing, mailing, and shipping.
Item 2. Description of Property.
The Company relocated its offices and manufacturing plant on July 1,
1997 to 126 West Maple Avenue, Monrovia, CA 91016. The property consists of
approximately 2,000 square feet of offices and 6,000 square feet of indoor
manufacturing. The property is leased from an unaffiliated party for two years
commencing August 15, 1997 at $700 per month for the first year and $735 per
month commencing August 15, 1998 for the second year.
Item 3. Legal Proceedings.
On May 15, 1998, the Securities and Exchange Commission (the
"Commission") filed a Complaint against the Company. In connection therewith,
Company entered a general appearance, waived service upon it of a Summons and of
the Complaint of the Commission and admitted the jurisdiction of the Court over
it and over the subject matter of this action. Company admitted that pursuant to
Section 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C.
Section 78m(a)] and Rules 12b-25, 13a-1 and 13a-13 [17 C.F.R. Sections
240.12b-25, 240.13a-1 and 240.13a-13] promulgated
8.
<PAGE> 8
thereunder, it was required to file, and, it has failed: (a) to file with the
Commission its Annual Reports on Form 10-K [17 C.F.R. Section 249.310]: (1) for
its fiscal year ended December 31, 1996, which was due on or before March 31,
1997; and (2) for its fiscal year ended December 31, 1997, which was due on or
before March 31, 1998; (b) to file with the Commission its Quarterly Reports on
Form 10-Q [17 C.F.R. Section 249-308a]: (1) for its fiscal quarter ended March
31, 1997, which was due on or before May 15, 1997; (2) for its fiscal quarter
ended June 30, 1997, which was due on or before August 14, 1997; and (3) for its
fiscal quarter ended September 30, 1997, which was due on or before November 14,
1997; (c) to file with the Commission its Notifications of Late Filing on Form
12b-25 [17 C.F.R. Section 249.322]: (1) for its Annual Reports on Form 10-K; (i)
for its fiscal year ended December 31, 1996, which was due before April 1, 1997;
and (ii) for its fiscal year ended December 31, 1997, which was due on or before
April 1, 1998; and (2) for its Quarterly Reports on Form 10-Q: (i) for its
fiscal quarter ended March 31, 1997, which was due on or before May 16, 1997;
(ii) for its fiscal quarter ended June 30, 1997, which was due on or before
August 15, 1997; and (iii) for its fiscal quarter ended September 30, 1997,
which was due on or before November 17, 1997. The Company, without trial,
argument or adjudication of any issue of fact or law, waived entry of findings
of fact and conclusions of law pursuant to Rule 52 of the Federal Rules of Civil
Procedure, except as set forth herein and in the Final Judgment of Permanent
Injunction as to the Company (the "Final Judgment") to be entered in the action.
The Company waived any right it may have had to appeal from the Final Judgment
to be entered in the action. The Company waived service upon it of the Final
Judgment and agreed that the entry of the Final Judgment by the Court and filing
with the Clerk in the United States District Court for the District of Columbia
will constitute notice to the Company of the terms and conditions of such Final
Judgment. The Company entered the Consent voluntarily and represented that no
offer, promise or threat of any kind whatsoever had been made by the Commission
or any of its members, officers, employees, agents or representatives in
connection with or in consideration therefore. The Company agreed that the
Consent shall be incorporated by reference into the Final Judgment, a copy of
which was to be entered by the Court in this action. The Company consented,
before the taking of any testimony and without trial, argument or adjudication
of any issue of fact or law therein, to the entry, without further notice, of
the Final Judgment: (a) restraining and enjoining the Company and its officers,
agents, servants and employees and attorneys, and those persons in active
concert or participation with them, who receive actual notice of the Final
Judgment by personal service or otherwise, and each of them, from failing or
causing the failure to file timely and in proper form with the Commission at its
headquarters office, accurate and complete information and reports as are
required to be filed with the Commission pursuant to Section 13(a) of the
Exchange Act and Rules 12b-25, 13a-1 and 13a-13, promulgated thereunder,
including, among others, Annual Reports, Quarterly Reports and Notifications of
Late Filing; (b) ordering the Company to require any outgoing chief executive
officer or president of the Company to deliver or cause to be delivered a copy
of the Final Judgment and
9.
<PAGE> 9
of the Consent to any incoming chief executive officer or president of the
Company; and (c) ordering the Company to file with the Commission at its
headquarters office in Washington, D.C.: (1) a complete and accurate Annual
Report on Form 10-K for its fiscal year ended December 31, 1996 by May 29, 1998;
(2) complete and accurate Quarterly Reports on Form 10-Q for its fiscal quarters
ended March 31, June 30 and September 30, 1997 by June 15, 1998; (3) a complete
and accurate Annual Report on Form 10-K for its fiscal year ended December 31,
1997 by June 30, 1998; and (4) such other periodic reports which may become due
prior to the entry of the Final Judgment.
Item 4. Submission of Matter to Vote of Security Holders.
None.
Item 5. Market for Common Company Equity and Related
Stockholder Matter.
As of December 31, 1997, The Company had One Hundred Ninety-One
(191) shareholders of record of its common stock. The Company has not paid cash
dividends on its common stock. The Company anticipates that for the foreseeable
future any earnings will be retained for use in its business, and no cash
dividends will be paid on the common stock. Declaration of common stock
dividends will remain within the discretion of the Company's Board of Directors
and will depend upon the Company's growth, profitability, financial condition
and other relevant factors.
The Company common stock is traded on the bulletin board system
under the symbol "QUDT." The table below reflects the high and low bid and ask
quotations for each of the Company's fiscal quarters for the two fiscal years
covered by this report. The prices reflect inter-dealer prices, without retail
mark-up, mark-down or commission and do not necessarily represent actual
transactions.
As at December 31, 1996, the Company had issued and outstanding
13,093,974 shares of Common Stock. As at December 31, 1997, the Company had
issued and outstanding 14,472,699 shares of Common Stock. The sale and issuance
of the shares of Common Stock in 1997 was for cash or in cancellation of
indebtedness, said shares were not registered under the Securities Act of 1933,
as amended, and were issued in reliance upon an exemption from registration. All
of said share of stock have restrictive legends imposed thereon and stop
transfer order have been issued to the Company's transfer agent.
10.
<PAGE> 10
1996
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HIGH LOW
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1st Quarter $1.75 $1.00
2nd Quarter $2.75 $ .75
3rd Quarter $2.00 $1.06
4th Quarter $1.625 $ .625
</TABLE>
1997
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1st Quarter $ .75 $ .375
2nd Quarter $ .56 $ .25
3rd Quarter $ .61 $ .20
4th Quarter $ .35 $ .16
</TABLE>
1998
<TABLE>
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HIGH LOW
---- ---
<S> <C> <C>
1st Quarter $ .40 $ .20
</TABLE>
Dividends.
The payment of dividends is within the discretion of the Board of
Directors of the Company. The Company currently intends to retain all earnings,
if any, in the foreseeable future for use in the development of the Company's
business. The Company has not paid dividends since inception. It is not
anticipated that any dividends will be paid in the foreseeable future and there
can be no assurance that dividends can or will ever be paid. The payment of
dividends is contingent upon future earnings, if any, the Company's financial
condition and capital requirements, general business conditions and other
factors.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Comparison of Years Ended December 31, 1997 and December 31, 1996.
Results of Operation.
In 1996 and 1997, the Company focused on marketing its
Flush-It(TM) litter to additional superstore chains, animal supplies co-ops and
to individual pet supplies stores in the United States and Canada. The Company
also developed and attempted to introduce its fire retardant product to meet the
needs of manufacturers and mining companies for a material to be used to pick up
and neutralize toxic chemicals and acids.
11.
<PAGE> 11
During 1997, the Company determined that its patented formula
could also be utilized in the poultry industry. The business opportunities
include, but are not limited to, supplying bedding material, facility
decontamination and egg washing. Governmental approval may be required in
connection with poultry industry use and the Company is currently undertaking
testing with the intent to obtain all necessary and applicable approvals.
Revenues are not expected from the poultry industry application during the
current fiscal year.
Total revenues for fiscal 1997 were $197,864, a increase of
$9,375 over 1996 revenues. The increase is primarily due to increased revenues
from oil spill recovery products.
The Company's net loss of $541,714 for the year ended December
31, 1997 represents an decreased loss of $281,240 compared to the net loss in
the prior year.
Selling, general and administrative costs decreased substantially
as a result of a reduction in personnel and decreased marketing costs associated
with the sale of products to its customers.
Liquidity and Capital Resources.
The liquidity of the Company and its available capital resources
have not improved.
The Company believes that internally generated funds and the sale
and issuance of stock for cash or in cancellation of indebtedness will provide
minimum capital resources to finance operations, fund capital expenditures and
planned research activities. The Company's need for funds has been reduced
predicated upon the significant reduction in property rental and maintenance
expenses and the reduction of marketing costs.
At December 31, 1997, the Company had no material commit ments to
acquire additional assets.
Item 7. Financial Statements.
The Financial Statements are set forth as an Exhibit hereto.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
The Company and its former auditors, Clumeck, Stern, Phillips &
Scheckelberg, mutually agreed on December 18, 1996 to terminate their
relationship. During the Company's fiscal year then ended, Clumeck, Stern,
Phillips & Scheckelberg reports on the Company's financial statements neither
contained any adverse opinions or disclaimers of opinions nor were qualified or
modified
12.
<PAGE> 12
as to uncertainty. The decision to terminate its relationship with Clumeck,
Stern, Phillips & Scheckelberg was approved by the Board of Directors of the
Company. Through and including December 18, 1996, there were no disagreements
with Clumeck, Stern, Phillips & Scheckelberg on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Clumeck,
Stern, Phillips & Scheckelberg, would have caused it to make reference to the
subject matter of the disagreements in connection with its reports. Pursuant to
action approved by the Company's Board of Directors, the Company intended to
retain Singer Lewak Greenbaum & Goldstein, as its auditors as of December 18,
1997. Clumeck, Stern, Phillips & Scheckelberg concurred with the disclosures
made by the Company. Singer Lewak Greenbaum & Goldstein did not accept auditing
responsibilities.
Thereafter, Company's Board of Directors retained Harold Y.
Spector, certified public accountant, of 80 South Lake Avenue, Suite 723,
Pasadena, California 91101, as its auditor.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
At December 31, 1997, the officers and directors of the Company were:
<TABLE>
<CAPTION>
Name and Address Age Position
---------------- --- --------
<S> <C> <C>
Perry Cope 62 Chief Executive Officer
126 West Maple Avenue and Director
Monrovia, CA 91016
Maria Comfort 56 President and Director
126 West Maple Avenue
Monrovia, CA 91016
Bill Snyder 72 Treasurer
509 South Hindry Director
Inglewood, CA 90301
Michael Montgomery 61 General Counsel and
10501 Valley Blvd #121 Director
El Monte, CA 91731
Christopher Wiles 42 Secretary and Director
126 West Maple Avenue
Monrovia, CA 91016
Peter Olson 55 Director
126 West Maple Avenue
Monrovia, CA 91016
</TABLE>
13.
<PAGE> 13
The directors of the Company are elected to serve until the next
annual shareholders' meeting or until their successors are duly elected and
qualified.
Background of Current Officers and Directors.
Perry Cope received his Bachelor of Administration in Marketing
from the University of Houston, Texas and a Master of Business Administration
Degree from the University of Southern California. Mr. Cope has over 35 years
experience in marketing and executive management with North American Philips and
Xerox Corporation. He was at Xerox for twenty-seven years where he served as
Vice President of Marketing for Xerox Medical Systems, and was later Director of
Sales and Service for Philips Medical, Ultrasound division. Mr. Cope founded
Sea to Sea International Consulting Company in 1991 and acted as a consultant to
medical product manufacturers for six years. Mr. Cope joined the Board on
November 1, 1997. In 1997 Mr. Cope became Chief Executive Officer of the
Company.
Maria Comfort holds an Associate of Science Degree in Fine Arts
from Santa Barbara City College, Santa Barbara, CA., June 1975. She has an
additional year of college credits from Santa Barbara and UCLA. Ms. Comfort
began her career in 1968 as a paralegal with Ashland Oil and Chemical Company,
Columbus, Ohio. She helped to establish the Credit Card Division for Ashland
Oil's main company in Ashland, Kentucky. She also worked with multi-million
dollar acquisitions and sales contracts for Ashland's Chemical Company. She
remained with Ashland until 1972. From 1972 until 1985 Ms. Comfort was
self-employed as a personal manager in the entertainment industry. She managed
young actors' and actresses' careers in television and film. From 1985 until
1990, Ms. Comfort worked for the George Williams and Associates Corporation of
Los Angeles, CA in the capacity of Financial Manager. During this time she was
able to analyze, justify and qualify budgets and financial plans for customers.
She worked on the highest level with banks and other financial institutes. In
late 1990, Ms. Comfort established (OSA) Oil Scavenger Absorbent. She is its
president. In 1993, when OSA, Inc. was acquired by the Company, Ms. Comfort was
made President and Chief Executive Officer. As of the date hereof, Maria Comfort
is the President of the Company.
Bill Snyder is the founder and CEO of Caprice Engineering
Company, which he established in 1972. Mr. Snyder started it as a supplier to
the U.S. Government of miscellaneous aircraft spare parts. During his tenure,
(since 1972) the firm increased its yearly sales from $100,000 to $3,000,000.
His experience ranges from sales and inventory control through manufacturing and
quality control, with emphasis on the day to day administration of a
Government-controlled business. From 1968 to 1972, Mr. Snyder was sales manager
of Sparkadyne Corporation, a military spare parts manufacturing company. From
1950 to 1967, Mr. Snyder was Purchasing Supervisor at Rockwell Aviation, a
supplier of aircraft and space equipment to the U.S. Government.
14.
<PAGE> 14
Michael Montgomery graduated from UCLA in 1960 with a Bachelor of
Science degree in Finance, and received his Juris Doctor from the University of
Southern California Law School in 1963. Mr. Montgomery is admitted to the Bars
of California, Florida, and Hawaii, and admitted to practice before the United
States Supreme Court. Mr. Montgomery has been appointed to and served on
federal, state, and local bar committees. Since 1964 he has been engaged in the
practice of law, both in private practice as a solo practitioner and as
corporate counsel for several corporations. Mr. Montgomery has acted as special
counsel on over $1.5 billion of Municipal Bonds, including one $395 Million
offering. Mr. Montgomery is a past State Chairman of the California Republican
Party and was both the Mayor and Councilman of the City of South Pasadena for
two terms. He is currently serving as legal counsel to several public agencies.
Christopher Wiles received a Bachelor of Science degree in
Accounting from San Francisco State University, California in 1978. From 1983 to
1988 he was National Sales Manager Teraco, Inc., a company engaged in the
manufacture of promotional goods and from 1982 until 1993, was Vice President -
Sales for Ocean Manufacturing Corporation, a company engaged in the manufacture
of promotional products. From 1993 to the present Mr. Wiles has been engaged in
the business of marketing promotional products under the name of CW Marketing &
Promotional Services. Mr. Wiles joined the Board on December 27, 1996.
Keith Cagan, Ph.D., D.Sc., D.P.H. received his Bachelors of
Science degrees in Mathematics and Microbiology from California State
University, Long Beach, CA, in 1971, and his Ph.D. in Molecular Biochemistry in
1975 from the University of California Los Angeles. He also received a
post-graduate fellowship in Pathology in 1976 from UCLA. Dr. Cagan's
professional societies include: College of American Pathologists; American
Society of Clinical Pathology, American College of Forensic Pathologists,
American Society of Microbiology, American Association for Clinical Chemistry;
American Society of Chemists; American Chemical Society. Dr. Cagan has authored
23 journal articles, and is cited as a reference in 2,031 articles. His teaching
appointments include: UCLA Professor of Medicine, Pathology; UC Irvine,
Associate Professor of Pathology; Cal State University, Long Beach, Adjunct
Professor of Biochemistry.
John Sullivan has been involved in high technology computer
peripheral products and related businesses in the computer industry for more
than twenty years. Mr. Sullivan is the Founder and CEO of Sullivan Technical
Sales, headquartered in Boston, MA which he started in 1972. Mr. Sullivan has
been involved as an active principal in a number of developmental projects,
including OSA's absorbents, and various applied science and product development
projects in the high technological computer industry.
15.
<PAGE> 15
Peter Olson received his Bachelor of Science Degree at University
of Utah and a Master of Business Administration Degree from Brigham Young
University. For the past five years he has been the Chairman and Chief Executive
Officer of Olson Farms, Inc., a business engaged in the production, processing
and distribution of eggs in the Western United States. Mr. Olson also serves as
a Chairman of the California Egg Commission and is past President of Pacific Egg
& Poultry Association. Mr. Olson joined the Board on January 30, 1998.
As at December 31, 1996, Darlene Forman, Fred Ciampi, Keith Cagan, and
Don Adams had been Directors; however, each have resigned prior to the date
hereof. In addition, Ed V. Lunenschloss had been a Director. Mr. Lunenschloss
died on March 17, 1998.
Additional Directors
Between December 31, 1997 and the date hereof, Ted D. Kimbrough and
Lilly V. Lee were selected by the existing Board of Directors to fill two
vacancies on the Board of Directors.
The background of the additional directors is as follows:
Ted D. Kimbrough received his Bachelor of Science in Education from
Northern Illinois State University, his Master of Science in Education from
California State University, Los Angeles, did Post graduate studies at
Pepperdine University, University of California at Los Angeles and University of
Southern California and an Honorary Juris Doctorate from the University of West
Los Angeles.
Mr. Kimbrough is the President and Owner of Multi-Kim &
Associates, Inc. and the former Superintendent of Schools for the
Sacramento Unified School District (1996-1997), Chicago Unified
School District (1990-1993); Compton Unified School District (1982-
1990). Previously, he had been employed by the Los Angeles Unified
School District.
Lilly V. Lee is Chairman of Lilly International, Inc. Ms.
Lee's business activities include real estate investments, trade,
trucking, retail, franchise consultant and strategic alliances with
various sectors of businesses n the U.S.A. Australia, China, Hong
Kong, Indonesia, Thailand and the Philippines.
Ms. Lee is currently the Chairman of the World Trade Center association,
Los Angeles Long Beach which is linked with other trade offices in 97 countries,
and is the Chairman of Southern California Asian pacific American Legal Center,
Executive Council. Ms. Lee is on the Executive Boards of Bank Plus Corporation
and Fidelity Federal Bank and is a member of the Board of Directors of Gateway
Investment Services, Inc.
16.
<PAGE> 16
Item 10. Executive Compensation.
The following table sets forth the cash compensation which was paid by
the Company for services rendered to the Company. During fiscal years ended 1996
and 1997 the following payments were made:
<TABLE>
<CAPTION>
Remuneration
------------------------
Name Position 1996 1997
- ---- -------- ---- ----
<S> <C> <C> <C>
Maria Comfort President, Chief
Executive Officer $ 34,000 $17,560
Ed V. Lunenschloss Executive Vice
President $ 26,000 $26,000
Darlene Foreman OSA, Inc.
Controller $ 42,800 $25,400
All Executive Officers
as a group $102,800 $68,960
</TABLE>
No compensation is payable to Directors of the Company in connection
with attendance at Board Meetings, except as to such Directors who also serve as
Officers of the Company in capacities other than Directors and/or Officers. At
this time no other compensation has been scheduled for any other member of the
Board of Directors or Officers of the Corporation.
Future compensation of Officers will be determined by the Board of
Directors based upon the financial condition and per formance of the Company,
the financial requirements of the company, and upon the individual performance
of each Officer. The Board of Directors intends to ensure that the salaries paid
to the Company's Officers and employees are reasonable and prudent and are based
upon both the financial condition and performance of the Company and upon the
performance of individual Officers.
Item 11. Security Ownership of Certain Beneficial Owners
and Management.
The following table sets forth as at December 31, 1997, certain
information as to the common stock of the Company owned of record and/or
beneficially by each person who is known to the Company to own more than five
(5%) percent of the outstanding Common Stock, and by all officers and directors
of the Company.
17.
<PAGE> 17
<TABLE>
<CAPTION>
Amount Beneficially Approximate
Name and Address and/or Owned Percent
of Owner Record of Class
- ---------------- ------------------- -----------
<S> <C> <C>
Perry Cope 101,000 .7%
126 West Maple Avenue
Monrovia, California 91016
Maria Comfort 1,001,176 6.9%
126 West Maple Avenue
Monrovia, California 91016
Edward V. Lunenschloss 958,250 * 6.6%
10804 South La Cienega Blvd.
Inglewood, California 90304
William Snyder 1,399,698 9.7%
409 South Hindry
Inglewood, California 90301
Michael Montgomery 550,000 3.8%
10501 Valley Blvd., #121
El Monte, California 91731
Christopher Wiles 160,000 1.1%
126 West Maple Avenue
Monrovia, California 19016
</TABLE>
- ----------------
* 900,000 shares are registered in the name of Joyce Lunensch loss. Ed V.
Lunenschloss, prior to his death in 1998, had advised the Company that,
at the time said shares of stock were transferred to Joyce Lunenschloss,
he retained the right to vote said stock. Said retention, if any and
valid, are the property of his estate.
Item 12. Certain Relationships and Related Transactions.
In 1995, William Snyder, Maria Comfort and Ed V. Lunenschloss
were issued shares of common stock at $.50 per share in cancellation of
indebtedness as follows: to William Snyder 14,000 shares for $7,000; to Maria
Comfort 104,000 shares for $52,000; and to Ed V. Lunenschloss 3,250 shares for
$1,626.
Eric Lunenschloss, an Production Manager since 1992, and
is the son of Ed V. Lunenschloss.
The Company has a signed agreement with Ed V. Lunenschloss to
pay a royalty of four (4%) percent on the gross sales of the Company's oil
absorbent material. This agreement was entered into in exchange for the
Company's acquisition of the patent rights. (See Note 4 of Notes to Consolidated
Financial Statements.)
18.
<PAGE> 18
Item 13. Exhibits and Reports on Form 8-K.
There are no reports on Form 8-K incorporated herein by
reference. The following documents are filed as part of this report:
(1) Financial Statements filed as part of this report,
prepared by Harold Y. Spector, Certified Public Accountant
for the fiscal year ended December 31, 1996 and 1997, with
the related consolidated statements of operations and
accumulated deficit, and cash flow for the year then
ended.
19.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Company has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
QUADRATECH, INC.
---------------------------
(Company)
Date: June 29, 1998
By: /s/
-----------------------
Maria Comfort
President
20.
<PAGE> 20
[HAROLD Y. SPECTOR LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and stockholders of Quadratech, Inc.
I have audited the accompanying consolidated balance sheets of Quadratech, Inc.
(a Nevada corporation) and its wholly-owned subsidiary, Oil Scavenger Absorbent,
Inc. (a California corporation), as of December 31, 1997 and 1996, and the
related consolidated statements of operations and accumulated deficit, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits have a reasonable basis for my
opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial positions of Quadratech, Inc.
and its subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the Note 12
to the consolidated financial statements, the Company's significant operating
losses, working capital deficiency and deficit in stockholders' equity raise
substantial doubt about their abilities to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
[SIG]
Pasadena, CA
March 11, 1998
21
<PAGE> 21
QUADRATECH, INC, & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Restated)
<S> <C> <C>
Current Assets
Cash $ 49,600 $ 6,523
Account Receivables, net of allowance
for bad debt of $0 and $715 4,777 21,666
Other Receivables -- 26,822
Inventories 3,838 41,780
Prepaid Expenses -- 5,832
--------- ---------
Total Current Assets 58,215 102,623
--------- ---------
Property and Equipment
Furniture and Equipment 82,702 82,702
Plant and Equipment 66,900 65,016
Motor Vehicles 20,818 21,531
Leasehold Improvements -- 74,401
--------- ---------
170,420 243,650
Less: Accumulated Depreciation (83,522) (62,828)
--------- ---------
Total Property and Equipment 86,898 180,822
--------- ---------
Other Assets
Patents, Marks and Copyrights, net of
accumulated amortization of $2,020
and $1,162 13,525 14,383
Deposits 4,125 25,626
--------- ---------
Total Other Assets 17,650 40,009
--------- ---------
TOTAL ASSETS $ 162,763 $ 323,454
========= =========
</TABLE>
See accompanying notes and independent auditor's report
22
<PAGE> 22
QUADRATECH, INC, & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---------- -----------
(Restated)
<S> <C> <C>
Current Liabilities
Accounts Payable $ 77,660 $ 89,332
Accrued Expenses 76,009 128,495
Notes Payable, current portion 479,441 217,262
---------- -----------
Total Current Liabilities 633,110 435,089
---------- -----------
Long-Term Debt, net of current 50,500 0
---------- -----------
Total Liabilities 683,610 435,089
---------- -----------
Stockholders' Equity
Common Stock, $.001 par value,
50,000,000 shares authorized;
14,472,699 shares issued and
outstanding in 1997, and 13,093,974
shares in 1996 14,473 13,094
Paid-in Capital 2,315,302 2,184,179
Accumulated Deficit (2,850,622) (2,308,908)
---------- -----------
Total Stockholders' Equity (Deficit) (520,847) (111,635)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 162,763 $ 323,454
========== ==========
</TABLE>
See accompanying notes and independent auditor's report
23
<PAGE> 23
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICITS
For Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(Restated)
<S> <C> <C>
SALES $ 107,864 $ 98,489
Less: Discount Taken (l,343) (4,813)
------------ ------------
NET SALES 106,521 93,676
COST OF SALES - SCHEDULE A 115,741 89,914
------------ ------------
GROSS PROFIT (DEFICIT) (9,220) 3,762
OPERATING EXPENSES - SCHEDULE B 460,675 730,087
------------ ------------
INCOME (LOSS) FROM OPERATIONS (469,895) (726,325)
------------ ------------
OTHER INCOME (EXPENSES)
Interest Income 254 814
Other Income 89,334 42,198
Depreciation and Amortization (35,236) (39,065)
Interest Expenses (20,485) (27,880)
Loss on Disposal of Assets (61,683) --
Late Charges and Penalties (243) (10,950)
Officer's Salaries (42,960) (69,946)
------------ ------------
Total Other Income (Expenses) (71,019) (95,829)
------------ ------------
NET INCOME (LOSS) BEFORE TAXES (540,914) (822,154)
PROVISION FOR INCOME TAXES 800 800
------------ ------------
NET INCOME (LOSS) (541,714) (822,954)
ACCUMULATED DEFICITS
Beginning Balance (2,308,908) (910,225)
Prior year adjustments -- (575,729)
------------ ------------
Ending Balance $ (2,850,622) $ (2,308,908)
============ ============
NET (LOSS) PER SHARE $ (.43) $ (.074)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,556,556 11,129,758
============ ============
</TABLE>
See accompanying notes and independent auditor's report
24
<PAGE> 24
QUADRATECH, INC. & SUBSIDIARY
COST OF SALES
For Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
SCHEDULE A
1997 1996
--------- ---------
(Restated)
<S> <C> <C>
COST OF SALES
Beginning Inventory $ 41,780 $ 8,748
Purchases 21,561 37,250
Freight-in 3,753 3,178
Production Salaries 52,076 82,518
Warehouse Supplies 409 --
--------- ---------
119,579 131,694
Less: Ending Inventory (3,838) (41,780)
--------- ---------
Total Cost of Sales $ 115,741 $ 89,914
========= =========
</TABLE>
See accompanying notes and independent auditor's report
25
<PAGE> 25
QUADRATECH, INC. & SUBSIDIARY
OPERATING EXPENSES
For Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
SCHEDULE A
1997 1996
--------- --------
(Restated)
<S> <C> <C>
OPERATING EXPENSES
Accounting $ 24,424 $ 14,846
Advertising 13,193 7,826
Bad Debts 57,672 3,840
Bank Charge 8,186 4,810
Car Allowances 6,554 3,837
commissions 22,887 31,706
Contributions 74 600
Customer and Public Relations -- 40,658
Employee Benefits- 1,449 3,788
Entertainment 3,091 9,038
Equipment Rental (5,531) 13,225
Freight and Postage 2,904 27,886
Insurance 8,533 46,276
Legal and Professional 42,473 46,749
Licenses & Permits 555 1,672
Maintenance 22,263 41,469
Marketing Research 200 38,799
office Supplies 6,635 24,508
operating Supplies 5,149 --
Other Expenses 1,708 5,430
Outside Services 5,013 --
Payroll Taxes 25,186 24,150
Rent 65,441 94,326
Research and Development 93 3,299
Royalties 3,246 2,875
Sales Promotion 2,064 41,258
Salaries and Wages 49,429 67,488
Shipping 4,758 --
Subscriptions 1,761 2,817
supplies 680 --
Taxes - Property 2,453 3,503
Telephone 36,894 37,140
Trade Shows 1,213 25,493
Travel 20,479 37,002
Utilities 19,546 23,773
--------- --------
Total Operating Expenses $ 460,675 $730,087
========= ========
</TABLE>
See accompanying notes and independent auditor's report
26
<PAGE> 26
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 12,301,184 $12,301 $1,031,396 $ (910,225) $ 133,472
Issuance stocks 792,790 793 1,152,783 -- 1,153,576
Net Loss -- -- -- (844,148) (844,148)
--------------------------------------------------------------------------------------
Balance at December 31, 1996 13,093,974 13,094 2,184,179 (1,754,373) 442,900
Prior year adjustment (554,535) (554,535)
--------------------------------------------------------------------------------------
Adjusted balance 13,093,974 13,094 2,184,179 (2,308,908) (111,635)
Issuance stocks 1,378,725 1,379 131,123 132,502
Net Loss (541,714) (541,714)
--------------------------------------------------------------------------------------
Balance at December 31, 1997 14,472,699 $14,473 $2,315,302 $(2,850,622) $ (520,847)
======================================================================================
</TABLE>
See accompanying notes and independent auditor's report
27
<PAGE> 27
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(541,714) $(822,954)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 35,236 39,065
Lose on Disposal of Assets 61,683 --
Prior year adjustments -- (575,729)
(increase) Decrease in:
Accounts Receivable 16,889 (12,646)
Other Receivables 30,687 (20,672)
Inventory 37,942 (33,032)
Prepaid Expenses 5,832 (5,000)
Deposits 21,501 (4,864)
Deferred Income Tax Assets 575,729
Increase (Decrease) in:
Accounts Payable (11,672) 57,532
Accrued Expenses (52,486) (87,002)
--------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES (396,102) (889,573)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (6,002) (141,244)
Increase in Patents, Marks and Copyrights -- (100)
--------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (6,002) (141,344)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing common stock 132,502 807,576
Net Proceeds from Notes Payable 312,679 21,500
--------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES 445,181 829,076
--------- ---------
NET INCREASE (DECREASE) IN CASH 43,077 (201,841)
BEGINNING OF YEAR 6,523 208,364
--------- ---------
END OF YEAR $ 49,600 $ 6,523
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash Paid During the Year for:
Interest $ 451 $ 14,915
========= =========
Income Tax $ 800 $ 1,050
========= =========
</TABLE>
Noncash investing and financing activities:
In 1997, a receivable from an officer incurred for an abandoned motor
vehicle for $3,865.
In 1996, $346,000 deposit was converted to common stock.
See accompanying notes and independent auditor's report
28
<PAGE> 28
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
NOTE 1 - GENERAL
Quadratech, Inc. ("the Company") was formed under the laws of Nevada on February
4, 1994.
Quadratech, Inc, and its wholly-owned subsidiary, Oil Scavenger Absorbent, Inc.
("OSA", a California corporation formed in August, 1993), was established to
offer significant solutions for certain major environmental problems from the
development and manufacturing a range of environmentally safe biodegradable
products.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company uses the accrual basis of accounting in accordance with generally
accepted accounting principles.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary OSA, after elimination of all material
intercompany accounts and transactions.
Use of estimates
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that directly affect the results of
reported assets, liabilities, revenue, and expenses. Actual results may differ
from these estimates
Cash Equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. As of December 31, 1997
and 1996, there were no cash equivalents.
The Company prepares its consolidated statements of cash flows using the
indirect method as defined under Financial Accounting Standards Board Statement
No. 95.
Revenue Recognition
Revenue from sales is recognized when products are shipped and accepted by the
customer.
Accounts Receivable
The allowance for bad debts is based on management's evaluation of outstanding
accounts receivable at the end of each month. Bad debt expense for years ended
December 31, 1997 and 1996, was $42,672 and $3,840, respectively.
29
<PAGE> 29
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Costs incurred for materials, technology and shipping are capitalized as
inventories and charged to cost of sales when revenue is recognized.
Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.
Property and Equipment
Property and Equipment are valued at cost. Maintenance and repair costs are
charged to expenses as incurred. Depreciation is computed on the straight-line
and accelerated methods based on the estimated useful lives of the assets.
Depreciation expense was $35,236 and $39,065 for 1997 and 1996, respectively.
Intangible Assets
Patents, marks and copyrights are capitalized and amortized over five years
using the straight-line method.
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
The Company accounts income taxes in accordance with Financial Accounting
Standards Board Statement No. 109.
Reclassification
Certain reclassification have been made to the 1996 consolidated financial
statements to conform with the 1997 consolidated financial statement
presentation, Such reclassification had no effect on net loss as previously
reported.
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
a.) Notes to Caprice Engine, interest
at 6% to 8% per annum, due on
demand; unsecured $ 165,657 $84,762
b.) Notes to Bill Synder, including
$100,000 LOC, interest at 6.75%
to 10.5% per annum, due on
demand; unsecured 121,000 121,000
</TABLE>
30
<PAGE> 30
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
NOTE 3 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
c.) Note to David Comfort, interest at 8 1/2%
commencing 8/l/98; unsecured; due on demand 19,784 l1,500
d.) Note to William Kroes, interest at 10% per
annum due from 3/l/98; monthly installments
of $420 from 3/15/98; due 5/31/99; unsecured 50,500 --
e.) Note to Frances Rigney, interest only
at 8 1/2% commencing 8/1/98; unsecured;
due on demand 173,000 --
-------- --------
Total $529,941 $217,262
Less current maturities 479,441 217,262
-------- --------
Long-term debt, net $ 50,500 $ 0
======== =======
</TABLE>
Maturities on notes payable are as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
1998 $ 479,441
1999 50,500
--------
$529,941
========
</TABLE>
NOTE 4 - ROYALTIES
The Company has a signed agreement with an officer/stockholder to a pay a
royalty of 4% on gross sales of oil absorbent material per year. In exchange for
the royalty, the Company acquired the patent on the oil absorbent material.
NOTE 5 - INCOME TAXES
The Company files consolidated federal and state income tax returns with its
subsidiary.
Provision for income taxes in the consolidated statements of operations for
years ended December 31, 1997 and 1996 consist of $800 minimum state income
taxes in each year.
As of December 31, 1997, the Company has approximately federal net operating
loss carryforwards of $2,699,187, and California NOL of $2,692,191 to reduce
future taxable income. To the extent not utilized, both carryforwards will begin
to expire beginning 2000 and 1998 respectively.
31
<PAGE> 31
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
NOTE 6 - RELATED PARTY TRANSACTIONS
As described in Note 3, the Company had various unsecured borrowings from the
stockholders.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its office facilities for $700 per month under a
noncancelable agreement expiring August, 1998. Rent expense totaled $65,441 and
$94,326 for 1997 and 1996, respectively.
In addition, the Company is responsible for its pro rata share of property
taxes.
As of December 31, 1997, the minimum commitment under the lease is $5,600.
NOTE 10 - PRIOR YEARS ADJUSTMENTS
Certain errors, resulting in both the overstatement and understatement of
assets, stockholders' equity and expenses of the prior year were corrected in
this year. The changes to accumulated deficit as of December 31, 1996 and the
related statement of operations for the year then ended are summarized as
follows:
<TABLE>
<CAPTION>
Accumulated
Deficit Net Loss
----------- ---------
<S> <C> <C>
As previously reported, December 31, 1996 $(1,754,373) $(844,148)
Adjustments:
Reverse 1995 deferred income taxes
assets (575,729) --
Overstatement of royalties expenses 276 276
Understatement of accrued interest on
stockholders' Loans (12,965) (12,965)
Overstatement of deposit payable 7,729 7,729
Overstatement of accrued salaries 26,154 26,154
----------- ---------
As adjusted $(2,308,908) $(822,954)
=========== =========
</TABLE>
32
<PAGE> 32
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996
NOTE 11 - YEAR 2000
The Company believes that it has identified each of its computer systems that
will require modifications to enable it to perform satisfactorily on and after
January 1, 2000. The financial impact of making such modifications to the
Company's systems is not expected to be material to the Company's a consolidated
financial position or results of operations. In addition, the Company is
currently corresponding with vendors that provide products and systems to the
Company in order to determine if such products and systems will be required to
be upgraded or replaced. Although management believes the Company has an
adequate program in place to address the year 2000 issue, the costs of upgrades
to, or replacements of, its purchased products or systems has not been
determined and there can be no assurance that the program will ultimately be
successful.
NOTE 12 - GOING CONCERN
The accompanying consolidated financial statements are presented on the basis
that the Companies are going concerns. Going concern contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business over a reasonable length of time. As shown in the accompanying
consolidated financial statements, the Company incurred a net loss of $541,714
and $822,954 in 1997 and 1996, respectively, and as of December 31, 1997, the
Company has an accumulated deficit of $2,850,622, a deficit in stockholders'
equity of $520,847 and current liabilities exceed current assets by $574,895.
Management is currently involved in active negotiations to obtain additional
financing and actively increasing marketing efforts to increase revenues. The
Company continued existence depends on its ability to meet its financing
requirements and the success of its future operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
33
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 49,600
<SECURITIES> 0
<RECEIVABLES> 4,777
<ALLOWANCES> 0
<INVENTORY> 3,838
<CURRENT-ASSETS> 58,215
<PP&E> 170,420
<DEPRECIATION> 83,522
<TOTAL-ASSETS> 162,763
<CURRENT-LIABILITIES> 633,110
<BONDS> 0
0
0
<COMMON> 14,473
<OTHER-SE> (535,320)
<TOTAL-LIABILITY-AND-EQUITY> 162,763
<SALES> 107,864
<TOTAL-REVENUES> 187,452
<CGS> 115,741
<TOTAL-COSTS> 117,084
<OTHER-EXPENSES> 621,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,485
<INCOME-PRETAX> (540,914)
<INCOME-TAX> 800
<INCOME-CONTINUING> (541,714)
<DISCONTINUED> 0
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