<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION FROM ___________ TO __________.
For the transition period from ____________ to _______________
COMMISSION FILE NUMBER 0-2686
QUADRATECH, INC.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 95-4396848
- ------------------------------------------------- -----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
126 West Maple Avenue, Monrovia, California 91016
- ------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 626-358-5995
-------------------
N/A
---------------------------------------------------------------------
(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 / / No /X/
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At September 30, 1998, there were
outstanding 18,611,228 shares of the Registrant's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: Yes / / No /X/
<PAGE> 2
[HAROLD Y. SPECTOR LETTERHEAD]
To the Board of Directors
Quadratech, Inc.
Monrovia, California
I have compiled 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 September 30, 1998 and 1997, and the
related consolidated statements of operations and accumulated deficit, and cash
flows for the nine months then ended, in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. I have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the Note 10
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.
/s/ HAROLD Y. SPECTER
- ---------------------
Pasadena, California
October 26, 1998
<PAGE> 3
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current Assets
Cash $ 13,863 $ 7,045
Account Receivables, net of allowance
for bad debt of $0 and $0 12,760 61,409
Other Receivables 2,000 30,599
Inventories 3,838 41,780
Prepaid Expenses - 5,832
------------ ------------
Total Current Assets 32,461 146,665
------------ ------------
Property and Equipment
Furniture and Equipment 83,153 82,702
Plant and Equipment 66,900 71,018
Motor Vehicles 8,818 21,531
Leasehold Improvements - 74,401
------------ ------------
158,871 249,652
Less: Accumulated Depreciation (97,789) (89,595)
------------ ------------
Total Property and Equipment 61,082 160,057
------------ ------------
Other Assets
Patents, Marks and Copyrights, net of
accumulated amortization of $2,664
in 1998 and $1,806 in 1997 12,881 13,739
Deposits 5,325 26,626
------------ ------------
Total Other Assets 18,206 40,365
------------ ------------
TOTAL ASSETS $ 111,749 $ 347,087
=========== ===========
</TABLE>
See accompanying notes and accountant's report
2
<PAGE> 4
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Current Liabilities
Accounts Payable $ 11,886 $ 138,517
Accrued Expenses 8,512 54,524
Notes Payable, current portion 241,500 307,445
----------- ------------
Total Current Liabilities 261,898 500,486
----------- ------------
Long-Term Debt, net of current 50,500 102,000
----------- ------------
Total Liabilities 312,398 602,486
----------- ------------
Stockholders' Equity
Common Stock, $.001 par value,
50,000,000 shares authorized;
18,611,228 shares issued and
outstanding in 1998, and 13,093,974
shares in 1997 18,611 13,094
Paid-in Capital 2,884,207 2,316,679
Accumulated Deficit (3,103,467) (2,585,172)
----------- ------------
Total Stockholders' Equity (Deficit) (200,649) (255,399)
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 111,749 $ 347,087
=========== ===========
</TABLE>
See accompanying notes and accountant's report
3
<PAGE> 5
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICITS
For Nine Months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
SALES $ 46,557 $ 98,925
Less: Discount Taken (130) (1,343)
----------- -----------
NET SALES 46,427 97,582
COST OF SALES - SCHEDULE A 38,272 75,283
----------- -----------
GROSS PROFIT 8,165 22,299
OPERATING EXPENSES - SCHEDULE B 209,053 289,913
----------- -----------
INCOME (LOSS) FROM OPERATIONS (200,898) (267,614)
----------- -----------
OTHER INCOME (EXPENSES)
Interest Income 32 227
Other Income 289 73,249
Gain (Loss) on Disposal of Assets 1,087 -
Depreciation and Amortization (21,498) (27,411)
Interest Expenses (14,855) (14,719)
Penalties and Late Charges (210) -
Officer's Salaries (21,750) (39,196)
----------- -----------
Total Other Income (Expenses) (56,905) (7,850)
----------- -----------
NET INCOME (LOSS) BEFORE TAXES (257,803) (275,464)
PROVISION FOR INCOME TAXES 800 800
----------- -----------
NET INCOME (LOSS) (285,603) (276,264)
ACCUMULATED DEFICITS
Beginning Balance (2,850,622) (2,308,908)
Prior year adjustments 5,758 -
----------- -----------
Ending Balance $(3,103,467) $(2,585,172)
=========== ===========
NET (LOSS) PER SHARE $(.016) $(.021)
====== ======
WEIGHTED AVERAGE SHARES OUTSTANDING 16,541,964 13,093,974
=========== ===========
</TABLE>
See accompanying notes and accountant's report
4
<PAGE> 6
QUADRATECH, INC. & SUBSIDIARY
COST OF SALES
For Nine Months ended September 30, 1998 and 1997
(Unaudited)
SCHEDULE A
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
COST OF SALES
Beginning Inventory $ 3,838 $ 41,780
Purchases 14,138 25,251
Production Salaries 23,070 48,730
Warehouse Supplies 1,064 243
Freight-in 0 1,059
------- --------
42,110 117,063
Less: Ending Inventory (3,838) (41,780)
------- --------
Total Cost of Sales $38,272 $ 75,283
======= ========
</TABLE>
See accompanying notes and accountant's report
5
<PAGE> 7
QUADRATECH, INC. & SUBSIDIARY
OPERATING EXPENSES
For Nine Months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
SCHEDULE A
1998 1997
----------- ------------
<S> <C> <C>
OPERATING EXPENSES
Accounting $ 21,015 $ 5,898
Advertising 2,004 10,567
Bank and Finance Charges 1,413 5,803
Car Allowances and Expenses 8,505 3,609
Commissions 5,140 22,886
Consulting 67,618 -
Contributions - 74
Customer and Public Relations 11 6,260
Directors' Meetings 630 -
Dues and Subscriptions 245 1,741
Employee Benefits - 1,449
Entertainment 1,576 2,794
Equipment Rental 265 9,235
Freight and Postage 321 2,556
Insurance 16,416 5,841
Legal and Professional 10,311 16,517
Licenses & Permits 420 -
Maintenance 3,246 14,562
Office Supplies 2,417 7,983
Operating Supplies - 493
Other Expenses 584 1,709
Outside Services 110 3,425
Parking 22 -
Payroll Service Fees 1,439 -
Payroll Taxes 6,654 9,652
Printing and Reproduction 157 -
Rent 7,168 68,000
Research and Development 600 92
Salaries and Wages 22,552 32,616
Selling Expenses 443 -
Shipping 2,048 7,424
Supplies 97 250
Taxes - Property 2,523 694
Telephone 11,879 22,975
Temporary Labor 1,396 -
Trade Shows 3,063 6,487
Travel 3,415 1,797
Utilities 3,350 16,524
----------- ------------
Total Operating Expenses $ 209,053 $ 289,913
=========== ============
</TABLE>
See accompanying notes and accountant's report
6
<PAGE> 8
QUADRATECH, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (258,603) $ (276,264)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 21,498 27,411
Gain on Disposal of Assets (1,087)
Prior year adjustments 5,758 -
(Increase) Decrease in:
Accounts Receivable (7,983) (39,743)
Other Receivables (2,000) 3,777
Deposits (1,200) (1,000)
Increase (Decrease) in:
Accounts Payable (43,299) 49,185
Accrued Expenses (1,538) (73,971)
----------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (288,454) (318,159)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment (451) (6,002)
Disposal of Equipment 6,500 -
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 6,049 (6,002)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Paid-in Capital 28,668 132,500
Net Proceeds from Notes Payable 218,000 192,183
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 246,668 324,683
----------- -----------
NET INCREASE (DECREASE) IN CASH (35,737) 522
BEGINNING OF PERIOD 49,600 6,523
----------- -----------
END OF PERIOD $ 13,863 $ 7,045
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash Paid During the Period for:
Interest $ 3,090 $ 0
=========== ===========
Income Tax $ 0 $ 0
=========== ===========
Schedule of Noncash Investing and Financing Activities:
In 1998, issuance of stocks for:
Accounts Payable $ 11,475
===========
Notes Payable and Accrued Interest $ 521,900
===========
Paid-in Capital for accounts payable $ 11,000
===========
</TABLE>
See accompanying notes and accountant's report
7
<PAGE> 9
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended September 30, 1998 and 1997
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 bio-degradable
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 September 30,
1998 and 1997, 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. There was no bad debt expense
neither for 1998 nor 1997.
8
<PAGE> 10
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended September 30, 1998 and 1997
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 $20,854 and $26,767 for 1998 and 1997, respectively.
Intangible Assets
Patents, marks and copyrights are capitalized and amortized over eighteen 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 1997 consolidated financial
statements to conform with the 1998 consolidated financial statement
presentation. Such reclassification had no effect on net loss as previously
reported.
NOTE 3 - NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
a.) Notes to Caprice Engine, interest
at 6% to 8% per annum, due on
demand; unsecured $ 0 $ 165,657
b.) Notes to Bill Synder, including
$100,000 LOC, interest at 6.75%
to 10.5% per annum, due on
demand; unsecured 0 119,500
</TABLE>
9
<PAGE> 11
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended September 30, 1998 and 1997
NOTE 3 - NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
c.) Note to David Comfort, interest
at 8 1/2% commencing 8/1/98;
unsecured; due on demand 0 17,788
d.) Note to William Kroes, interest at
10% per annum due from 3/1/98;
monthly installments of $420 from
3/15/98; due 5/31/99; unsecured 50,500 102,000
e.) Note to Frances Rigney, interest
only at 8 1/2% commencing 8/1/98;
unsecured; due on demand 241,500 4,500
---------- ----------
Total $ 292,000 $ 409,445
Less current maturities 241,500 307,445
---------- ----------
Long-term debt, net $ 50,500 $ 102,000
========== ==========
Maturities on notes payable are as follows:
December 31,
1998 $ 241,500
1999 50,500
----------
$ 292,000
==========
</TABLE>
NOTE 4 - ROYALTIES
The Company has a signed agreement with an officer/stockholder to 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 nine
months ended September 30, 1998 and 1997 consist of $800 minimum state income
taxes in each year.
As of December 31, 1997, the Company has federal net operating loss
carryforwards of $2,735,038, and California NOL of $2,615,904 to reduce future
taxable income. To the extent not utilized, both carryforwards will begin to
expire beginning 2000 and 1998 respectively.
10
<PAGE> 12
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended September 30, 1998 and 1997
NOTE 6 - COMMON STOCK TRANSACTIONS
In 1998, the Company issued stocks to reduce accounts payable of $11,475 and
notes payable with accrued interest of $521,900.
NOTE 7 - RELATED PARTY TRANSACTIONS
Notes Payable
As described in Note 3, the Company had various unsecured borrowings from the
stockholders.
Paid-in Capital
$11,000 of accounts payable was paid by a stockholder and credited to paid-in
capital.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company currently leases its office facilities for $700 per month on a
month-to-month basis. Rent expense totaled $7,168 and $68,000 for 1998 and 1997,
respectively.
In addition, the Company is responsible for its pro rata share of property
taxes.
NOTE 9 - PRIOR YEAR ADJUSTMENTS
Certain errors, resulting in both the overstatement and understatement of
assets and liabilities of 1997 were corrected in 1998. These errors have no
effect on year of 1998. The changes to accumulated deficits as of December 31,
1997 are summarized as follows:
<TABLE>
<S> <C>
As previously reported, December 31, 1997 $(2,850,622)
Adjustments:
Understatement of Accounts Payable (1,179)
Understatement of Accounts Receivable 6,937
-----------
As adjusted $(2,844,864)
-----------
</TABLE>
11
<PAGE> 13
QUADRATECH, INC. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended September 30, 1998 and 1997
NOTE 10 - 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 $258,603
and $276,264 for nine months ended September 30, 1998 and 1997, respectively,
and as of September 30, 1998, the Company has an accumulated deficit of
$3,103,467, a deficit in stockholders' equity of $200,649 and current
liabilities exceed current assets by $229,437.
Management is currently involved in active negotiations to obtain additional
financing and actively increasing marketing efforts to increase revenues. The
Company's 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.
12
<PAGE> 14
II. Management's Discussion and Analysis or Plan of Operation
Results of Operation.
For the current quarter, the Company has continued to focus on marketing
its oil absorbent products.
The Company has continued to maintain its reduced 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 may provide
minimum capital resources to finance operations and fund capital expenditures.
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 and research activities.
For the current quarter, the Company had no material commitments to acquire
additional assets.
<PAGE> 15
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings.............................................. None
Item 2 - Changes in the Rights of the Company's Security Holders........ None
Item 3 - Defaults by the Company on its Senior Securities............... None
Item 4 - Results of Votes of Security Holders........................... None
Item 5 - Other Information.............................................. None
Item 6 - Exhibits and Reports on Form 8-K............................... None
SIGNATURE
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.
Dated: November 24, 1998 QUADRATECH, INC.
(Company)
By: /s/ PERRY COPLE
--------------------------
Perry Cople
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,863
<SECURITIES> 0
<RECEIVABLES> 14,760
<ALLOWANCES> 0
<INVENTORY> 3,838
<CURRENT-ASSETS> 32,461
<PP&E> 158,871
<DEPRECIATION> 97,789
<TOTAL-ASSETS> 111,749
<CURRENT-LIABILITIES> 261,898
<BONDS> 0
0
0
<COMMON> 18,611
<OTHER-SE> 2,884,207
<TOTAL-LIABILITY-AND-EQUITY> 111,749
<SALES> 46,427
<TOTAL-REVENUES> 47,835
<CGS> 38,272
<TOTAL-COSTS> 38,272
<OTHER-EXPENSES> 252,511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,855
<INCOME-PRETAX> (257,803)
<INCOME-TAX> 800
<INCOME-CONTINUING> (258,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (258,603)
<EPS-BASIC> (0.016)
<EPS-DILUTED> (0.016)
</TABLE>
