<PAGE> 1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED
ON MAY 15, 1995, PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended March 31, 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 Number)
300 High Point Avenue Portsmouth, Rhode Island 02871
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(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.
<TABLE>
<CAPTION>
Class Outstanding at April 28, 1995
----------------------- -----------------------------
<S> <C>
Common Stock, par value 12,794,990 shares
$.000009 per share
</TABLE>
-1-
<PAGE> 2
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at
March 31, 1995 and at December 31, 1994 3-4
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1995 and April 3,
1994 and the period from March 6, 1986
(date of incorporation) to March 31, 1995 5
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and April 3, 1994 and
the period from March 6, 1986
(date of incorporation) to March 31, 1995 6-7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
-2-
<PAGE> 3
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
----------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,186,361 $ 382,721
Accounts receivable 1,258,699 224,180
Inventories:
Raw materials 464,581 1,059,213
Work in process 555,890 212,573
----------- ------------
1,020,741 1,271,786
Other current assets 74,782 81,756
----------- ------------
TOTAL CURRENT ASSETS 3,540,583 1,960,443
----------- ------------
Property and equipment, at cost:
Machinery and equipment 4,053,480 3,875,955
Office equipment 733,458 689,944
Leasehold improvements 1,035,513 1,035,513
----------- ------------
5,822,451 5,601,412
Less accumulated depreciation and amortization 3,105,033 2,984,104
----------- ------------
NET PROPERTY AND EQUIPMENT 2,717,418 2,617,308
----------- ------------
Receivables from officers and employees 54,728 54,728
Non-competition agreement 607,500 641,250
Goodwill 700,244 709,142
Other assets 367,855 507,855
License agreement 600,000 600,000
Patents, net of amortization 167,472 169,437
----------- ------------
TOTAL ASSETS $ 8,755,800 $ 7,260,163
=========== ============
</TABLE>
See accompanying notes.
-3-
<PAGE> 4
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,672,735 $ 1,166,178
Accrued expenses 996,148 1,547,986
Notes payable to related party 885,000 135,000
Notes payable 290,000 310,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,843,883 3,159,164
Note payable to related party 540,000 540,000
------------ ------------
TOTAL LIABILITIES 4,383,883 3,699,164
Stockholders' equity:
Original convertible preferred stock 7 7
Common stock 104 92
Additional paid-in capital 51,512,117 48,356,319
Deficit accumulated during development stage (45,577,002) (44,090,478)
------------ ------------
5,935,226 4,265,940
Less:
Treasury stock, at cost: (993,009) (243,009)
Unearned compensation and deferred expenses (85,800) (123,932)
Note receivable for options (484,500) (338,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,371,917 3,560,999
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,755,800 $ 7,260,163
============ ============
</TABLE>
See accompanying notes.
-4-
<PAGE> 5
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
March 6, 1986
Three months Three months (Date of
Ended Ended incorporation) to
March 31, 1995 April 3, 1994 March 31, 1995
-------------- -------------- -----------------
<S> <C> <C> <C>
Revenue:
Product sales $ 1,074,643 $ 74,047 $ 6,400,445
Interest income 8,995 2,007 1,400,357
Other income 0 0 68,408
----------- ----------- ------------
TOTAL REVENUE 1,083,638 76,054 7,869,210
----------- ----------- ------------
Expenses:
Cost of goods sold 714,420 27,012 2,614,060
Research and development 236,074 399,309 13,661,892
Selling, general and administrative 1,411,606 672,646 20,594,922
Depreciation and amortization 203,672 195,827 7,091,821
Interest expense 4,390 4,239 454,529
Loss on investment 0 0 165,350
Non-recurring financing related expenses 0 1,449,851 5,568,733
----------- ----------- ------------
TOTAL EXPENSES 2,570,162 2,748,884 50,151,307
----------- ----------- ------------
NET LOSS FROM CONTINUING OPERATIONS $(1,486,524) $(2,672,830) $(42,282,097)
Discontinued operations:
Net loss from discontinued operations 0 0 (2,509,968)
Loss on disposal of laser segment 0 0 (579,848)
----------- ----------- ------------
NET LOSS $(1,486,524) $(2,672,830) $(45,371,913)
=========== =========== ============
NET LOSS PER COMMON SHARE $(0.14) $(0.73)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 10,779,444 3,649,857
=========== ===========
</TABLE>
See accompanying notes.
-5-
<PAGE> 6
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Cumulative
March 6, 1986
Three Months Three Months (date of incorp-
Ended Ended oration) to
March 31, 1995 April 3, 1994 March 31, 1995
-------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,486,524) $(2,672,830) $(45,546,913)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation & amortization of fixed assets 120,929 156,776 3,817,391
Amortization of intangibles 44,613 1,155 720,889
Amortization of unearned compensation 0 14,946 1,702,774
Amortization of deferred expense 38,132 22,250 589,957
Amortization of deferred debt expense 0 0 573,526
Common stock issued for consulting services 34,616 787,500 2,348,505
Common stock issued for interest 0 0 132,236
Common stock issued for financing related expenses 0 0 2,028,607
Loss on retirement of fixed assets 0 0 74,089
Loss on disposal of laser segment 0 0 579,848
Loss on investment 0 0 176,900
Cancellation of indebtedness 0 26,835 286,245
Provision for loss contract 0 (142,394) 0
Effect on cash flows of changes in assets and liabilities:
Accounts receivable and other (1,034,519) 69,723 (1,304,883)
Inventories 251,045 (42,079) (683,992)
Prepaid expenses and other assets 6,974 9,812 (30,370)
Receivables/payables from officers and employees 0 0 39,657
Accounts payable 506,557 184,431 1,594,924
Accrued expenses (551,838) 85,147 951,148
Non-current liabilities 0 328,125 0
---------- ---------- -----------
Net cash used in operating activities (2,070,015) (1,170,603) (31,949,462)
---------- ---------- -----------
Cash flows from investing activities:
Notes receivable - officers and employees 0 0 (90,783)
Investments 0 11,550 148,100
Capital expenditures, net (221,039) (208,996) (6,456,975)
Other intangible assets 0 (793) (874,492)
Payments for businesses acquired 140,000 0 (260,029)
net of cash acquired
---------- ---------- -----------
Net cash provided by (used in) investing activities (81,039) (198,239) (7,534,179)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from exercise of common stock warrants, net 0 2,400 13,550,571
Proceeds from exercise of common stock options 25,300 0 57,570
Net proceeds from rights offering 0 0 2,684,217
Sales of common stock 0 0 98,762
Issuance of preferred stock 0 0 12
Net proceeds from initial public offering 0 0 4,740,022
Net proceeds from sale of stock and warrants 2,949,394 0 12,761,228
Issuance of debt 0 1,000,000 8,521,653
Repayment of debt (20,000) 0 (1,569,031)
Shares acquired for treasury stock 0 0 (175,000)
Dividend payment on preferred stock (series A) 0 0 (2)
---------- ---------- -----------
Net cash provided by financing activities 2,954,694 1,002,400 40,670,002
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 803,640 (366,442) $1,186,361
===========
Cash and cash equivalents at beginning of period 382,721 668,781
---------- ----------
Cash and cash equivalents at end of period $1,186,361 $302,339
========== ==========
</TABLE>
See accompanying notes
-6-
<PAGE> 7
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND APRIL 3, 1994
SUPPLEMENTAL SCHEDULE OF SIGNIFICANT NONCASH 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:
None.
-7-
<PAGE> 8
QUADRAX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
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,
consisting only of normal recurring adjustments, necessary to present
fairly the Company's financial position as of March 31, 1995 and the
results of operations for the three months ended March 31, 1995 and April
3, 1994. The results of operations for the three month period ended March
31, 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 and amended by Form 10-KSB/A 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 consolidated
financial statements represent fiscal years unless otherwise noted.
2. Notes Payable
The Company's notes payable consist of notes due totaling $290,000; one is
a non-interest bearing note for $250,000 due regarding the acquisition of
certain assets and liabilities of Time Sports, the others are 10% interest
bearing notes totaling $40,000 due to the holders of subordinated
debentures issued by the Company pursuant to Regulation D during fiscal
1994.
3. Shareholders Equity
The Company's capital shares are as follows:
Original Convertible Preferred Stock, $.01 par value, 1,172 shares
authorized at March 31, 1995 and December 31, 1994, 318 and 516 shares
issued and outstanding at March 31, 1995 and December 31, 1994,
respectively. During the three months ended March 31, 1995, 198 shares of
the Original Convertible Preferred Stock were converted to 75,268 shares
of Common Stock.
Common Stock, $.000009 par value, 90,000,000 shares authorized at March
31, 1995 and December 31, 1994, 12,772,866 and 10,249,066 shares issued at
March 31, 1995 and December 31, 1994, respectively and 12,452,061 and
9,928,261 shares outstanding at March 31, 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 number of shares of Common Stock and related per share amounts in the
accompanying consolidated financial statements and notes thereto have been
adjusted to reflect this reverse split.
-8-
<PAGE> 9
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 (Conagher),
Allied-Asian Consolidated Limited, a Hong Kong corporation (Allied-Asian),
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 Officer
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/A for the fiscal year
1994 (See Changes in Control and Related Transactions and Note 10 to the
Consolidated Financial Statements -- Changes in Control) which are
incorporated here and by this reference.
5. Related Party Transactions
During the period ended March 31, 1995, the Company's former Chief
Executive Officer, Richard A. Fisher, exercised options covering 93,918
shares of the Company's common stock delivering notes therefore
aggregating $146,500.
In connection with the repurchasing of the voting control over the Company
from Pattinson Hayton, III and his affiliated corporate entities (See Note
4 above), the Company assumed the obligation of Conagher & Co. to pay the
former chief executive officer $750,000 for the convertible preferred
stock which he had previously sold to Conagher & Co. The note is payable
in monthly installments of $75,000 plus interest, over a 10 month period
commencing 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.
Also during the period ended March 31, 1995, the Company's former Chief
Executive Officer, Richard A. Fisher's severance agreement dated September
30, 1994 was amended to reflect a commitment by the Company to issue an
additional 100,000 shares of its common stock upon the effective date of a
registration statement to be filed with the Securities and Exchange
Commission.
6. Earnings Per Share
For the fiscal quarters ending March 31, 1995 and April 30, 1994, the net
loss per share was computed using the weighted number of average shares
outstanding during the respective periods. Common Stock equivalents did
not enter into the computation because the impact would have been
anti-dilutive.
-9-
<PAGE> 10
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations for Quarter Ended March 31, 1995 as compared to Quarter
Ended April 3, 1994
The Company is a development stage company. The Company's net loss from
operations for the quarter ended March 31, 1995 ("1995 first quarter") of
approximately $1,487,000 was approximately $1,186,000 less than its net loss
from operations of approximately $2,673,000 for the quarter ended April 3, 1994
("1994 first quarter"). This decrease was the result of the non-recurring costs
associated with the proposed acquisition of the Company's assets by Applied
Laser Systems which was terminated in May 1994.
Total revenue recognized during the 1995 first quarter was $1,084,000
compared to $76,000 in the 1994 first quarter. This increase of $1,012,000 or
1,332 percent from the 1994 first quarter results from the Company shipping
product to its defense related customers in the approximate amount of $725,000.
Additionally, $181,000 of Wimbledon related products were sold in the 1995 first
quarter and the balance of the sales increase results primarily from consumer
related sporting goods customers who are beginning to utilize the Company's
materials in their products.
Costs of goods sold for the first quarter of 1995 of $714,000 reflect costs
associated with the defense and consumer products which the Company shipped in
the 1995 first quarter. The cost of goods sold for the 1994 first quarter
reflect monies the Company expended relating to an athletic shoe program which
began in 1993 and terminated in early 1994.
Research and development expenses were $236,000 in the 1995 first quarter, a
decrease of $163,000 as compared to $399,000 in the 1994 first quarter. The
reason for this decrease is that the Company capitalized $175,000 of tooling
development expenditures it incurred during the 1995 first quarter for
commercial products which had no shipments during this period.
Selling, general and administrative expenses increased by $739,000 to
$1,412,000 in the 1995 first quarter. The reason for this increase is as
follows:
1) The Company's sales and marketing costs increased $357,000 in the
1995 first quarter and these expenditures were monies the Company
used for its Wimbledon division, which it acquired in November,
1994.
2) The Company's general and administrative costs increased $338,000.
The reasons for this are two fold; first are the general and
administrative costs attributable to the Wimbledon and McManis
Sports divisions acquired in November, 1994. The administrative
costs attributable to these divisions are $100,000 and $97,000,
respectively. Second, the corporate general and administrative
costs increased $141,000 in the 1995 first quarter and are
primarily attributable to increased travel costs, $72,000; rent,
$41,000; and utilities, $45,000. The rent and utility cost
increases are due to accounting reclassifications. In the 1994
first quarter, these costs were allocated to various overhead
departments in cost of sales and research and development. In the
1995 first quarter they were not.
Depreciation and amortization expense increased by $8,000 to $204,000 in the
first quarter of 1995.
-10-
<PAGE> 11
Interest expense for both the first quarter of 1995 and the first quarter of
1994 was $4,000.
Non-recurring financing related costs recognized in the first quarter of
1994 totaled $1,450,000 and relate to the Asset Acquisition Agreement between
the Company and Applied Laser Systems which was terminated by mutual agreement
in May, 1994. Included in these costs is 170,000 shares of the Company's common
stock valued at $1,116,000 ($6.56 per share) issued or to be issued to the
Company's investor relations consultant. Other costs incurred were for various
professional services. During the 1995 first quarter, no such expenses were
incurred by the Company in that the costs relating to the Conagher & Co., Inc.
financing, which was terminated in February, 1995, (See Note 4 -- Changes in
Control) were reserved for as of December 31, 1994.
Financial Position, Liquidity and Capital Resources
The Company's working capital at March 31, 1995, increased approximately
$1,435,000 from December 31, 1994, 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 1995 first quarter. At March 31, 1995, the
Company had a working capital deficit of approximately $303,000 as compared to a
working capital deficit of $1,199,000 at December 31, 1994. The Company is
continuing to pursue the goal of changing its strategic objective to becoming a
vertically integrated supplier to OEMO's and end users of consumer products and
components manufactured from its proprietary materials systems.
Cash provided by financing activities during the first three months of 1995
totaled approximately $2,955,000 compared to $1,002,000 during the same period
of 1994. The primary source of these funds in 1995 was $2,949,000 from sales of
common stock to outside third parties including Conagher & Co. Inc. The 1994
financing monies raised were attributable to monies advanced by Applied Laser
Systems which 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. 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. Because the Company is still in the development stage, it is
difficult 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.
-11-
<PAGE> 12
QUADRAX CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(Electronic Filing Only)
(b) Reports on Form 8-K
None since Form 10-KSB/A for fiscal year ended
December 31, 1994 was filed on April 24, 1995.
-12-
<PAGE> 13
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)
May 12, 1995 /s/ James J. Palermo
------------------------------- ---------------------------------------
(Date) James J. Palermo, Chairman and
Chief Executive Officer
May 12, 1995 /s/ Edward A. Stoltenberg
------------------------------- ---------------------------------------
(Date) Edward A. Stoltenberg, Acting Chief
Financial Officer (Principal Accounting
Officer)
-13-
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------- ----------- ------------
<S> <C> <C>
27.1 Financial Data Schedule
(Electronic Filing Only)
</TABLE>
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 1,186,361
<SECURITIES> 0
<RECEIVABLES> 1,258,699
<ALLOWANCES> 0
<INVENTORY> 1,020,744
<CURRENT-ASSETS> 3,540,583
<PP&E> 5,822,451
<DEPRECIATION> 3,105,033
<TOTAL-ASSETS> 8,755,800
<CURRENT-LIABILITIES> 3,843,883
<BONDS> 0
<COMMON> 104
0
7
<OTHER-SE> 51,512,117
<TOTAL-LIABILITY-AND-EQUITY> 8,755,800
<SALES> 1,074,643
<TOTAL-REVENUES> 1,083,638
<CGS> 714,420
<TOTAL-COSTS> 714,420
<OTHER-EXPENSES> 1,851,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,390
<INCOME-PRETAX> (1,486,524)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,486,524)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,486,524)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
