UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1996
[ ] 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.
Class Outstanding at October 25, 1996
Common Stock, par value 28,112,875 shares
$.000009 per share
QUADRAX CORPORATION
INDEX TO FORM 10-QSB
Part I - Financial Information Page
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1996 and at December 31, 1995 3-4
Condensed Consolidated Statements of Operations
for the three and nine months ended
September 30, 1996 and September 30, 1995 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and
September 30, 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 10-15
Part II - Other Information
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
Quadrax Corporation
Consolidated Balance Sheets
(Unaudited)
ASSETS
September 30, December 31,
1996 1995
------------- ------------
Current assets:
Cash and cash equivalents,
including $100,000 and
$481,146 of restricted cash,
respectively $ 653,672 $ 2,613,555
Accounts receivable, net of
allowances for doubtful
accounts of $24,000 1,161,336 1,265,301
Inventories 1,755,050 1,466,813
Other current assets 208,470 134,197
--------- ---------
TOTAL CURRENT ASSETS 3,778,528 5,479,866
--------- ---------
Property and equipment, at cost:
Machinery and equipment 3,431,302 3,319,881
Office equipment 900,224 851,160
Leasehold improvements 1,087,482 1,071,532
Construction-in-progress 1,284,389 0
--------- ---------
6,703,397 5,242,573
Less accumulated depreciation
and amortization 3,455,004 3,000,093
--------- ---------
NET PROPERTY AND EQUIPMENT 3,248,393 2,242,480
Goodwill, net of amortization
of $5,927 at September 30, 199 112,626 118,553
Other assets 289,626 267,855
License agreement, net of
amortization of $210,000
and $120,000, respectively 390,000 480,000
Deferred assets, net of
amortization of $68,428
and $61,912, respectively 233,452 211,498
---------- ----------
TOTAL ASSETS $8,052,625 $8,800,252
=========== ==========
See accompanying notes.
Quadrax Corporation
Consolidated Balance Sheets
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1996 1995
Current liabilities:
Accounts payable $ 986,602 $ 870,988
Accrued expenses 1,011,552 1,200,779
Notes payable to related party 0 300,000
Notes payable 1,017,362 1,114,301
---------- ---------
TOTAL CURRENT LIABILITIES 3,015,516 3,486,068
Long-term debt less current portion 397,443 356,034
Convertible debentures payable 0 2,250,000
---------- ---------
TOTAL LIABILITIES 3,412,959 6,092,102
---------- ---------
Stockholders' equity:
Original convertible
preferred stock 0 6
Class A Series B convertible
preferred stock 2,334,000 0
Common stock 254 160
Additional paid-in capital 62,733,544 57,179,364
Retained earnings (deficit) (58,269,216) (53,088,602)
------------ ------------
6,798,582 4,090,928
Less:
Treasury stock, at cost (1,091,969) (1,043,009)
Unearned compensation and
deferred expenses (545,587) (339,769)
Notes receivable for the
exercise of stock options (521,360) 0
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 4,639,666 2,708,150
---------- ---------
TOTAL LIABILITIES
AND STOCKHOLDERS EQUITY $8,052,625 $8,800,252
========== ==========
See accompanying notes.
Quadrax Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 1996 30, 1995 30, 1996 30, 1995
-------------- ------------- ------------ -----------
Revenue:
Sales $723,082 $1,160,994 $2,650,426 $3,470,059
Interest income 17,145 9,941 48,106 19,301
Other income 6,393 0 50,338 0
---------- ---------- ---------- ----------
TOTAL REVENUE 746,620 1,170,935 2,748,870 3,489,360
---------- ---------- ---------- ----------
Expenses:
Cost of goods sold 918,666 768,596 2,691,328 2,526,224
Research and
developmt 114,657 215,640 373,268 426,881
Selling, general
and administrative 1,389,135 1,517,521 4,046,958 4,351,460
Depreciation and
amortization 191,017 183,956 561,056 607,873
Interest expense 54,906 3,482 180,453 12,895
Reserve for
restructuring costs 0 2,600,000 0 2,600,000
---------- ---------- ---------- ----------
TOTAL EXPENSES 2,668,381 5,289,195 7,853,063 10,525,333
---------- ---------- ---------- ----------
NET LOSS ($1,921,761) ($4,118,260) ($5,104,193) ($7,035,973)
============ ============ ============ ==============
NET LOSS PER
COMMON SHARE ($0.08) ($0.29) ($0.23) ($0.53)
============ ============ ============ ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 24,741,950 14,189,979 22,576,236 13,392,893
============ ============ =========== ===========
See accompanying notes
Quadrax Corporation
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1995
------------ ------------
Cash flows from operating activities:
Net loss ($5,104,193) ($7,035,973)
Adjustments to reconcile net
income to net cash used
in operating activities:
Depreciation & amortization of
fixed assets 458,613 537,660
Amortization of intangibles 102,443 62,865
Amortization of unearned compensation 79,182 61,070
Amortization of deferred expense 15,000 191,430
Common stock issued for expenses 160,854 529,864
Write-off of goodwill 0 685,504
Effect on cash flows of changes in
assets and liabilities:
(Increase) decrease in receivables,
inventories, prepaid expenses and
other assets (258,545) (731,559)
Increase (decrease) in officer
payables, accounts payable and
accrued expenses (373,613) (267,361)
----------- -----------
Net cash used in operating activities (4,920,259) (5,966,500)
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (1,460,824) (374,969)
Other intangible assets purchased (50,241) 0
Payments for businesses acquired
net of cash acquired 0 140,000
----------- -----------
Net cash provided by (used in)
investing activities (1,511,065) (234,969)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of
common stock options 27,042 25,300
Net proceeds from sale of stock
and warrants 0 5,569,162
Issuance of debt 39,850 0
Issuance of convertible debt,
net of costs 1,471,372 91,334
Issuance of convertible preferred
stock, net of costs 3,028,557 1,339,200
Repayment of debt (95,380) (60,000)
----------- -----------
Net cash provided by
financing activities 4,471,441 6,964,996
----------- -----------
Net increase (decrease) in
cash and cash equivalents (1,959,883) 763,527
Cash and cash equivalents
at beginning of period 2,613,555 382,721
----------- -----------
Cash and cash equivalents
at end of period $653,672 $1,146,248
=========== ===========
See accompanying notes
QUADRAX CORPORATION
Consolidated Statements of Cash Flows (continued)
for the Nine Months Ended
September 30, 1996 and September 30, 1995
Supplemental schedule of significant noncash transactions:
1996:
The Company issued 6,355,976 shares of its common stock in
exchange for the cancellation of $3,916,666 of its convertible
debentures.
The Company issued 217,026 shares of its common stock for payment
in full for $160,854 of accrued liabilities and expenses.
The Company acquired 90,308 shares of common stock for the Treasury
via the exercise of stock options.
The Company issued 300,000 shares of its common stock for consulting
services.
The Company issued 1,355,132 shares of its common stock in exchange
for the cancellation of $1,166,000 of its Series B Convertible
Preferred Stock.
The Company issued 522,738 shares of its common stock to the former
shareholders of McManis Sports Associates, Inc. in settlement of a
claim relating to the sale to the Company of all of the issued and
outstanding shares of Common Stock of McManis Sports Associates, Inc.
in 1994.
1995:
The Company assumed $750,000 of debt due its former chairman from
Conagher & Co., Inc. for Conagher's purchase of the original preferred
stock.
The Company issued 1,489,946 shares of its common stock in exchange
for the cancellation of $1,500,000 of its Series A Convertible
Preferred Stock.
Quadrax Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 September 30, 1996 and the results of operations for
the nine months ended September 30, 1996 and September 30, 1995.
The results of operations for the nine month period ended
September 30, 1996 may not be indicative of the results that may be
expected for the year ending December 31, 1996. 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 for the year ended December 31, 1995.
2. Debt
Long-term debt consists of the following:
September 30, December 31,
1996 1995
------------ ------------
Note payable - bank $ 732,000 $ 801,000
Notes payable - former Lion shareholders 331,493 331,634
Equipment financing notes payable 101,312 87,701
Other non-interest bearing note 250,000 250,000
------------ ------------
1,414,805 1,470,335
Less current maturities (1,017,362) (1,114,301)
------------ ------------
$ 397,443 $ 356,034
============ ============
Note Payable - Bank
The Company's wholly-owned subsidiary, Lion Golf of Oregon, Inc., an
Oregon corporation ("Lion Golf"), has a $1,000,000 revolving line of
credit with its bank. The line of credit is secured by substantially
all of Lion Golf's assets and is guaranteed by the Company and the
former majority shareholder of Lion Golf. The note was renewed
January 2, 1996 and bears interest at 10.75% per annum. Loan advances
are limited to 75% of "eligible accounts receivable" plus 45% of
"eligible inventories" up to a maximum of $500,000, as such terms are
defined under the line of credit. The Company's current outstanding
balance due on the line of credit is approximately $732,000. The bank
has indicated that this line of credit when it expires on December 15,
1996 will not be renewed. The Company is currently exploring alternative
financing arrangements for its Lion Golf subsidiary to replace the current
banking arrangement.
Notes Payable - Lion Shareholders
Lion Golf has three unsecured notes bearing interest at the rate of 8%
per annum, payable to its former shareholders. These notes are
subordinated to the bank credit line. The first of the notes, for
the principal amount of $270,000, has annual principal payments of $54,000
commencing March 31, 1997. These annual payments can be limited to the
extent of Lion Golf's pretax profits as defined in the Purchase Agreement
among the Company, Lion Golf, and Lion Golf's former shareholders
dated December 29, 1995 (the"Purchase Agreement"). The second note for
the principal amount of $50,200, has monthly principal payments of
$2,400 until paid-in-full. The third note is a demand note in the
principal amount of $10,500.
3. Shareholders Equity
The Company's capital shares are as follows:
Original Convertible Preferred Stock, $0.01 par value, -0- shares
authorized at September 30, 1996 and 1,172 shares authorized at
December 31, 1995. There were 318 shares of the Original Convertible
Preferred Stock issued and outstanding at December 31, 1995. Subsequent
to December 31, 1995 all shares of Original Convertible Preferred Stock
were converted into common stock which were then redeemed by the Company
for a nominal consideration.
Class A, Series B Convertible Preferred Stock, $0.01 par value,
7,000 shares and -0- shares were authorized at September 30, 1996 and
December 31, 1995, respectively. There were 2,334 shares and -0- shares
of Series B Convertible Preferred Stock issued and outstanding at
September 30, 1996, and December 31, 1995, respectively.
Common Stock, $.000009 par value, 90,000,000 shares were authorized
at September 30, 1996 and December 31, 1995. 27,663,451 and 17,772,812
shares were outstanding at September 30, 1996 and December 31, 1995,
respectively.
4. Earnings Per Share
For the fiscal quarters ending September 30, 1996 and September 30, 1995,
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.
Item II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain matters discussed in
this section and elsewhere in this Form 10-Q are forward-looking
statements. These forward-looking statements involve risks and
uncertainties including, but not limited to, economic conditions, product
demand and industry capacity, competition, and other risks.
Competition. As the Company enters the sporting goods and recreational
equipment market, it faces competition from other materials used in the
manufacture of such goods and equipment, and from other suppliers of
thermoplastic composites. The Company's success in entering this market
will depend largely upon its ability to displace other materials currently
in use. If the Company is unsuccessful in creating a niche within the
sporting goods and recreational equipment market by convincing the market
of the strategic benefits of thermoplastic composites, the Company would
be adversely affected. Many of the companies whose product offerings
compete with the Company's product offerings have significantly greater
financial, manufacturing and marketing resources than the Company.
Development of Distribution Channels. Success in the sporting goods
and recreational equipment market will also hinge on the Company's ability
to develop distribution channels, including both retailers and
distributors, and there can be no assurance that the Company will be able
to effectively develop such channels.
Continued Investment. Maintaining the Company's technological and
strategic advantages over its competitors will require continued investment
by the Company in design and development, sales and marketing, and
customer service and support. There can be no assurance that the Company
will have sufficient resources to make such investments.
Technological Advances. The Company's ability to maintain a competitive
edge by making technological advances ahead of its competition will have a
significant impact on the success of the Company.
Outside Financing. The Company believes that it will need significant
outside financing over the next five years. There can be no assurance
that it will be able to obtain such financing.
Results of Operations for Quarter Ended September 30, 1996 as Compared
to Quarter Ended September 30, 1995
The Company's net loss from operations for the quarter ended
September 30, 1996 ("1996 third quarter") of $1,922,000 was approximately
$2,196,000 less than its net loss from operations of approximately
$4,118,000 for the quarter ended September 30, 1995 ("1995 third quarter").
Total revenue recognized during the 1996 third quarter was $746,620
compared to $1,170,935 in the 1995 third quarter, a decrease of $424,315.
An increase in sales of approximately $236,000 for the 1996 third quarter
for the Company's Consumer Products Group, which includes Lion Golf, was
more than offset by a decline in sales for the Company's Advanced
Materials Systems division ("AMS") of approximately $684,000. The decrease
in the AMS division reflects the completion of the defense programs late
in 1995 with no corresponding increase in consumer product shipments in
1996. The AMS 1996 third quarter sales are thermoplastic tape of
approximately $78,000 and development contract revenues of $45,000.
Interest income increased by approximately $7,000 in the three months
ended September 30, 1996, as compared to the same period one year ago
because of the greater amount of money the Company had on deposit in
interest bearing paper in 1996.
Other income increased approximately $6,000 in the 1996 third quarter.
The primary reason for this increase is that the Company was the
beneficiary of debt forgiven in a financing transaction for the purchase
of equipment.
Cost of goods sold for the third quarter of 1996 of $918,666 increased
approximately $150,000 in the three months ended September 30, 1996
vis-a-vis the three months ended September 30, 1995. The reasons for this
increase are the reduction in gross margins in 1996 due to the Company's
change in revenue source from defense related products to consumer oriented
products, along with inventory product write-downs at the Company's Lion
Golf subsidiary.
Research and development expenses were $114,657 in the 1996 third
quarter, which is approximately $101,000 lower than in the 1995 third
quarter. The reason for this decrease is the Company's significant
downsizing of its research and development program. The majority of the
Company's remaining research and development expenditures have been
dedicated to the development of a production facility for golf shafts
in Vista, California by the Company's AMS Division. These development
costs were capitalized in the 1996 third quarter. Production will not
commence at this facility until the fourth quarter of 1996.
Selling, general and administrative expenses decreased by
approximately $128,000 to $1,389,135 in the three months ended
September 30, 1996 over the comparable period a year ago. The primary
reason for this decrease is that advertising and trade show expenditures are
down, particularly, in the golf area.
Depreciation and amortization expense increased by approximately $7,000
to $191,017 in the third quarter of 1996, an insignificant fluctuation.
Interest expense for the third quarter of 1996 increased from
approximately $3,500 to $54,906. This reflects the Company's 1996
subordinated debt along with the financing costs associated with the
financing leases which the Company entered into during the past year.
Lastly, interest on the Lion Golf line of credit is reflected in the 1996
third quarter, which was not present in the 1995 third quarter.
Expenses related to restructuring costs decreased $2,600,000 to $-0-
in the 1996 third quarter. The Company established this reserve in 1995
after evaluating the carrying value of its assets and determining that
certain of its intangibles, in particular goodwill associated with the
acquisition of McManis Sports Associates, were overvalued. In addition,
the Company decided that it would not use the services of various
executives. The restructuring costs in the 1995 third quarter relate to
the reserve for these costs.
Results of Operations for Nine Months Ended September 30, 1996
as compared to Nine Months Ended September 30, 1995
The Company's net loss from operations for the nine months ended
September 30, 1996 ("1996 period") of $5,104,193 was approximately
$1,932,000 less than its net loss from operations of approximately
$7,036,000 for the nine months ended September 30, 1995 ("1995 period").
The decrease in net loss was caused by the reduction in gross margins which
has resulted from the change in the Company's primary source of revenues
from defense related products to consumer oriented products in the 1996
period offset by a reserve for restructuring costs in the 1995 period.
Total revenue recognized during the 1996 period was $2,748,870 compared
to $3,489,360 in the 1995 period. This decrease of approximately $740,000
from the 1995 period resulted from the Company shipping approximately
$1,947,000 in product to its defense related customers in 1995, while in
the 1996 period, there were inconsequential defense related sales. This
decline in defense related sales was somewhat offset by an increase
in consumer product sales of $1,426,000 in the 1996 period.
Interest income in the 1996 period was approximately $48,000, an
increase of $29,000 from the 1995 period, due to the Company having a
greater amount of money invested in interest bearing paper in 1996.
Other income increased by approximately $50,000 in the 1996 period.
This increase resulted primarily from Lion Golf's settlement of a product
trademark dispute with another golf equipment manufacturer pursuant to
which Lion Golf received a lump-sum settlement of $40,000.
Costs of goods sold increased approximately $165,000 in the 1996 period
to $2,691,328. The reason for this increase is the reduction in gross
margins in 1996 due to the Company's change in revenue source from
defense related products to consumer oriented products.
Research and development expenses were $373,268 in the 1996 period,
a decrease of approximately $54,000 as compared to the 1995 period.
The reason for this decrease is that a significant portion of the Company's
product development costs in 1996, particularly in the second and third
quarters of 1996, have been capitalized into the Vista, California golf
shaft manufacturing facility.
Selling, general and administrative expenses decreased by approximately
$304,000 from $4,351,460 to $4,046,958 in the 1996 period. This decrease
is the result of a decline in advertising and trade show expenditures for
the Wimbledon and McManis product lines.
Depreciation and amortization expense decreased by approximately $46,000
to $561,056 in the 1996 period, primarily due to the one-time write-off
in the 1995 period of machinery and equipment no longer utilized by the
Company.
Interest expense for the 1996 period was $180,453, while in the 1995
period it was $12,895, an increase of approximately $168,000. This
increase was caused by the Company's payment of interest on Lion Golf's
working capital line of credit in 1996, along with the interest paid on
the Company's convertible debentures.
Expenses related to restructuring costs decreased $2,600,000 to $-0- in
the 1996 period. The Company established this reserve in 1995 after
evaluating the carrying value of its assets and determining that certain
of its intangibles, in particular goodwill associated with the acquisition
of McManis Sports Associates, were overvalued. In addition, the Company
decided that it would not use the services of various executives. The
restructuring costs in the 1995 period relate to the reserve for these costs.
Financial Position, Liquidity and Capital Resources
At September 30, 1996, the Company had total assets of $8,052,625 and
stockholders' equity of $4,639,666. Current assets were $3,778,528 and
current liabilities were $3,015,516 resulting in working capital of
approximately $750,000 which is a decrease of approximately $1,200,000 from
December 31, 1995, when working capital was approximately $2 million.
This decrease in working capital resulted from the Company's continued
losses from operations in the first nine months of calendar 1996.
Cash and cash equivalents decreased by approximately $1,960,000 from
$2,613.555 at December 31, 1995 to $653,672 at September 30, 1996.
This decrease is due to the Company's use of approximately $4,920,000
to fund its operations and approximately $1,461,000 to prepare and equip
its golf shaft manufacturing facility in Vista, California and to purchase
hockey stick manufacturing equipment from Vega, U.S.A. These $6,381,000
in expenditures were partially offset by the Company's raising of
additional capital of approximately $4,500,000 in the 1996 period.
Accounts receivable decreased by approximately $104,000. The primary
reasons for this decrease are that the Company collected its trade
receivables from its defense customers which were outstanding at December
31, 1995, and the decline in revenues in 1996.
Inventories increased by approximately $288,000. This increase is due
to the build-up of product for the Company's consumer sales.
Other current assets increased by approximately $74,000 between
September 30, 1996 and December 31, 1995. This increase was primarily
caused by the Company's renewal of various insurance policies as of
September 30, 1996, and the prepayment of the premium.
Notes payable decreased by approximately $77,000. This reflects the
Company's decreased usage of its line of credit with the Bank of the
Cascades.
Accounts payable and accrued expenses decreased approximately $74,000
from $2,072,000 at December 31, 1995. This decrease was caused by payments
made to trade vendors and to former employees in 1996. The employee payments
were charged against the reserve for restructuring costs accrued as of
December 31, 1995.
Notes payable to related parties decreased $300,000 to zero at
September 30, 1996. The reason for this decrease is that the Company paid
Richard Fisher, its former chairman and chief executive officer, in full
in February 1996 pursuant to the December 1995 settlement agreement.
Long term debt increased approximately $41,000 to $397,443 at
September 30, 1996. The reason for this increase is the new equipment
financing leases the Company entered into in 1996.
Convertible debentures decreased to $-0- at September 30, 1996 from
$2,250,000 at December 31, 1995. This reflects the debenture holder's
conversion of its debentures to common stock during the nine months
ended September 30, 1996.
In the first nine months of fiscal 1996, capital expenditures were
approximately $1,511,000. These capital expenditures are an integral part
of the Company's program to construct a golf shaft manufacturing line, a
thermoplastic tape manufacturing line, and a hockey stick manufacturing
line. These equipment acquisitions are expected to be paid for through
equipment leasing programs and from funds raised through the placement of
the Company's securities.
The Company generated revenues of approximately $2,750,000 in the
first nine months of fiscal 1996, and as a result, operations were not a
source of funds or liquidity for the Company. The Company continues to
depend on outside financing for the cash required to fund its operations.
Net funds provided by financing activities in the first nine months of
fiscal 1996, after giving effect to the repayment of debt, totaled
approximately $4,500,000 during the period ended September 30, 1996.
The Company believes that funds provided by operations and cash on hand
(approximately $650,000 at September 30, 1996), will be sufficient to meet
the Company's near-term cash requirements. In addition, the Company
believes that it will be able to raise additional monies from the sale of
convertible securities prior to the end of fiscal 1996 and during fiscal
1997 of at least $5,000,000. There can be no assurance, however, that the
Company will be able to raise additional funds, and that even if raised,
that such funds will be sufficient to satisfy the Company's cash
requirements for the remainder of 1996 and 1997.
The Company received a going concern qualification from its outside
independent auditors on its fiscal 1995 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.
During this transition, management continues to redirect the Company's focus
from the defense related products to consumer oriented products.
Management believes that the Company will be able to continue to raise
money from outside third parties in sufficient amounts to support its
operations until such time as which the Company's consumer product programs
generate sufficient revenues. There can be no assurance, however, that the
Company will be able to raise additional funds from third parties, or even
that if raised, such funds will be sufficient to fund the Company's product
programs until such programs are able to generate enough revenue to support
themselves. If the Company is unable to meet its cash requirements, it may
be required to defer for a period of time, or indefinitely, the design,
development, fabrication and marketing of new products and the marketing of
existing products and materials in new markets.
The Company believes that it can achieve viability and profitability
by continuing to expand sales of consumer sporting goods products, as well
as other products that employ its thermoplastic materials. Management
believes that the Company's acquisition of Lion Golf in late 1995 will
further this strategy because of Lion Golf's manufacturing expertise and
access to new distribution channels, such as golf and tennis pro shops.
Management also expects sales of composite based lacrosse sticks and
continuing efforts to develop and market other consumer products should
contribute to the Company's viability and profitability. There can be
no assurances that the Company's transition to consumer oriented products
will succeed to the extent necessary to make the Company profitable.
Nor can there be any assurances that Lion Golf's manufacturing expertise
and access to distributon channels will be sufficient for the Company to
overcome institutional resistance to the use of thermoplastic composite
materials in sporting equipment products, or to the intense competition
in this field.
There is no assurance that the Company's efforts to achieve viability
and profitability or to raise money will be successful or that the
forecasts will be achieved. It is difficult for the Company to predict
with accuracy the point at which the Company will be viable and profitable
or whether it can achieve viability or profitability at all, due to the
difficulty of predicting accurately the amount of revenues that the
Company will generate, the amount of expenses that will be required by its
operations, and the Company's ability to raise additional capital.
QUADRAX CORPORATION
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None since Form 10-KSB for fiscal year ended December 31, 1995
was filed on April 12, 1996.
27.1 Financial Data Schedule
(Electronic Filing Only)
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed with
the Securities and Exchange Commission since August 14, 1996,
the date the Company's Form 10-QSB for the quarter ending
June 30, 1996 was filed.
- On September 10, 1996, the Company filed a Form 8-K with
respect to its press release announcing that it had signed
a contract with Taylor Made Golf Company to develop new
golf products made with Quadrax's thermoplastic composite
materials.
- On October 4, 1996, the Company filed a Form 8-K with respect
to its press release announcing a reduction in the exercise
price of its Class C Warrants from $4.53 to $3.33 and an
increase in the number of shares of the Company's common stock
purchasable upon the exercise of each Class C Warrant, from
3.18 to 4.3262 shares.
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)
November 15, 1996
(Date) /s/ James J. Palermo
James J. Palermo
Chairman and
Chief Executive Officer
November 15, 1996
(Date) /s/Edward A. Stoltenberg
Edward A. Stoltenberg,
Senior Vice President,
and Chief Financial Officer
(Principal Accounting Officer)
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