<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A-1
Amendment No. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the period ended June 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
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QUADRAX CORPORATION
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(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
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(Address of principal executive offices) (Zip Code)
(401) 683-6600
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(Registrant's telephone number, including area code)
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(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 August 2, 1996
------------------------------------- -----------------------------
Common Stock, par value 24,745,704 shares
$.000009 per share
<PAGE> 2
QUADRAX CORPORATION
INDEX TO FORM 10-QSB/A-1
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1996 and at
December 31, 1995 3-4
Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 1996 and June 30, 1995 5
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and June 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 10-14
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 16
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</TABLE>
<PAGE> 3
QUADRAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
Current assets:
Cash and cash equivalents, including $100,000
and $481,146 of restricted cash, respectively $ 2,332,730 $ 2,613,555
Accounts receivable, net of allowances for
doubtful accounts of $24,000 1,084,038 1,265,301
Inventories 1,890,675 1,466,813
Other current assets 193,580 134,197
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TOTAL CURRENT ASSETS 5,501,023 5,479,866
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Property and equipment, at cost:
Machinery and equipment 3,416,620 3,319,881
Office equipment 891,537 851,160
Leasehold improvements 1,085,728 1,071,532
Construction-in-progress 872,188 0
6,266,073 5,242,573
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Less accumulated depreciation and amortization 3,298,204 3,000,093
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NET PROPERTY AND EQUIPMENT 2,967,869 2,242,480
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Goodwill, net of amortization of $3,952
at June 30, 1996 114,601 118,553
Other assets 290,627 267,855
License agreement, net of amortization of $180,000
and $120,000, respectively 420,000 480,000
Deferred assets, net of amortization of $66,187 and $61,912,
respectively 217,801 211,498
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TOTAL ASSETS $9,511,921 $8,800,252
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</TABLE>
See accompanying notes.
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<PAGE> 4
QUADRAX CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
Current liabilities:
Accounts payable $ 748,876 $ 870,988
Accrued expenses 755,520 1,200,779
Notes payable to related party 0 300,000
Notes payable 1,035,623 1,114,301
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TOTAL CURRENT LIABILITIES 2,540,019 3,486,068
Long-term debt, less current portion 349,858 356,034
Convertible debentures payable 1,050,000 2,250,000
TOTAL LIABILITIES 3,939,877 6,092,102
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Stockholders' equity:
Original convertible preferred stock 0 6
Class B convertible preferred stock 3,500,000 0
Common stock 219 160
Additional paid-in capital 63,450,741 58,288,953
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Retained earnings (deficit) (59,261,566) (54,198,191)
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7,689,394 4,090,928
Less:
Treasury stock, at cost (1,043,009) (1,043,009)
Unearned compensation and deferred expenses (586,981) (339,769)
Notes receivable for the exercise of stock options (487,360) 0
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TOTAL STOCKHOLDERS' EQUITY 5,572,044 2,708,150
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,511,921 $8,800,252
============= ==============
</TABLE>
See accompanying notes.
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<PAGE> 5
QUADRAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
1996 1995 1996 1995
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales $840,327 $1,234,786 $1,927,344 $2,309,429
Interest income 15,389 0 30,961 8,995
Other income 43,549 0 43,945 0
-------------- -------------- --------------- ---------------
TOTAL REVENUE 899,265 1,234,786 2,002,250 2,318,424
-------------- -------------- --------------- ---------------
Expenses:
Cost of goods sold 836,223 1,043,208 1,772,662 1,757,628
Research and development 39,044 (24,833) 258,611 211,240
Selling, general and administrative 1,219,438 1,422,334 2,657,823 2,833,94
Depreciation and amortization 182,228 220,245 370,039 423,917
Interest expense 775,978 5,025 839,824 9,415
-------------- -------------- --------------- ---------------
TOTAL EXPENSES 3,052,911 2,665,979 5,898,959 5,236,140
-------------- -------------- --------------- ---------------
NET LOSS ($2,153,646) ($1,431,193) ($3,896,709) ($2,917,716)
============== ============== =============== ===============
NET LOSS PER COMMON ($0.09) ($0.14) ($0.19) ($0.25)
SHARE ============== ============== =============== ===============
WEIGHTED AVERAGE
COMMON
SHARES OUTSTANDING 22,470,365 13,008,872 20,876,573 11,900,316
============== ============== =============== ===============
</TABLE>
See accompanying notes
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<PAGE> 6
QUADRAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($3,896,709) ($2,917,716)
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation & amortization of fixed assets 302,158 246,521
Amortization of intangibles 67,881 95,065
Amortization of unearned compensation 52,788 82,331
Common stock issued for expenses 875,131 258,274
Effect on cash flows of changes in assets and liabilities:
Accounts receivable and other 181,263 (701,015)
Inventories (423,862) 207,361
Prepaid expenses and other assets (59,383) (134,649)
Receivables/payables from officers and employees (300,000) (225,000)
Accounts payable (122,112) (48,342)
Accrued expenses (507,129) (786,739)
-------------- ---------------
Net cash used in operating activities (3,829,974) (3,923,909)
-------------- ---------------
Cash flows from investing activities:
Capital expenditures, net (1,023,500) (672,977)
Other intangible assets purchased (33,350) 0
Payments for businesses acquired
net of cash acquired 0 140,000
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Net cash provided by (used in) investing activities (1,056,850) (532,977)
-------------- ---------------
Cash flows from financing activities:
Proceeds from exercise of common stock options 4,187 25,300
Net proceeds from sale of stock and warrants 0 5,137,522
Issuance of convertible debt, net of costs 1,536,666 0
Issuance of convertible preferred stock, net of costs 3,150,000 1,339,200
Repayment of debt (84,854) (60,000)
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Net cash provided by financing activities 4,605,999 6,442,022
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (280,825) 1,985,136
Cash and cash equivalents at beginning of period 2,613,555 382,721
-------------- ---------------
Cash and cash equivalents at end of period $2,332,730 $2,367,857
============== ===============
</TABLE>
See accompanying notes
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<PAGE> 7
QUADRAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND JUNE 30, 1995
Supplemental schedule of significant noncash transactions:
1996:
The Company issued 4,450,285 shares of its common stock in exchange
for the cancellation of $2,866,666 of its convertible debentures.
The Company issued 67,026 shares of its common stock for payment in
full for $61,870 of accrued liabilities.
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.
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<PAGE> 8
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 June 30, 1996 and the results
of operations for the six months ended June 30, 1996 and June 30, 1995.
The results of operations for the six month period ended June 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:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Note payable - bank $ 801,000 $ 716,000
Notes payable - Lion shareholders 318,031 331,634
Equipment notes payable 101,450 87,701
Other non-interest bearing note 250,000 250,000
------- -------
1,385,481 1,470,335
Less current maturities (1,035,623) (1,114,301)
------------ ------------
$ 349,858 $ 356,034
========== ==========
</TABLE>
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 $716,000.
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<PAGE> 9
QUADRAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
CONVERTIBLE DEBENTURES
In April 1996, the Company issued $1,666,666 of its Convertible Debentures
bearing interest at the rate of 8% per annum for net proceeds to the
Company of $1,536,666. The debentures are convertible at the option of the
holders on or after the forty-first day of issuance into a number of shares
of common stock that can be purchased for a price equal to seventy percent
of the average closing bid price of the common stock on the five trading
days immediately prior to the conversion date. At June 30, 1996, the
holders of the convertible debentures had converted $616,666 of the
debentures into 635,255 shares of common stock of the Company.
3. Shareholders Equity
The Company's capital shares are as follows:
Original Convertible Preferred Stock, $0.01 par value, -0- shares
authorized at June 30, 1996 and 1,172 shares authorized at December 31,
1995, 318 shares 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.
Series B Convertible Preferred Stock, $0.01 par value, 7,000 shares and -0-
shares authorized at June 30, 1996 and December 31, 1995, respectively, and
3,500 shares issued and outstanding at June 30, 1996. During the fiscal
quarter ended June 30,1996, the Company paid a dividend in kind of
Common Stock of $1,166,666 to the Series B Preferred Stock shareholders.
Common Stock, $.000009 par value, 90,000,000 shares authorized at June 30,
1996 and December 31, 1995, and 23,986,941 and 17,772,812 shares
outstanding at June 30, 1996 and December 31, 1995, respectively.
-9-
<PAGE> 10
4. Earnings Per Share
For the fiscal quarters ending June 30, 1996 and June 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.
5. Accounting Changes
Previously the Company accounted for the conversion of convertible
debentures, which are issued with conversion rights at a discount to
market, as sales of securities and treated the discount as a cost of
capital. The Company has restated its financial statements for the year
ended December 31, 1995 to reclassify the discount as interest and record
it as a cost of borrowing. The effect on income for the year ended
December 31, 1995 was $1,109,589 in additional interest expense.
-10-
<PAGE> 11
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 JUNE 30, 1996 AS COMPARED TO QUARTER
ENDED JUNE 30, 1995
The Company's net loss from operations for the quarter ended June 30, 1996
("1996 second quarter") of approximately $2,154,000 was approximately $723,000
greater than its net loss from operations of approximately $1,431,000 for the
quarter ended June 30, 1995, ("1995 second quarter"). The reason for this
increase is the higher interest cost the Company incurred during the 1996
second quarter.
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<PAGE> 12
Total revenue recognized during the 1996 second quarter was $899,265
compared to $1,234,786 in the 1995 second quarter, a decrease of $335,521. An
increase in sales of approximately $588,000 for the 1996 second 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 $942,000. 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
second quarter sales are primarily thermoplastic tape of approximately $45,000.
Interest income increased by approximately $15,000 in the three months
ended June 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 $44,000 in the 1996 second quarter.
The primary reason for this increase is that the Company's Lion Golf subsidiary
settled a product dispute with a competitor and received a lump-sum settlement
of $40,000 from that entity.
Cost of goods sold for the second quarter of 1996 of $836,223 decreased
approximately $207,000 in the three months ended June 30, 1996 vis-a-vis the
three months ended June 30, 1995. The reason for the decrease is the decline
in revenues during the 1996 second quarter as compared to the 1995 second
quarter, thereby, resulting in a lower dollar cost of goods sold.
Notwithstanding the decline in cost of goods sold in the 1996 second quarter
gross margins tightened in the 1996 second quarter because there was no
corresponding decline in fixed manufacturing costs during the 1996 second
quarter.
Research and development expenses were $39,044 in the 1996 second quarter,
which was $64,000 higher than in the 1995 second quarter. The reason for this
increase in the 1996 second quarter is that the Company was capitalizing
product development costs in the 1995 second quarter. These 1995 product
development costs were subsequently expensed in FYE December 31, 1995.
Selling, general and administrative expenses decreased by approximately
$203,000 to $1,219,438 in the three months ended June 30, 1996 over the
comparable period a year ago. The primary reasons for this decrease are
threefold: professional fees declined $55,000; travel and entertainment costs
decreased $92,000 and sales commissions were down $68,000.
Depreciation and amortization expense decreased by approximately $38,000 to
$182,228 in the second quarter of 1996. This decrease is due primarily to the
Company's write-off of the book value of the CMI machine in fiscal 1995.
Interest expense for the second quarter of 1996 increased by approximately
$772,000 to $776,000. This increase reflects the cash costs of the Company's
1996 subordinated debt, the financing costs associated with the financing
leases which the Company entered into during the past year, and the imputed
interest costs, approximately $714,000, relating to the discount that
convertible debenture investors received from the Company in private placement
transactions.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1995
The Company's net loss from operations for the six months ended June 30,
1996 ("1996 first half") of approximately $3,897,000 was approximately $979,000
more than its net loss from operations of
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<PAGE> 13
approximately $2,918,000 for the six months ended June 30, 1995 ("1995 first
half"). The increase 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 first
half. A second reason for the increased loss was the increase in interest
expense in the 1996 first half.
Total revenue recognized during the 1996 first half was $2,002,250 compared
to $2,318,424 in the 1995 first half. This decrease of approximately $316,000
from the 1995 first half resulted from the Company shipping approximately
$1,728,000 in product to its defense related customers in 1995, while in the
1996 first half, there were no defense related sales. The decline in defense
sales, was mostly offset by Lion Golf's sales of $1,448,000 in the 1996 first
half.
Interest income in the 1996 first half was approximately $31,000, an
increase of $22,000 from the 1995 first half. The reason for this increase was
the Company had a greater amount of money invested in interest bearing paper in
1996.
Other income increased approximately $44,000 in the 1996 first half. This
increase resulted primarily from Lion Golf's settlement of a product trademark
dispute with a competitor pursuant to which Lion Golf received a lump-sum
settlement of $40,000.
Costs of goods sold increased approximately $15,000 in the 1996 first half
to $1,772,662. 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 $259,000 in the 1996 first half, an
increase of $48,000 as compared to approximately $211,000 in the 1995 first
half. The reason for this increase is that the Company capitalized product
development costs in 1995, while in 1996, these costs were expensed as
incurred. The 1995 product development costs were subsequently expensed later
in FYE December 31, 1995.
Selling, general and administrative expenses decreased by approximately
$176,000 in the 1996 first half. The primary reasons for this decrease are
twofold: travel and entertainment decreased $68,000 in 1996 and professional
and consulting fees decreased $101,000.
Depreciation and amortization expense decreased by $53,000 to $370,000 in
the first half of 1996, primarily due to the amortization in 1995 of a
non-competition agreement with the Company's former chief executive officer in
the amount of $67,000. This write-off was completed in 1995.
Interest expense for the first half of 1996 was $840,000, while in 1995, it
was $9,000, an increase of approximately $831,000. This increase was caused by
the Company's payment of interest on Lion Golf's working capital line of credit
in 1996, interest paid on the Company's convertible debentures, and the imputed
interest cost of approximately $714,000 for the discount that convertible
debenture investors received from the Company in private placement transactions.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had total assets of $9,511,921 and
stockholders' equity of $5,572,044. Current assets were $5,501,023 and current
liabilities were $2,540,019 resulting in working capital of approximately $3
million which is an increase of approximately $1 million from December 31,
1995, when working capital was approximately $2 million. This increase in
working capital resulted from the Company's
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<PAGE> 14
sale of convertible debentures, $1,666,666, in April 1996 and Series B
Convertible Stock in June 1996 of $3,500,000.
Cash and cash equivalents decreased by approximately $281,000 from December
31, 1995. This decrease is due to the Company's use of approximately
$3,830,000 to fund its operations and the expenditure of approximately
$1,057,000 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 expenditures were offset by the Company's raising of additional
capital of approximately $4,600,000.
Accounts receivable decreased by approximately $181,000. The primary
reason for this decrease is that the Company collected its trade receivables
from its defense customers which were outstanding at December 31, 1995.
Inventories increased by approximately $424,000. This increase is due to
the build-up of product for the Company's consumer sales.
Other current assets increased by approximately $59,000 between June 30,
1996 and December 31, 1995. This increase was caused by the Company's renewal
of its general liability insurance policy as of June 30, 1996, and prepayment
of the premium.
Notes payable decreased by approximately $79,000. This reflects decreased
usage of the Company's line of credit with the Bank of the Cascades.
Accounts payable and accrued expenses decreased approximately $567,000 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 for as of December
31, 1995.
Notes payable to related parties decreased $300,000 to zero at June 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 decreased approximately $6,000 to about $349,858 at June 30,
1996. The reasons for this decrease are the payments the Company made on its
Advanced Materials Systems division financing leases, along with several
payments made on the subordinated debt of Lion Golf to the former Lion Golf
shareholders.
Convertible debentures decreased to $1,050,000 at June 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 six months ended June
30, 1996, along with the issuance of an additional $1,666,666 of convertible
debentures in April 1996.
In the first six months of fiscal 1996, capital expenditures were
approximately $1,050,000. These capital expenditures are an integral part of
the Company's program to construct a golf shaft manufacturing line and a
thermoplastic tape 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.
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<PAGE> 15
The Company generated revenues of approximately $2,000,000 in the first six
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 half of fiscal 1996, after giving effect to
the repayment of debt, totaled approximately $4,600,000 during the period ended
June 30, 1996.
The Company believes that funds provided by operations and cash on hand
(approximately $2,300,000 at June 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, if necessary, an additional $3,300,000 from the sale
of convertible debentures prior to the end of fiscal 1996.
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 the time in which the
Company's consumer product programs generate sufficient revenues.
The Company believes that it can achieve viability and profitability by
continuing to expand sales of golf and tennis 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. Sales of composite based lacrosse
sticks and continuing efforts to develop and market other consumer products,
will also contribute to its efforts.
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.
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<PAGE> 16
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 April 12, 1996, the
date of the Company's
Form 10-KSB for fiscal year ended December 31, 1995.
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<PAGE> 17
On July 2, 1996, the Company filed a Form 8-K dated
June 21, 1996 with respect to the dismissal
with prejudice of a defamation suit against
Quadrax by its former chairman, Pat Hayton.
On July 3, 1996, the Company filed a Form 8-K with
respect to its acquisition of certain assets of
Vega, U.S.A., ("Vega"), pursuant to the terms
of an Asset Purchase Agreement.
On July 31, 1996, the Company filed a Form 8-K with
respect to its press release announcing that it
had received an initial order from Cannondale
Corporation, the manufacturer of high
performance bicycles, for thermoplastic
composite handlebars.
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<PAGE> 18
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)
February 13, 1997 /s/ James J. Palermo
--------------------------- -------------------------------
(Date) James J. Palermo, Chairman and
Chief Executive Officer
February 13, 1997 /s/ Edward A. Stoltenberg
--------------------------- -------------------------------
(Date) Edward A. Stoltenberg, Senior Vice
President, and Chief Financial Officer
(Principal Accounting Officer)
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