All,
I have put together notes taken at yesterday's meeting. I don't guarantee accuracy as I was trying to listen, understand, and jot down notes at the same time.
I went to the meeting expecting a dog and pony show, complete with cheerleaders. I expected a lot of touchy/feely, stroking the shareholders to make them feel good. Give them a warm fuzzy feeling. I expected Palermo to be rather unimpressive and doing his best to sell us on the products and his leadership.
I was wrong on all accounts.
The meeting was informative, as you can see by my notes. However, I think the lasting thing that I will take from the meeting is Palermo himself. Don't get me wrong, he's not about to set the world on fire with charisma, wit, and charm. But he is honest, frank, open, and unpretentious. He is also informed. He takes complete responsibility for his decisions, not finding someone else to blame. He feels the wrath of the unhappy shareholders. He has a vision. He obviously works hard and knows his company. He is also resourceful and seems to know how to delegate responsibility.
My impression is that there may be some more blood-letting before the year is out, some shareholder dilution, and maybe the market will take the price of QDRX down. But I plan to hold. There is great upside potential here.
Here are my notes:
Quadrax shareholder meeting notes
Place: Carlsbad, CA Date: 6/25/97
James Palermo, CEO, conducted a discussion with shareholders regarding the status of the corporation.
The following are notes taken in no particular order.
1. There may be additional shares issued this year. Palermo is working on getting additional financing for Quadrax. He described a plan which he hopes to offer to the shareholders to prevent having to issue new shares.
2. Current number of shares outstanding is 39 million.
3. The corporation is on the verge of profitability. He called this the final transition year, expecting profitability next year. Maybe profits shown in the last two months of this year.
4. The golf shaft agreement with the major OEM includes a provision that Quadrax cannot release their name. Quadrax is calling on all OEM's.
5. The suit with Vega is in the hands of the jury. If the machine is to be returned, it will be minimal loss to Quadrax because a new machine is due in 3months, and is 30% faster than the current machine.
6. Brad Park is selling more sticks than they can produce. Sticks are sold out for the rest of the year.
7. There will be 50 NHL players using the thermoplastic sticks next season. Gretsky is using the sticks now and has yet to break one.
8. They are making both low end (thermoset) and high end (thermoplastic) sticks. Numbers that I wrote down are 450 sticks/day low end and 20,000 (per month) high end at $10-12 per stick.
9. Current production of shafts is 1000's per week.
10. The capacity of the California plant is 1000's shafts per day . Later it was quoted at 30,000 per month.
11. Palermo gave a figure of $3.5M as breakeven for shafts.
12. The market for composite shafts is currently 30M per year, $320M.
13. Calloway has approved the Quadrax shafted clubs for use by its pros.
14. For the remainder of the year, Victor is expected to yield $12M in sales and post a profit of $0.8M. Victor has a line of credit of $5M by Congress Financial Bank (?). Victor is expected to produce $1M per year profit. Palermo said that Victor is worth 5-6 times the $750K Quadrax paid for it.
15. Palermo will decide in the next 10 weeks whether he needs to sell more shares.
16. They expect that by 1st quarter `98 they will have to double the shaft capacity. This will require more capital.
17. Wimbleton was costing $600K per year. They weren't promoting the product and sent Quadrax a bill for royalties. Quadrax elected to exit the tennis racket business for now.
18. Quadrax has a sales force of 22 in the U.S. and Canada.
19. Shafts for irons will be available in 1-2 months unless Palermo decides to postpone rollout due to cash flow and growth rate considerations.
20. New and current shafts were passed around. VERY IMPRESSIVE!
21. Shareholder meetings are being held due to requests by shareholders and brokers.
22. The following table showing market goals was presented:
Product Units (M) Value($M) Share(%)
Hockey sticks 15M 150 6
Lacrosse sticks .4M 12 10
Wheels 5M 100 10
Bars .4M 8 10
Shafts 60M 400 3.5
Snowboards .5M 45 10
Palermo indicated that Victor market share should also increase. The figure for Victor was included here but I must have copied it down incorrectly.
23. Quadrax is not doing more adverising because they don't have the $$ to do more advertising.
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