U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2000
[ ] Transition Report Under to Section 13 or 15(d) of The Securities
Exchange Act of 1934
Commission File Number: 0-16052
QUADRAX CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 05-0420158
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
618 Main Street, West Warwick, Rhode Island 02893
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(Address of principal executive offices) (Zip Code)
(401) 821-1700
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during thepast 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
Check whether the issuer has filed all documents and reports required to be
filed by Section 12,13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No X
As of March 31,2000, there were outstanding 24,512,999 shares of Common Stock,
par value $.000009 per share.
1
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<TABLE>
<CAPTION>
Page
Part I - Financial Information
<S> <C>
Item 1 Condensed Financial Statements
Consolidated Balance Sheets at March 31, 2000, (Unaudited),
and at December 31, 1999 3-4
Consolidated Statements of Operations, (Unaudited),
for the three months ended March 31, 2000, and
March 31, 1999 5
Consolidated Statements of Cash Flows,(Unaudited),
for the three months ended March 31, 2000, and
March 31, 1999 6-7
Notes to Condensed Financial Statements (Unaudited) 8-11
Item 2 Management's Discussion and Analysis of Financial
Conditions and Resultsof Operations. 12-14
Part II - Other Information 15
Item 6 Exhibits and Reports on Form 8-K 16
Signature
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Quadrax Corporation
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
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Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5,625 $ 72,567
Accounts receivable, less allowances
of $129,518, at March 31, 2000 and
at December 31, 1999 3,018,950 2,256,486
Inventories 914,345 2,315,918
Attorney's escrow -0- 40,460
Unamortized loan premium 372,809 1,242,698
Other current assets 113,783 117,818
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TOTAL CURRENT ASSETS 4,425,512 6,045,947
Property, plant and equipment, net 2,214,140 2,319,941
Other assets 92,334 114,317
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TOTAL ASSETS$ 6,731,986 $8,480,205
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
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Quadrax Corporation
Consolidated Balance Sheets (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
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Current liabilities:
<S> <C> <C>
Accounts payable $ 2,943,803 2,705,493
Accrued expenses 815,902 608,835
Current portion of long term debt 4,578,520 3,222,052
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TOTAL CURRENT LIABILITIES 8,338,225 6,536,380
Long-term debt, less current portion 4,511,513 4,672,967
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TOTAL LIABILITIES 12,849,738 11,209,347
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Stockholders' equity:
Common stock 221 221
Additional paid-in capital 77,055,257 77,055,257
Retained earnings, deficit (81,446,681) (78,058,071)
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(4,391,203) (1,002,593)
Less: Treasury stock, at cost (1,726,549) (1,726,549)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (6,117,752) (2,729,142)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,731,986 $ 8,480,205
========== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Quadrax Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
--------------------------------------
2000 1999
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NET SALES $4,168,645 $3,531,308
COST OF GOODS SOLD 5,995,806 3,326,117
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Gross Profit (1,827,161) 205,191
OPERATING EXPENSES:
Selling, general and
administrative 1,367,946 563,583
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Income(Loss)
from operations (3,195,107) (358,392)
OTHER INCOME (EXPENSE):
Interest expense (188,665) (132,850)
Other income,(expense), net (4,838) 7,450
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NET(LOSS) ($3,388,610) ($ 483,792)
========= ==========
NET LOSS PER COMMON SHARE ($0.14) ($0.44)
========= =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 24,512,899 1,111,333 (1)
========== ==========
(1) (Restated to reflect 1 for 40 reverse stock split on November 5, 1999)
See accompanying notes to the consolidated financial statements.
<PAGE>
Quadrax Corporation
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
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Cash flows from operating activities:
<S> <C> <C>
Net loss ($ 3,388,610) ($ 483,792)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation & amortization of fixed assets 118,028 107,291
Amortization of intangibles 5,160 5,160
Amortization of loan premium 869,880 -0-
Increase (decrease) in cash resulting
from changes in:
Accounts receivable (762,464) (412,849)
Inventories (1,401,573) (291,630)
Attorney's escrow 40,460 -0-
Prepaid expenses and other 20,858 66,396
Accounts payable and accrued expenses 445,377 (420,462)
Reclassification of long-term debt 154,710 -0-
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Net cash used in operating activities (1,095,028) (1,429,886)
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Cash flows from investing activities:
Capital expenditures, net (12,227) (119,938)
Other intangible assets purchased -0- (38,434)
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Net cash provided by (used)
in investing activities (12,227) (158,372)
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Cash flows from financing activities:
Advances by private investor 470,000 585,000
Issuance of debt 4,287,610 3,975,000
Repayment of debt (3,717,297) (2,978,476)
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Net cash provided by financing activities 1,040,313 1,581,524
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Net increase (decrease) in cash
and cash equivalents (66,942) (6,734)
Cash and cash equivalents at
beginning of period 72,567 44,805
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Cash and cash equivalents
at end of period $ 5,625 $ 38,071
=========== ==========
Supplemental cash flow information:
Cash interest paid $ 123,487 $ 82,905
=========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
QUADRAX CORPORATION
Consolidated Statements of Cash Flows (continued)
for the Three Months Ended
March 31, 2000 and March 31, 1999
Supplemental schedule of significant noncash transactions:
2000:
None
1999:
None
<PAGE>
Quadrax Corporation
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Significant Accounting Policies.
The unaudited condensed financial statements presented herein have been prepared
in accordance with the instructions to Form 10-QSB and do not include all of the
information and note disclosures required by generally accepted accounting
principles. In the opinion of management, such condensed financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's financial position as of March 31,
2000 and the results of operations for the three months ended March 31, 2000 and
March 31, 1999. The results of operations for the three month period ended March
31, 2000 may not be indicative of the results that may be expected for the year
ending December 31, 2000. These Condensed Financial Statements should be read in
conjunction with the Condensed 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, 1999.
2. Debt
Note Payable - Revolver and Bank
The Company has entered into a $5,000,000 loan agreement with Congress Financial
Corporation, ("Congress"). The loan arrangement with Congress provides for a
three-year revolving credit facility of up to $3,550,000, a $950,000 fully
amortizing five-year term loan and an equipment financing facility of up to
$500,000, also based upon a five year fully amortizing repayment schedule. All
of such loans bear interest at a rate of prime plus 1.5%. The total amount due
Congress pursuant to this loan agreement was $4,578,520 and $3,729,802 as of
March 31, 2000 and December 31, 1999, respectively.
This Agreement is secured by substantially all of the Company's assets
including, but not limited to, inventory, receivables, and fixed assets. The
amount available under the revolving loan is limited by a formula based on
accounts receivable and inventory.
3. Liquidity
The Company acquired Victor Electric Wire and Cable, Inc. its operating entity,
in May 1997 and it has incurred significant losses since the acquisition and
expects to continue to incur losses in the year 2000. The Company is dependent
on revenues from operations and borrowings from its Private Investor Group for
working capital. The Company's working capital needs are being provided for by
ColeVic, LLC whose principals have a controlling interest in Quadrax
Corporation. As a result of this arrangement, the Company's new revenues are
being generated by ColeVic. ColeVic will also reimburse the Company for use of
any pre-existing inventory used in the manufacturing process. Currently, ColeVic
is compensating the Company for material and labor costs associated with the
generation of new revenues. The Company's revolving line of credit with its
primary lender, Congress, expired May 7, 2000. On May 9, 2000, Congress notified
the Company that it is in default of its loan agreement and elected to take the
following
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actions, without waiving its other rights and remedies: a) raising the interest
rate on the Company's loan to 4.5 % per annum in excess of the Prime Rate;
b)reducing the maximum credit to $4,000,000.00; and c) reducing the amount that
can be borrowed against inventory to a maximum of $1,000,000. Congress has a
first priority security interest in all the assets of the Company. Subsequent to
May 9, 2000, Congress ceased advancing money to the Company.
On August 16, 2000, Congress obtained an ex parte Equitable Attachment and
Temporary Restraining Order in Massachusetts Superior Court against the Company
seeking to prevent the Company from continuing to conduct business pursuant to
the terms of its arrangement with ColeVic, LLC (the "Temporary Orders").
Congress based its action, inter alia, on an allegation that the arrangement
with ColeVic, LLC illegally circumvented the Company's agreement that Congress
would have a first perfected security interest in the assets of the Company,
including its accounts receivable. On August 22, 2000, a Preliminary Injunction
hearing was held at which the Judge modified the Temporary Orders to allow the
Company and ColeVic to continue to operate and pay payroll and related employee
expenses, utility charges and vendors for material purchases for inventory. The
Company does not believe that the Court in this matter has jurisdiction to issue
the relief sought by Congress. In addition, the Company intends to defend this
matter vigorously on the merits. The Company continues to operate on the basis
on the Temporary Orders as modified. No preliminary injunction or other
definitive ruling has been issued in this matter.
A second factor which could affect the Company's operations in year 2000 is that
the Company and its landlord are involved in a dispute regarding certain rights,
privileges and obligations which if not resolved could cause the Company to be
evicted from its principal manufacturing premises.
Notwithstanding the above, during the first six months of 2000, the Company has
taken significant steps to increase its gross margins and reduce costs, the
Company has hired certain professionals including a new chief executive officer
to review all aspects of the Company's operations and to implement procedures in
order to achieve profitability. Gross margins on product sales have been
increased and costs have been reduced. However, based on current sales
commitments, the Company will still need additional funding in order to meet its
working capital needs through the year 2000. The Company will also need to
obtain new bank financing.
4. Stockholders' Equity
The Company's capital shares are as follows:
Class A Convertible Preferred Stock, $10.00 par value, 300,000 shares authorized
at March 31, 2000 and December 31, 1999, and -0- shares issued and outstanding
at March 31, 2000 and December 31, 1999.
Common Stock, $.000009 par value, 90,000,000 shares authorized March 31, 2000
and December 31, 1999, 24,540,170 shares were issued at March 31, 2000 and
December 31, 1999, respectively, and 24,512,899, shares were outstanding at
March 31, 2000 and December 31, 1999, respectively. The treasury shares of
25,271 account for the difference in the issued and outstanding shares.
<PAGE>
5. Earnings Per Share
For the fiscal periods ending March 31, 2000 and March 31, 1999, 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.
6. Bankruptcy Proceedings
On February 27, 1998 (the "Petition Date"), the Company filed a Voluntary
Petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court, District of Rhode Island. The Company's wholly owned subsidiaries Victor
and Victel were not party to the bankruptcy filing on the Petition Date.
Pursuant to the filing of the voluntary petition, the Company filed a petition
for financial reorganization in December 1998.
This Plan was approved by the United States Bankruptcy Court on October 21,
1999, with an effective date of November 5, 1999. On April 12, 2000, the Court
issued its final decree discharging the Company from Chapter 11 Bankruptcy
proceedings. The details of the Plan and its implementation are more fully
discussed in the Company's Form 10-KSB for the fiscal year ending December 31,
1999.
<PAGE>
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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-QSB 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.
Bankruptcy Filing
Since the Petition Date, the Company was operated as a Debtor-in-Possession
under Chapter 11 of the Bankruptcy Code. Accordingly, claims which were the
subject of pre-petition litigation were stayed and those claims together with
claims arising from pre-petition defaults and events of default caused by the
filing of the petition were resolved in the bankruptcy proceedings. The
bankruptcy case itself was resolved by a confirmation of a plan of
reorganization proposed by the Company and agreed to by its creditors and
confirmed by the United States Bankruptcy Court on October 21, 1999 with an
effective date of November 5, 1999. On April 12, 2000, the Court issued its
final decree discharging the Company from Chapter 11 Bankruptcy. proceedings.
(See Note 6. Bankruptcy Proceedings)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1999.
Total revenues recognized during the three months ended March 31, 2000
("2000 Period") were $4,169,000, an increase of $638,000 from revenues of
$3,531,000 for the three months ended March 31, 1999, ("1999 Period"). The
primary reason for this increase in sales is that one of the Company's larger
customers significantly increased its purchases in the 2000 period as compared
to the 1999 period.
Cost of goods sold for the 2000 period of $5,996,000 increased $2,670,000
from $3,326,000 for the three months ended March 31, 1999. The primary reason
for this increase in cost of sales is that the Company adjusted its inventory
values at March 31, 2000 for potential writedowns and obsolescence. These
inventory valuation adjustments were reflected by the Company as a cost of goods
sold.
Selling general and administrative expenses incurred in the three months
ended March 31, 2000 were $1,368,000 compared to $564,000 in the 1999 period, an
increase of $804,000. The primary reason for this increase is the amortization
of the loan premium of $870,000 relating to the value placed on the shares of
the Company's stock received by the Private Investor Group at the time of the
Bankruptcy reorganization in November 1999.
<PAGE>
Interest expense for the 2000 period of $189,000, increased $56,000 from
$133,000 for the 1999 period. The reasons for this increase are as follows: one,
the higher level of borrowings from Congress Financial; two, the increase in
advances from the Private Investor Group; and three, the increase in the prime
interest rate in the 2000 period compared to the 1999 period.
Other expense increased $12,000 in the 2000 period to $5,000 from income of
$7,000 in the 1999 period, an insignificant fluctuation.
The Company's net loss in the 2000 period of $3,389,000 increased
$2,905,000 as compared to the 1999 period, primarily for the reasons discussed
above.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had total assets of $6,731,986 and a
stockholders' deficit of $6,117,752. Current assets were $4,425,512 and current
liabilities were $8,338,225, resulting in a working capital deficit of
$3,912,000. The primary reasons for the working capital deficit are: one, the
current liabilities as of March 31, 2000 reflect all the monies due Congress
Financial as of that date, $4,578,520, which debt has been classified as a
current liability in that Congress Financial notified the Company on May 9, 2000
that the loan was in default and was due and payable in full; and two, the
inventory adjustment that the Company recorded in the 2000 period to reflect
potential inventory obsolescence and writedowns.
Cash and cash equivalents decreased by $67,000 from December 31, 1999 to
$6,000 at March 31, 2000, an insignificant fluctuation.
Accounts receivable increased by approximately $762,000, from December 1999
to $3,019,000 at March 31, 2000. The primary reason for this increase is the
delay in payments by two of the Company's customers: one, a domestic customer
and two, the Company's largest Mexican customer.
Inventories decreased by $1,402,000. The reason for this decrease is that
the Company adjusted the carrying value of its inventory at March 31, 2000 for
potential writedowns and obsolescence.
Attorney's escrow decreased by $40,000 to zero at March 31, 2000. The
reason for this decrease reflects the finalization of the Company's Chapter 11
Reorganization proceedings on April 12, 2000,
<PAGE>
and the payment of monies to creditors pursuant to the Company's Reorganization
Plan approved by the Bankruptcy Court in November 1999.
Unamortized loan premium decreased $870,000 to $373,000 at March 31, 2000.
The reason for this decrease reflects the amortization of the value placed on
the shares of the Company's stock received by the Private Investor Group at the
time of the Bankruptcy Reorganization in November 1999.
Other current assets decreased $4,000 in the 2000 period to $114,000 at
March 31, 2000, an insignificant fluctuation.
The current portion of long-term debt increased by $1,356,000 to $4,579,000
at March 31, 2000. The primary reason for this increase is the reclassification
of all monies due Congress Financial being shown as a current liability due to
the default notice received by the Company on May 9, 2000 calling the loans and
making them all due and payable.
Accounts payable and accrued expenses increased by $445,000 at March 31,
2000. The reason for this increase reflects the Company's higher level of
business in the 2000 period as compared to the 1999 period.
Long term debt, net of the current portion, decreased $161,000 in the 2000
period to $4,512,000 at March 31, 2000. The reason for this decrease is twofold:
one, the Private Investor Group advanced an additional $470,000 to the Company
in the 2000 period; and two, offsetting these advances was the reclassification
of all the long-term monies due Congress Financial Corporation, to being a
current liability as of March 31, 2000.
In the first three months of fiscal 2000, capital expenditures were
approximately $15,000, an insignificant amount.
The Company generated revenues of approximately $4,169,000 in the first
three months of fiscal 2000, and, as a result, operations were not a total
source of funds or liquidity for the Company. The Company continues to depend on
outside financing for the cash required to fund its operations.
The Company's working capital needs are being provided for by ColeVic, LLC
whose principals have a controlling interest in Quadrax Corporation. As a result
of this arrangement, the Company's new revenues are being generated by ColeVic.
ColeVic will also reimburse the Company for use of any pre-existing inventory
used in the manufacturing process. Currently, ColeVic is compensating the
Company for material and labor costs associated with the generation of new
revenues. Net funds provided by financing activities in the first three months
of fiscal 2000, after giving effect to the repayment of debt, totaled
approximately $1,040,000, as compared to $1,582,000 during the three months
ended March 31, 1999.
The Company's revolving line of credit with the Primary Lender matured May
7, 2000. On May 9, 2000, the Company's Primary Lender notified the Company that
it was in default on its loan agreement and elected to take the following
actions, without waiving its other rights and remedies: a) raising the interest
rate on the Company's loan to 4.5% per annum in excess of the Prime Rate; b)
reducing the maximum credit to $4,000,000.00; and c) reducing the
<PAGE>
amount that can be borrowed against inventory to a maximum of $1,000,000. The
Primary Lender has a first priority security interest in all the assets of the
Company. Subsequent to May 9, 2000, the Company's Primary Lender ceased
advancing money to the Company.
On August 16, 2000, Congress obtained an ex parte Equitable Attachment and
Temporary Restraining Order in Massachusetts Superior Court against the Company
seeking to prevent the Company from continuing to conduct business pursuant to
the terms of its arrangement with ColeVic, LLC (the "Temporary Orders").
Congress based its action, inter alia, on an allegation that the arrangement
with ColeVic, LLC illegally circumvented the Company's agreement that Congress
would have a first perfected security interest in the assets of the Company,
including its accounts receivable. On August 22, 2000, a Preliminary Injunction
hearing was held at which the Judge modified the Temporary Orders to allow the
Company and ColeVic to continue to operate and pay payroll and related employee
expenses, utility charges and vendors for material purchases for inventory. The
Company does not believe that the Court in this matter has jurisdiction to issue
the relief sought by Congress. In addition, the Company intends to defend this
matter vigorously on the merits. The Company continues to operate on the basis
on the Temporary Orders as modified. No preliminary injunction or other
definitive ruling has been issued in this matter.
A second factor which could affect the Company's operations in year 2000 is
that the Company and its landlord are involved in a dispute regarding certain
rights, privileges and obligations which if not resolved could cause the Company
to be evicted from its principal manufacturing premises.
Notwithstanding the above, the Company during the first six months of 2000
has taken significant steps to increase its gross margins and reduce costs. The
Company has hired certain professionals to review all aspects of the Company's
operations and to implement procedures in order to achieve profitability. Gross
margins on product sales have been increased and costs have been reduced. On
August 31, 2000, the Company began to move some of its wire and cable equipment
to a manufacturing facility in El Paso, Texas. This step is the first in a
larger initiative to out source certain of the Company's manufacturing
functions. It is expected that in several months, the Company will be producing
all of its PVC products in El Paso.
However, based on current sales commitments, the Company will still need
additional funding in order to meet its working capital needs through the year
2000. The Company will also need to obtain new bank financing.
At this time, 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.
<PAGE>
QUADRAX CORPORATION
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
As of May 9, 2000, Quadrax was notified that it was in default on its
Congress debt. On August 16, 2000, Congress Financial demanded that all monies
due as of August 15, 2000, $1,616,928, be paid immediately. The amount of the
Congress debt outstanding at March 31, 2000 was approximately $4,578,520.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
Exhibit 27. Financial Data Schedule
<PAGE>
QUADRAX CORPORATION
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QUADRAX CORPORATION
By: /s/ Thomas V. Desmond
---------------------
Thomas V. Desmond
President and Chief Executive Officer
(Principal Executive Officer)
Dated: September 1, 2000
