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 June 30, 2000
[ ] Transition Report Under to Section 13 or 15(d) of The Securities
Exchange Act of 1934
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)
618 Main Street, West Warwick, Rhode Island 02893
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(401) 821-1700
----------------------------------------------------
(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 the past 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 June 30, 2000, there were outstanding 24,512,899 shares of Common Stock,
par value $.000009 per share.
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Page
Part I -Financial Information
Item 1 Condensed Financial Statements
Consolidated Balance Sheets at June 30, 2000, (Unaudited),
and at December 31, 1999 3-4
Consolidated Statements of Operations, (Unaudited),
for the six months ended June 30, 2000, and
June 30, 1999 5
Consolidated Statements of Cash Flows,(Unaudited),
for the six months ended June 30, 2000, and
June 30, 1999 6-7
Notes to Condensed Financial Statements (Unaudited) 8-11
Item 2 Management's Discussion and Analysis of Financial
Conditions and Results of 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)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ---------
Current assets
<S> <C> <C>
Cash and cash equivalents $ 59,547 $ 72,567
Accounts receivable, less allowances
of $329,518, at June 30, 2000 and
at December 31, 1999 1,430,759 2,256,486
Inventories 443,745 2,315,918
Attorney's escrow -0- 40,460
Unamortized loan premium -0- 1,242,698
Other current assets 137,038 117,818
--------- ---------
TOTAL CURRENT ASSETS 2,071,089 6,045,947
Property, plant and equipment, net 1,976,214 2,319,941
Other assets 54,641 114,317
---------- ----------
TOTAL ASSETS $4,101,944 $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>
JUNE 30, December 31,
2000 1999
--------- ---------
Current liabilities:
<S> <C> <C>
Accounts payable $ 3,265,989 2,705,493
Accrued expenses 822,216 608,835
Current portion of long term debt 2,643,413 3,222,052
--------- ---------
TOTAL CURRENT LIABILITIES 6,731,618 6,536,380
Long-term debt, less current portion 4,204,699 4,672,967
--------- ---------
TOTAL LIABILITIES 10,936,317 11,209,347
--------- ---------
Stockholders' equity:
Common stock 221 221
Additional paid-in capital 77,055,257 77,055,257
Retained earnings, deficit (82,163,302) (78,058,071)
--------- ----------
(5,107,824) (1,002,593)
Less: Treasury stock, at cost (1,726,549) (1,726,549)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (6,834,373) (2,729,142)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,101,944 $ 8,480,205
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
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Quadrax Corporation
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -----------------------------
2000 1999 2000 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $2,840,285 $3,547,330 $7,008,930 $ 7,078,638
COST OF GOODS SOLD 2,272,228 3,243,789 8,268,034 6,569,906
---------- ---------- ---------- -----------
Gross Profit 568,057 303,541 (1,259,104) 508,732
OPERATING EXPENSES:
Selling, general and
administrative 679,848 479,440 1,550,714 1,043,023
---------- ---------- ---------- -----------
Income(Loss)
from operations (111,791) (175,899) (2,809,818) (534,291)
OTHER INCOME (EXPENSE):
Interest expense (231,269) (138,249) (419,934) (271,099)
Other, net ( 752) (21,802) (5,590) (14,352)
Loan premium discount (372,809) -0- (869,889) -0-
---------- ---------- ---------- -----------
Income(Loss)
Continuing Operations ($716,621) ($ 335,950) ($4,105,231) (819,742)
Loss From
Discontinued Operations -0- -0-
---------- ---------- ---------- -----------
NET INCOME(LOSS) ($716,621) ($ 335,950) ($4,105,231) ($819,742)
========== ========== ========== ===========
NET LOSS PER COMMON SHARE ($0.03) ($0.01) ($0.17) ($0.02)
========== ========== ========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 24,512,899 44,453,334 24,512,899 44,453,334
========== ========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
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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, 2000 June 30, 1999
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net loss ($4,105,231) ($ 819,742)
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation & amortization of fixed assets 942,367 236,921
Amortization of intangibles 1,242,698 10,320
Increase (decrease) in cash resulting from changes in:
Accounts receivable 825,727 (200,810)
Inventories (1,872,173) (316,603)
Prepaid expenses and other 80,915 186,398
Accounts payable and accrued expenses 773,877 (639,369)
---------- ----------
Net cash used in operating activities 1,632,526 (1,542,885)
---------- ----------
Cash flows from investing activities:
Capital expenditures, net -0- (119,938)
Other intangible assets purchased -0- (34,940)
---------- ----------
Net cash used in investing activities -0- (154,878)
---------- ----------
Cash flows from financing activities:
Advances by private investor -0- 1,035,000
Issuance of debt -0- 7,778,600
Repayment of debt (1,645,546) (7,123,163)
---------- ----------
Net cash provided by financing activities (1,645,546) 1,690,437
---------- ----------
Net increase (decrease) in cash
and cash equivalents (13,020) (7,326)
Cash and cash equivalents at
beginning of period 72,567 44,805
---------- ----------
Cash and cash equivalents
at end of period $ 59,547 $ 37,479
=========== ==========
Supplemental cash flow information:
Cash interest paid $ 246,000 $ 166,357
=========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements
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QUADRAX CORPORATION
Consolidated Statements of Cash Flows (continued)
for the Six Months Ended
June 30, 2000 and June 30, 1999
Supplemental schedule of significant noncash transactions:
2000:
None
1999:
None
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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 June 30, 2000
and the results of operations for the six months ended June 30, 2000 and June
30, 1999. The results of operations for the six months ended June 30, 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 $2,799,413 and $3,729,802 as of
June 30, 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 Financial Corp. expired May 7, 2000. On May 9, 2000,
Congress notified the Company that it is in default of its loan agreement and
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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 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
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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 June 30, 2000 and December 31, 1999, and -0-shares issued and outstanding at
June 30, 2000 and December 31, 1999.
Common Stock, $.000009 par value, 90,000,000 shares authorized June 30, 2000 and
December 31, 1999, 24,540,170 shares were issued at June 30, 2000 and December
31, 1999, respectively, and 24,512,899, shares were outstanding at June 30, 2000
and December 31, 1999, respectively. The treasury shares of 25,271 account for
the difference in the issued and outstanding shares.
5. Earnings Per Share
For the fiscal periods ending June 30, 2000 and June 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.
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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 JUNE 30, 2000 AS COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1999
Total revenues recognized during the three months ended June 30, 2000
("2000 Period") were $2,840,285 a decline of $707,045 from revenues of
$3,547,330, for the three months ended June 30, 1999, ("1999 Period"). This
decrease in sales is due to the Company's lack of working capital to purchase
raw materials.
Cost of goods sold for the 2000 Period of $2,272,228 decreased $971,561
compared to the 1999 Period from $3,243,789. The reason for this decrease is
reflective of the change in the Company's product mix and the decrease in
revenues.
Selling general and administrative expenses incurred in the 2000 Period
were $679,848 compared to $479,440 in the 1999 Period, an increase of $200,408.
The reason for this increase is that the
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Company incurred additional legal and consulting fees during this period.
Interest expense for the 2000 period of $231,269 was an increase of
$93,020 over the 1999 Period of $138,249. The primary reason for this increase
is the advances made by the private investor group to the Company during the
2000 Period.
Other income decreased $21,050 in the 2000 period to $752 from $21,802
in the 1999 Period, this decrease is a result of no assets being disposed of or
other sources of income being generated.
The Company's net loss in the 2000 Period of $716,621 increased
$380,671 as compared to the 1999 Period loss of $335,950, primarily for the
reasons discussed above.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO SIX
MONTHS ENDED JUNE 30, 1999
Total revenues recognized during the six months ending June 30, 2000
("2000 Period") were $7,008,930, a decline of $69,708 from revenues of
$7,078,638 for the 1999 Period. This decrease in sales is primarily attributable
to the Company's lack of working capital to purchase raw materials during the
three months ended June 30, 2000.
The cost of goods sold for the 2000 Period was $8,268,034, which
represented 1.17% of sales. The cost of goods sold for the 1999 Period was
$6,569,096 which represented.93% of sales. The primary reason for this increase
in cost of goods sold reflects an adjustment to the inventory values at March
31, 2000 for potential writedowns and obsolescence.
Selling, general and administrative expenses ("SG&A") increased by
$507,691 in the 2000 Period to $1,550,714, compared to $1,043,023 in the 1999
Period. The primary reason for this increase is the additional legal and
consulting costs during this period.
Interest expense increased $148,835 to $419,934 in the 2000 Period from
$271,099 in the 1999 Period. The reasons for this increase are: one, the funds
loaned to the Company by the private investor group; and two, an increase in the
revolving line of credit during the first quarter of 2000.
The Company's net loss in the 2000 Period of $4,105,231 increased by
$3,285,489, as compared to the 1999 Period loss of $819,742, primarily for the
reasons discussed above.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30 2000, the Company had total assets of $4,101,944 and a
stockholders' deficit of $6,834,373. Current assets were $2,071,089 and current
liabilities were $6,731,618 resulting in a working capital deficit of
$4,660,529. The primary reasons for the working capital deficit are: one, the
current liabilities as of June 30, 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.
Accounts receivable decreased by approximately $825,727, from December
1999 to $1,430,759 at June 30, 2000. The primary reason for this decrease is the
collection of large overdue balances in the second quarter of 2000.
The inventory decrease of $1,872,173, reflects an adjustment to the
carrying value of its inventory at June 30, 2000 for potential writedowns and
obsolescence
Attorney's escrow decreased by $40,460 to zero at June 30, 2000, as a
result of the finalization of the Company's Chapter 11 Reorganization
proceedings on April 12, 2000, 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 $1,242,698 to zero at June 30, 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.
The current portion of long-term debt decreased by $578,639 to
$2,643,413 at June 30, 2000. This decrease reflects a more aggressive accounts
receivable collection and fewer advances from the Company's primary lender.
Accounts payable and accrued expenses increased by $773,877 at June 30,
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 $468,268 in the
2000 period to $4,204,699 at June 30, 2000. The reason for this decrease is
twofold: one, the Private Investor Group advanced
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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.
The Company generated revenues of approximately $7,008,930 in the first
six 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.
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 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.
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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 the next 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.
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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 June 30, 2000 was approximately $2,799,413.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
Exhibit 27. Financial Data Schedule
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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
Chief Executive Officer
(Principal Executive Officer)
Dated: September 1, 2000
17
