SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1996...Commission File Number 1-155
THE LEHIGH GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-1920670
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
810 Seventh Avenue, New York, NY 10019
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 333-2620
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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 and 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 July 31, 1996
- ----------------------- -----------------------------
Common Stock, par value 10,339,250 shares
$.001 per share
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
INDEX Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and 1995
and Six Months Ended June 30, 1996 and 1995 1
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 2-3
Consolidated Statements of Changes in
Shareholders' Equity (Deficit) - Six Months
Ended June 30, 1996 4
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Part II. OTHER INFORMATION
Item 1. Legal Proceeding 9
Item 3. Defaults upon Senior Securities 9
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I - FINANCIAL INFORMATION
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 2,868 $ 3,070 $ 5,988 $ 5,592
Cost of Sales 1,998 2,144 4,201 3,850
------- ------- ------- ------
Gross profit 870 926 1,787 1,742
Selling, general and administrative expenses 970 1,060 1,969 2,154
------- -------- ------- ------
Operating loss (100) (134) (182) (412)
Other income (expense):
Interest expense (113) (108) (220) (215)
Interest and other income 4 5 7 24
------- ------- ------ ------
(109) (103) (213) (191)
Loss from continuing operations
before income taxes (209) (237) (395) (603)
Income taxes 0 0 1 2
------- ------- ------ ------
Net loss (209) (237) (396) (605)
======= ======= ======= ========
Net loss per common share
From continuing operations before extraordinary item $ (.02) $ (.02) $ (.04) $ (.06)
Net loss per common share $ (.02) $ (.02) $ (.04) $ (.06)
======= ====== ====== ======
Weighted average number of common shares
and share equivalents outstanding
Primary and Fully diluted 10,339 10,339 10,339 10,339
====== ====== ====== ======
</TABLE>
1
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1996 1995
----------- ----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 453 $ 347
Accounts receivable, net of allowance
for doubtful account of $170 and $275 4,469 4,335
Inventories, net 1,593 1,823
Prepaid expenses and other current assets 50 22
-------- ------
Total current assets 6,565 6,527
Property, plant and equipment, net of
accumulated depreciation and
amortization 53 61
Other assets 35 34
Total assets $ 6,653 $ 6,622
=========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
2
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 503 $ 510
Notes payable-bank 360 360
Accounts payable 1,998 1,839
Accrued expenses and other liabilities 1,536 1,381
Income taxes payable -- --
----------- ---------
Total current liabilities 4,397 4,090
----------- ---------
Long-term debt, net of current maturities 2,200 2,080
Deferred credit applicable to sale of
discontinued operations 250 250
Commitments and contingencies -- --
----------- ----------
Preferred stock, par value $.001; authorized
5,000,000 shares none issued
Common stock, par value $.001 authorized shares 100,000,000 shares issued
10,339,250 in 1995 and 1994; which excludes 3,016,249 shares held as
treasury stock in 1995 and 1994, 11 11
Additional paid-in capital 106,594 106,594
Accumulated deficit from January 1, 1986 (105,145) (104,749)
Treasury stock - at cost (1,654) (1,654)
---------- -----------
Total shareholders' equity (deficit) (194) 202
---------- ----------
Total liabilities and shareholders' equity (deficit) $ 6,653 $ 6,622
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Additional Accumulated Treasury
Common Paid In Deficit From Stock
Stock Capital Jan. 1, 1986 At Cost Total
------ ---------- ------------ -------- -----
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 $ 11 $106,594 $(104,441) $(1,654) $ 510
Net loss (605) (605)
--------- ---------- ---------- ---------- -------
Balance June 30, 1995 $ 11 $106,594 $(105,046) $(1,654) $ (95)
======== ========= ========== ========= ========
Additional Accumulated Treasury
Common Paid In Deficit From Stock
Stock Capital Jan. 1, 1986 At Cost Total
------ ---------- ------------ -------- -----
Balance January 1, 1996 $ 11 $106,594 $104,749 $(1,654) $ 202
Net loss (396) (396)
-------- -------- ---------- --------- ------
Balance June 30, 1996 $ 11 $106,594 $(105,145) $(1,654) $(194)
======== ========= ========== ========= ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
4
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (396) $ (605)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 18 32
Changes in assets and liabilities:
Accounts Receivable (134) 544
Inventories-net 230 (78)
Prepaid and other current assets (28) (10)
Other assets - -
Accounts payable 159 (18)
Accrued expenses 155 (64)
--------- ---------
Net cash used in investing activities 4 (199)
--------- ---------
Cash flows from investing activities:
Capital expenditures - -
Net cash provided by (used in) investing activities (11) (16)
--------- ---------
Cash flows from financing activities:
Net payments under bank debt (180) (180)
Repayment of Capital leases (7) (10)
Subordinated Debenture 300 0
--------- ---------
Net cash provided by (used in) financing activities 113 (190)
--------- ---------
Net changes in cash 106 (405)
Cash at beginning of period 347 925
--------- ---------
Cash at end of period $ 453 $ 520
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
The financial information for the three months and six months ended June
30, 1996 and 1995 is unaudited. However, the information reflects all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for the fair statement of results for the
interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's December 31, 1995 Report on Form 10-K.
The results of operations for the six month period ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
Loss per common share is calculated by dividing net loss by the weighted
average number of common shares and share equivalents outstanding during each
period. For the periods presented, there were no common stock equivalents
included in the calculation, since they would be anti-dilutive.
2. Supplementary Schedule
1996 1995
---- ----
(in thousands)
Statement of cash flows
Six months ended June 30,
Cash paid during the six months for:
Interest $ 134 $ 141
Income taxes 1 2
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Second Quarter of 1996 in Comparison
with Second Quarter of 1995
Revenues for the second quarter of 1996 were $2.9 million, a decrease of
$200,000 or 6.58% compared to the second quarter of 1995. Most of the decrease
in sales occurred in the export operation due in part to the departure of
certain clients of HallMark that left when there was a change in the sales force
and a change in market conditions that resulted when certain clients of HallMark
decided to purchase supplies directly from the manufacturers instead of through
HallMark. In June, 1996, the person in charge of HallMark's export operation in
Miami and another employee were terminated. HallMark does not presently intend
to hire replacements for the two employees that were terminated and is currently
analyzing whether it will close the Miami export operation. Since the export
operation had a net loss of approximately $87,000 for the first half of 1996 and
the domestic operation had a net profit of $92,000 management does not believe
the closure of the Miami export operation will have a material adverse effect on
the Company. HallMark may continue its export operation from its home office in
New York.
Gross profit as a percentage of sales increased slightly from 30.16% in
the second quarter of 1995, to 30.33% in the second quarter of 1996.
Selling, general and administrative expenses decreased by approximately
$90,000 or 8.49% in the second quarter of 1996 as compared to the second quarter
of 1995. The decrease was primarily due to a reduction in fees associated with
consulting, legal and accounting due diligence.
The factors discussed above resulted in an operating loss in the second
quarter of 1996 of $100,000 as compared to an operating loss of $134,000 in the
second quarter of 1995.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Results of Operations
First Half of 1996 in Comparison
with First Half of 1995
Revenues earned for the first half of 1996 were approximately $6,000,000
an increase of approximately $400,000 compared to the first half of 1995. This
increase in revenues was due largely to an increase in domestic sales although
there was also an increase in export sales as well. In June, 1996, the person in
charge of HallMark's export operation in Miami and another employee were
terminated. HallMark does not presently intend to hire replacements for the two
employees that were terminated and is currently analyzing
7
<PAGE>
whether it will close the Miami export operation. Since the export operation had
a net loss of approximately $87,000 for the first half of 1996 and the domestic
operation had a net profit of $92,000 management does not believe the closure of
the Miami export operation will have a material adverse effect on the Company.
HallMark may continue its export operation from its home office in New York.
Selling, general and administrative expenses decreased by $185,000 or 9%
in the first half of 1996 as compared to the first half of 1995. This decrease
was due in part to a reduction in consulting, accounting and legal fees.
The factors discussed above resulted in an operating loss of $182,000 for
the first half of 1996, as compared to an operating loss of $412,000 for the
first half of 1995.
Liquidity and Capital Resources
At June 30, 1996, the Company had working capital of approximately $2.2
million (including cash and cash equivalents of $453,000), compared to working
capital of $2.4 million at December 31, 1995.
On June 11, 1996, the Company and DHB Capital Group Inc. ("DHB") executed
a letter of intent providing for the merger of DHB with a subsidiary of the
Company (which resulted in the execution of a definitive merger agreement on
July 8, 1996). Concurrent with the execution of the letter of intent, DHB made a
loan to the Company in the amount of $300,000 pursuant to the terms of a
Debenture. The Debenture includes interest at the rate of two percent (2%) per
annum over the prime lending rate of Chase Manhattan Bank, N.A., payable
monthly, commencing on the 1st day of each subsequent month next ensuing through
and including June 1, 1998 when the entire principal balance plus all accrued
interest is due and payable.
The proceeds of the loan from DHB were used to satisfy the loan the
Company previously obtained from Macrocom Investors, LLC on March 28, 1996.
The Company continues to be in default in the payment of interest
(approximately $721,000 interest is past due as of June 30, 1996) on $500,000
principal amount of 13- 1/2% Senior Subordinated Notes ("13-1/2% Notes") and
14-7/8% Subordinated Debentures ("14-7/8 Debentures").
HallMark has an installment loan which requires monthly principal
payments, with the final principal payment due on January 31, 1999. The unpaid
principal loan balance at June 30, 1996 was $2.2 million.
On April 10, 1995 a judgement was entered against the Company for $260,969
plus interest and legal fees (see "Item 1. Legal proceedings").
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 10, 1995 a judgment was entered in Kennebec County, Maine against
the Company and Dori Shoe Company (a former indirect subsidiary) in the amount
of $260,969, plus interest and legal fees.
The State of Maine and Bureau of Labor Standards commenced an action in
Maine Superior Court on or about November 29, 1990 against the Company and Dori
Shoe Company (an indirect former subsidiary) to recover severance pay under
Maine's plant closing law. The case was tried without a jury in December 1994.
Under that law, an "employer" who shuts down a large factory is liable to the
employees for severance pay at the rate of one week's pay for each year of
employment. Although the law did not apply to the Company when the Dori Shoe
plant was closed it was amended so as to arguably apply to the Company
retroactively. In a prior case brought against the Company (then known as Lehigh
Valley Industries) and its former subsidiary under the Maine severance pay
statute prior to its amendment, the Company was successful against the State of
Maine (see Curtis v. Loree Footwear and Lehigh Valley Industries, 516 A. 2d (Me.
1986)).
The Company's counsel in Maine believe that the application of Maine's
amended severance pay statute is unconstitutional under both the Maine and
United States constitutions. The Company has appealed the judgment to the
Supreme Judicial Court of Maine. While the Company believes it has a strong
defense, the outcome of this appeal cannot presently be determined.
Item 3. Defaults Upon Senior Securities
The Company continues to be in default in the payment of interest
(approximately $721,000 interest is past due as of June 30, 1996) on $500,000
principal amount of 13-1/2% Notes and 14-7/8 Debentures.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
9
<PAGE>
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.
THE LEHIGH GROUP INC.
By: /s/Salvatore J. Zizza
-----------------------
Salvatore J. Zizza
Chairman of the Board,
President, and
Chief Executive Officer
Dated: August 7, 1996
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-Q FOR THE QUARTER ENDED JUNE
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> $ 453
<SECURITIES> 0
<RECEIVABLES> 4,639
<ALLOWANCES> 170
<INVENTORY> 1,593
<CURRENT-ASSETS> 6,565
<PP&E> 770
<DEPRECIATION> (717)
<TOTAL-ASSETS> 6,653
<CURRENT-LIABILITIES> 4,397
<BONDS> 0
0
0
<COMMON> 10,339
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,653
<SALES> 0
<TOTAL-REVENUES> 5,988
<CGS> 4,201
<TOTAL-COSTS> 1,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (395)
<INCOME-TAX> 1
<INCOME-CONTINUING> (396)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (396)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
