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 March 31, 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 May 1, 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 March 31, 1996 and 1995 1
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 2-3
Consolidated Statement of Changes in
Shareholder Equity
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 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 Proceedings 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 March 31, 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Revenues earned $ 3,120 $ 2,522
Cost of revenues earned 2,203 1,706
--------- ---------
Gross profit 917 816
Selling, general and administrative expenses 994 1,093
--------- ---------
Operating loss (77) (277)
Other income (expense):
Interest expense (107) (107)
Interest and other income 3 19
---------- ---------
(104) (88)
Loss before income taxes (181) (365)
Income taxes -- 2
----------- ---------
Net Loss $ (181) $ (367)
========= =========
Loss per share-Primary and Fully Diluted
Net Loss $ (0.02) $ (0.04)
Weighted average Common Shares
and share equivalents outstanding
Primary and Fully diluted 10,339,250 10,339,250
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
1
<PAGE>
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
1996 1995
---- ----
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 518 $ 347
Accounts receivable, net of
allowance for doubtful
accounts of $174 and $275 4,350 4,335
Inventories, net 1,802 1,823
Prepaid expenses and other current assets 43 22
----------- ---------
Total current assets 6,713 6,527
Property, plant and equipment, net of
accumulated depreciation and
amortization 50 61
Other assets 35 34
----------- ----------
Total assets $ 6,798 $ 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>
March 31, December 31,
1996 1995
---- ----
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 506 $ 510
Notes payable-banks 360 360
Accounts payable 1,916 1,839
Accrued expenses and other liabilities 1,455 1,381
---------- ---------
Total current liabilities 4,237 4,090
---------- ---------
Long-term debt, net of current maturities 2,290 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 (104,930) (104,749)
Treasury stock - at cost (1,654) (1,654)
----------- -----------
Total shareholders' equity 21 202
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,798 $ 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
(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 (367) (367)
Balance March 31, 1995 $ 11 $106,594 $(104,808) $ (1,654) $ 143
======== ======== ========== ========= =======
Balance January 1, 1996 $ 11 $106,594 $(104,749) $ (1,654) $ 202
Net loss (181) (181)
======== ======== ========== ========= =======
Balance March 31, 1996 $ 11 $106,594 $(104,930) $ (1,654) $ 21
======== ======== ========== ========= =======
</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>
Three Months Ended March 31, 1996 1995
- ------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income loss $ (181) $ (367)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 11 15
Changes in assets and liabilities:
Accounts Receivable (15) 537
Inventories-net 21 (93)
Prepaid and other current assets (21) (50)
Other assets (1) (1)
Accounts payable 77 (269)
Accrued expenses 74 (15)
--------- ---------
Net cash used in investing activities (35) (243)
--------- --------
Cash flows from investing activities:
Capital expenditures - (2)
Net cash provided by (used in) investing activities (1) (3)
--------- ---------
Cash flows from financing activities:
Net payments under bank debt (90) (90)
Repayment of Capital leases (4) (5)
Subordinated Debenture 300 -
--------- ---------
Net cash provided by (used in) financing activities 206 (95)
--------- ---------
Net changes in cash 171 (340)
Cash at beginning of period 347 925
--------- ---------
Cash at end of period $ 518 $ 585
========= --=======
</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 ended March 31, 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 three month period ended March 31, 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. For the periods
presented, there were no common stock equivalents included in the calculation,
since they would be antidilutive.
2. SUPPLEMENTARY SCHEDULE
1996 1995
---- ----
(in thousands)
Statement of cash flows
Three months ended March 31,
Cash paid during the three months for:
Interest $ 64 $ 71
Income taxes 4 5
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER OF 1996 IN COMPARISON
WITH FIRST QUARTER OF 1995
Revenues earned for the first quarter of 1996 were $3.1 million, an
increase of $598,000 or 24% compared to the first quarter of 1995. This increase
in revenues was due largely to an increase in export sales of $447,000 as a
result of new markets that were open in Venezuela, Ecuador and Colombia. The
increase in the export revenues is not indicative of expected future revenues.
Gross profit as a percentage of revenues earned decreased to 29% in the
first quarter of 1996, from 32% in the first quarter of 1995 as a result of
increased competition in both the domestic and export markets.
Selling, general and administrative expenses decreased by $99,000 in the
first quarter of 1996 or 9% as compared to the first quarter of 1995. The
decrease was due mostly to a reduction of legal fees.
The factors discussed above resulted in an operating loss of $77,000 in
the first quarter of 1996, as compared to an operating loss of $277,000 in the
first quarter of 1995.
There was no provision for income taxes in both 1996 and 1995 due to the
Company's operating losses.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996 the Company had working capital of $2.5 million
(including cash of $518,000). At December 31, 1995 the Company had working
capital of $2.4 million (including cash of $347,000).
7
<PAGE>
On March 28, 1996, the Company issued a $300,000 subordinated debenture to
Macrocom Investors, LLC. The debenture includes interest at 2% per annum over
the prime lending rate of Chase Manhattan Bank, N.A. payable monthly commencing
May 1996. The principal balance is payable April 1, 1998. In connection with
this financing the lender was granted a five year warrant to purchase a number
of shares of Common Stock equal to $300,000 divided by the average closing bid
price of the Company's common stock for the ten business days prior to the date
of closing of the financing. The debenture contains various restrictions on the
Company and is secured by 100% of the outstanding common stock of the Company's
wholly-owned subsidiary, HallMark Electrical Supplies Corp. The Company has
entered into an agreement with a financial services company to use its best
efforts to raise an additional $450,000 under the same terms and conditions.
Management believes that the proceeds of the $300,000 subordinated debenture
combined with current working capital will be sufficient to fund the Company's
operations for the balance of 1996.
The Company continues to be in default in the payment of interest
(approximately $677,248 interest is past due as of March 31, 1996) on the
$500,000 principal amount of 13-1/2% Senior Subordinated Notes and 14-7/8%
Subordinated Debentures remain outstanding.
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 March 31, 1996 was $2.3 million.
On April 10, 1995 a judgment was entered against the Company for $260,969
plus interest and legal fees (see "Part II, Item 1 Legal Proceedings").
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 558
(Me. 1986).
The Superior Court by decision docketed April 10, 1995 entered judgement
in favor of the former employees of Dori Shoe Company against Dori Shoe and the
Company in the amount of $260,969.11 plus prejudgment interest and reasonable
attorneys' fees and costs to the Plaintiff upon their application pursuant to
Maine Rules of Civil Procedure 54(b) (3) (d). The Company filed a timely appeal
appealing that decision and the matter was argued before the Maine Supreme
Judicial Court on December 7, 1995. Prejudgment interest will accrue at an
annual rate of approximately $20,800 from November 29, 1990.
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. While the Company believes it has a strong defense,
the outcome of the appeal cannot presently be determined.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company continues to be in default in the payment of interest
(approximately $677,248 interest is past due as of March 31, 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
(a) EXHIBITS
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 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
and authorized officer
Dated: May 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S 10-Q FOR THE QUARTER
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 518
<SECURITIES> 0
<RECEIVABLES> 4,524
<ALLOWANCES> 174
<INVENTORY> 1,802
<CURRENT-ASSETS> 6,731
<PP&E> 760
<DEPRECIATION> 710
<TOTAL-ASSETS> 6,798
<CURRENT-LIABILITIES> 4,237
<BONDS> 800
0
0
<COMMON> 10,339
<OTHER-SE> 21
<TOTAL-LIABILITY-AND-EQUITY> 6,798
<SALES> 0
<TOTAL-REVENUES> 3,120
<CGS> 2,203
<TOTAL-COSTS> 994
<OTHER-EXPENSES> (104)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (181)
<INCOME-TAX> 0
<INCOME-CONTINUING> (181)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
